Home Optimal energy Gas export tax would help solve Australia’s energy crisis, says Dr Ken Henry

Gas export tax would help solve Australia’s energy crisis, says Dr Ken Henry

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The dire state of Australia’s domestic electricity market and our lack of investment in renewables has been a mess of our own doing, says former Treasury Secretary Ken Henry.

Australia has also squandered the opportunity to use its huge domestic gas reserves as a transition fuel to shift our electricity system from a heavy reliance on coal to renewables, he says.

“It was wasted on politics – part ideological, part, I think, driven by personal ambition – and that put us in a really bad spot,” he told the ABC this week. .

“It’s too late to have the kind of reliance on gas power as a transitional fuel that we imagined in the last century.”

Dr Henry, who served as Australian Treasury Secretary from 2001 to 2011, argued in 2004 that Australia should adopt a national emissions trading system.

In his 2010 fiscal review, he warned that energy markets could become unstable if investors didn’t have enough certainty to make long-term renewable energy investment plans.

Now, looking back, he says no one involved in energy policymaking in the late 1990s and early 2000s could say they didn’t see Australia’s current energy crisis coming.

But a one-off tax on gas exports could help smooth things over, he said.

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Would a tax on gas exports solve Australia’s energy crisis?(Rachel Pupazzoni)

Australian decision makers have ruined everything

Dr Henry spoke to the ABC after one of the most tumultuous weeks in Australia’s energy policy experience.

Australia’s east coast power system was thrown into chaos last week as a power shortage led to spikes in demand as people increased their energy use during a cold spell intense.

Some fossil fuel producers had withdrawn a huge amount of capacity from the national electricity market, which exacerbated the projected power shortage and prompted unprecedented regulatory intervention.

There were dire warnings about possible power outages, prompting politicians to ask voters to turn off devices to avoid catastrophic strain on the system.

And the crisis of soaring gas prices continued, as multinationals made extraordinary profits exporting Australian gas overseas.

Dr. Henry said that was a situation we shouldn’t be in.

“It’s weird isn’t it?” he said.

“We have a global energy price shock, energy prices around the world are skyrocketing. Australia is an energy superpower; we have an abundance of almost every energy source imaginable.

“And yet we have multinationals making windfall profits while Australian households and Australian energy-dependent manufacturers shoot in the neck.

” How did we get there ?

A gas recovery?

Dr Henry said Australia’s political leaders have missed their chance to get more control over Australia’s gas fields to help us transition our energy system to renewables.

He said the current crisis was predictable and a disaster that had been brewing for a long time.

“A lot of people will remember that 25 years ago the Kyoto Protocol was signed, in 1997. It entered into force in 2005,” he said.

“This has given Australia eight years to design an optimal policy approach to climate change.

“Senior civil servants in Canberra quickly came to the conclusion that an optimal policy response would be an economy-wide carbon price,” he said.

A coalition government, led by Prime Minister John Howard, was in power from 1996 to 2007.

Dr Henry said a price on carbon could have been introduced in different ways, either with an emissions trading scheme or with some sort of carbon tax.

But it was “very important” that a carbon price be introduced as soon as possible, before Kyoto comes into force, to help the business community make long-term investment decisions as Australia was preparing to shift to a heavy reliance on renewable energy.

“And the reason for that was that at the time, in the last century, people thought Australia’s electricity system would go through phases,” he said.

“From a heavy reliance on coal, to a transitional phase that would be heavily reliant on gas-fired power generators, until we get to the third phase, and the ultimate phase, of heavy reliance on renewables.

“But the risk was that if we failed to get the political parameters right, at the time, we would miss the opportunity to rely on our vast reserves of gas as transitional energy fuel.

“And guess what? That’s what we did.”

A Labor government, in power at federal level between 2007 and 2013, finally introduced a carbon pricing system at the end of 2012, but it was repealed by the next coalition government in 2014.

Meanwhile, gas prices on Australia’s east coast have been deliberately tied to world gas prices – with no reservation policy for Australian households – and multinationals are making extraordinary profits exporting our gas overseas .

Dr. Henry said this was a situation we shouldn’t be in, but we couldn’t go back.

However, he said that if we still wanted to have a “gas-driven recovery”, we had to do something about the domestic price of gas.

And the easiest way to do that would be through taxation, he said.

We could begin to drive down domestic gas prices for Australian consumers and manufacturers by taxing heavily the windfall profits of multinational gas companies.

“Given where we are now, I think an exceptional tax on gas exports would be the most effective way to reduce the domestic price below the world price,” he said.

“[It would] ensuring sufficient gas supplies for domestic users, both households and businesses, and this would of course have the added benefit of generating very substantial revenue for the budget.”

He said there was “no economic justification” why such windfall profits could not be taxed at a 100% rate.

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