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Energy: competition and productivity 'positive', certainty yet to come

08 April, 2015

The long awaited Energy White Paper contains some important initiatives to promote competition in the gas market and encourage more productive use of energy, but critical issues for future energy investment remain deeply uncertain, Australian Industry Group Chief Executive Innes Willox has asserted.

"Tight supply and rapidly rising prices in the Eastern gas market have been a growing headache for industry, and a comprehensive Government response is vital," Willox said.

"The announced ACCC inquiry into gas market competition is much needed, along with other measures to promote transparency, competition and increased supply.  

"Falling international prices for energy commodities should underline the benefits of building a balanced economy and vibrant domestic gas market.  Exports have many benefits, but Australian energy users cannot be forgotten.

"Additional steps to be considered should include approaches like 'use it or lose it' to encourage more rapid development of gas tenements and 'oversell and buy back' trading to achieve fuller utilisation of infrastructure.  A national interest assessment of the supply impacts of any future LNG export capacity expansions should be common sense in light of recent experience.

"The energy productivity plan foreshadowed in the Paper is at a very early stage.  However this is a positive and potentially ambitious agenda that could help make Australian growth much more robust to future energy price movements.  With gas prices rising and all future electricity generation options requiring high prices, boosting energy productivity is a strategic imperative.  The costs and benefits of individual policy levers, from information provision to incentive schemes to performance regulation, need careful scrutiny, but industry will be closely and constructively involved as this COAG agenda takes shape.

"Stable, credible long term policy frameworks are vital to support investment.  However, much remains to be resolved before the Energy White Paper can offer the required stability.  While we are hopeful that the Government and Opposition will soon strike a workable compromise on the immediate future of the Renewable Energy Target, the longer term remains unclear.  The current Emissions Reduction Fund is a work-in-progress focussed heavily on the next five years.  With post 2020 emissions targets yet to be considered, and the longer term evolution of climate policy deeply uncertain, the Energy White Paper cannot provide a solid basis for investment in energy assets that will last many decades.

"The current excess of electricity supply and slowdown in other energy investment are painful for some businesses.  But they create an important opportunity to develop long term policy that is both efficient and bipartisan.  The breathing space may be fleeting.  All sides of politics need to make the most of it," Willox said.

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