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Opening address: National Energy Management Forum

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Melbourne, 24 June 1991






Good morning, ladies and gentlemen.

I have a great deal of pleasure being here this morning to open the National Energy Management Forum.

If we are to look at recent history, issues related to energy production and end-use have been very much at the forefront of public discussion.

It has not always been so.

A little over a decade ago, we were very much concerned about the rapidly rising costs of energy, and in particular questions of the continuing supply of liquid fuels. In retrospect, we were successful in establishing mechanisms to address the specific problems of that tim e : partly because of the stimulus given to new exploration and

exploitation of newly discovered fields, partly because of the development of emergency response procedures and particularly because of the efforts made world-wide to conserve energy.

The tragedy, in a sense, is that debate on the underlying issues was also allowed to lapse, particularly, indeed, because far more deep seated problems relating to the energy sector have now come to the fore.

There is little need for me to remind you of the importance of energy in our daily lives. One simply has to look around for the evidence, and would be hard pressed to identify a single activity in which energy, in one form or another, has not made a significant

contribution - in our homes, in our vehicles, in our buildings, and in industry.

Clearly, energy related activities are instrumental in determining the quality of our lives. More fundamentally, energy activities are an integral part of economic activity - literally driving the economies of the world. And yet surprisingly, energy of itself has little intrinsic value. Its value lies in its characteristics as a vital input to commerce, industry and households - a key component in determining costs it and competitiveness.

The new challenges that we now face stem from the environmental . impact of energy supply and end-use, and - more broadly - from the need for a much broader and longer term perspective on the way we manage all of our resources, including our environmental resources -

that crucial process that we now call Ecologically Sustainable Development.

In reality, of course, they are not new issues. It is simply that we have taken some time to fully grasp their importance and the impact which we are having by the way we go about our affairs.

Against that background, I believe that it is particularly significant that my department has convened this forum on energy management - for the very success of our efforts to produce and use energy more efficiently will be one of the cornerstones of our prospects into the next century.

W hat I would like to do this morning is to set the scene for your deliberations over the next two days.

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This forum is designed to be an intensely practical event. It is intended to provide the participants with high quality advice on the energy efficiency options available in all areas of community endeavour.

It would serve us well, however, to keep constantly before us the reasons for doing so : why do we bother?

I would like to set out for you a whole range of issues on which the Government and the community at large must deliberate in the months and years ahead. Sometimes, these are conflicting issues, and must be matters for careful judgement. The joy of speaking first today is that I can set the scene; I am not compelled to provide all the


Broad economic management

Economic management, in the broad, has never been as complex an issue as it is today. This is not a peculiarly Australian phenomenon; it is the pattern worldwide.

In the past, Australia's natural resource endowment, particularly its abundant energy resources and rich mineral deposits, combined with a skilled workforce, have given us a unique advantage over many of our competitors and helped build a vibrant nation.

However, the increasing internationalisation of markets and the industrial structures to service those markets has led to intense competition. Those who have been able to respond to rapidly

changing demands have reaped substantial rewards. The corollary has been that companies, and nations, that have failed to keep pace have suffered.

We have relied on agricultural, minerals and energy resources to provide the bulk of our exports. Our manufacturing base, at least in

world markets, has been a relatively modest contributor and has great challenges before it to expand its current level of activity.

Faced with such challenges, and especially in light of the current economic climate we cannot, as a nation or individually, afford complacency.

The focus on the environment and efficiency raises many complex questions. The solutions are not just a matter of simple or incremental change. Our policy directions, attitudes and behaviour will have to acknowledge that while we can neither turn away from development and economic activity, we cannot risk environmental ^degradation that in some cases could prove to be irreversible.

The Government is firmly committed to strengthening Australia's international competitiveness and broadening our export base. Pressure to improve the balance of payments situation makes it imperative that the efficiency and competitive edge of Australian < industry be enhanced.

The Government's commitment has been demonstrated in policy initiatives in recent years. For example, deregulation of the financial markets, ongoing labour market reform encouraging greater flexibility through multiskilling and training, and efforts internationally to reduce trade tariffs are all contributors to these

goals. More specific to energy, the oil market has been deregulated, petroleum production taxation has been reviewed, LPG prices and exports have been deregulated and an Industries Commission inquiry has been undertaken into energy generation and distribution.

The Prime Minister reaffirmed the Government's commitment earlier this year in his statement "Building a Competitive Australia" when he announced further major economic reforms. These included lower tariffs across the board, reduced wholesale taxes for business, duty

exemptions for minerals processing equipment and a more favourable depreciation regime. These measures, within the whole

framework of micro-economic reform, are designed to address the medium and longer term economic challenges facing Australia and continue the process of restructuring the economy and improving the efficiency and productivity of Australian industry.

Given the pervasive nature of energy activities, it follows that energy policy must support and reinforce the achievement of the government's fundamental economic and social objectives. Policies which determine or influence the size, structure and outlook for those

activities, should be regularly evaluated to assess strategic directions in the light of changes occurring in the national economy and globally. { s

The energy sector has a central role in improving our export performance and helping to address our pressing balance of payment problems. It can do this in two ways:

. either through the direct export of energy resources, or

. by way of an indirect contribution to competitive manufactured exports and by value adding.

The achievement of these objectives will require that improvements in the efficiency of the domestic production of energy commodities are matched by expanding market opportunities and the resolution of

international market access issues and a more efficient energy infrastructure and pricing system.

Direct energy exports currently exceed $8 billion annually and represent about 14% of our nation's total exports of goods and services. The "indirect" contribution of energy in terms of value

added processing and increasing the diversity of exports is far more difficult to quantify.

The energy intensity of the Australian economy is high. The forecast growth in the local economy will see steady growth in the domestic

demand for energy. In Australia, total energy consumption is projected by the Australian Bureau of Agriculture and Resource Economics (ABARE) to grow at an annual rate of 2.1% between 1989­

90 and 2004-05.

In the 15 year period this translates into a 36% increase in domestic energy consumption over present levels.

The International Energy Agency (IEA) is forecasting energy demand worldwide to increase by more than 40% over current levels by 2005. The rate of growth in demand in the non OECD countries, including Eastern Europe, will outstrip that of the OECD.

Given existing economic and industrial structures and technologies, -th e opportunity for any significant changes in the patterns or mix of energy supply and demand in such a relatively short timeframe will be very limited. Conventional energy resources - coal, oil and gas -

will remain the predominant forms of energy used, meeting over 85% of total world demand. Coal's share of the market is expected to remain roughly the same, while natural gas will expand its share slightly at the expense of oil.

And therein, ladies and gentlemen, lies our first major challenge.

With the increased awareness of potential impacts, energy supply and consumption are increasingly being subject to sharp environmental scrutiny and regulation. The focus is principally on carbon dioxide, sulphur dioxide and nitrogen oxides from power plants and motor vehicles, the safety of nuclear plants, waste disposal

and the consequences of oil spills.

These are current issues: issues which warrant immediate attention, as well as long term planning.

But they are not the only issues. As I said earlier, we have relied heavily on our extractive industries to maintain our national wealth.

We are dealing with resources which, by definition, are finite. How long can we continue to do this, in the way in which we are doing it?

It must be said that our reserves of some of these resources are vast. It must also be said that in many cases these resources can be produced more efficiently, more cost-effectively and with far less environmental impact than elsewhere in the world.

On equity grounds alone, both from our own economic perspective and the world's economic and environmental well-being, we have a responsibility to continue to supply these resources, and to do all that we can to ensure that the world markets become more effectively attuned to trading in those commodities and from those suppliers where the net global interest is best served.

This, as you know, is a major challenge in its own right.

But we must continue - and indeed expand - our collective efforts to look for better alternatives, particularly in the energy supply area. This is a fundamental element in the ecologically sustainable development debate : how to provide the energy we need to provide the economic and social well-being we demand without acting to the

detriment of the world around us and, more importantly, the world we leave for the generations which follow us.

This is a matter, I am sure, on which our special guest - Dr Jim MacNeill, with his unique credentials in the field - will have a great deal of wisdom to impart.

There is another matter which we must consider. Whatever the level of goodwill, whatever the level of our determination to make the changes which need to be made, our very structures impose some

very substantial impediments to be overcome.

The nature of our country - its geography, its political structures, its resource orientation for generations - has led us to develop an energy

supply structure, a transport infrastructure and an urban design orientation which will take some time to change. The size of the investments involved alone virtually guarantee that they will not be altered quickly.

As the Industry Commission has pointed out in its recent report on the energy supply and distribution structure in Australia, there are several aspects of those industries, resulting from monopoly position, public ownership of some related elements such as transport systems

and associated factors, which have impacted adversely on the efficiency and competitiveness of our industries.

-Admittedly, all of these areas are currently subject to the closest scrutiny, and some fundamental changes are being made. But they will take time.

We cannot wait for others to make the necessary changes. Nor can we assume that the public and semi-public authorities are the only ones which have a contribution to make.

In fact, the major changes need to come not from these sources alone. They m ust come from every sector of the economy and the community as a whole.

Energy efficiency

The most immediate level of change must, therefore, be in the way we go about using energy.

In this regard, I direct your attention to the Government's statement in October last year announcing the adoption of an interim planning target for the reduction of greenhouse gas emissions by the year 2005

to 20 percent below their 1988 levels.

The Government also announced in that decision that it would be making a further announcement within the following fortnight of some immediate response measures. This it duly did.

It is no accident that the measures were solely directed to improving energy efficiency in all sectors. Burning fossil fuels to provide the energy we need is the largest single human contribution to the emission of greenhouse gases; it is axiomatic, therefore, that the most immediate effective response we can make is to attack the problem at its source - energy demand.

Most of you will already have a good idea of the range of initiatives which were announced last October, and I shall not canvass them in detail here.

I shall talk about them in a little more detail when we are presenting the National Energy Innovation Awards tonight to a number of companies and individuals who have made an outstanding achievement in improving energy efficiency.

N or can I say that this range of initiatives is the last word from the Government on the subject.

Indeed, it will not be the last word on the matter. The Ecologically Sustainable Development analysis and discussion process is drawing near to its conclusion, and I have no doubt that there will be further

options for action for the Government and the community to consider.

W hether these further options will encourage the Government to continue its current approach of market support and information flow, or whether sterner action will be required remains to be seen. I can say, however, that the extent to which the current services are taken up throughout the community and the level of improvement

achieved will have a large bearing on the Government's approach to longer term policy approaches.

Reassessing energy policy

All of this begs the question: just how adequate is the current energy policy framework to cope with these broader considerations? Does energy policy need to be recast?

The answer, basically, is yes. We must look to new parameters for a sustainable energy future.

The revision needs to be at the most basic level. We are talking about influencing virtually every aspect of daily activity; we are also talking about extremely long term resource considerations.

I shall be releasing next week an energy policy discussion paper, and I would like to spend my remaining few minutes on the podium here to share some of my thoughts on the subject with you. Call it a 'sneak preview', if you like.

In setting the policy agenda for the 1990s and beyond, we must integrate economic and environmental goals:

. this means ensuring first and foremost that the cost of environmental damage and risk is incorporated into energy prices

. we rely heavily on international trade in some of our energy commodities. In many instances, we are more efficient, more cost-effective and more environmentally benign suppliers

- how do we combine to best effect that role and the imperative of expert resource husbandry that sustainable development requires?

. what options are available at every level to improve our energy efficiency, and how do we exploit them effectively?

. what should be our goals in the overall energy supply and distribution infrastructure, and how do we mesh them with other public and private sector economic imperatives?

There are many others:

. appropriate pricing is fundamental to energy supply and end use efficiency. What do we need to do to ensure that resources are priced appropriately? Will the market alone do the job?

- what are the broader impacts on the community, and how do we deal with any structural or equity issues which arise as a consequence? Rest assured that there will be costs as well as benefits, and the incidence of those

costs and benefits on every section of the community needs to be considered

. what about longer term energy supply options - particularly renewables? What are the highly prospective options? What level of public support is warranted to encourage them, and how should that support be provided?

. where do the issues of energy security, which were the key issues of a decade ago, fit into a policy framework for the 1990s and beyond?

This is necessarily a very brief excursion into the issues involved. I recommend to you that you listen to - but more importantly participate in - the debate on what will be, after all, one of the key areas of long term policy decision making of the next few years.

If I can summarise the whole debate simply, the challenge is to marry our future need for energy with sustainable and environmentally acceptable outcomes. Integrating these objectives will not be easy. It will involve developing and implementing a variety of measures that

have different time frames, costs and jurisdictional responsibilities. It will require dose cooperation and partnership.

Market based mechanisms will provide a powerful driving force for this reform, provided that is, the right price signals emerge from the market. We know however, that there are numerous distortions or barriers in the energy marketplace that constrain energy effident

processes and practices.

Governments must help the process - either by reform to free up the market, or where necessary, by supporting the market. Governments can provide information on better technologies, support R&D of more energy effident energy conversion and distribution technologies, and change pricing arrangements to encourage the

more effident use of energy.

At the end of the day, however, our success at integrating the principles of ecologically sustainable development into energy policy will depend not on Government action, but on community response.

Will the community accept the price signals that promote environmental goals, effidency and new technologies - espedally as it is possible that those prices may well be higher than now exist?

Our energy / environment direction into the 21st century will not be the one that Governments demand you have, but the one for which you are prepared to pay. Inevitably the process of developing a sustainable energy outlook will involve costs. Governments can show you w hat the options are and their implications, and can also provide information and support for the energy effidency options which will help organisations and individuals to avoid some of those costs.

But ultimately, the choice of direction is yours, and yours alone. The community must dedde which path - the high cost path or the lower, more effident use path - it wants to follow.

Conference opening

Conferences such as this National Energy Management Forum have an important role in the reform process. Energy management clearly illustrates where energy and energy cost reductions can be made and highlights the economic and environmental benefits which can be gained. The forum facilitates presentation of the latest developments, the exchange of ideas and shows the way in which we can all manage

and use energy in a more efficient and environmentally friendly way.

If over the next two days it stimulates those of you who are participating to think about the major economic gains you can make, it will have served its purpose, because whatever gains you make the nation will also make. Whatever advantages are achieved in

economic terms will be achieved also in environmental terms.

And whatever savings each individual makes will be, in the longer term, a critical contribution to the wise management of our resources.

Ladies and gentlemen, I am delighted now to declare the forum open, and I wish you every success in your deliberations.