Jan 8, 2014

Amid the climate contention, an energy debate in smelt-down

Recent developments in energy intensive manufacturing illustrate that there's an awful lot more to worry about when it comes to manufacturing competitiveness than obliterating the carbon tax.


The incredible political toxicity surrounding the issue of climate change and carbon pricing seems to have acted to blind us from a rational debate about how we efficiently produce and use energy, and its role in Australia's international competitiveness. There are some incredibly important issues surrounding the energy sector and international competitiveness relating to competition and market power, government versus private ownership, the implications of the resources boom for economic structure and workplace labour practices. But these are being drowned out by an ideological crusade against anything that accepts climate change is a legitimate problem. Yesterday there were reports Boyne Aluminium Smelter in Queensland will cut back production over summer by 14,000 tonnes of aluminium. It attributes this cutback to the abnormally high electricity prices which Queensland has been experiencing. Queensland has seen increases in wholesale electricity prices -- particularly over last summer and also increasingly this summer -- which substantially exceed price rises in the other states with cheap coal generation (New South Wales and Victoria). The rises far exceed anything that could be explained by the impact of carbon price, as illustrated in the chart below from the Australian Energy Regulator ...

Wholesale electricity prices across the states of the National Electricity Market

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11 thoughts on “Amid the climate contention, an energy debate in smelt-down

  1. MJPC

    Excellent article, it’s a pity that out there amongst the greater proletariat that the current government has hoodwinked them that the elimination of the CT is the solution to all our ill’s, from reviving industry to prosperity for all. It is just a big lie!
    What happens when the tax goes come July and the prices stay high (as they will).
    Meanwhile, we continue to dig, dig, dig coal for the destruction of the whole world environment; Revolution now!

  2. RogerDty

    Nice article, but..
    “International competiveness” is just a misleading metaphor for exchange rate. It’s been adopted by numerous rent seeking lobbyists and a few conservatives including Maurice Newman.
    While some businesses may be doing it tough, such as the Boyne aluminium smelter, that is because the A$ is currently at a high level, mainly as a result of expanding exports of iron ore at high prices. It has nothing to do with “competiveness”.
    David Ricardo demonstrated this with the principal of COMPARATIVE advantage in 1817.
    Ricardo is still right, the “Mercantilists” such as Newman (and Edis) are wrong.


  3. leon knight

    Abbott and Hunt seem most unlikely to produce any worthwhile policies to properly address these two issues, and many other pressing problems facing the country and the environment.
    Economic progress is also sadly lacking, fortuitous improvements in the exchange rate may ease TA’s woes a little.
    Simplistic slogans in opposition seems to be the major skill of the entire Abbott team…incompetence on a far grander scale than their predecessors.

  4. RogerDty

    What do you mean by “Fortuitous improvements” in the exchange rate?
    Higher A$ with less inflationary pressure and more buying power but continuing hard time for exporters
    Lower A$ with higher costs (particularly liquid fuels) and inflationary upward pressure on interest rates but easier time for exporters
    As you suggest, its never that simple!

  5. Scott

    A small, economically open,sparsly populated first world country like Australia does a lot better when the dollar is low in just about every respect. Not only do domestic producers do better from their own citizens (as imports are more expensive, more people buy local), the world (a much bigger pool of customers than our 23 million) also buys our goods/visits the country in greater numbers due to the favourable conversion. All resulting in higher GDP (which flows into increased taxation/Government handouts etc)
    The only people who do well out of a high dollar are generally the wealthy (due to their ability to access tourism, luxury imports and foriegn investments). The ordinary wage slave/pensioner/small business owner does better when the dollar is lower.

  6. tonyfunnywalker

    A well timed article and it again the myopia of the Abbott government and their blind obsession with the carbon tax as the source of all ills with business and domestic power bills. Prices may well even increase after July as demand will continue to fall as manufacturing and metals processing continue to contract output. The generation industry needs full deregulation and the market power of the retailers curbed.

  7. Aidan Stanger

    The obvious improvement would be for the dollar to be lower because of lower interest rates.

  8. Aidan Stanger

    This cutback is far too little IMO. Aluminium smelting should not be located anywhere that relies on coal for its power supply, and the use of fossil fuels for this purpose should be phased out completely.

  9. gapot

    If we had a smart government we would capitalise on our cheap coal to produce electricity and become competitive in the high energy use industries, instead we export the coal to the world and then import the goods we cant make on a cost of energy basis. The USA has never taxed the energy inputs very much but encouraged the rest of the world too. The government here seems to think digging up stuff will keep us in the first world club by third world means.

  10. Aidan Stanger

    No, that would be a dumb government, investing in dodgy ways to get rich at the expense of future generations. If we had a smart government we would invest heavily in solar energy to generate electricity cheaper than could be done with coal. But even then, if NZ had a smart government they could probably poach a lot of it with cheap geothermal energy.

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