Political bulls in the China shop: who’ll pick up the pieces of a national energy policy?

The National Energy Guarantee, Australia’s latest attempt to forge a coherent energy and emissions reduction policy, had been painstakingly negotiated by the Energy Security Board, through a wide range of interest groups.  In its aftermath, how coherent policymaking can be co-ordinated in this fraught policy space remains as pressing a question as ever before.

At its core, the energy industry involves harnessing powerful chemical processes and physical forces to safe and productive ends.  Occasionally – when a leak ignites at a gas plant, or an electricity line fails in tinder-dry bushland – these forces are unleashed with catastrophically destructive results.

All of which stands as a fairly compelling analogy, as one surveys the political wreckage that followed the Federal government’s failed attempt to negotiate the National Energy Guarantee (NEG) through the Liberal partyroom and onto the floor of the Parliament.

Not only has a prime minister been unseated, but the Federal energy minister – who had overseen the painstaking development of the NEG between the electricity sector, consumer and industry groups, regulatory agencies, State and Territory governments and disparate political factions – has vaulted into the Treasury portfolio.  And the Commonwealth energy and environment ministries have now been detached from each other, which bodes ill for future progress on integrated energy and emissions reduction policy.

What now becomes of any stable and coherent energy policy framework to address the trilemma of power prices, emissions reduction, and security of supply – and so to provide much-needed investment certainty for the industry – now remains to be seen.  Certainly, the successive policy ideas floated by the Federal Liberal party in the last days of the Turnbull era veered in a sharply interventionist direction.  In the last iteration of his energy policy, Mr Turnbull abandoned any market-based emissions reduction mechanism, and proposed a forced divestiture power as a last-resort sanction against abuse of market power.  Within 48 hours, in sketching aloud his rival policy manifesto, Mr Dutton had proposed both a royal commission into electricity and fuel companies, and a proposal to remove GST from energy bills.  How much, if any, of that policy spitballing – and of conservative MPs’ Gollum-like fascination with coal-powered generation – may be carried forward under Mr Morrison is an open question.

In the meantime, away from the political fireworks, a heavy program of post-Vertigan and post-Finkel regulatory reform is steadily being carried forward and implemented.  That work will no doubt be added to when the recommendations of the ACCC’s retail energy pricing inquiry are digested and adopted through the COAG Energy Council.

Amidst that pandemonium, a couple of underlying questions emerge about how the governance of Australia’s energy industry might evolve.

Never before have questions of energy market regulation arisen so starkly as central matters of political contestation at the Commonwealth level as they did in the last days of the Turnbull era.  Lost in the hubbub was the basic fact that many of the policy proposals hastily advanced by Federal MPs (for example, default market prices for retail energy) are matters that are either for the States and Territories to legislate through the COAG framework, or that would ordinarily be addressed through the Australian Energy Market Commission’s rule change processes.  One wonders whether the logic of the “China shop” rule will come into play – “you break it, you own it” – so that the Commonwealth will be forced, by political necessity, to assume legislative responsibility for national energy policy – in much the same way that it gradually assumed responsibility for corporate law from the late 1970s to 2001.  As a matter of realpolitik, one might assume that the answer to that question will remain a firm no, at least so long as the electricity infrastructure remains state-owned, as it still is in Queensland and Tasmania most notably.  But, on the other hand, the Commonwealth’s recent buyout of the NSW and Victorian governments’ shares in Snowy Hydro, in conjunction with the Commonwealth’s announcement of the Snowy Hydro 2.0 project, gives one example of how increasing centralisation of energy policy is facilitated by the relinquishment of state ownership.

Conversely, if the Federal government vacates the field on an emissions reduction framework, then this may present an opportunity for the year-old Energy Security Board to come into its own, by continuing to shepherd the States and Territories towards a co-operative national framework that might be a (fifth-?) next-best alternative to the various schemes that have been successively abandoned at the Federal level.  Of course, the challenge of co-ordinating the States and Territories in the absence of clear Federal leadership cannot be underestimated – nor the possibility of a recalcitrant Federal government obstructing or over-riding any solution that may be devised between the States.  But the Energy Security Board’s raison d’etre, as outlined in the 2017 Finkel Report, was to provide a focal point for consistency and co-ordination across the regulatory bodies, and among the Commonwealth, State and Territory energy ministers who comprise the COAG Energy Council.  Following the false start of the NEG, and the execrable energy policy failures that led to the ouster of Mr Turnbull, consistency and co-ordination in national energy policy is needed now more urgently than ever before.  Here is a gaping breach for the Energy Security Board to step into.

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