The party of the free market is killing investment

The prime minister proposes to structure energy industry and infrastructure policy around the interests of the government’s big fossil fuel donors — Santos, Origin, Woodside — under the fiction that emissions-intensive gas is a “transition fuel” to an energy mix dominated by renewables.

He’s doing so on the urgings of a “recovery commission” led by gas industry executives and advised by Andrew Liveris, a board member of world’s biggest greenhouse-gas emitter, Saudi Aramco, and a former Trump adviser.

Central to the policy, as spelt out by climate denialist Energy Minister Angus Taylor, is the government’s commitment that it will use its own energy infrastructure company, Snowy Hydro, to build a gas-fired power plant to cover an alleged shortfall in energy capacity after the ancient, creaking Liddell coal-fired plant in New South Wales closes.

The plant would be more than five times bigger than any identified shortfall in NSW.

This is disastrous from a climate perspective: Australia is on course to miss its unambitious Paris Agreement emissions reduction targets, but its government proposes to spend taxpayer money building emissions-intensive power plants when renewables and battery storage would do the job.

And it’s blatant corruption: its major corporate donors are literally writing policy they will directly benefit from.

The gas industry needs a lot of help if it is to remain viable long term. According to global energy giant BP’s 2020 Energy Outlook released yesterday, long-term world demand for coal, oil and natural gas is set to slow dramatically. For example, its central scenario forecast is for oil demand to not return to 2019 levels by 2025.

The share of fossil fuels (coal, oil and natural gas) has shrunk in the past as a percentage of overall energy mix, but total consumption has never contracted in absolute terms, which it will do under all three BP forecast scenarios.

That’s because, according to BP, the share of renewable energy is growing more quickly than any fuel ever seen in history.

But this kind of government help to an ailing industry is also disastrous from an investment perspective. The Australian Energy Council, which represents major electricity and gas businesses — i.e. the people who actually decide where and when to invest in energy infrastructure — says the government’s threats to intervene with its own spending “risks deterring the very investments the government is attempting to encourage”.

“The sector is struggling to make final investment decisions in an environment of ongoing policy uncertainty,” chief executive Sarah McNamara said.

And it comes on top of earlier bad policy: “The government’s earlier plan to underwrite new generation projects in the market also remains under consideration, and this too contributes to the ongoing uncertainty.

“There are no material reliability concerns that would warrant this kind of interventionist approach, and there are already mechanisms in place to address any shortfall identified.”

In case you’re thinking McNamara is some raving greenie or government critic, she’s a long-time Liberal staffer and former chief of staff to Ian Macfarlane when he was industry minister.

There’s another reason why Taylor’s plan will deter investment. It breaks the most fundamental rule of competition policy. If Taylor gets his way, the federal government will become a competitor in the energy market with its fossil-fuel donor-driven gas plant while still regulating energy markets.

It’s the core tenet of competition policy that governments shouldn’t both regulate and compete with an industry. As the Grattan Institute’s Tony Wood puts it, the government would be overseeing the market while it “has its own team in the field”.

How can investors make decisions confident that the regulatory playing field won’t be tilted to suit the interests of the government’s energy provider and its fossil-fuel donors?

Australia is not in a position to casually deter investment: business investment has collapsed under Scott Morrison.

It peaked in the December 2018 quarter and has been declining ever since. In the last quarter of 2019, before COVID-19 struck, it was back to levels last seen in 2010, propped up only by steady — though not rising — mining investment.

Private infrastructure investment in December 2019 fell to its lowest level since 2006, before the last mining boom.

Between the 2019 budget and last year’s MYEFO, the government was forced to write down its non-mining investment forecast for 2019-20 from 5.5% growth to 2% growth.

Energy infrastructure investment has been hit particularly hard: in 2019, utility-scale renewable investment fell more than 50%.

That’s the sign of a supposedly Liberal, business-friendly government failing in its core self-proclaimed strength of driving investment, all in the name of looking after its mates.

There’s another name for that: crony capitalism.