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Finkel Review – Ai Group submission calls for end to political rancor which risks wreaking havoc to manufacturing and the electricity system

"Ai Group's submission to the Finkel Review of Energy Security released today urges a move beyond political rancor to build agreement around a new vision for Australian energy," Australian Industry Group Chief Executive, Innes Willox, said today.

"Long-term, sustainable solutions are required but we also need measures that can have real impacts in the near term. In particular, a 'gas swap' whereby commercial arrangements would be made to divert gas currently destined for export back into the domestic market and a nationwide effort on lifting energy efficiency could deliver decisive benefits while longer-term solutions are implemented.

"Australia's energy systems are not delivering affordable, reliable or sustainable energy. Nor are they attracting the investment needed to improve performance. Industry and households will continue to suffer rapidly escalating prices and supply instability unless our political leaders agree, deliver and sustain strategic reform of Australia's energy markets and climate policy.

"Energy should become a source of global competitive advantage for Australia's trade-exposed industries. Our energy systems should help make Australia an attractive location for energy-intensive industries all the way through the global transition to net zero emissions. Instead, we are now facing the prospect of soaring prices that will wreak havoc in manufacturing and the electricity system.

"Ai Group's Finkel Review submission calls for:

  • Bipartisan, nationally-coordinated energy policy;
  • An end to the blanket moratoriums on gas development in some states;
  • Close consideration of a gas-swap deal to divert gas exports back into the local market;
  • Reforms to better accommodate demand response systems and renewables;
  • Bipartisan support for a National Interest Test aimed at ensuring adequate gas supply to meet domestic demand; and
  • Remaining open to a well-designed market mechanism for reducing greenhouse gas emissions.

"The electricity market is being transformed by new technologies and is likely to use much more renewable energy, energy storage and demand response. But the system has not been designed with any of these in mind and, in particular, is not yet able to absorb higher levels of renewables. To make the system flexible enough to digest the change that is coming we need a suite of energy market reforms that reward anybody who creates value for the system.

"Strong gas supply is also critical to the electricity system and the wider economy. Soaring gas prices and tight supply are causing much of the pressure on electricity prices. State moratoriums on unconventional gas development need to be replaced with science-based regulation to protect water and agriculture.

"We need to think creatively on gas. Given the large volumes of gas available on international spot markets, it should be possible to put together voluntary arrangements to swap gas between Australian exporters, their overseas customers and international exporters to secure supply for Australian gas users. We should also introduce a National Interest Test on new gas export, as applies in the US and Canada, to ensure adequate gas supplies for domestic use.

"To underpin any substantial investment in the energy system we are going to need bipartisan and nationally coordinated policy on climate change. Electricity generation facilities last for decades and investors need to know what rules they will face before they take the plunge. A well-designed and technology-neutral market mechanism is likely to be the best option.

"Fixing electricity, gas and climate policy will require all sides of politics and all levels of government to come together. We are not naïve about the difficulty of this. But there is no alternative. No policy will be effective in supporting investment unless it is expected to last, and many features of our energy markets cannot be changed at all without consensus between the Commonwealth and the States. South Australia's new energy plan is a reflection of the acute pressures that State is under. Commonwealth investment in pumped hydro energy storage could be very useful. But both would work much better with national market reform – and too many unilateral initiatives would signal the end of the national market.

"Ai Group and other Australian business organisations have found common ground on energy with many others in the community. Our political leaders can and should do the same," Mr Willox said.

Link to Ai Group Finkel Submission  

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