Australian households and businesses pay far more for their energy than their US counterparts and this disparity is making us uncompetitive on the world stage, according to a report from the University of Sydney’s United States Studies Centre.
In the report, entitled “It doesn’t have to be this way: Australia’s energy crisis, America’s energy surplus” the authors found that Australian households and businesses paid up to three times more for their energy than their counterparts in the US. In a globalised economy like Australia’s, high energy costs posed an immediate threat to industries such as manufacturing, chemicals and steel, which consume high levels of energy, they said. A 25% increase in electricity generation prices and domestic gas prices would cost more than 33,000 Australian jobs and 1.15% of GDP.
Launching the report in Sydney this morning, USSC CEO Professor Simon Jackman said that while Australian and the US are similar in many respects, one of their biggest differences is that “one country is having an energy crisis and one is not. This is one of the biggest problems we face.”
Ironically, the report’s lead author is Dr Alex Robson, a respected energy economist whose most recent role was advisor to then-PM Malcolm Turnbull. Robson doesn’t touch on the role of politics in the report for obvious reasons — the Studies Centre is funded by the federal government. But it’s hard to ignore the fact that for decades now, political infighting over climate change and carbon pricing has cost the Australian public dearly in terms of reducing carbon emissions and the cost of energy. While the science-rejecting, right wing of the coalition waves around lumps of coal in parliament, Germany is generating more than 40% of its energy from renewable sources and China has become the world’s largest producer of photovoltaic (solar) power. Several political careers, including Turnbull’s, have been brought to a premature end by the politics of climate change.
The USSC report found that Australia’s energy markets require major reform before they can become competitive with the US. Along with the sky-high cost of electricity, gas is also extremely expensive. “Queensland households pay more for gas than any US state, while households in SA, Tasmania, NSW and Victoria pay more for gas than 48 US states.”
Compared to a decade ago, in nominal terms, natural gas is now 177% more expensive for a Melbourne-based manufacturer than a New York based one, it found.
A great reliance of the US on natural gas has also led to increased reduction in carbon emissions as gas has a smaller carbon footprint as compared with other fossil fuels. Due to the increased share of gas in US energy consumption — from 27% to 36% over the past decade, carbon emissions have declined by more than twice the rate of Australia’s emissions decline, the report found.
The Australian Competition and Consumer Commission recently commissioned an inquiry into the sector, entitled the Retail Electricity Pricing Inquiry. In its final report, released in June this year, it found that in the decade to 2018, residential consumers had faced a 56% increase in real terms in energy prices.
The USSC report recommends that Australia should increase the supply of cheap domestic gas, which is easier said than done. Australian companies are locked into long-term contracts to export the vast bulk of their gas supplies to Asia, reducing local supply and leading to large price increases.
According to Bruce Robertson, from the pro-renewables Institute for Energy Economics and Financial Analysis, the solution is to reserve some gas produced here for local markets, and for the ACCC to set the price. As Australia bunkers down for another run of record-breaking temperatures, our politicians, paralysed by an impending federal election, engage in more senseless point-scoring. The title of the report is right, “It doesn’t have to be this way.” But with only six more sitting days of Parliament, things are unlikely to change before the next election.