Energy sector needs investment

POLICY governing investment in Australia’s long-term energy supply and related environmental sustainability must reflect public interest needs, not just market-based paradigms, if it is to deliver the right outcomes for all Australians.

One of the great fallacies of modern government policymaking is that as long as we have minimum government intervention and competitive markets, everyone will be better off.

On this policy yardstick, energy is just another commodity if it is exported and just another service if it is used domestically. There is nothing special about it. Energy policy comes down to one statement – the market will fix it (whatever ‘it’ is).

The reality is somewhat different. Governments and the community see energy as something special. They don’t accept the prevailing economic policy dogma.

Energy is essential to our lifestyle. Our economy doesn’t work without it. Our lifestyle doesn’t function without it. Economic and social poverty is energy poverty.

 Economic wellbeing is based on the availability of abundant, reliably supplied, competitively priced supplies of energy. That’s what OPEC taught the world in the 1970s. That’s what California, the US north-east, Italy, New Zealand and China have reminded us of recently.

And World War II taught us national security comes down to the availability of an energy supply.

International movement of goods and people doesn’t occur without energy, and most of that energy comes from petroleum.

Long-term supply reliability for energy (gas, electricity and oil) is a national and a global fundamental. That doesn’t mean that day-to-day, one-off disruptions to energy supply, which can be dealt with by the market, create a case for government intervention. They do not. Consumers and producers need to deal with short-term supply risk as part of business planning.

What happened in Adelaide in January or in Perth in February does not provide a sound basis for determining long-term energy supply policy.

The right investment regime

Long-term supply reliability is all about timely investment of large sums of money in the construction of energy production and transmission infrastructure. Facilitating this investment is fundamental to the national interest.

Long-term supply reliability means more investment in electricity generation and transmission. It means more investment in gas production and transmission infrastructure. It means more investment in oil exploration and development. It means looking at investing in the development of alternative transport fuels. It means more investment in end-use efficiency.

Investment in development of the nation’s natural resources (coal, gas, oil and renewable energy) is a key component of delivering risk-averse supply reliability. A public good arises via regional development, tax revenues to government, improved trade balances, job creation, development of service support industries and delivery of that vital service – energy.

If the nation is willing to live with long-term supply risk and the inevitable economic, social and national security consequences of this, then ignore the investment equation. If not, public interest demands an investment regime that encourages large-scale investment with a long-term focus.

Investment to create supply reliability is both a commercial and a public good. Adequate investment is only delivered through a bipartisan public private partnership. If we have an abundance of energy resources then global welfare is enhanced by investment in supply capability directed at export markets.

Here, an additional component is added to the investment equation. The supplier must have a good reputation for delivering on time, without disruption. Australia has such a reputation. Protecting and enhancing that reputation is a key part of national interest and a part of delivering global benefits.

Sustainability

In the modern developed world, the public good of a reliable energy supply needs to be delivered in partnership with a second public benefit – environmental sustainability. We need to invest in best practice environmental management at every stage of the energy cycle, from extraction to use. Sustainable energy supplies are about marine management, land management and management of atmospheric quality.

The benefits of sustainability are not purely commercial – they are part of global commons. Investment to deliver such benefits, therefore, requires public as well as private investment and support.

The investment is not just in capital stock. There is also a need for investment in new technologies.

And just as supply reliability needs a politically bipartisan government/industry partnership, so does sustainability of energy supply.

Market-based economic dogma will not deliver the necessary supply and sustainability outcomes.

There are public goods to be considered, which need to be incorporated in investment decision-making. That means public funding.

p Barry Jones is executive director of the Australian Petroleum Production and Exploration Association (APPEA)