How Morrison can get going towards net zero - if he wants to

Scott Morrison seems keen to keep his job as Prime Minister, but not so keen to do the job PMs are paid to do: make tough decisions in the nation’s interests. So it’s up to the rest of us to step into the breach. And when it comes to the decision Morrison fears most – getting to net zero emissions by 2050 – no one’s keener to help out than Tony Wood and his team at the Grattan Institute.

Wood begins where everyone with any sense begins: by noting that the best way to reduce emissions at minimum cost to the economy - and all the people in it - would be to introduce a single, economy-wide price on carbon emissions.

But the temptation to win elections with populist bulldust about “a big new tax on everything” proved too great and so, with that off the table, we must find other, more interventionist, sector-by-sector ways to skin the cat (many of them requiring additional government spending, which will have to be paid for somehow).

The basic strategy for reducing our emissions is clear: move from fossil fuels to renewable ways of producing electricity (plus the use of batteries to store it), then meet all other energy needs with electricity. In practice, it’s more complicated, of course.

Official projections foresee emissions from electricity falling substantially over his decade, while the next four largest sources of emissions either grow or, at best, plateau. Grattan is producing a series of five reports proposing relatively easy and obvious ways of achieving early reductions in emissions in each sector.

Its thinking is to get early progress because, even if we were to reach net zero emissions just before 2050, that wouldn’t be sufficient to stop the increase in the global average temperature being a lot greater than 1.5 degrees – which is about as much as we can take without major social and economic disruption, not to mention personal discomfort.

If we take as many easy shots as we can now, that buys more time for technological advances to help us with the harder stuff. Getting some momentum going should help build public acceptance of the need for more, as well as giving business a clearer picture of where we’re heading and the risks it runs if it ploughs on regardless.

In any case, the latest report of the UN’s Intergovernmental Panel on Climate Change isn’t likely to be the last telling us temperatures are rising faster than earlier thought. It wouldn’t be surprising to see the 2050 deadline brought forward.

Wood’s first report in Grattan’s five-part series covered the transport sector. It proposed measures to achieve an early move to electric cars, while we wait for hydrogen technology to help with heavier transport.

Wood’s second report, on the industrial sector, was released on Sunday. This covers emissions arising from the production of coal, oil and gas – as opposed to their customers’ use of their products – emissions from the mining and processing of other minerals and metals, and emissions from processing in manufacturing.

As well as burning fossil fuels to help extract fossil fuels, coal, oil and gas production involves “fugitive” emissions of greenhouse gases during the extraction process.

The sector’s emissions have increased significantly since our base year, 2005, mainly because of our foolish decision to permit three different companies to build huge liquefaction plants on an island off the coast of Queensland and turn us into one of the world’s largest exporters of liquid natural gas. Liquefaction, it turns out, involves massive emissions.

The entire industrial sector accounts for almost a third of our total emissions, which are projected to be little changed over the decade. The good news is that 80 per cent of its emissions come from just 187 large facilities. Most of these are subject to the federal government’s existing “safeguards mechanism”, which sets a baseline – or maximum - for each facility’s emissions.

So Wood’s chief proposal is for this mechanism to be modified and extended. Existing facilities should be required to use technologies now available to gradually reduce their emissions. New facilities should be required to meet benchmarks substantially lower than existing ones.

“From now on,” Wood says, “every decision to renew, refurbish or rebuild an industrial asset potentially locks in emissions for the coming decades. Getting these decisions right will be critical for reaching net zero.”

Of course, when it comes to the many facilities producing fossil fuels for export, their future prospects will be affected more by other countries’ climate-change policies than by ours. Good luck finding customers for fossil fuels as the reality of global warming catches up with them as well as us.

Read more >>

How Morrison can claim emissions are falling when they aren’t really

Other world leaders have treated this week’s report by the UN Intergovernmental Panel on Climate Change as a “wake-up call,” whereas our leader, Scott Morrison, has mumbled something about how we’re on track to “meet and beat” our emissions reduction target, and gone back to sleep.

The report finds that whereas the world’s increase in average temperatures since the start of the industrial era is 1.1 degrees, our average land temperature has risen by 1.4 degrees over the past century – which does much to confirm the impression most of us have that droughts, floods, bushfires, heatwaves and cyclones are now bigger and more frequent than they used to be.

Climate change isn’t coming, it’s arrived.

At the UN climate change meeting in Paris in 2015, countries agreed to each reduce their emissions of greenhouse gases sufficiently to limit the rise in average temperatures to 2 degrees, and preferably no more than 1.5.

The report’s wake-up call was its revised prediction that warming of 1.5 degrees could be reached by the early 2030s, much sooner than formerly expected. So we’ve got even less time than we thought.

At the Paris meeting, each country announced its “nationally determined contribution” to the reduction in global emissions. It was agreed that each country would review and increase its contribution every five years.

The first round of increases will be announced at the next “conference of the parties” in Glasgow in November. In preparation for the conference, almost all of the world’s 20 biggest emitters – including the G7 countries, China and us – have committed to reach net zero emissions by 2050.

But 2050 is a long way off – perhaps too far off. What matters more is the increases countries make in their contribution targets in Glasgow. At their summit meeting in Cornwall in June, the G7 members agreed to increase their reduction targets to between 40 and 63 per cent over the same period.

It’s possible Morrison will decide to accept the net zero emissions target by 2050, and possible he’ll go to Glasgow promising an improvement on our original Paris contribution of a 26 to 28 per cent reduction on 2005 emission levels by 2030.

This week, however, he was promising nothing. Why not? Because we’re already set to “meet and beat” our original target. Indeed, the most recent figures show our emissions are already down 20 per cent on 2005, he said.

And, as he’s told us many times, we’re world-beaters when it comes to moving to renewable, wind and solar energy.

Now, you’ve probably heard there’s something sus about these wonderful don’t-you-worry-about-that figures Morrison and his ministers keep tossing around. The people who know and care about climate change say our emissions are getting worse, not better.

The doubters are right. But we’re indebted to the Australia Institute think tank for producing a careful report spelling out how the government’s figures are able to be so misleading. The Australian National University’s noted emissions analyst, Hugh Saddler, tests Morrison’s claims that, when it comes to reducing fossil fuels use and transitioning to renewable energy sources, we’re at the front of the pack.

Saddler compares our performance with 22 other decent-sized members of the Organisation for Economic Co-operation and Development, plus Russia, on a number of key indicators of energy transition.

Examining our performance relative to the others between 2005 and 2019, Saddler found that we started at the back of the pack in 2005, and either maintained that position or had slipped even further by 2019 on all the indicators.

Australia remains among the highest emitters on a per-person basis, and on the basis of emissions per dollar of gross domestic product. On those indicators where our performance has improved over the period, the others have improved just as much as we have, if not more.

The “emissions intensity” of our energy system – that is, emissions per unit of energy consumed – is the highest, except for Poland. Why? Because both countries were, and still are, heavily reliant on coal for generating electricity.

Despite all Morrison’s boasting about how much we’re spending on wind and solar power, the others are also spending more. Our share of electricity generated from renewables has slipped back relative to the others.

But here’s the killer punch: we were one of only three countries out of the 24 whose emissions from energy use actually increased between 2005 and 2019. By 18 million tonnes of carbon dioxide equivalent a year, according to Saddler.

How can this possibly be reconciled with Morrison’s claim that our emissions have fallen by 20 per cent? It’s simple when you know. Saddler is talking about emissions from energy use, whereas Morrison is also including emissions from what the UN calls LULUCF – land use, land use change and forestry. In short, land clearing and logging.

This source of emissions has been included in the official calculations since Australia insisted on it at the Kyoto conference in 1997. And be clear on this: so it should be. I have no patience with greenies who think taking account of what’s happening to “carbon sinks” is somehow immoral. Tell that to the people who worry about the deforestation of the Amazon.

No, the point is not that land clearing should be ignored, but that we wanted it counted solely because we knew it would make our figures look a lot better than they really were. Why in 2015 did we want to set 2005 as the starting point for our promised cut in emissions? Because we already knew the cessation of land clearing in Queensland would make our performance look good even if we didn’t do anything much to reduce our use of coal and gas.

Trouble is, this long-passed, once-only improvement in land use does nothing to transform our energy use away from fossil fuels and towards total reliance on renewables. It thus does nothing to get us to net zero emissions.

Read more >>

How to dud manufacturing: be the world’s biggest gas exporter

Did you know Australia has now overtaken Qatar to be the largest exporter of natural gas in the world? But, thanks to private profiteering and government bungling, this seeming triumph comes at the risk of further diminishing manufacturing industry in NSW and Victoria.

It’s yet another example of naive economic reformers stuffing things up because real-world markets don’t work the way they do in textbooks.

Last week Dow Chemical announced it would close its Melbourne manufacturing plant due, in part, to high gas prices. This came after RemaPak, a Sydney-based producer of polystyrene coffee cups, and Claypave, a Queensland-based brick and paving manufacturer, went belly-up citing rising gas prices as an important contributing factor.

“Many other manufacturers are close to making critical decisions on their future operations,” according to Australian Competition and Consumer Commission boss Rod Sims. “If wholesale gas prices do not [come down], it is just a matter of time before they follow Dow, RemaPak and Claypave.”

When expected world liquefied natural gas prices rose last year, Australian gas suppliers were quick to raise their prices to local manufacturers, which use much gas in their production processes.

But expected world prices have fallen significantly over the past six months. Have the three suppliers dominating our east coast market cut their prices with the same alacrity? No. Most commercial and industrial users will pay more than $9 a gigajoule for gas this year, with some paying more than $11.

Why haven’t suppliers cut their prices? Because their pricing power means they don’t have to if they don’t want to. Why would they want to? Only because the government threatens them with something worse if they rip too much off their customers.

This was the big stick the softly spoken Sims was carrying last week as he urged them to do the right thing.

Is this the best way to regulate a market? No, but once you’ve stuffed it up you have little choice. The stuff-up evolved over some years, under federal governments of both colours and, predictably, with a lack of federal-state co-ordination.

It began in the resources boom, when Labor’s Martin Ferguson approved the construction of no less than three gas liquefaction plants near Gladstone in Queensland. That was one plant too many.

The companies secured the cost of building their plants by writing future contracts to export LNG to foreign customers. The first two companies secured the supply of sufficient gas from local sources, but the third had to scramble for what it needed to meet its sales contracts.

They expected far more gas to be available than transpired because they failed to anticipate the NSW and Victorian governments’ moratoriums on fracking for unconventional gas from coal seams.

Until the construction of the liquefaction plants – which enabled gas to be shipped overseas – the east coast gas market was cut off from the world market. This meant its prices were much lower than world prices.

The federal government knew that allowing the plants to be built meant opening the east coast market to the (much bigger) world market, forcing local prices up to the “export-parity price” or LNG “netback” price.

But, as Sims noted in a speech last week, the east coast was "just about the only region in the world that allowed unrestricted exports”. By contrast, when our west coast gas market was opened up, the West Australian government insisted on reserving sufficient gas to meet the needs of local users at local prices.

So, the east coast market opening was textbook pure (and much to the liking of the gas companies). Trouble was, the market worked nothing like the textbook promised. Lack of competition meant prices shot up to way above the export price.

The gas producers were able to overcharge the big industrial users, the three big gas retailers – AGL, EnergyAustralia and Origin – charged the smaller industrial users even more, and the pipeline owners whacked up their prices, too. Retailers’ prices peaked at $22 a gigajoule.

The threat to manufacturing was so great that Malcolm Turnbull eventually stepped in. Arming himself with the “Australian gas domestic security mechanism” (permitting him to set up a domestic reservation scheme), he forced the LNG producers to agree to offer domestic users sufficient gas on reasonable terms.

Now, however, prices have drifted back above export-parity. And the Australian Energy Market Operator is warning that gas shortages in NSW and Victoria could arise as soon as 2024 in the absence of major pipeline upgrades to allow more gas to flow from Queensland, or new sources of supply emerging.

This uncertainty adds to the risk of manufacturers giving up the struggle. The easiest and best solution would be for the Victorian government to lift its restrictions on development of – would you believe – conventional gas deposits.

Read more >>

Everyone has a different excuse for the electricity stuff-up

The electricity market is such a mare's nest of stuff-ups and problems it's impossible to see the deeply divided Turnbull government making much progress in fixing it.

The goals of halting runaway power prices and reducing the risk of summer blackouts wouldn't be quite so daunting, for instance, were it not for the third goal of "sustainability" – the euphemism you use when you can't say "climate change".

It's tempting to focus on the first two and forget the third, but even that wouldn't work because the inescapable reality of climate change means that, until the Turnbull government ends the "policy uncertainty" about its treatment of fossil fuels relative to renewables, it's unlikely to get sufficient investment in new production capacity to keep prices controlled.

Even if Turnbull were to patch together some weakened version of an (already toned down) clean energy target, that wouldn't do the trick if it failed to win the endorsement of the alternative government.

Even so, the industry's line that ending the policy uncertainty is pretty much all you need to fix the problem is self-serving bulldust.

Ditto the Coalition's line that government subsidies (via the renewable energy target) to renewable energy, with its fatal flaw of "intermittency", are the heart of the problem.

The environmental damage done by burning fossil fuels is a significant "social cost" to the community. If you're not prepared to use some form of carbon pricing to internalise this "externality" then subsidising the cost of emissions-free energy is the next-best policy.

The good news is that the cost of renewable energy and storage is falling so fast it won't be long before it can compete against socially unpriced fossil fuels without explicit subsidy.

Economic rationalists are always preaching that governments shouldn't attempt to "pick winners" by subsidising the establishment of new industries.

The reality, however, is that they've wasted far more taxpayers' money over the years by "backing losers" – propping up declining industries in defiance of technology-driven economic change.

The Coalition's attempt to prop up steaming coal – a sunset industry if ever there was – and demonise renewables may be the worst example of loser-backing since Barnaby Joyce's ancestors' fight to save the horse and buggy from the depredations of those dangerous and smelly horseless carriages.

And this from the prime minister who used to sermonise on the need for much greater innovation and agility. Which, of course, should be "technology neutral".

Yet another strand in the spaghetti diagram links the malfunctioning of the electricity market with the way we've stuffed up the eastern seaboard gas market.

Did you know that domestic gas users – particularly manufacturers, but also the gas-fired power stations we were relying on to tide us over the intermittency problem – are now paying far more for gas than are foreigners buying our exported LNG?

Beat that for a stuff-up. But, says the gas industry's own self-serving bulldust, the problem is easily solved by letting it frack all over NSW and Victoria.

Apparently, no responsibility should attach to the three big companies that built no less than six liquefaction "trains" near Gladstone to cash in on the supposed humungous gas bonanza.

How could they be expected to know that the citizens of NSW and Victoria would object to being fracked over, or even that the price of oil wouldn't stay at $100 a barrel?

Far from these firms accepting the consequences of their high-return/high-risk investment decisions, we're told that for the Turnbull government to protect manufacturers and households from the consequences of this public/private balls-up is a heinous example of "sovereign risk".

Yet another dimension of the problem is the abject failure of the whole micro-reform project of establishing a national electricity market.

We've gone from four separate state-owned power monopolies to a national market dominated by just three vertically integrated oligopolists, and all we've got to show for it is a massive real increase in prices.

This stuff-up is partly explained by the federal government's belated recognition that it must accept ultimate responsibility for any national market.

But explained much more by the state governments' preference for putting the health of their budgets ahead of the need for genuinely competitive markets, through their practice of maximising the sale price of their privatisations by including pricing power in the package.

It's not good enough, however, for economists to tell themselves their reforms would have worked fine were it not for those appalling politicians.

The reformers' mistakes were imagining they'd get vigorous competition between many firms instead of the usual non-price competition between two or three oligopolists, and imagining the regulators of a government-created market wouldn't be "captured" by the oligopolists.

Read more >>

Real energy problem is our secret gas parity-pricing policy

Malcolm Turnbull wants us to believe he's an energy magician, able to pull off a "policy trifecta" of eliminating blackouts and greatly reducing our emissions, all without much increase in the price of electricity and gas.

The main trick magicians use is to direct the audience's attention away from the place where they're doing their sleight-of-hand. That's what Turnbull's up to.

He wants to shift the blame for blackouts away from the feds and onto the states, while doing exactly the same for the big jump in gas prices.

He wants to blame our problems on a too-fast shift to renewables, to justify a new subsidy for new coal-fired power stations.

But the main thing he – and the gas industry – desperately wants to stop us noticing is that the leap in gas prices is a consequence of long-standing federal government policy and has nothing to do with the states' reluctance to let the gas producers frack all over their farmlands.

The balance of supply and demand for natural gas on our eastern seaboard was fine – and would still be today, were it not for the feds' earlier decision to allow foreign investors to build (too many) liquefaction plants near Gladstone in Queensland.

As the feds understood full well, once you can liquefy natural gas you can ship it overseas. And once you do that you've taken the relatively tiny, closed eastern Australian gas market and opened it up to the huge East Asian gas market, where prices are much higher.

The inevitable consequence was a leap in the price of gas on the eastern seaboard – plus a huge windfall gain to our eastern gas producers.

Now do you see why the gas industry and federal politicians of both stripes keep repeating the economic lie that the problem has been caused by the states' bans on fracking, and could be solved by lifting them?

No amount of increased gas supply on our part would be sufficient to lower the East Asian price of gas, which means no new producer of coal seam gas would be prepared to sell it to local consumers and manufacturers for anything less than they could get by selling it to Japan or China.

Unless, of course, the federal government obliged them to.

I don't object to the policy of export-parity pricing but, like its predecessors, the Turnbull government wants to keep the policy a deep, dark secret because it's so much harder to defend a super-rational policy in these days of populist indulgence than it was when Malcolm Fraser did something similar to petrol prices.

Turnbull wants to keep the super-rational policy, but shift the blame for its economic and political consequences to others.

Had he the courage, he could oblige the gas industry to use its windfall profits to compensate the household and business losers for losses arising from an implicit government policy change.

Turnbull blames South Australia's blackouts on its excessive enthusiasm for renewable energy which, pending the development of storage arrangements, has a problem with intermittent production.

He doesn't admit his parity-pricing policy is contributing. It was expected that gas-fired power generation would ease the transition from coal-fired to renewable generation.

That's because gas-fired power stations emit far less carbon dioxide and can be turned on and off as required to counter renewable energy's intermittency.

Guess what? South Australia has a new and big gas-fired generator at Pelican Point, near Adelaide, but it's been mothballed.

Why? Because the operator had a long-term contract for the supply of gas at a price set at the pre-export-parity level, and decided it was more lucrative to sell the gas into the East Asian market.

Last week Turnbull had the effrontery to argue that now gas-fired power had become uneconomic, we needed to fill the gap by subsidising new-generation "clean" coal-fired power stations.

Small problem. They're hugely expensive, only a bit less emissions-intensive than existing coal-fired stations, can't easily be turned on and off, and would supposedly still be operating 60 years later.

If there's a case for subsidising any fossil fuel-powered generators the obvious candidate is the gas-fired plants the feds' export-parity pricing policy has rendered uneconomic.

So great is the coal industry's hold over the Coalition that, not content with subsidising increased supply of coal from Adani and others at a time when coal is a sunset industry, Turnbull is now making up excuses to subsidise increased demand for coal by local electricity producers.

Economists are always telling politicians not to try picking industry winners. In reality, the politicians are far more inclined to back known losers.

Read more >>

Pollies' bad behaviour & dishonesty worsening all over

We are witnessing history being made. Unfortunately, it s a history-making decline in standards of political behaviour. At least it proves we 're not merely imagining that things were better in the old days.

Tempting though it is, one of the things incoming governments don' t do is delve into the affairs of their predecessor. The papers of the old government aren 't made available to the new masters.

But all that is out the window with the Abbott government 's decision to establish a royal commission into the Rudd government' s handling of the home insulation program and provide it with Labor' s cabinet documents.

It takes innocence greater than I can muster to believe the motive for the inquiry is to bring justice to the program 's victims rather than to embarrass the Coalition 's political opponents by raking over one of their more celebrated stuff-ups.

Labor can take its lumps. The real pity is that a long standing convention seeking to limit political vindictiveness has been cast aside. One thing we can be sure of is that when next Labor returns to power it will lose no time in retaliating, as will that government 's eventual Coalition successor. Advantage-seeking retaliation will become a bigger part of the political debate.

The man who set new lows in negativity and obstructionism in opposition is now taking us to new lows in government. In a more godly world, Labor would resist the temptation to sink to the level of misbehaviour set by its opponents, thus giving substance to its repeated claims of moral superiority.

But so intense is the competition between the parties that this seems unlikely. Last week Bill Shorten promised to lead a constructive opposition and not oppose everything for the sake of it. It 's a wonderful resolve - one which, if lived up to, many voters would find attractive - but I fear it' s another take from Tony Abbott: almost tearful promises to sin no more, followed by an immediate resumption.

The great likelihood is that Labor in opposition will model its behaviour on Abbott in opposition, in conformity with that great moral precept: tit for tat. The sad truth is that, for politicians as for most of us, the moral compass that guides us asks: what' s everyone else doing?

We take our ethics from our perception of the behaviour of those around us, particularly our competitors.
We all see ourselves as more moral than the next person, but when challenged our defence is always: I' m no worse than he is. After all, he started it.
Thus are our politicians locked in a race to the bottom.

Rather than trying to counter our fear of foreigners, politicians have preferred to pander to it, vying to be the side whose mistreatment of asylum seekers goes so far it discourages any more from coming - all intended to dissuade them from risking their lives on a dangerous sea voyage, naturally.

So far have our standards sunk that we must now suffer the indignity of being lectured on human rights by the Chinese government.

Declining standards at federal level have been matched by bad behaviour at state level. For an example of state politicians willing to blatantly mislead their electorates, look no further than the Victorian and NSW governments' dishonest explanation for the looming jump of about 25 per cent in the price of household gas.

The true reason for the rise is that the building of natural gas liquefaction plants in Gladstone will soon allow gas producers on Australia' s east coast to export their gas and obtain the much higher prices paid on the world market. The east coast will go from being outside the world market to inside it.

The price rise is thus inevitable unless governments were to prohibit the companies from exporting their gas, forcing them to continue accepting below-world prices. There has been no suggestion of penalising the gas producers in this way.

Rather, state politicians have taken up the dishonest claim of the gas companies that permitting them to build new and controversial coal seam gas plants would somehow prevent gas prices from rising or force them back down.

But as any student of economics could tell you, there' s no way NSW and Victoria could ever produce enough natural gas to significantly affect the world price of gas.

The price of gas in NSW and Victoria would stay below the world price only if the new producers were compelled to sell their gas to local users at below the world price. Again, there s been no suggestion of this.

Last week the gas companies' illogical argument was taken up by the new NSW Minister for Energy and Resources, Anthony Roberts. I' m prepared to believe Roberts may be economically illiterate, but I don' t believe his advisers are - nor that they don t read the papers, where the scam has been exposed.

Although Roberts has replaced a minister who left the cabinet under a cloud, he seems uninhibited in his efforts to mislead the electorate.

It' s hard to know whether he is simply seeking to advance the gas industry' s vested interests or is setting up an alibi which allows the government to blame the inevitable jump in gas prices on those terrible people opposed to fracking.

Either way, his only crime is seeking to deceive voters. And these days that 's the way everyone plays the political game, isn 't it?

Read more >>

Governments should be pro-market, not pro-business

A fundamental question facing the Abbott government is whether it will succumb to the General Motors syndrome: what's good for big business is good for Australia. Does its slogan that Australia's now "open for business" actually mean open slather for business?

Will it run the country to please its business backers or to benefit all of us? Because the notion that what big business wants of government always coincides with what's best for the rest of us is a fairytale only a chief executive could believe.

Another way to put it - to clarify the choice Tony Abbott faces - is whether the government will be pro-business or pro-market.

The economic side of our lives is about producing and consuming; you can't have one without the other. To be pro-business is to favour producers, making life easier for them when they ask for help, whereas to be pro-market is to favour consumers, the people market economies are meant to serve.

As Adam Smith put it: "Consumption is the sole end and purpose of all production and the welfare of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer."
It's easy to tell yourself that by helping an industry you're helping its customers, though it's more usual to tell yourself you're saving workers' jobs. Business people lobbying to protect their profits almost invariably hide behind their workers' jobs, often making greatly exaggerated claims (claims they're rarely asked to substantiate) about how many jobs will be lost if their demands aren't met.

When you think it through, however, you realise that giving business people the easier life they seek isn't the way to maximise the benefit going to consumers, nor to maximise total employment. You may imagine - as does everyone on the left - that capitalist economies are designed to benefit the owners of capital above all others. In fact, in an efficiently functioning market economy the suppliers of capital get little more than a reasonable return on their investment, with most of the benefit going to consumers in the form of an ever-expanding range of reasonably priced goods and services.

The magic ingredient that brings this about - shifting the benefit from producers to consumers - is competition: competition between the producers but, just as important (and often lacking in our busy lives), competition between consumers and producers as consumers seek out the best deals and the best service.
When industries lobby governments for favours, what they're usually seeking is a reduction in the competition they're facing or about to face - all in the name of protecting their workers' jobs, naturally. They're seeking an easier life than the rough and tough life the capitalist system would otherwise serve up to them.

Often they're seeking protection from competition with imports. In the old days protection was achieved by imposing a tariff (import duty) on imported goods; these days a similar effect is achieved by granting the industry a subsidy from the taxpayer. Either way, the protection comes at the expense of the public.

But does it save jobs? It may save them in the particular industry being protected, but only at the expense of employment in the rest of the economy. How so? Consumers are left with less money to spend on the products of other industries. People in the protected industry don't care about that, of course, but the rest of us should.

Longer-term, protection involves keeping your head in the sand and pretending the rest of the world isn't changing. This is unsustainable. When the world we live in changes, we have to adapt to that change or become an industrial museum.

The way to maximise employment for everyone who wants to work is for us to pay the world price for everything and produce those goods and services where we have an advantage, and leave it to others to produce stuff where we don't have an advantage.

So being pro-market means examining requests for help from particular industries from the perspective of the economy as a whole. This avoids another problem: often one industry's request involves being favoured against rival industries.

Give in to one and the others redouble their screams of pain. You can't help 'em all, and if you try to you end up with a mollycoddled, inefficient economy.

Complicating things for the Abbott government is that its Labor predecessor didn't know how to say no to the business lobbies. And the more it said yes to particular industries the more dissatisfied, demanding and contemptuous the rest of business became.

Lobbying has become a way of life for big business, and no doubt the whole of business is expecting a bonanza now their own side is back in power.

If Abbott has any sense, he'll get the business lobbies back in their box from the start, telling them the era of rent-seeking is over. He'll stand up to big business the way Labor never could because, unlike it, he need have no fear of losing business's support.

The first place to stand up is against the unending blackmail game General Motors and the other global car makers are playing so successfully against all national governments.

And when he and Joe Hockey start delving into the budget, they'll find quite a few areas of hidden protection, starting with the plan to continue paying a fortune for faulty submarines to be made in Adelaide when much cheaper, better-working subs could be bought off the shelf in the US or Sweden.

Then there's the protection for local pill-making companies (not to mention retail chemists) hidden in the pharmaceutical benefits scheme.

And coming up is a bid by manufacturers to be exempted from paying the world price for gas when the eastern states become part of the world gas market in the next year or two. We'll hear a lot more about this one.

Read more >>

Gas lobby working a scam on NSW citizens

The gas industry is working a scam on the people of NSW, in collusion with other business lobby groups and federal and state politicians. It's trying to frighten us into agreeing to remove restrictions on the exploitation of coal seam gas deposits. Failing that, the various parties want to be able to lay the blame for an inevitable jump in the price of natural gas on the greenies and farmers.
According to the gas lobby, the manufacturing lobby, the Business Council, federal Industry Minister Ian Macfarlane and former Labor minerals and energy minister Martin Ferguson, we have a looming gas supply crisis in NSW and must unlock our local coal seam gas resources if we're to avoid shortages and the price hikes they bring.
NSW Minister for Resources and Energy Chris Hartcher, at whom most of lobbying is aimed - his government boasts of "the toughest coal seam gas controls in Australia" - must fully understand the deception, but seems reluctant to expose the dishonesty of his Coalition and business mates.
The problem, we're told, is NSW produces only about 2 per cent of the natural gas its households and industrial users consume. And when facilities for liquefying and exporting gas start operating within a year or two, producers in Queensland and Victoria will switch to exporting their gas to gain the higher foreign prices.
So NSW is facing a massive shortage of gas, which will cause a big jump in gas prices and threaten the jobs of thousands of people working in gas-dependent industries. The obvious answer, we're told, is for NSW to fill this supply gap and avert the price hike by urgently developing its own supply of coal seam gas.
There's just one problem with this neat story: it reveals - or exploits - an ignorance of how markets work. The lobbyists' faulty logic is ably exposed by the Australia Institute's Matt Grudnoff in his paper, Cooking up a price rise.
For many years, the prices paid for natural gas by consumers on Australia's eastern seaboard have been a lot lower than prices paid in other countries. The absence of plants to liquefy the gas so it could be exported meant our market was cut off from the world market.
We had no liquefaction plants because we didn't have enough gas to make them profitable. What's changed is the advent of fracking, which has enabled us to begin exploiting our extensive deposits of coal seam gas.
The development of "unconventional" gas in Queensland has progressed to the point where it's become economic for three liquefaction plants to be set up near Gladstone. When those plants start operating in a year or two, the barrier that separated our eastern seaboard gas market from the world market will disappear and the era of low gas prices will end.
Grudnoff estimates the wholesale price of gas will double or treble from between $3 and $4 a gigajoule to the world "netback" price of $9 a gigajoule. "This is because Australian gas producers will have the option to sell to the Japanese, who are willing to pay $15 a gigajoule," he says.
The difference between $15 and the netback price - also known as the export parity price - is the cost of liquefying the gas and transporting it overseas. If you're as ancient as I am, this should remind you we've already been through a similar process of the low local price rising to the high world price when the Fraser government introduced export-parity pricing for oil in the late 1970s.
The percentage rise in retail gas prices paid by households will be a lot smaller than the rise in the wholesale price. Estimates by Hugh Saddler, of the energy consultants Pitt & Sherry, suggest Sydney retail prices will rise by 11 per cent to 18 per cent - roughly twice the rise caused by the introduction of the carbon tax.
The point is, wholesale and retail prices will rise to the new export parity price throughout the eastern seaboard. In Queensland where the frackers have had an easy ride, and in Victoria where the present moratorium on fracking seems likely to give way to an unrestricted regime, just as much as in NSW where the frackers are given a hard time.
Because of pipelines between the states, how much gas a state produces has nothing to do with the prices its households and businesses pay. According to the gas lobby's logic, the coming ability of producers to get much higher prices by exporting their gas should produce shortages of gas for local users in Queensland and Victoria, not just NSW.
In truth, there will be no shortages of gas in any state, just a requirement to pay the higher, netback price. There's no reason producers would prefer to sell to foreigners if locals are offering to pay the equivalent price.
With the advent of fracking and access to higher prices, it's not surprising gas producers are desperate to extract as much coal seam gas as possible as soon as possible. But their argument that increased production in NSW could hold down NSW gas prices is economic nonsense.
Any new gas producers in NSW won't be willing to sell to locals for anything less than the equivalent price they could get by selling to foreigners. That's the scam.

Read more >>