Melbourne
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Introduction
Good morning ladies and gentlemen.
I thank CEDA for hosting me today.
I spoke at a CEDA event in Sydney on 4 May this year and laid out the work the Government, and my Department in particular, was undertaking on the Energy White Paper.
In that speech I discussed some of the challenges facing our energy sector, and reiterated my intention to release a draft Energy White Paper before the end of this year to provide policy direction to help address these challenges.
I am pleased to be here this morning to deliver on that commitment.
Today I am releasing a draft Energy White Paper for public consultation.
I am also releasing the 2011 National Energy Security Assessment and the Strategic Framework for Alternative Transport Fuels.
These three publications represent a tremendous amount of work and I would like to take this opportunity to thank my departmental staff for their contribution to these publications.
I also thank industry for their input, which I hope will continue as we go about finalising the White Paper.
In my CEDA address in May I flagged that the White Paper will not spawn a raft of new spending, and – to the satisfaction of the Treasurer – the draft White Paper is consistent with my message from May in that respect.
The White Paper is about policy.
I said in May that we were working to provide “a long term strategic framework intended to give investors, consumers and planners a clear sense of direction and confidence in our energy future.”
The proposed Commonwealth Government priorities in the draft White Paper deliver that in a way that will be affordable, reliable and environmentally sustainable.
Maintaining Australia’s competitiveness
The development of the draft Energy White Paper has been framed around the need to maintain Australia’s competitiveness – which is about attracting investment and providing jobs and prosperity for the community.
Competitiveness relies on many elements, including flexibility in industrial relations, capital markets and product markets.
I am here today to talk about how the White Paper can help the overall competitiveness of our economy through sound energy policy settings.
Energy is fundamental to our economy and national prosperity, and the White Paper is seeking to support economic development by reaffirming the important role of markets to optimise outcomes from our energy sector.
Markets deliver more competitive outcomes than central planning and the draft Energy White Paper continues the policy work of governments since the 1980s in driving for open energy markets.
This does not diminish the important role governments have in setting policy and creating an institutional and regulatory framework within which the market economy operates.
The White Paper strikes the right balance in recognising the role for government and the role for industry in delivering our shared energy future.
Recognising that our energy sector is critical to Australia’s prosperity, the proposed priorities in the White Paper provide a platform for further microeconomic reform to help maintain Australia’s international competitiveness and attractiveness as an investment destination.
The scale of investment required in our energy sector not only to maintain and replace current infrastructure, but also to meet future increases in demand, makes this platform vital to ensuring our continued prosperity.
The need for a new Energy White Paper
Unprecedented change has occurred in our energy sector in the seven years since the last Energy White Paper was delivered.
Australia’s energy exports have risen from $24 billion per annum to around $69 billion, and are still rising.
Global oil prices have tripled.
We have seen investment in our export energy sector at an unprecedented scale in the last seven years, with over $140 billion committed to LNG projects alone since 2007.
We have also seen huge changes in east coast gas markets, with investment of $45 billion committed to support three coal seam gas to LNG projects in Queensland, bringing benefits to domestic gas competition and infrastructure as well.
The growth in our LNG sector will see Australia rival Qatar to be the world’s largest LNG exporter in the years ahead, in addition to our role as the world’s largest coal exporter and a top three uranium producer.
On the domestic front, we have seen a significant increase in investment in electricity networks in recent years to maintain reliability and replace ageing assets.
This has flowed through into rising electricity costs.
The Government’s carbon price legislation passed the Parliament last month and will drive significant investment in lower emissions energy technologies in the years ahead.
All this has occurred at the same time as significant industrialisation and economic development within our regional trading partners.
The challenges
As I mentioned at the outset, there are a range of challenges facing our energy sector.
This is the case not only in Australia but internationally – a point highlighted again only yesterday by the International Energy Agency's Chief Economist, Dr Fatih Birol, in his presentation on the IEA's 2011 World Energy Outlook.
These challenges are not insignificant, and I would like to take a moment now to touch on them in the Australian context.
Investment task
Over the next two decades, Australia will need investment of around $240 billion in our electricity and gas generation, distribution and transmission infrastructure.
We need sound regulatory frameworks and confidence from investors to ensure that this necessary investment is delivered.
Confidence is particularly important when talking about long lived assets, and when we are looking to the private sector – and in many cases foreign capital – to invest.
This must be supported by further market reforms to address non-market risks and improve investment attractiveness.
A degree of bipartisanship is important – particularly in this capital intensive sector.
I said in March last year that this current term of Parliament would need to resolve the question of a price on carbon – and the Parliament has done just that with legislation now in place to implement a carbon price from 1 July next year.
For the energy sector, I do not believe the Coalition’s repeal proposal is feasible. This sector needs certainty, not policy that changes with the electoral cycle.
We must now seek to implement the carbon price in a manner that allows us to continue to maintain reliability in our electricity system and continue to attract investment.
Which brings me to energy security.
Energy security
Energy security will remain a fundamental challenge.
I have touched on our investment requirements, and if we can pull though investment I am confident that we can reliably meet future energy demand requirements.
In the electricity and gas sectors our energy security will largely require domestic investment, and prices may increase in response to the investment task.
In the liquid fuels sector, we are part of a global supply chain. In this sector – to a much greater extent than electricity or gas – our energy security is also reliant on these international supply chains.
This global supply chain helps provide our energy security, but can also create pressures – and our refineries face competitive pressure from regional 'mega' refineries.
Importantly, the NESA finds that import dependency is not an energy security issue in itself.
Access to well established international supply chains has served us well through many turbulent periods and can do so into the future.
The 2011 National Energy Security Assessment that I am releasing today shows that, overall, our energy security remains strong – rated at moderate or above over the short, medium and long term for electricity, for gas and for liquid fuels.
Prices
As I touched on earlier, the community has experienced a period of rising energy prices – for instance 40 per cent in the case of residential electricity over the last three years.
This largely reflects significant investment in electricity networks to maintain reliability, replace ageing assets and upgrade networks to meet growing peak demand.
Fuel and gas prices are also rising, reflecting increased demand and rising production costs.
The Government is very aware of the pressures this is placing on many households and businesses.
Unfortunately there is no easy fix to this issue if we want to maintain reliable supplies of energy into the future.
However it is incumbent on governments at all levels to ensure that energy policy frameworks are efficient and do not impose unnecessary costs.
We must also ensure that our social policies are looking after the most vulnerable in society.
That is why the Australian Government has increased pensions, cut tax rates, increased the child care rebate, introduced the education tax rebate, and programs like the teen dental plan and paid parental leave.
These are all measures that go a considerable way toward easing the cost of living pressures on Australian families.
Let's turn now to our resource development.
Resource development
Australia is currently experiencing historically high terms of trade and significant activity in the development of our energy resources.
This activity is creating strains and is drawing labour and capital away from other sectors.
Responsiveness in the economy as a whole is important to manage these pressures.
Furthermore, in recent years we have seen significant growth in coal seam gas extraction – particularly in Queensland.
This will affect the east coast gas market – particularly from around the middle of the decade when exports are scheduled to begin from Gladstone.
It is important that resource development occurs in a manner that minimises disruption to both other industries and the environment, and involves appropriate engagement with landholders.
There are no quick fixes to any of these challenges, but a strong foundation for energy policy gives us the means to plan, invest, innovate and – above all – evolve.
Energy White Paper
In seeking to address these challenges, the draft Energy White Paper has four policy priorities.
The first is strengthening the resilience of Australia’s energy-policy framework.
Energy policy is never complete or finished, and will always evolve.
And in many ways the pace of that evolution has accelerated in recent times – an acceleration that will likely continue in coming years.
Therefore, in this draft White Paper it is proposed that the Government undertake a regular four-year review of national energy policy to ensure the framework remains appropriate, relevant and responsive to circumstances.
We will also commit to delivering the Australian Energy Technology Cost Assessment every two years, to build a more transparent information base on energy resources, technologies and fuels, including their comparative costs and commercial maturity.
And finally we will commit to an assessment of energy security – through the National Energy Security Assessment – every two years.
The second priority is to re-invigorate the energy market reform agenda.
The draft Energy White Paper reaffirms the Government's belief in a market-based approach to energy policy.
Well-functioning – and appropriately regulated – energy markets are essential to the delivery of reliable and secure energy.
Energy-market reforms over the past decade and a half have served Australia well.
But with rising cost pressures and a large investment challenge looming, all governments need to set a clearer path for better functioning energy markets.
Improving the competitiveness and efficiency of our energy sector is important to delivering the best outcomes for consumers.
This is about further privatisation of energy assets and the removal of retail price regulation to do away with distortions that deter investment and are harmful to consumers’ interests.
Furthermore, the period ahead must entail increased consumer engagement so that energy customers better understand investment and price drivers, and have greater information to empower them to make informed decisions to help manage their energy use and associated costs.
Peak demand is a particular issue requiring further work.
At the moment we are seeing significant deployment of air-conditioners, which place strain on our electricity network – often at peak times.
For instance, a $1,500 air-conditioner when used at peak times can impose a cost of $7,000 on the electricity system. These system costs are then cross-subsidised by all other users.
Hence it is important that we undertake further work to examine whether there are energy efficiency measures or demand side measures that can economically reduce peak demand, and ultimately reduce costs to consumers.
We must also work to remove or harmonise the range of distortions that different levels of government have imposed on energy markets, such as feed-in tariffs.
In this context, I am also today announcing that the Commonwealth will no longer proceed with the introduction of emissions standards or CCS Ready requirements for new coal fired power stations.
With the passage of legislation last month to introduce a carbon price, we need to let the market determine the most efficient investment outcomes within the energy market, carbon price and Renewable Energy Target framework.
In terms of different fuel sources, the White Paper identifies the key role that gas is likely to play as a transition fuel in our downstream energy market.
In this respect the Government will enhance its monitoring role to better understand market developments to help inform policy development.
These energy market reforms are challenging, and will require cooperation across all levels of government.
In this respect, the record to date of the Ministerial Council on Energy – now the Standing Council on Energy and Resources – shows how governments can deliver reforms that benefit consumers.
Moving now to our upstream industries, the third priority area is the need to continue to develop Australia’s energy resources – particularly gas.
Largely reflecting the economic development in our region, global energy demand is predicted to rise by 40 per cent over the next 20 years – with around 90 per cent of this growth coming from non-OECD countries.
Australia is extremely well placed to meet this demand due to our abundance of energy resources – including fossil fuels, uranium and renewables.
And let's not forget the strategic importance of Australia's position as one of only three net energy exporters in the OECD.
With this abundant and diverse resource base we must continue to develop a pipeline of competitive projects to maintain our enviable position as a reliable, high-quality energy supplier to our region and a world-class innovator and developer of new technologies.
The development of Australia’s gas reserves over the next decade will be critical – not just for export but also for our domestic objectives.
As a lower-emission fuel it stands to play an important role in the development of our electricity sector and as a fuel or feedstock for downstream industries.
In my CEDA speech in May I said that the Government would seek to “ensure the development of our gas resources occurs in a manner that optimises economic growth, revenue and infrastructure, as well as supporting community and regional development priorities.”
In this respect, the Australian Government will pursue an active approach to the development of its offshore gas resources.
This includes, updating retention-lease arrangements to help ensure offshore projects are developed in a manner that best meets the objectives I articulated in May.
In terms of calls for the introduction of a domestic gas reservation policy, the Commonwealth’s policy position reflected in the draft White Paper is that policy intervention to force domestic gas outcomes is unwarranted.
However, there is a need to monitor market dynamics to assess whether policy settings are delivering optimal outcomes given the growing domestic use of gas.
This monitoring will occur and duly inform government decision-making.
The White Paper articulates a policy position whereby the Commonwealth will have regard to the potential for projects to supply the domestic gas market when considering granting a production licence.
In developing our gas resources, the safety of workers and the environment will always be our foremost consideration and that is why the Government has established a new national offshore petroleum regulator to commence operations from 1 January next year.
These same considerations apply equally to developments onshore, although in this sector the states and territories, not the Commonwealth, are the primary regulators.
More specifically with respect to the CSG sector, the initiatives through the Standing Council on Energy and Resources announced last Friday are important in seeking to harmonise state based regulation of the CSG sector.
The Commonwealth has also announced its intention to establish a new Independent Expert Scientific Committee to give advice on approvals where they have significant impacts on water.
The fourth priority is accelerating cleaner energy outcomes.
The scale of transformation proposed as we move to clean energy technologies is unprecedented – investment of $200 billion in all forms of electricity generation is forecast to be required between now and 2050.
The Australian Government has a comprehensive package of measures – with carbon pricing and the expanded Renewable Energy Target prominent among them – designed to accelerate clean energy technology outcomes.
As a Government we have committed up to $17 billion to support clean-energy technologies and drive down their costs.
We are targeting government support at those technologies with the greatest potential benefits.
Government support for R&D, demonstration and commercialisation of clean energy technologies is about learning lessons to help future commercial deployment and drive down costs.
With respect to cost, we must be honest when discussing clean energy technologies – they are expensive.
For instance, just about all clean energy technologies as they currently stand require some from of government assistance or cross subsidy to operate in the commercial environment, and the community as a whole are paying for this.
Given these current cost challenges, we cannot afford to limit our options.
We need technological breakthroughs wherever they may come from – whether that is solar, ocean, geothermal or carbon capture and storage.
Technological breakthroughs are important because if they are not achieved, future Governments could face difficult decisions when balancing the need to maintain reliability with competitiveness.
The Energy White Paper is about putting in place a framework to help deliver good public policy to best equip markets – in the context of the range of Government support for R&D and deployment – to determine technology outcomes.
Conclusion
As with any kind of structure, the foundations of Australia’s energy sector need to be strong.
I thank the Energy White Paper Reference Group, in particular, for their expertise and feedback through the draft Energy White Paper process.
Today, we begin extensive consultation.
My department will conduct information sessions in every state and territory capital early next year, and written submissions are invited until mid-March.
I hope to release the final Energy White Paper around the middle of next year.
But energy policy is never complete.
It must evolve.
The draft Energy White Paper articulates the changes, priorities and challenges facing Australia’s energy sector.
I commend it to you, and I invite you all to be part of strengthening the foundations for our energy future.
Thank you.