Employer and industry groups say energy price caps will cause supply problems

Australian Chamber of Commerce and Industry chief of policy David Alexander said business welcomes targeted price relief that government can provide in the face of soaring energy bills, however, is concerned about the market interventions set to pass Parliament, as they risk reducing investment and exacerbating supply problems.

“While targeted relief will take the sting out of forecasted energy price increases, there is little detail over who will benefit from temporary assistance, and this won’t be settled with state and territory governments until March next year,” he said.

“We are concerned about the establishment of price caps because they reduce incentives for supply and investment and create larger problems over time.

“We are also concerned that the mandatory code of conduct in which the government determines ‘reasonable prices’ would be a significant impairment to the efficient operation of the market and would further deter future investment.

“For many years, short-term ‘fixes’ by governments have created larger second-round problems — investment is deterred, supply is reduced, and prices are higher than they would otherwise be. Price capping is another policy that fits into this pattern.

“The government needs to prioritise getting the fundamental settings for energy policy right, as this is the only way to ensure affordable prices and secure supply while meeting emissions targets.”

Innes Willox, chief executive of national employer association Ai Group, said that by passing legislation to enable temporary gas price caps, the Parliament had taken badly needed action that will, for all its flaws, help energy users and soften the blow to Australia.

But he also said the energy affordability crisis is certainly not over.

“Energy users are still set to face significant cost increases in 2023, particularly because so many contracts for energy supply in 2023 have already been signed,” he said.

“We should not overstate the immediate impact of these measures on energy costs, particularly for industrial gas users. Nearly all users will pay more for energy in 2023 than they did in 2021.

“But with wholesale electricity futures for 2023 falling by around half since the government signalled it would act, clearly costs for energy users are set to be lower than they otherwise would have been.

“Much further work will be needed.”

Mr Willox said the detail of the reasonable pricing provisions of the mandatory gas code of conduct would be complex and fraught.

“The government’s actions are highly interventionist, and we need to be wary of the impact on future investments in energy and elsewhere. Unintended consequences are quite possible, and they will take effort to avoid and manage,” he said.

“Price controls are not a long-term fix for our problems, and as with previous episodes when international conflict put the Australian economy under extraordinary strains, intense regulatory controls should give way to liberalisation as the emergency passes.”

Mr Willox added that the overwhelming majority of Australian businesses are energy users, not energy producers.

“Their interests and their ability to invest with confidence are also significant,” he said.

“It has been clear for months that dramatic action would be needed to safeguard energy users of all sorts. That action has finally begun. The bottom line is that the sooner we can move from temporary measures to permanent and workable solutions to assist our energy transition, the better.”