The main policies in the Australian Government’s Energy White Paper, released yesterday by the Federal Minister for Resources, Energy and Tourism, Martin Ferguson, risk becoming bogged down in complex State-Federal political negotiations.

Some four years in the making, the long awaited Energy White Paper – “Australia’s Energy Transformation” – (White Paper) outlines a number of major policy objectives. However, many of these, such as deregulating retail energy prices and a rejection of domestic gas reservations, rely heavily on cooperation from Australia’s six State Governments.

Key issues for energy market participants

  • Attracting foreign investment – The White Paper faces up to the very substantial capital requirements for the development of the Australian energy sector over the next two decades. It estimates that the domestic energy sector will require AUD 240 billion by 2030, whilst development projects would require AUD 290 billion. Given the limited pool of Australian investors, these substantial capital requirements are expected to be largely met by foreign investors. The White Paper stresses that it is critical for Australia to maintain a stable, transparent and attractive policy environment in order to remain competitive on the international market for investment capital.
  • Market-based approach - Energy market participants will be encouraged by the White Paper’s notably market-based approach to energy sector policy, which is seen as critical to attracting and maintaining international investment.
  • Deregulation of the retail energy market – The Government reaffirms its commitment towards further de-regulation of retail electricity prices across Australia as a driver for more competitive pricing, as well as more innovative pricing structures which are sensitive to demand response and time-of-use costs. This may prove controversial in some States. Currently, Victoria is the only jurisdiction which has fully de-regulated retail electricity prices. In contrast, some other States, notably Queensland, have imposed even greater restrictions on energy retail pricing.
  • Government ownership of energy assets – While the final White Paper stops short of calling for further privatisation of energy assets, it reiterates the Federal Government's position that continued State Government ownership of energy assets may pose various problems. These include inefficient competition, lower productivity and perceived conflicts between policy and operational decisions within government owned businesses, which may reduce investor confidence in the energy sector.
  • Harmonisation of the CSG regulatory framework – Recognising the growing importance of unconventional gas in Australia’s energy mix, the Federal Government is working with State and Territory Governments to develop a nationally harmonised regulatory framework for the CSG industry. The aim is to provide a consistent approach to issues such as water management, aquifer protection, co-development and concurrent land uses and mine health and safety. It is anticipated that the CSG regulatory framework will serve as a guide for other unconventional gas developments such as shale and tight gas.
  • Gas reservation policies – The White Paper firmly rejects the adoption of a national gas reservation policy. While the Federal Government recognises that the growing gas export market has created upward pressures on domestic gas prices, it believes that this problem is best addressed through market mechanisms. It notes that not only would a gas reservation policy fail to effectively ease current price pressures but would also erode development and supply incentives in the long term.
  • Excluding nuclear energy – The White Paper continues the long standing policy of excluding nuclear energy from Australia’s energy mix. It suggests there is currently no compelling reason to develop Australia’s nuclear energy capacity given the lack of community consensus on this issue, the substantial initial capital requirements and the ready availability of other energy sources.

Will the States buy it?

Under the Australian Constitution, energy regulation is largely a State power, with the Federal powers limited to matters such as offshore petroleum and international conventions. This restriction, coupled with historic State ownership of much energy infrastructure, means national regulation requires close cooperation between all States and the Federal Government.

Some of the White Paper policies may be seen by the States as quite challenging. Deregulating retail prices, privatising government energy companies and fully exportable gas reserves will each find some degree of opposition amongst State Governments and, importantly, any voter backlash is likely to affect the state elections rather than the federal elections.

The policies will be a major test for the peak State-Federal energy cooperation body, the Standing Council on Energy and Resources, which is set to discuss the White Paper at its next meeting in December 2012. Lurking in the background will be the implicit threat that the Federal Government might, as it did with the recent introduction of the carbon tax, rely on its ancillary legislative powers, notably the corporations power and the taxation power, to introduce controversial energy policies.

What is the White Paper?

The White Paper is the product of an extensive consultation process that has run since 2008. The latest stage of targeted consultation was conducted with selected industry groups, unions and NGOs throughout 2011 and culminated in the draft White Paper being released for public comment in December 2011. The second stage of public consultation saw almost 300 written submissions being received from a wide range of interest groups and culminated in the publication of the final White Paper yesterday.

The White Paper maps out the Federal government’s policy framework over the next two decades. It is underpinned by three stated objectives:

  • to deliver secure, reliable and competitively priced energy;
  • to expand Australia’s energy exports to Asia and other growth markets; and
  • to transform Australia into a clean energy economy.

The White Paper also provides a very comprehensive overview of the Australian energy sector.  Click here to view the White Paper.