Cutting Edge Plan to Slash Energy Prices and Create Jobs!
Targeted Relief to Families, Businesses, and Manufacturers
Prime Minister Anthony Albanese announced on the 9th of December 2022 along with the Treasurer, Jim Chalmers and the Minister for Climate Change and Energy, Chris Bowen, announced that local natural gas prices will be capped at $12 per gigajoule and the coal price at $125 per tonne.
To enable a cap on gas prices the government introduced the Treasury Laws Amendment (Energy Price Relief Plan) Bill 2022 which subsequently passed parliament.
It created a new regulatory instrument - just as the previous Morrison government did with the coronavirus supplement - with a 12-month sunset clause.
The capped price of $12 is a little generous considering 96 per cent of prices offered were below this mark with an average of $9.60. If anything the price should have been capped at $10 per gigajoule. If gas suppliers know they can charge $12 instead of $9.60, that’s a 25 per cent markup and contributes to the inflationary measures the government is attempting to alleviate. It is a little amusing as they freely admit that, instead of prices going up by 36 per cent, they will likely rise by 23 per cent. That is pretty close to the 25 per cent mark. The Institute for Energy Economics and Financial Analysis argues for an even lower price at $7 per gigajoule.
Shadow Treasurer Angus Taylor, who was a member of the previous Morrison government said, “we got it down to $5 a gigajoule.”
So there is a case for the price control of the price ceiling to be capped at five or seven dollars.
"Because of its actions today, this winter or the one after, the federal government will have to decide between rationing gas and breaking LNG export contracts," Chief Executive of Santos Kevin Gallagher said in response.
Breaking the export contract would be the moral and ethical decision for the people of Australia, if necessary.
The coal prices were capped by the states of Queensland and New South Wales and there are reports of power stations being compensated up to half a billion dollars each.
The Energy Price Relief Plan also put aside $1.5 billion to assist with consumers’ energy bills. This will be taken directly off the total of a household bill. How this will work in practice is still being negotiated.
The Relief Plan could have a significant positive impact on the environment as lower prices for firms might spur investments in renewable energy sources, which would likely result in a decline in carbon emissions and air pollution.
Lower prices received by firms may also encourage increased industry investment, resulting in new jobs and boosting economic activity. This could be especially beneficial to regional areas where the energy industry is a major employer.
“It is designed to provide all Australians with a buffer in unprecedented times,” the Prime Minister said.
“The urgent action we are taking with the Energy Price Relief Plan will shield Australians from the worst impacts of price increases, delivering responsible and targeted relief to families, small businesses and manufacturers.”
“The plan is responsible, targeted and temporary.”
All in all, what the government did is what any sensible post-Keynesian or neochartalist economist would do and that is implement price controls on the problematic sectors and activate the Australian domestic gas security mechanism to ensure domestic supply. It could have been done sooner but the politicians chose not to and to compensate firms generously for taking these actions.
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