Rebooting Australia’s energy policy

The intervention is necessary and important in ways that history may judge either kindly or otherwise.

No part of our economy will be untouched by the changing climate or by actions to address the problem.

The worldwide cycle of fires and floods is terrifying, yet we have failed to turn the tide on greenhouse gas emissions, in Australia or globally. The Treasurer’s observation that, without more decisive action, “the energy transition could fall short of what the country needs”, is true in fact, yet mild in tone.

Labor came to government with a strong commitment to act on climate change. It legislated a reduction of 43 per cent in emissions below 2005 levels by 2030, a target of 83 per cent renewables by the same date, and to reduce household power bills by $275 by 2025. But in its desire to avoid too many big-ticket policy targets, it failed to put in place and implement practical policies to meet these commitments.

The harsh reality for this mid-term government is that energy prices have been rising despite the government’s actions. The Australian Energy Market Operator has warned of risks to electricity reliability this financial year, and emissions are not falling as hoped.

At the same time, there has been a mind-numbing series of announced taskforces, reviews, agencies, and funds – mostly with short consultation windows – that are driving industry to distraction.

Most of these initiatives are individually well-intended and go beyond energy policy to cover issues such as hydrogen, critical minerals, and green metals.

All this policy activity highlights the complexity of managing the two sides of the government’s energy and climate change agenda: driving the energy transition to net zero and closing carbon-intensive activities, while simultaneously building a framework for growth based on renewable energy and mineral resources.

Delivering this agenda was always going to be harder than some of the government’s rhetoric suggested, and we are now in the hardest stage. Stalled progress creates opportunities for naysayers and opportunists with simplistic solutions like renationalisation of energy businesses or a pivot to nuclear.

The Treasurer’s intervention is timely and relevant. There have been suggestions that his speech implies criticism of other ministers, notably Chris Bowen as Minister for Energy and Climate Change. A more constructive – and probably more accurate – interpretation is that Chalmers has rightly seen the task as a true cross-government activity that should be, as he stated, a major policy focus of cabinet.

The good progress that has already been made will provide a solid platform on which to build a whole-of-government agenda. We now have a credible, legislated emissions reduction target; renewables’ market share has grown from 10 per cent to 35 per cent over the past 20 years; the government’s actions on price caps have constrained energy price increases, and the Safeguard Mechanism should deliver real emissions reductions this decade.

These elements should be brought together into a cohesive policy agenda that is clearly aligned with the objective of delivering the transformation to a net-zero economy. Sector pathways, and policies to follow those pathways, should lead directly to the net-zero destination.

Firstly, the electricity market and infrastructure should be reformed with a sector-based policy to drive lower emissions, a capacity mechanism to deliver reliability supply, and a National Transmission Agency with the remit and authority to deliver transmission grid expansions. The electricity grid will be critical to underpin electrification of most gas and transport tasks and to deliver green hydrogen where it’s the best decarbonisation solution.

The scale and pace of the transformation demands the sort of new approach to industry policy described by the Treasurer, particularly minerals processing and other capital-intensive sectors such as fertilisers, explosives, and cement.

The Climate Change Authority and the Net Zero Authority have critical roles to play advising the government on emissions targets and co-ordinating actions in regional Australia. Targeted practical advice will also be provided from the Productivity Commission via its first Statement of Expectations.

But implementation must follow planning. The best way to bring all these efforts together, and to ensure implementation remains a major policy focus of government, would be to charge oversight for delivery to a new committee of national cabinet.

A new committee may not seem the most important priority for the government, but nothing is more important than getting the governance mechanisms right to drive the transformation to a net-zero economy.