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Energy White Paper launch: speech, Melbourne



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Energy White Paper Launch

The Hon Martin Ferguson AM MP

Minister for Resources and Energy

Minister for Tourism

Hilton on the Park, Melbourne

Thursday, 8th November 2012

* Check against delivery

Introduction

Good afternoon ladies and gentlemen.

Thank you all for coming and thank you to our hosts

CEDA.

Today I will launch an important document for Australia’s

future, and for the future of our region as a whole—the

Energy White Paper.

It has been almost a year since I launched the draft

Energy White Paper.

This follows an extensive process of public consultation,

including public forums in every capital city and

consideration of almost 300 written submissions.

I would like to thank all of those individuals, businesses,

organisations and government agencies who contributed

to this process.

You have helped create an invaluable policy framework

for developing and transforming our energy sector and its

resources for the next decade and beyond.

Building on this feedback, I am very pleased to present to

you today the 2012 Energy White Paper.

Australia and energy

Energy provides an essential service to our people and

underpins the economic competitiveness of our economy.

We should never forget that Australia is an energy

economy.

Australia draws on an enviable natural endowment of

fossil fuels, uranium and renewable energy resources that

have underpinned our wealth for generations.

Additionally, nearly two decades of cooperative reform

have built a world-class energy sector that is the envy of,

and model for many other nations.

The Energy White Paper builds on these strengths.

It provides a roadmap for how we can further transform

our energy sector to improve the prosperity of all

Australians.

The Energy White Paper seeks to do this by clearly

outlining the Australian Government's principles and

objectives for developing Australia's energy future.

Central to this is a continued commitment to the Labor

Government's traditions since Hawke and Keating - to

open and transparent markets.

Markets that allow competitive pricing, efficient resource

allocation and innovation.

This is what will drive Australia's economic and income

growth, while ensuring we protect those most vulnerable

in our society.

Australia’s energy transformation

The title of the Energy White Paper is - Australia's Energy

Transformation.

The change our energy and energy resource sectors are

embarking on is profound.

Domestically, we are facing pressure to move to cleaner

fuel sources and at the same time the cost of delivering

this energy is increasing.

For our energy resource sector, the pipeline of investment

is phenomenal but again keeping the costs down remains

a continuing challenge.

There are three key pressures driving this:

• The growth of our population, economy and wealth;

• The growth of our energy exports, particularly to key

Asian markets; and

• The need to dramatically reduce our carbon

emissions to create a clean energy economy.

Ongoing changes in international markets are also playing

a role.

This includes long-lasting shifts in trade balances, the

emergence of new energy sources and technologies and

the effects of sustained turmoil in key economies.

These forces are further increasing Australia’s integration

into international energy markets.

That is why the Asia Century White Paper is so important

to ensure Australia is well positioned to capture these new

opportunities emerging out of Asia.

Opportunities we are already seeing in our resources

sector, with unprecedented flows of investment in our coal

and gas sectors to meet growing demand.

The dramatic changes in our energy sector can be

quantified by comparing the situation today with 2004,

when the last Energy White Paper was released.

Since that time, trade in our liquefied natural gas has

increased almost fourfold to more than $12 billion per

annum.

The value of our annual thermal coal exports has tripled to

about $17 billion.

Wind and solar energy generation capacity has multiplied

ten fold.

And we are now sourcing close to 20 per cent of our

domestic gas from coal seam gas; up to 90 per cent in

Queensland.

The pace of change confronting the energy sector is

further evidenced in a number of key updates to the Final

Energy White paper since the draft was released.

These include:

• downward revisions of forecasts in average electricity

demand;

• changes in expectations across various electricity

generation technology costs;

• updates of our known gas resources and gas market

outlook; and

• the decline in our domestic refining capacity.

We must get our energy policy settings right, if we are to

manage these dynamics effectively.

Positive outcomes can only be assured through policy

frameworks that shape effective market outcomes,

manage uncertainty and attract investment in energy

resources and infrastructure.

These are the clear goals of the Energy White Paper.

Thankfully, Australia has many competitive advantages

that provide a head start in this respect.

We have a huge natural resource endowment.

We have one of the most competitive electricity markets in

the world.

We have a well educated and skilled workforce.

We have well established links to international markets,

particularly on the doorstep of Asia and a competitive

energy export industry.

In my five years as Minister for Resources and Energy, I

have developed a clear vision of how we can build on

these strengths and create an even more positive energy

future.

Vision for Australia's energy future

This vision has four essential elements.

Firstly, developing a truly national approach to our energy

markets.

Markets underpinned by consistent regulation across the

country that create a level playing field that stimulates

competition, innovation and consumer choice.

Markets that are an attractive place to invest and maintain

a reliable and affordable supply of electricity to all

consumers.

Secondly, an Australia that is the number one investment

destination for resource development.

Where production costs are highly competitive, approval

processes are best practice, fast and efficient and where

our labour force is internationally regarded for its

expertise.

Thirdly, developing Australia's natural gas reserves to

become one of the world’s largest LNG exporters, while

effectively servicing the domestic market.

This growth in gas would increase Australia’s pipeline

infrastructure and gas trading hubs to service a mature

and transparent domestic gas market.

And lastly, an Australia that transitions to cleaner forms of

energy over time in a way that does not impede our

economic competitiveness.

In a way that is driven by the market, so as not to lock in

Australia to higher cost technologies than would otherwise

be the case.

And where we nurture Australian research and

development and foster innovation in partnership with the

private sector.

At the heart of this vision and the policy framework set out

in the Energy White Paper is a commitment to competitive

and well-regulated markets that operate in the long-term

interests of consumers and the entire nation.

Realising the vision

Whether we realise the potential of our energy future

depends on how well governments, businesses and

consumers respond to the significant challenges we face.

The role of this Energy White Paper is not about spending

measures in response to the immediate political debate.

Rather, it is a long term, strategic policy document that

articulates the Australian Government position on the full

gamut of energy policy issues.

It provides assurance that we are heading in the right

direction in helping to transform our energy sector, while

refocusing our attention on key areas.

The Energy White Paper sets out four priority areas that

require action in this respect:

• delivering better energy market outcomes for

consumers;

• accelerating our clean energy transformation;

• developing our critical energy resources, particularly

natural gas; and

• strengthening the resilience of our energy policy

framework.

Addressing the key challenges

I would like to go through the headline challenges

identified in these areas, and how the Government

proposes to respond.

The Energy White Paper highlights a number of

challenges but today I want to focus on six I think are most

significant. They include:

• minimising energy price pressures and growth in peak

demand;

• tightening in our east coast gas market;

• ensuring our liquid fuel security;

• transitioning to clean energy;

• retaining our competitive energy resource development;

and

• informing a constructive energy debate.

Energy prices and peak demand

I think we can all agree on the prominence of rising prices

within the current energy debate.

Australia’s strong dollar has to some extent sheltered local

petrol and diesel prices from rising global oil prices.

But the same can’t be said for electricity, which has seen

average retail price rises of about 40 per cent nationally

over the past four years and well above 50 per cent in

some states.

This is hurting households and businesses and it is simply

not sustainable.

There is unfortunately no quick or easy fix to this issue.

High prices result from a range of complex factors, many

of which lie outside the control of any single government

or regulator.

They include higher production costs and the need to

replace or upgrade ageing infrastructure which tends to

come in investment cycles.

Just like the one we have experienced in networks - said

to of peaked this year.

Electricity costs have also been driven up by the fact that

the rising demands of our small, and geographically

dispersed consumer base must be served by a large and

growing network.

The need to meet high reliability standards in the face of

projected continued growth in peak demand complicates

matters.

Energy policy is after all a seesaw between cost and

reliability.

And as Energy Minister I recognise the high value that

consumers place on a reliable electricity supply, and I do

not underestimate the immediate and devastating impacts

from loss of supply.

Recent incidents such as the dislocation in New York and

the electrical storm in South Australia remind us of the

value of reliability.

It must also be acknowledged that the transition to a clean

energy economy, including the carbon price, adds

marginally to costs.

But in the Labor Government tradition, generous

compensation and adjustment measures are in place to

ease the impacts of this on the most vulnerable.

I believe it is time to minimise future pressures by ensuring

markets, regulatory frameworks and their institutions

operate in the long-term interests of consumers.

The good news is that sound policy can make a

difference.

Governments at all levels must embrace key reforms to

improve regulatory efficiency and stimulate market

competition and innovation.

And many of the key reforms that may ease future

electricity price pressures are already well underway, such

as improvements to network rules and a review of the

appeals mechanism.

But there are many reforms needed to drive greater

efficiency in our energy system.

Another is renewing our focus on how consumers manage

their demand for energy.

Pricing structures are resulting in inefficient peak demand.

This means that additional capacity is required to be built

that might only be used for one per cent of the year.

Current market arrangements are distributing the costs of

this across the entire consumer base.

The Productivity Commission estimates consumers who

don’t use the additional capacity are subsidising others by

as much as $330 per year.

This is clearly an unfair cost, particularly on those less

able to afford it.

Rectifying the situation requires an integrated approach:

consumers must be given the right signals, through

flexible time-of-use pricing to make decisions about their

energy use.

If we are to provide consumers with more choice then we

also need to promote better information through tools, like

smart meters, to assist consumer decisions.

These must be supported by strong consumer protections.

The Energy White Paper contains an ambitious reform

agenda targeting these issues.

This includes strengthening market institutions and

governance—we need to ensure the Australian Energy

Regulator has the resources to do the job required of it.

It also involves improving network efficiencies and

providing for a strong consumer voice in market outcomes.

If I could highlight one area of critical reform needed to

improve competition and deliver innovative solutions to

consumers it would be retail price deregulation.

The key to delivering on this reform agenda - and locking

in the benefits to consumers - will depend on the

agreement that can be reached by the Standing Council

on Energy and Resources and then COAG in December.

Victoria in many respects has led the way.

The willingness of other state Governments to take on

these hard reforms will be essential.

It will take political courage where others have failed.

But the Australian Government will continue to strongly

advocate for, and where appropriate, lead the reform

process.

Short term fixes, such as intervening to hold down prices

for temporary relief might be tempting, but it is not in the

long-term interests of consumers.

It inevitably lowers investment, competition and standards

of services.

Most critically, as we have recently seen in Western

Australia, it creates a larger shock to consumers when the

price inevitably catches up with the real cost.

Gas market pressures

The second major challenge the Energy White Paper

identifies is the changing dynamic of domestic gas

markets.

This has resulted from increasing overseas demand for

Australian gas.

The Government acknowledges that there will be

tightness in the east-coast gas market as new coal seam

gas and LNG projects ramp up to full production.

While Geoscience Australia and the Bureau of Resources

and Energy Economics analysis indicates we have

sufficient gas to meet projected export and domestic

needs until at least 2035 - this is not a call for

complacency.

Transitional pressures on the east coast are emerging,

creating price pressures and tightening supply conditions.

Once again, it is the Government’s view that this is best

achieved by open and efficient markets, where price is

allowed to balance the market and provide incentives for

developing new supply.

Interventions such as reservation policies to force price or

supply outcomes are more likely to impede than promote

supply.

Let’s not forget that the boom in American domestic shale

gas was preceded by high prices that drove significant

new investment.

The current low Henry Hub prices is in part a reflection of

the supply that high prices brought on.

In terms of adding to domestic supply, the Energy White

Paper sets out a cooperative agenda.

The Government is committed to working through SCER

to improve gas market development, transparency and

trading opportunities.

The National Harmonised Framework for Coal Seam Gas

is an example of this.

All jurisdictions must work to remove impediments to the

timely development of domestic gas supply.

The consequences of avoiding these hard decisions will

be far greater.

It is also incumbent on the gas industry itself to maintain a

balanced supply for both the domestic and export

markets.

Liquid Fuel Security

The third challenge will be to ensure our future fuel needs

continue to be met.

Our refining industry is re-structuring, faced with economic

pressure from new Asian mega-refineries.

The announced closure of the Clyde and Kurnell refineries

will see domestic refining capacity decline by about 28 per

cent in 2014 from 2012 levels.

From that time Australian refineries will supply only around

half of our refined fuel needs.

But it is important to recognise that over 80 per cent of our

crude oil and other refinery feedstock is already imported.

And in turn we export about 80 per cent of Australia’s

crude oil and condensate production, because its

proximity to Asia and quality makes for higher value

products - maximising the return to Australia.

To suggest that recent refinery closures imperils our

energy security is to miss the point that most of the crude

oil previously refined in the domestic market already

comes from overseas.

Domestic oil production is expected to further decline over

the next decade in the absence of new discoveries.

This decline, coupled with continued growth in demand for

fuel, means Australia will have a growing reliance on

imports of crude oil and refined product.

And regardless of our refinery capacity, Australia will

continue to pay world market prices for oil.

Our ongoing liquid fuel security will be supported through

the introduction of equivalent importing capacity from well-established international supply chains and ready access

to regional fuel supplies.

The Government acknowledges these changes are of

concern to many downstream industries that depend on

petroleum refining.

We will continue to work closely with the industry, and

respective state and territory governments to ensure the

timely construction of import receiving facilities.

A two-yearly National Energy Security Assessment from

2014 will continue to assess our energy security risks.

As part of the National Energy Security Assessment, the

Government intends to also undertake the National

Energy Risk Preparedness Audit to map risks and

response measures.

The availability of secure, adequate and competitively

priced petroleum supplies, either as fuel or feed stock, is

of paramount importance given the jobs and economic

returns involved.

Clean energy

The fourth challenge is managing the transition to cleaner

energy.

While rightly focused on cost and efficiency outcomes,

government and industry must also look to move to

cleaner forms of energy.

Energy generation, supply and use accounts for about

three quarters of Australia’s greenhouse gas emissions.

To meet our long-term emission reduction targets we need

to significantly reduce our CO2 output by the middle of this century.

This requires development of a diverse range of new

cleaner technologies and processes, including

renewables, low emissions fossil fuels, hybrid systems

and new generation distributed energy.

Energy storage and smart network capacities will also be

critical in managing any intermittency issues.

This task is significant but ultimately achievable.

Modelling within the Energy White Paper shows that, while

fossil fuels will underpin our energy security for many

years to come, clean energy generation could grow to

provide over 40 per cent of our electricity needs by 2035

and potentially up to 85 per cent by 2050.

If this clean energy transformation were to be realised it

will require more than $200 billion in new generation

investment between now and 2050, including around $50-

60 billion in gas and $100 billion in renewables.

But these results are far from guaranteed, and a range of

technologies included in the projected energy mix are yet

to become commercially available.

This is evidenced by a new website to be released today

by CSIRO called “eFuture”.

The website allows the user to choose a range of

variables and show how these impact on Australia’s

electricity costs, technology mix and carbon emissions,

through to 2050.

Flattening average electricity demand is one such variable

currently minimising the need for new investment.

While there will undoubtedly be calls from some interest

groups for a faster or slower rate of deployment of their

favoured technologies, the principal policy aim is to meet

Australia’s greenhouse gas emissions targets at the least

cost while maintaining energy security.

To deliver on this, the Government has established key

reforms like carbon pricing, the Renewable Energy Target

and a further $17 in billion funding for technology

development and commercialisation to drive the

transformation.

This includes the $10 billion Clean Energy Finance

Corporation to begin on 1 July next year.

And the new $3.2 billion Australian Renewable Energy

Agency, or ARENA, which began on 1 July this year.

Delivering on one of the clean energy policy action of the

Energy White Paper, ARENA will release its much awaited

General Funding Strategy next week outlining how it

intends to further support Australia's renewable energy

innovation.

These initiatives will help harness Australia's world-class

clean technology research and development capabilities

and pull new technologies through to commercialisation.

This is all part of the Australian Government's framework

for a clean energy future that overtime will reshape our

energy sector and create new economic opportunities.

Retaining competitive energy resource development

The fifth challenge is to improve on our energy resource

project delivery.

In many ways, Australia is a high-cost producer compared

to many other potential energy suppliers.

The prospects for establishing new projects are becoming

more challenging due to declining commodity prices, the

emergence of new suppliers, rising production costs and

more intense competition for the investment dollar.

Simply put, we must work harder than ever to lock-in

robust investment across the energy supply chain.

The Government is working to improve our skills base and

address labour market constraints through major reforms

in education, training and worker migration.

Realising the potential of our energy future will require

significant levels of investment in domestic infrastructure

and further development of our resource base.

Almost all of it will come through private domestic and

international financial markets.

We currently have a pipeline of $270 billion in advanced

projects on our books, with a second tranche of $230

billion in less advanced projects not yet committed.

If we are to secure this second pipeline we must reduce

the costs of production in Australia.

We must continue to actively work through COAG to

reduce business red-tape and streamline best-practice

environmental approvals for major projects.

In doing so, industry and government also need to

promote additional opportunities for local businesses and

Indigenous communities to participate in new resource

projects.

Constructive debate

One final challenge will be to promote an informed debate

on Australia’s energy future.

Australia must have a mature, candid and on-going public

dialogue about our energy future.

This is the best means of ensuring sound policy underpins

decision making.

We simply cannot afford to miss opportunities through a

lack of understanding or a failure to retain a social licence

to operate.

The energy industry - both upstream and downstream -

needs to step up its engagement with the community,

because without their support your business will face

increasing challenges.

Governments too have a role to play in public education

and in setting transparent, safe and effective standards for

energy resource development.

National energy policy too must not be ad hoc.

In an energy economy such as Australia, it must be a

routine analytical process, so that governments and

industry are forced to regularly review actual outcomes,

changed circumstances and challenge their assumptions.

The Energy White Paper released today seeks to change

the way Australia makes national energy policy.

Locking in four-yearly strategic reviews of energy policy,

from 2016 onwards - backed by two-yearly security and

technology assessments - provides a predictable and

robust framework for ongoing policy development and

informed debate.

Conclusion

The overview of the Energy White Paper I have outlined

today provides a hard-headed policy assessment of the

opportunities and challenges facing our energy future.

I believe it provides an honest account of the reality facing

the sector.

It seeks to provide clarity regarding the Australian

Government's energy ambitions.

And central to this is a continued commitment to market-based solutions.

Now it is released we must ensure it is acted on.

The Australian Government will be seeking to work

cooperatively with our state counterparts to deliver on

much of this agenda through the SCER and COAG

meetings later this year.

This will require making some hard decisions and

sometimes overcoming populism for what is in the long-term interests of consumers.

But where bi-partisan support can be achieved, I am

confident we can achieve this ambitious agenda.

Thank you.