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Losing our cheap energy birthrights

By Alan Moran - posted Monday, 20 November 2006


Politicians are adept at talking through both sides of their mouths at the same time.

Morris Iemma had no difficulties in doing this when simultaneously announcing a major deregulation initiative and on the same day, November 9, announcing a major new regulatory explosion by the energy department. Mr Iemma could comfortably ride two horses pulling in different directions. But he could not also accommodate a media frenzy into the Orkopoulos child sex and drugs story.

The deregulatory report was by the Independent Pricing and Regulatory Tribunal (IPART). It was a 308-pager promoting more rigorous reviews of regulatory proposals and a sterner oversight of proposals by a central regulation review agency.

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Perhaps wisely, with its deregulation initiative the New South Wales Government is not following the path planned by its Victorian counterpart. The Bracks Government has committed to a 25 per cent reduction in Victoria’s regulatory burden and is requiring departments to rescind one regulation for every new one introduced.

The NSW Government had been sitting on the IPART report for a month before releasing it concurrently with plans for an increased Renewable Energy Target that massively increases the cost imposition on the state. Those plans seek to shift the renewable component of NSW energy from its current 10 per cent to 15 per cent. The plan is accompanied by the sort of consultant’s report on which governments squander public money to veil the real costs of their actions.

Notwithstanding snowfalls in Canberra as we approach Christmas, the current greenhouse hype is forcing every politician from the prime minister down to bow towards carbon reducing measures. Even so the NSW proposals break new ground.

The consultant’s report employs an economic “model” appropriately named WHIRLYGIG. Whether or not this includes flying pigs among its rides is not stated. However, the outcome of the “modelling” is that moving from 10 per cent to 15 per cent renewable energy would bring the “efficient cost for average households (at) approximately 30 cents each week”.

If that is all it costs what is the fuss about? Based on these calculations could we not have 100 per cent renewables for an additional $6 a week and go beyond the widest ambit of the state-financed green groups?

We are presently in the wake of the hype from the Blair Government’s Stern Report on climate and the calumny of incomplete factoids in Al Gore’s film An Inconvenient Truth. Given the brouhaha that these PR pieces have created, many governments have decided to jettison all leadership aspirations. Bowing to opinion polls that appear to show overwhelming support for more greenhouse action, they are now fabricating data to dampen concerns that there may be a price tag to this.

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NSW and Australia generally enjoy the lowest cost energy in the world. Not only does this translate into cheaper power bills for households but it has been the fulcrum on which our industry structure rests. Take away cheap power and we take away Australia’s processing industries. These have assumed vital importance to this country ever since the 1970s oil crises banished forever the cheap oil that once fuelled processing industries in Japan and other countries not blessed with our reserves of coal.

The NSW and to a lesser degree Victoria Governments are intent on embarking on a great equalisation program - hobbling our own energy sector to reduce its efficiency to the level of other countries. Fortunately for Australia, Queensland is standing firm and readying itself to fulfil its “destiny” as the lowest cost source of energy in the world, with all this implies for economic growth.

The southern states, in rejecting their cheap energy birthrights, are consigning themselves to dinosaur status. Not only will politically imposed higher energy prices mean energy intensive industries no longer being attracted to their states but it will mean the progressive migration of those industries and their jobs to other jurisdictions.

Perhaps - and this brings us back to the WHIRLYGIG - we can replace the lost employment with jobs in economic consultancies.

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About the Author

Alan Moran is the principle of Regulatory Economics.

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