07 March, 2017
Courtesy of the Australian
Subsidies and government interventions in the energy industry are repeating the errors of the era of tariff protection, according to former Productivity Commission chairman Gary Banks, who says escalating claims for assistance threaten national living standards.
Mr Banks said the resort to regulation and misplaced subsidies, which had been responsible for soaring electricity prices, was becoming common across other policy fields, ranging from the NBN to submarines and re-regulation of the sugar industry.
“The inconvenient truth is that the increasingly high prices for increasingly unreliable electricity are a direct consequence of the increasingly high utilisation of renewable energy required by government regulation,” he told a business dinner for Infrastructure Partnerships Australia.
Despite claims by South Australian Premier Jay Weatherill that his state’s energy crisis reflected a “market failure” because of the private sector’s failure to invest, Mr Banks said the reality was that subsidies for expensive and unreliable energy and penalties for a cheap and reliable product had changed the energy mix.
Although this was the policy point, he said the costs had been compounded by governments pursuing an anti-market strategy that violated the principles of supply and demand.
“The energy crisis is self-evidently not the result of market failure but of government failure.”
Mr Banks said the new Australian Competition and Consumer Commission inquiry into electricity retailers was a further case of blaming the private sector for government policy mistakes. Rather than recognising regulatory error, government was responding with more regulation.
“We observe at the federal level the threat of regulatory intervention to withhold gas exports for domestic use, while at the same time state and territory governments ban or curtail exploration and production,” he said,
Mr Banks said governments were preparing to move back into the energy business directly. The South Australian government was planning to spend about $500 million on a gas generating plant, while the federal government was considering using the $5 billion in the northern infrastructure fund to finance “clean coal” generation.
He noted the planned “nation building” expansion of the Snowy Scheme, announced by the federal government last month, had been rejected as uneconomic in the 1980s.
“To add to the irony, we are seeing a new wave of interventions to help the very firms which emission reduction policies were intended to drive out of business,” he said.
He cited new taxpayer-funded support for Alcoa’s Portland aluminium smelter, which was one of the most intensive users of electricity in the country, while there were efforts to get a federal bailout for the Hazelwood power station.