Dr Emily Hanna
Energy is a significant issue for parliament, with
discussion since the last Budget focusing on the reliability and security of
the electricity system as well as the inclusion of renewable sources into our
energy mix. Significantly, since the last Budget, the Independent
Review into the Future Security of the National Electricity Market – Blueprint
for the Future (the Finkel Review) has been published and the
National Energy Guarantee (NEG) introduced.[1] The states and
Commonwealth have been in dispute over levels of renewable energy that should
be included in our energy supply, and the Council of Australian Governments
(COAG) Energy Council has not reached agreement on the NEG.[2]
This Budget has two main energy measures. These relate to
the acquisition of Snowy Hydro Limited and further funding of $41.5 million
over six years from 2018–19 to broaden the ‘Powering Forward’ initiative.[3]
The latter, which was introduced in the 2017–18 Mid-Year Economic and Financial
Outlook, aims to deliver ‘more affordable, reliable and sustainable energy’.[4]
Snowy Hydro Acquisition
Snowy Hydro Limited is an operational power company, which
was jointly owned by the governments of New South Wales (NSW), Victoria, and
the Commonwealth, with share allocations of 58%, 29% and 13% respectively. It
features ‘16 power stations with a combined generation capacity of 5,500
megawatts, including the Snowy Mountains Hydro Electricity Scheme, and ... more
than one million retail customers’.[5] The Australian Government
will soon become the sole shareholder, due to an agreement reached with the two
states to transfer their shareholdings to the Commonwealth in July 2018.[6]
In return, NSW and Victoria will receive $4.2 billion and $2.1 billion
respectively in funds for infrastructure.[7] This arrangement appears
as a new capital appropriation worth $6.1 billion for the Department of the Environment
and Energy (DEE), paid for in 2017–18 using ‘capital appropriation and interim
dividends payable from Snowy Hydro Limited in respect of their profits for the
half year period to 31 December 2017’.[8] This purchase was
reported in The Australian in March as being ‘excluded from the budget
bottom line’ with the asset ‘classified as a government business, “off the
books”, similar to the Western Sydney Airport and NBN Co’.[9] The report claims that,
nevertheless, this will ‘add to the nation’s debt, with the government
increasing its borrowings to fund the multi-billion dollar deal’.
After the transfer of shares in July this year, all future
dividends from Snowy Hydro Limited will go to the Australian Government, and
therefore the forward estimates show the acquisition creating revenue for the Commonwealth
of $1.1 billion over four years from 2018–19.[10] This is an increase in
earnings from the shares of $941.1 million over the four years.[11]
In addition, the Commonwealth will no longer need to compensate Victoria and
NSW for their relative shares of income tax paid by Snowy Hydro Limited,
reducing Department of the Treasury expenses by $225 million over three years
from 2019–20 ($75 million per year).[12]
The Budget includes no further funding specifically for
Snowy Hydro or the Snowy 2.0 scheme (estimated in the Snowy 2.0 feasibility
study to have a base cost of $3.8–4.5 billion).[13]
However, this is likely due to the Government reporting that the feasibility
study found ‘Snowy Hydro can finance the project itself using retained earnings
and borrowing’.[14]
‘Powering Forward’ program
‘Powering Forward – delivering more affordable, reliable and
sustainable energy’ is a measure designed to ‘support long-term energy
affordability, security and governance’. Funding of $11.7 million over five
years from 2017–18 is provided ‘to support recommendations from the Finkel
Review and the Energy Security Board’, including establishing the Government’s
current energy and emissions reduction policy, the NEG, and ‘developing a
distributed energy register to improve and lower the costs of system security
and grid management, and allow consumers to receive a benefit from their demand
reduction’.[15] In addition, the measure
aims to improve the functionality of the gas market, with funding of ‘$2.5 million
over two years from 2018–19 to improve gas pipeline regulations, and to improve
the national gas law and rules’. The development and implementation of the NEG
will also continue with funding of $7.5 million for the Council of Australian
Governments Energy Council’s ‘agreed work program’ over two years from 2018–19.[16]
Episodic assessments of national energy security and resilience are also funded,
with $12.8 million over six years from 2018–19 as well as a further $4.9 million
every three years from 2024–25 (with no end date given for this commitment).[17]
These assessments will include the recently announced investigation into
Australia's domestic liquid fuel security.[18]
As well as coming under DEE’s Energy program (program 4.1),
the Powering Forward measure is listed as part of DEE’s programs 2.1 and 2.2, Reducing
Australia’s Greenhouse Gas Emissions and Adapting to Climate Change,
respectively.[19] This appears to be the
only place in the Budget where new funds related to climate change are
provided:
-
$0.9 million over two years ‘to undertake modelling for a long-term
whole-of-economy emissions reduction strategy as recommended by ... the Finkel
Review’[20] and
- $6.1 million over three years (from 2018–19) ‘to improve climate
change information for the energy sector’.[21]
The Treasurer used the Budget speech to reaffirm the
Government’s commitment to an emissions reduction target of 26–28 percent on
2005 levels by 2030. He stated:
‘...we will not adopt the 50 per cent renewable energy
target demanded by the Opposition’ and ‘[a]ll energy sources and
technologies should support themselves without taxpayer subsidies. The current
subsidy scheme will be phased out from 2020’.[22]
This is reflected in the absence of extra funding for the Emissions
Reduction Fund (ERF), which has approximately $265 million left.[23]
The Clean Energy Finance Corporation, which under the Clean Energy
Finance Corporation Act 2012 had its last financial year of legislatively
prescribed funding of $2 billion last year, will receive $530 million in
2018–19 from DEE––only about one quarter of its previous year payment.[24]
Commentary
The majority of commentary around the energy-related parts
of the Budget relates to the absence of new funding, and concerns the lack of
extra funds for the ERF may make it harder to achieve the national emissions
reduction target.[25] The chief executive of
the Carbon Market Institute, Peter Castellas, is reported as saying that
without more ERF-funded abatement, ‘the need for the Safeguard Mechanism and
the National Energy Guarantee to do the heavy lifting of emissions reduction’
is elevated.[26] The Climate Council
stated that ‘Budget 2018 ... fell short on new funding to embrace the rollout of
clean, affordable and reliable renewable energy and storage technology’.[27]
Environmental and climate groups were also generally disappointed in the lack
of funding for climate change.[28]
[1].
A Finkel, K Moses, C Munro, T Effeney and M O’Kane, Independent
Review into the Future Security of the National Electricity Market – Blueprint
for the Future (the Finkel Review), Commonwealth of Australia,
2017; M Turnbull (Prime Minister) and J Frydenberg (Minister for the
Environment and Energy), National
energy guarantee to deliver affordable, reliable electricity, media
release, 17 October 2017.
[2].
COAG Energy Council, Meeting
Communique, 20 April 2018.
[3].
The budget figures in this brief have been taken from the following
document unless otherwise sourced: Australian Government, Portfolio
Budget Statements 2018–19: Budget Related Paper No. 1.6: Environment and Energy
Portfolio, pp. 20–21, 23.
[4].
Australian Government, Budget
Measures: Budget Paper No. 2: 2018–19, pp. 99, 201–202; Australian
Government, Mid-Year
Economic and Fiscal Outlook 2017-18,
p. 150.
[5].
Australian Government, Portfolio
Budget Statements 2018–19: Budget Related Paper No. 1.6: Environment and Energy
Portfolio, p. 7.
[6].
Portfolio Budget Statements 2018–19, Environment and Energy
Portfolio, op. cit., p. 7.
[7].
M Turnbull (Prime Minister), S Morrison (Treasurer) and J Frydenberg
(Minister for the Environment and Energy), Historic
Snowy Deal, media release, 2 March 2018.
[8].
Portfolio Budget Statements 2018–19, Environment and Energy
Portfolio, op. cit., p. 87.
[9].
G Chambers, ‘States
to reap $6bn in Snowy buyout [Turnbull's $6bn Snowy buyout]’, The
Australian, 2 March 2018, pp. 1, 7.
[10].
Portfolio Budget Statements 2018–19, Environment and Energy Portfolio,
op. cit., p. 76.
[11].
Budget Measures: Budget Paper No. 2: 2018–19, op. cit., p. 202.
[12].
Ibid.
[13].
Snowy
2.0 Short Feasibility Study Report, Snowy Hydro Limited 2017, p. 25.
[14].
M Turnbull (Prime Minister) and J Frydenberg (Minister for the
Environment and Energy), Green
Light for Snowy Hydro 2.0, media release, 21 December 2017.
[15].
The Finkel Review, op. cit.; Portfolio Budget Statements 2018–19,
Environment and Energy Portfolio, op. cit., p. 23.
[16].
Portfolio Budget Statements 2018–19, Environment and Energy Portfolio,
op. cit., p. 23.
[17].
Ibid.
[18].
J Frydenberg (Minister for the Environment and Energy), Budget
delivers for energy, reef and environment, media release, 8 May 2018.
[19].
Portfolio Budget Statements 2018–19, Environment and Energy Portfolio,
op. cit., pp. 60–61.
[20].
Ibid., p. 20.
[21].
Ibid., p. 21.
[22].
Scott Morrison (Treasurer), Budget
speech 2018–19, p. 82.
[23].
Department of the Environment and Energy (DEE), ‘Emissions
Reduction Fund Update’, DEE website.
[24].
Portfolio Budget Statements 2018–19, Environment and Energy Portfolio,
op. cit., pp. 27, 161; Clean Energy
Finance Corporation Act 2012, section 46.
[25].
‘No
Budget top-up for Emissions Reduction Fund’, Footprint, 8 May 2018.
[26].
Ibid.
[27].
Climate Council, ‘Budget
blow: No cash to tackle climate change’, 9 May 2018, Climate Council
website.
[28].
For example, Australian Conservation Foundation (ACF), ‘Budget
2018-19: Investment in a healthy environment cut to bare bones, while fossil
fuel subsidies continue’, 8 May 2018, ACF website and Climate Council, op.
cit.
All online articles accessed May 2018.
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