What can government do about energy price hikes?

Gas is used to generate electricity,so the more it costs,the more electricity bills go up. Australia is one of the world’s largest gas exporters. Huge liquefied natural gas (LNG) hubs were installed to process the vast gas fields developed in Queensland. Since exports began in 2015,about three-quarters of Australia’s production has been sent overseas.

Thebudget papers have revealed the government has granted itself power to issuemore frequent threats to gas companies over the prices they offer local customers. The Australian Domestic Gas Security Mechanism,known as the “gas trigger”,allows the government to redirect gas exports into the local market,but its rules meant it could only do this once a year. However,from mid-2023 the resources minister will be able to pull the trigger on export limits four times a year.

The Australian Energy Regulator has also been given the job of monitoring consumer gas prices while consumer watchdog the Australian Competition and Consumer Commission (ACCC) received a $10 million funding boost in the budget to monitor gas exports and potential domestic shortfalls.

But threats alone won’t guarantee bill relief.

The government could follow the United Kingdom’s lead and slap a windfall tax on the record profits being reaped by gas companies,and redirect the revenue to help households and businesses pay their power bills. But this would mean breaking a pre-election promise and the government has all but ruled out direct subsidies for power bills,which would have an inflationary effect on the economy. Since the start of May,the Reserve Bank has lifted the officialcash rate to 2.85 per cent from 0.1 per cent and in November said it expected inflation to peak “around 8 per cent” by the end of the year.

The government could instruct the ACCC to impose caps on prices being charged for gas in the domestic market. This lever could be pulled by enacting a clause in an agreement that the government has signed with east-coast gas exporters,under which the companies agreed to act in good faith.

Alternatively,the government could force a gas reservation scheme to flood the domestic market and reduce the cost of the fuel,but this may increase demand for fossil fuel andbe controversial with Labor’s environmental base.

Both price caps and a gas reservation scheme would spark outcry in the business community and slug the big investors who are needed to plunge tens of billions of dollars into building the clean energy revolution.

Australian Petroleum Production and Exploration Association chief executive Samantha McCulloch has warned against intervention,arguing an “ever-changing policy playing field risks new investment and supply”.

Business Council of Australia chief executive Jennifer Westacott has warned against “unprecedented market intervention” and said state governments had contributed to higher power prices by failing to deliver more onshore gas development to boost supply.

Why is it such a tricky problem?

The government faces apolitical dilemma.

Grattan Institute energy director Tony Wood has said the forecast power price rises will be “politically untenable” and is tipping that the federal government “will be forced to take action”.

Industry Minister Ed Husic hasechoed warnings from manufacturers who say they will go bankrupt due to their gas and electricity bills and the Australian Workers Union national secretary Dan Walton has written to Prime Minister Anthony Albanese,warning him the government would break its pledge to revitalise manufacturing without swift action on power prices.

“If the current position on gas policy is maintained,thousands of Australian manufacturing jobs will be lost during this term of the Albanese government,” Walton said.

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