The budget papers revealed that electricity prices are rising 30 per cent for households and businesses this financial year and another 20 per cent next,while gas prices are rising by 20 per cent in both years.
Australian Bureau of Statistics figures released on Wednesday confirmed that the pain has already started. Electricity prices jumped 3.2 per cent in the September quarter and gas prices 10 per cent.
In Sydney,where power generation was affected by floods,electricity prices jumped 25.3 per cent in the past year.
The first thing to say about the rise in prices is that it is not the Albanese government’s fault. It is also not the fault of renewable energy. And it is certainly not the fault of privatisation,as the NSW Labor opposition claims. It is a global phenomenon caused by Russia’s invasion of Ukraine and exacerbated by floods and the federal Coalition’s wasted decade of energy policy.
But while rising gas and electricity prices are not Chalmers’ fault,they are still his problem. If he does nothing,surging prices will hit the neediest households hardest and bankrupt businesses that depend on affordable power.
Every answer to this energy crisis comes with serious downsides.
Chalmers has ruled out the option of paying subsidies to ease the blow,as his predecessor Josh Frydenberg did in March when he slashed the fuel excise in response to a jump in petrol prices.
That approach was popular,but it cost the budget $6 billion in just six months and exacerbated inflation by encouraging people to keep spending.
Instead,Chalmers says he wants to fight the rise in prices with a “broader suite of regulatory interventions”.
There are few details but Energy Minister Chris Bowen quietly announced on Tuesday that he would assume a much greater role in setting prices on the gas and electricity markets.
He intends to squeeze gas producers in the eastern states who are currently earning a motza by exporting the vast majority of their output and selling it on world markets.
Instead,Bowen will give himself the power to order producers to sell more of their gas domestically at what government-appointed experts deem to be a reasonable price.
This approach would certainly help keep down prices of both gas and electricity. Even though gas plants generate only a modest share of total electricity,they play a crucial role in determining the balance of supply and demand,and hence prices.
But there are downsides. Gas companies,many of them foreign-owned,are already complaining that this intervention into the free market robs them of profits and undermines trust in Australia as an investment destination.
They have a point. Australia should not move the goalposts for no reason. But these are extraordinary times that call for extraordinary measures.
All over the world,governments are imposing similar measures to protect households and businesses from the price shock.
Chalmers could have chosen to follow governments in Europe that have imposed a super profits tax on energy companies to fund subsidies to energy consumers.
He has,however,decided the regulatory approach is simpler and more politically palatable than imposing a new tax.
In the end,both approaches boil down to the same thing:The government will make energy companies take a share of the pain of the energy crisis.
The companies will fight this but the government should assure them any new measures will be temporary and consistent with gas producers’ obligations under their long-term export contracts.
Energy companies are doing pretty well. For example,Origin Energy announced last week that it expects a 75 per cent increase in revenue to $650 million this year. TheHeraldbelieves they can afford to take a haircut.
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