Public policy
Renewable energy is back on the policy agenda: this time it’s meaningful
The Sydney Energy Forum
Anyone who still thinks of renewable energy as some “alternative” or “left” issue would do well to cast their eyes over the range of speakers at last week’s Sydney Energy Forum.
The government has been keen to stress the Australia - United States Net Zero Technology Acceleration Partnership announced at the forum. This seems to be an arrangement made in good faith, emphasizing cooperation in “long duration energy storage technology, digital electricity grids and technology to support the integration of variable renewable energy, hydrogen, and carbon dioxide removal, including direct air capture”.
Michael Mazengarb, of Renew Economy, reported on both days of the forum, emphasizing national security issues associated with clean energy. On the first day he wrote mainly about the need for countries to lessen their dependence on single sources. Unsurprisingly, Russia came in for special mention, but perhaps in view of America’s strong presence at the forum, there seems to have been little mention of Saudi Arabia. His second day report was more about the need to secure and diversify supply chains for critical materials and components for generating and distributing renewable energy.
Australia’s progress to 2030 goals
Anyone wanting a snapshot of our progress towards net zero emissions in electricity generation can find a neat explainer on the Australian Academy of Technological Sciences & Engineering site: Here and now: the state of low emissions technology in Australia. From that short document there is a link to a more comprehensive report on solar, wind, pumped hydro, batteries, hydrogen, gas and grid technologies, with descriptions of particular projects. The report covers not only electricity supply, but also the benefit of electrification of transport and manufacturing: “electrification of transport, heating and industry allows decarbonised electricity to eliminate 80 percent of Australia’s emissions”.
Also writing on Australia’s progress, Bruce Mountain defends the government’s intention to cut Australia’s greenhouse gas emissions by 43 percent below 2005 levels by 2030 – an intention criticized by some as being too unambitious and by a small but strident minority as too costly for our economy. His article in The Conversation – Labor’s renewable target is much more ambitious than it seems. We need the best bang-for-buck policy responses – includes an outline for an energy storage plan, developed by his colleagues at Victoria University’s Victoria Energy Policy Centre.
Mountain acknowledges the possibility that in the medium term, electricity prices may have to rise to finance the upgraded grid that’s an essential part of the government’s plan. But we may ask, in terms of the public good aspects of our energy transition, if that upgraded grid has to be financed by electricity users or by all taxpayers? Because the grid is a fixed-cost asset, there seems to be no case in terms of allocative efficiency in charging it specifically to electricity users.
Reminder to the Reserve Bank: we’re not the Weimar Republic in 1922 or Australia in 1982
On Thursday (our time) the US Bureau of Labor Statistics revealed that their CPI had risen by 9.1 percent in the 12 months to June, or 5.9 percent excluding food and energy. Gasoline prices were up by 60 percent.
Now that US and Australian gasoline prices are in line, is this the end of an American icon?
As US CPI inflation has risen, the US dollar has appreciated against other currencies, including the yen, renminbi and euro. We have experienced the same, with the $US/$A exchange rate rising by 11 percent over the last year.
Most mortals rationally think that higher nominal prices must point to a lower exchange rate – that’s the way real prices around the world come into line, but it’s not how international currency markets work, particularly in relation to the US dollar. The US dollar is rising because people in the world’s financial markets expect the US central bank (the Fed) to raise interest rates aggressively to stave off inflation. A neat description of the process, more digestible than an Economics II course, is provided by Pritosh Ranjan of Schroders Wealth Management: Why has the dollar been so strong – and can it continue?
In terms of the world economic system, this is serious. The US is already running a large deficit on current account, and an overvalued exchange rate will worsen the situation. At some time, the US dollar has to come back to something that aligns US real prices with real prices in the rest of the world, and the adjustment on world markets could be painful. In the meantime there is a risk that countries engage on rounds of competitive tightening in monetary policy in order to stave off imported inflation. This could be a re-run, in another context, of the 1930s competitive protectionism that led to so much misery world-wide.
What will happen in Australia – will our Reserve Bank join with the mob and push up interest rates? The ABC’s Ian Verrender has five reasons why the RBA should not raise rates aggressively. One reason is that for some items, prices having risen, they will probably not rise again. The $10 iceberg lettuce is unlikely to be followed by a $15 lettuce (and even if it does, we can switch to cos). Monetary policy is an effective tool against self-perpetuating inflation, but is hardly an appropriate means to combat once-off price movements. Relative price movements are a normal feature of a healthy market economy. Many economists believe that whatever the Reserve Bank does, inflation will fall in 2023: therefore why not let natural corrective forces play their role?
The idea of self-perpetuating inflation had some validity in earlier times in Australia, particularly in the 1970s and 1980s, when wage indexation tended to allow wages and inflation to chase each other, but since then successive governments, particularly the Howard government, have weakened the institutional arrangements that help workers receive wage increases, and union membership has fallen. Our problem now is that we lack the arrangements for a fair share of productivity improvements to flow to wages, as Ross Gittins explains on his website. “An increase in wages sufficient to prevent a further fall in real wages would do little harm to the economy and much good to businesses hoping their sales will keep going up rather than start going down”.
Gittins does not suggest that the RBA should hold rates at their present level. Negative real interest rates are not good for the economy, but any move back to a small positive overnight rate should be slow.
But Thursday’s announcement of a 3.5 percent unemployment rate, the lowest since 1974, is likely to energise the austerity hawks in the RBA.
Assisting home ownership – too much on the demand side, too little on the supply side
Many governments have policies to encourage home ownership, particularly for first-home buyers (FHBs). Where Australia stands out as somewhat different from similar countries is that our policies, federal and state, are generally directed at demand-side assistance, boosting the financial resources of FHBs to buy houses, rather than boosting the supply of new houses and thereby keeping prices down.
This is the main finding in a report by the Australian Housing and Urban Research Institute: Assisting first homebuyers: an international policy review. The Institute’s researchers looked at seven comparable countries – Canada, Finland, Germany, Ireland, Netherlands, Singapore and the UK – and found that in most of these countries assistance to FHBs involved a wider range of policy instruments than are used in Australia, including measures such as generation of homes for low-cost sale through government-commissioned land development. Also, the approach in Australia tends to be on attempting to solve immediate problems of affordability in a largely unregulated housing market (distorted by tax concessions for speculators), rather than any general housing or settlement policy. A housing policy, as distinct from a narrow housing affordability policy, would integrate with considerations of spatial planning. There would also be measures to avoid the development of concentrations of social disadvantage, or self-chosen social exclusion by the rich in real or virtual gated communities.
The ABC’s Gareth Hutchens has a summary of the AHURI study. Although in Australia we once relied heavily on supply-side measures, “from the 1980s onwards, Australia's policy for promoting home ownership became a policy of privileging home owners, not first home buyers” he writes.
The AHURI study finds that Singapore has some of the strongest and most effective housing policies out of the countries studied, particularly through its government-controlled build-to-order program, with the government retaining ownership of the land (as in the ACT). Importantly its policies are aimed at providing housing at sub-market prices for people on low to modest incomes. This is in contrast to policies that have evolved in Australia towards providing what has come to be known as “social housing” for the poor, with the associated problems of stigmatization and social segregation.
Older Australian urbanists will remember that in the past Australia had some strong housing policies that integrated with economic policies generally. In particular there was the Housing Trust of South Australia, which provided good quality public housing for rent or eventual sale to people on low to modest incomes. Affordable housing was considered to be part of the social wage. These policies are described in Hugh Stretton’s 1970 book Ideas for Australian Cities. Many of the people who had been involved in Australia’s most inclusive housing policies went on to work in or consult to the Singapore authorities. We are not devoid of ideas in Australia; it’s just that we lack the governments with the political nous to put the public interest above the interests of private property developers.
Stamp duty reform
One mooted reform, that should be revenue-neutral for governments while making first home ownership more accessible, is to abolish stamp duty on the sale of houses, and to replace it with a land tax on all dwellings. It shifts the tax liability from those who buy and sell houses on to those who own houses.
Such a change is already underway in the ACT, and the New South Wales government is attracted to the idea. Brendan Coates, of the Grattan Institute, while thoroughly endorsing the idea, points out some of the transitional difficulties likely to arise, basically because it’s politically easier to tax a few people heavily than to tax a lot of people lightly. The Commonwealth may have to help with some funding to make it happen: The new PM has an opportunity for major tax reform.
Good on Dreyfus for dropping the prosecution of Bernard Collaery, but there’s more to uncover and there are other whistleblowers being prosecuted
Many see the prosecution of “Witness K” and Bernard Collaery over their disclosure of illegal activity undertaken by Australian public servants in bugging East Timor’s Cabinet as an affront to the rule of law.
Writing in The Conversation, Spencer Zifcak of the Australian Catholic University says The unconscionable prosecution of Bernard Collaery was an assault on the values Australia holds dear.
Had Collaery’s case proceeded to trial, the ramifications of the case for freedom of expression, journalism and governmental accountability would have resonated through Australian law and society for years.
He commends Attorney-General Dreyfus for drawing this “scandalous legal proceeding” to a close.
But this should not be the end of the issue. Writing in Crikey Bernard Keane points out that there is a great deal of unfinished business: Collaery trial’s secret business should be the first job for a federal ICAC, not buried in the department. He refers particularly to a ruling by the ACT Supreme Court that prohibited Collaery from subpoenaing national security officials, “effectively removing intelligence agencies from judicial oversight”. He also points out that rather than retreating in dignified silence, the Coalition opposition is using Dreyfus’s withdrawal of the prosecution as evidence of Labor being soft on security, overlooking the harm done to Australia’s security by Howard, Downer and their spies in bugging the Timorese.
Crikey has a rather high paywall. But you can hear Bernard Keane on last Monday’s Late Night Live. Keane points out that Dreyfus’s decision was based on his misgivings on the secrecy in the trial, and the lack of evidence or argument that there was any public interest in pursuing the trial. We still don’t know who specifically authorised the bugging, although we do know who the beneficiaries were – most notably Woodside Energy, a huge political donor. That should all be subject to a public inquiry.
Keane notes that the trial has received too little attention from the media or, for that matter, from Labor when they were in opposition. He notes that the Gillard government could have put an end to the process when it was approached by the Timor-Leste government with a view to re-negotiating the treaty, because it was based on espionage by the Australian side, but the Gillard government refused that request.
(Keane’s whole session is 17 minutes. Up to 7:50 minutes he goes through general policy developments – the Pacific Islands Forum, Australia-China relations, the upcoming jobs summit – but the rest of the program is devoted to the “Witness K”-Bernard Collaery trial.)
Also Dreyfus seems to be treating the “Witness K”- Bernard Collaery case as a once -off aberration, rather than part of a general culture of persecution of whistleblowers. On Thursday he announced that the government would not be intervening to dropping the prosecution of Australian Taxation Office whistleblower Richard Boyle.