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Energy perspectives conference: speech.

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The Hon Ian Macfarlane MP Minister for Industry, Tourism and Resources

Energy Perspectives conference 10/10/06

Thank you.

Having just returned from talks in Mexico on a range of issues from gas to emission abatement and nuclear power, I can assure you Australia's energy market is one of the world's most sophisticated and better planned. No - I am not yet declaring our reforms a success story. But nor do I share the implied pessimism of a phrase like "unfinished business" - which I believe has been a subject for debate this morning. I don't pretend that the wheels of politics will ever move quite swiftly enough for business. But - for a truly fair assessment of Australian energy market reform - we need to consider how far that process has come.

The genesis of the reform agenda we see at play today lies with the Parer Review, which remains one of the most significant reviews delivered to an Australian Government. The reform process that followed has resulted in a cheaper, reliable energy supply for both industry and domestic consumers. The title page of the Parer review reads "towards a truly national and efficient energy market". And that remains the goal.

Despite any political differences, the state and federal energy ministers have not lost sight of the need to ensure a national approach to energy policy. Only a truly national market development and regulation - with consistent market rules - will encourage investment. Yes, you've all heard me say that before but today I want to spell out that energy market reform should not be judged by the centimetres it gets in the Fin Review. There's been a recent smattering of stories from energy bodies musing about the speed of market reform - and I hear you. But this has never been an issue for megaphone diplomacy. And I have never been one to use newspaper front pages to pump up the volume.

Developing genuinely, consultative national policy in this country can be like herding cats. But within the ranks of the Ministerial Council on Energy we do not have any strays - maybe a couple of high maintenance Persians from time to time. The Energy Council is perhaps the most productive gathering of state and federal ministers presently in operation. The work is being done in every jurisdiction and at every bureaucratic level, and our time frames will be honoured. The bureaucratic wheels do grind but, in this instance, the cost of getting it wrong because someone said 'hurry up' is too great to risk.

Energy generation is a fundamental in this country, it will drive our future, our exports and our ability to stand alone as a nation. It will be our provider and our protector for years to come so this reform has to be right - as well as right on time. That's not to say the timeframe will be altered - we've been very open about the statement of approach and you've been guaranteed consultation.

Legislative Packages This year's legislative package will transfer economic regulation of electricity distribution and gas transmission and distribution to the regulator and AEMC. As part of developing this legislation, we will soon release an exposure draft - and there will be a 6 week public consultation period. In light of the complexity of the drafting task the new laws are not expected to come into force until 2007. But the industry will be

given adequate time to comment on the proposed legislation and the major item of retail regulation.

Retail Price Phase-out One of the key reforms being progressed at this time is the phase-out of retail price caps. The States and Commonwealth all signed onto the removal of price caps under the Australian Energy Market Agreement. And all parties have worked steadily behind the scenes to turn that expression of agreement into a market reality. We are now at the point where I expect to be in a position to write to the AEMC after the Ministerial meeting later this month. We will be seeking advice on the assessment process and the timetable that AEMC is proposing in relation to each jurisdiction. Happily there are a number of jurisdictions wanting to be 'first cab off the rank' for that assessment.

COAG Energy Reform Implementation Group In the meantime, State premiers and the Prime Minister have recognised the importance of advancing the energy reform agenda with COAG's establishment of the Energy Reform Implementation Group. Reference groups have now been established to ensure a couple of key goals are met. These include:

• Building a national approach to the future development of the electricity grid; • How best to promote investment by supporting the efficient provision of transmission services; • Ensuring structural matters do not impact the ongoing competitiveness of the

electricity sector; and • Providing measures to ensure effective financial markets to support energy markets.

The Reform Group panel will not be doing this in a vacuum and industry observers will play an important role in the direction of this work. The draft report will be released on November 7 this year, and the final report is due on December 22. I'd urge all of you to get involved with the process where possible. In the IEA's 2005 Review of Energy Policies, the Agency confirmed Australia's reform process is heading in the right direction. It lauded Australia as 'one of the pioneers in energy sector microeconomic reform'. The reform process we have commited to is expected to add $7 billion to our national GDP over the 5 years to 2010.

We have taken the early steps down the reform path and the rewards are already evident. Government-owned, vertically integrated monopolies are being replaced with competitive arrangements with benefits for all customers. The IEA report found that Australia's electricity prices were 38% below the IEA average. In line with recommendations of the report Australia is now taking a lead in a number of new directions.These include the stepping up of demand-side energy policies; development of a wholesale market for natural gas; and advancement of climate change mitigation policies.

Low Emissions Technology Practical and real reduction of greenhouse gas emissions is a priority within the Howard Government. The sceptics scoff at that statement because they can't see past the silver bullet solution of the Kyoto Protocol. But the longer they clutch to that fantasy of a solution to climate change, the greater dis-service they actually do to the cause of developing gas reduction solutions. There is no one answer to the challenge of reducing emissions. But it has been human nature from the time Noah built the ark to develop practical, technological solutions to anything which may greatly threaten our world or future. Coal, oil and gas will continue to account for more than half of the forecast increase in primary, global energy demand over the period from 2003 to 2030.

We have to recognise that the bulk of Australia's energy needs in the medium term at least, will come from these traditional sources. So we have a duty to invest heavily in the development of cleaner technologies for the production of energy from these fuels. Our approach to energy policy is to look to a framework that is pragmatic and rational as well as flexible. Our engagement with the Asia Pacific Partnership or AP6 is aiming for the same result as Kyoto - tangible and long-term reductions in emissions. But AP6 is taking the path of the new, the un-tested and technology - we are investing in the industries of the future. That could be coal gasification, brown coal drying, or carbon dioxide capture and storage. The future generators will also include the wind, solar and hydro powers. All these technologies are being offered the chance to get a jump on the others through the $500 million Low Emissions Technology Demonstration Fund. The first recipients of this program will soon be announced - unleashing the first tranch of some $1.5 billion to be invested in low-emission technology.

Conclusion In conclusion, sitting around the cabinet table 5 years ago it was sometimes a battle to get others to focus on the detail of energy market reform and other energy issues. That is no longer the situation as energy has become so obviously a centre-stage issue, in so many different ways. We have come a long way with energy market reform, progress is steady and it will continue to be consultative. It's a process I fought to ignite when there was little political appetite for reform in this area because only you - the industry - could see the need. But I can now assure you that governments of all levels and persuasion share your passion to see this reform agenda honoured.

I took on your reform process because of its long-term significance to the nation. And the Queenslander in me, in fact the Queensland farmer in me, would never walk away from this half-ploughed field. Australia will have a truly national and efficient energy market - to guarantee your business future and secure our country's energy advantage.

Thank you.

Kirsty Boazman Media Adviser to Ian Macfarlane Minister for Industry, Tourism & Resources (02) 6277 7580 or 0412 171 444