Australians are currently confronting a cost of living crisis that includes soaring energy prices. Ministers have been working for weeks on a strategy to contain the prices of coal and gas, driven up by the fallout from the Ukraine war.
It’s the toughest, most complicated policy issue so far faced by Anthony Albanese, and it’s involved some head-butting with the NSW and Queensland governments.
In this podcast, we talk with Professor Bruce Mountain, Director of the Victoria Energy Policy Centre at Victoria University, about this energy policy conundrum, and the attempt to deal with it by price caps.
Mountain says: “One of the great difficulties in capping wholesale coal or gas prices is there’s no guarantee that that will impact the price of electricity. There’s a long chain to be followed between a wholesale cap on coal or gas and the price that the customer pays.”
When the government produces its energy policy, how quickly would that flow through to the prices manufacturers and household pay for their power?
“A cap on the wholesale price of gas might be expected to flow through to large gas users quite quickly. How it flows through in the electricity market is an altogether different story […] The wholesale caps that it has in mind perhaps have the weakest likelihood of a certain outcome that it’s seeking.
"I wish I could be more certain, but I’m afraid these issues are just so terribly complex.”
What are the implications of the crisis for renewables?
“My impression is the social licence of coal and gas has been very badly damaged here in Australia and globally.
"We hear again and again from governments a great desire to speed up the transition to ensure that they’re not in the same position again.
"I think there’s an awful clamour, obviously, to keep the lights on and to ensure customers are not exposed to the worst impacts of this. But I think there’s a great desire to not be in the same situation again.
"So it’s a strange situation, where in the short term governments are urging more exploration, more gas and coal production, but in the medium to long term, they want exactly the opposite.
"I should think that it will have stimulated investment incentives and put more lead in governments’ spine to speed up the transition in the medium to long term.”
Authors: Michelle Grattan, Professorial Fellow, University of Canberra