Like most white papers, Martin Ferguson’s energy document is rather bland, for the most part unexceptionable and even anodyne — unless you’re a union potentially affected by privatisation, a rentseeking power utility or the state governments of New South Wales and Queensland.

It’s an example of how far — nearly two decades after the Keating government initiated the national electricity market reforms — public debate about electricity has devolved that some of the contents of the paper are a source of controversy. Like the national water market, self-interested state governments and special interests are a huge impediment to the implementation of reforms that would deliver ongoing and significant benefits to communities, business and the economy alike, primarily via greater reliance on pricing signals to empower consumers and business users to better shape demand.

Then again, when you consider how dismally ignorant and malicious the media can be about electricity pricing (behold the drivel from The Daily Telegraph for example), it’s no wonder provincial politicians are cowards on the issue.

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Unfortunately, the path to reform and lower rates of growth in electricity prices lies through the states, and particularly NSW and Queensland which even under Coalition governments continue to resist privatisation and cling to electricity pricing regulation, a quaintly Stalinist practice that will eventually seem as ridiculous as the regulation of bread prices, which NSW only abandoned in the 1980s.

The white paper lays out, albeit with plenty of bureaucratic boilerplate like “enabling and incentivising markets”, a path forward via COAG for, in effect, removing the worst state-based encumbrances from a fully-effective electricity market. This of course reflects the government’s political strategy of targeting state governments — most of which are now, handily, Coalition ones — as the guilty parties of electricity pricing.

The reliance on a market-based approach is also reflected in the paper’s correct dismissal of (disturbingly wide) calls for domestic reservation of gas supplies to de-link international demand from domestic supply:

“Such measures should be a matter of last resort, undertaken only where there is clear evidence of market failure. Currently, there is no compelling evidence to support this.”

Or, for that matter, evidence of any kind. The paper is also sanguine about the extinction of the Australian oil refining industry, despite agitation from unions such as the AWU on the issue:

“Coupled with rising demand for liquid fuels, this will make Australia more reliant on imports of crude oil and refined petroleum product. Australia is not the only country in this position: European nations and the United States are also undergoing similar structural adjustment in their refining industries. These changes are not considered to reduce our liquid fuel security, which is assessed as high trending to moderate over the longer term. This is due to Australia’s access to diverse and well-established supply chains and the planned replacement of lost refining capacity with import facilities to maintain market supply.”

On renewables, the paper adds nothing to the government’s current suite of initiatives arising from the Clean Energy Future package, but targets barriers to take-up of emerging technologies (which echoes the original Ross Garnaut recommendation that governments focus on addressing take-up and commercialisation barriers rather than picking winning technologies).

If you’re picking up the theme that this is a strongly pro-market paper, you’re correct. That even extends to Ferguson’s favourite issue: nuclear power. The paper concludes:

“[T]here is currently no social consensus on the technology or an economic case for its deployment, even taking into account the carbon price and the need to reduce our emissions.”

It does, perversely, argue the Fukushima tragedy in Japan is “not expected to significantly affect the growth of nuclear generation in the medium to long term”, a peculiar conclusion given Fukushima has led the phasing-out of the Japanese nuclear power industry, along with that of Germany’s, and safety audits in Europe that have led to the closure of two reactors and significant cost increases for those currently in operation or under construction. Fewer reactors and lower demand for uranium has prompted one miner to cut production forecasts.

And this week the Financial Times reported that two reactors had been shut down in South Korea and the rest of the country’s reactors — which together provide one-third of the country’s electricity — are to be audited after the discovery that safety certificates had been forged.

The paper also includes a table on electricity generation costs for different technologies showing nuclear power as one of the cheapest, while acknowledging the costing does not include financing (or decommissioning) costs. The construction of nuclear power is so monumentally expensive and so prone to delays that it is one of the most expensive forms of power from a capital cost perspective. That’s why, as the paper notes elsewhere, government financial support would be needed for such an industry.

This is, however, the best sort of white paper — one that sees the role of government as getting markets working as efficiently as possible and only intervening where markets fail.

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Peter Fray
Peter Fray
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