In brief
The Federal Government has released its long-anticipated Energy White Paper, outlining the Government's policy on strategic issues facing the energy sector in Australia. Partner and Government Sector Leader Paul Kenny, Associate Amelia Hanscombe and Lawyer Alexandra Lanyon provide an overview of its key findings and recommendations.
How does it affect you?
- The Federal Government's Energy White Paper was released on 8 April 2015 (White Paper), following a lengthy consultation process after the Government announced that it would review the national energy policy in December 2013. The intention of the White Paper is to set out an energy policy framework for Australia and indicate the Government's priorities for energy market reform and investment.
- Notably, the White Paper supports the privatisation of state- and territory-owned energy assets, the introduction of cost-reflective tariffs for electricity pricing, the responsible development of the coal seam gas industry, and the creation of a 'one stop shop' for environmental approvals. The paper also promises the introduction of a National Energy Productivity Plan, setting out actions to improve energy productivity in the building, equipment, appliances, and vehicles sectors.
- The Government's standpoint on supply and pricing issues affecting the east coast gas market was keenly anticipated. The White Paper indicates that the Government will not support a gas reservation policy, but that it supports the Northern Territory Government's initiatives for the expansion of the gas pipeline network to connect the east coast to the Northern Territory. An ACCC inquiry will also be commissioned to look into the effectiveness of competition in the gas market, particularly upstream.
- The White Paper is quiet on the topic of climate change; its main focus is the confirmation of the Government's support for the Renewable Energy Target.
- For the most part, the White Paper provides a catalogue of existing policies and an indication of the direction of reform, rather than specific new policy proposals. However, the Government has provided a list of the highest priority reform initiatives of the COAG Energy Council and a commitment to drive their implementation.
Background
On 5 December 2013, the Federal Government announced a review of the Government's position on national energy policy, stated to be in response to perceived cost of living pressures, insecurity of energy supplies, lack of competition in energy markets and unnecessary barriers to overseas investment.
An Issues Paper was released that focused on several areas of potential reform, followed by an Energy Green Paper in September 2014, which served to inform the preparation of the White Paper. The Green Paper summarised the four key themes drawn from submissions in response to the Issues Paper: attracting energy resources and investment; electricity prices; building gas supply and improving market operation and security; and innovation and energy productivity. More than 250 submissions were received in response to the Green Paper from major energy companies, government agencies, industry bodies, and individuals.
The White Paper released on 8 April 2015 is divided into three chapters:
- Increasing competition to keep prices down
- Increasing energy productivity to promote growth
- Investing in Australia's energy future.
In each chapter, the White Paper provides an overview of the existing energy policy programs and commitments in each area, indicates the broad direction of the Government's policies and priorities, and highlights the way in which other government programs, processes and reviews currently underway will achieve future policy aims.
Increasing competition to keep prices down
The White Paper proposes to enable competition by improving consumer choice and by placing downward pressure on prices. In order to achieve this, the Government supports the implementation of cost-reflective tariffs, by which consumers are charged according to the actual costs of their energy use (ie higher costs imposed at peak times). The Government supports competitive and voluntary smart metering services that will allow consumers to manage their electricity use in response to price signals and encourage consumers to shift such use away from peak periods, thus reducing pressure on supply.
The White Paper strongly supports the privatisation of state and territory energy assets, stating that the ownership of energy assets by states and territories is 'in conflict' with the Government's market reform agenda of limiting the role of government in energy markets. The Government will continue to fund the $5 billion 'Asset Recycling Initiative' in order to free up state and territory capital to invest in additional economic infrastructure.
Gas reservation is not supported by the Government, which contends that such a measure could have negative effects on the economy. It prefers diversifying suppliers and encouraging additional supply in order to improve the functions of the gas market. Accordingly, the Government has expressed its support of the Northern Territory Government in seeking to expand the gas pipeline network to connect the east coast to the Northern Territory.
The responsible development of the coal seam gas industry and other unconventional gas resources is encouraged in the White Paper, with the Government stating it will prepare a strategy to support innovation. While the Government supports the establishment of conditions for access to transmission pipelines that facilitate a more liquid trading market for the wholesale gas market, it has also stated that the states and territories have ultimate responsibility for resources developments within their jurisdiction. An ACCC inquiry into market transparency and prices in gas markets will be commissioned as a result of the White Paper.
Increasing energy productivity to promote growth
This chapter sets out Australia's current and past energy productivity and measures to improve energy productivity in future. The key measure proposed is the development of a National Energy Productivity Plan that will outline a coordinated approach for stakeholders and state and federal governments to improve energy productivity in the areas of buildings, appliances, equipment, and vehicles. The plan is promised to deliver up to 40 per cent improvement in energy productivity, reducing household and business energy costs and encouraging economic growth, as well as helping to reduce emissions.
Investing in Australia's energy future
The White Paper's focus on investment in Australia's energy future is centred around four key areas:
- energy resources investment (in areas such as the workforce, skills and deregulation)
- investing in new energy sources and technologies
- industry and government collaboration
- Australia's energy mix.
The White Paper's key measures for energy resources investment is to continue to support initiatives for growing the energy workforce (including improvements to the Vocational Education and Training system, the review into the temporary work visas regulation and the reform of the Remote Jobs and Communities Program), as well as encouraging deregulation and streamlining approvals processes to create a more attractive regulatory and policy environment for investment. The conferral of regulatory powers of the states to the National Offshore Petroleum Safety and Environmental Management Authority is one reform measure that has been introduced in order to streamline the approvals process.
Notably, the White Paper indicates that the Government's support for energy technology, innovation and development will be provided on a 'technology-neutral' basis that will not give preference to one technology over another. This technology-neutral policy has received considerable attention in the media, with some commentators suggesting that the Government has missed an opportunity to address the challenges facing the energy sector in relation to climate change. The Government has not ruled out the use of nuclear energy, indicating it will consider the outcome of the South Australian Royal Commission into South Australia's future involvement in nuclear energy generation.
The White Paper confirms the Government's continued support for the Renewable Energy Target (RET) in order to encourage investment in renewable energy. However, the Government will remove the requirement for the RET to be reviewed every two years, in order to give 'much-needed clarity' to the renewable energy sector.
Conclusion
While the White Paper does not detail the exact mechanics of promised policy changes, it does indicate to energy market stakeholders the basis for the Government's energy priorities and provides guidance as to the Government's approach to energy market reform, national energy productivity and investment in the energy sector. Some of the reform activities outlined in the paper will, if implemented, give rise to significant changes in the Australian energy market. In particular, the COAG reform activities selected as a high priority by Government will provide a strong focus for change in the short to medium term.