Australian Federalism and Energy Policy Post COVID-19: Lessons for Canada?

Positive Energy

By Andrew Pickford

Executive Director , Mannkal Economic Education Foundation

Andrew Pickford
From the outside, it appears that COVID-19 has reshaped the contours of Australian energy and climate policy. Superficially, there is much that appears relevant to Canadians: a functional form of federalism, attempts to resolve the climate policy wars, and serious consideration of a trans-continental natural gas pipeline. These developments would have been unimaginable as recently as January 2020; however, the economic impact of COVID-19 and the need to accelerate decision-making has shifted long-entrenched positions and removed layers of bureaucracy from sclerotic processes.

While some insights can be gleaned from Canberra, care should be taken in trying to transplant the approach to Canada and expecting a similar outcome. As the initial phase of this public health crisis has now passed, it is possible to complete a stocktake of key outcomes and lessons. It should be noted that the infection rates of COVID-19 are relatively low in Australia. Like Canada, we have a small population spread across a large country. Aside from the larger cities of Melbourne and Sydney, there is very limited community transmission. As of mid-2020, a larger second wave, centred in Victoria, could shift the parameters, but this review is based on the first half of 2020.

Like my larger Positive Energy study, which examines the contrasting experiences of Western Australia and British Columbia with facilitating LNG investments, this short commentary focuses on developments in the federal sphere. It builds on my earlier LNG comparisons and was the subject of my recent podcast discussion with Ian T.D. Thomson as part of the Positive Energy podcast series.

What were these developments, and is there relevance for Canada?

National Cabinet

Prior to COVID-19, Australia’s equivalent of a “First Ministers’ Meeting” was run under the banner of COAG, the Council of Australian Governments, which operated from 1992-2020. It included the prime minister, premiers and chief ministers (equivalent to premier or first minister) and met two to four times a year. There were also meetings along portfolio lines, including an Energy Council.

Born out of the national competition process of the 1990s — which drove significant micro-economic reform — COAG’s purpose and direction were waning by the early 2010s. It had become bureaucracy at a high cost with little effectiveness. It was referred to as the place ‘where good ideas go to die’ and although it produced communiqués, it rarely implemented policy reform. Its inefficiency was due to the politicisation of issues, which increasingly saw it become a platform to shift blame about policy problems or budget shortfalls.

The urgency of COVID-19 jettisoned the bureaucratic-led process of COAG and forced leaders to act. This saw the emergence of the newly named National Cabinet, which is essentially an intergovernmental forum comprised of the prime minister and all state premiers and territory chief ministers. It is not really a cabinet as strict rules of solidarity and secrecy are not in place, but decision-making is quick and streamlined. The ‘co-ordinated and consistent’ meeting structure involves a bi-weekly conference call between the leaders, becoming monthly post-COVID-19. Its sole focus is on ‘job creation’ in response to the pandemic. States and territories will maintain sovereignty and autonomy and are not bound by any National Cabinet decision.

Despite these limitations, the National Cabinet has seen leaders from the centre-left and centre-right work closely together and respond in real time to fast moving developments. It is run by elected politicians rather than bureaucrats and is seen as a manifestation of Australia’s ‘can-do’ spirit exemplified by getting things done rather than being wedded to legacy.

While seen as a success, it should be noted that the National Cabinet is a product of the pandemic crisis and has benefited from a clarity of purpose. However, some view this forum as the ideal place to agree on a national energy policy. Given the impasse on climate and energy policy over the last two decades, similar in tone and intensity to Canadian debates, it is not evident how complex, long-term technical issues can be addressed with the same urgency as, for example, contact tracing.

Australians, like Canadians, are very sensitive when it comes to the autonomy of states. A book with the subtitle: the story of power development in Australia covers this animosity and rancour. The main title, Warring Tribes, gives an indication of the underlying tensions that exist. Written in the context of privatisation and deregulation, the book helps to explain why subsequent climate change debates exacerbated existing cleavages between resource rich states and de-industrialising, urban centres.

The National Cabinet may indeed be a good vehicle through which to reach decisions on energy and perhaps climate policy. It is unencumbered by past practices and forces a collaborative outcome from state and federal leaders. However, this remains conjecture only, and may not be relevant until a truce is reached between and within the major parties in the climate wars.

Resolution of Climate Wars

Australia’s climate and energy policy has long been divisive. It has been described by many as political kryptonite, leading to the downfall of a number of opposition leaders and prime ministers, culminating in the mid-winter break of the parliamentary sitting year in July referred to as the “killing season”. Nearly all changes in party leadership during this period were the result of intra-party disputes over climate and energy policy.

Both the centre-left Labor party and the centre-right Coalition (Liberal and National parties) have had varying policy positions throughout the last decade. Former Liberal Prime Minister Malcolm Turnbull attempted to pass the National Energy Guarantee (NEG) in response to rising energy prices and confusion around energy infrastructure. The lower emissions target of the NEG was divisive within Canberra, ultimately leading to Turnbull’s downfall and the elevation of Scott Morrison to the prime ministership.

Like Canada, there was no middle ground that suited energy users and producers that could also appeal to those who prioritized the environment.

Despite the challenges, the federal Labor opposition leader, Anthony Albanese, recently extended an ‘olive branch’ to the government, arguing that it is time to act on community will and work towards a bipartisan energy agreement. He said the parties do not need to agree on targets, only agree on an energy policy scalable to meet various emissions targets. By mid-July 2020, a small segment of right-leaning Labor members indicated their party should adopt the government’s medium-term target to lower emissions by 26-28 per cent of 2005 levels by 2030. If Labor were to move to this position, it would significantly increase the likelihood of a solution.

While intended to bring a resolution to energy and climate policy, given Labor’s weak position, it could be used to fragment and wedge the Liberal and National caucus. Should Labor expect Coalition refusal to cooperate, climate policy would likely become an electoral weapon positioning the Coalition as uncooperative and lacking a progressive and comprehensive energy policy. Conversely, the Coalition may see this as less important than high unemployment – particularly in light of the need to facilitate post-COVID-19 economic recovery – and be willing to fight an election based on energy extraction and job creation.

Also relevant to Canada is the domestic impact of the Australian LNG investment boom of the early 2010s. These plants are coming online, and they have partially driven higher domestic gas prices and electricity costs. This is matched by the general shift of the power generation mix towards renewables and natural gas, and away from coal. Many large, traditional coal generation plants are reaching the end of their life.

While Australia’s recent boom in LNG investments was envied by Canadians, the shift to exports has seen domestic market price increases that have had a political impact. The federal government is intervening in LNG export arrangements and is currently considering establishing a ‘national gas reservation scheme’ by 2021 to mirror the Western Australian scheme introduced in 2006 (largely in response to increasing prices in that state). There is no significant difference in major parties’ positions on national reservation schemes. LNG exporters treat these impositions as a de facto tax and are generally against the policy, even if their public statements are more neutral. This shift does, however, signal an increasing role of the national government in future LNG projects, which could introduce a political dimension into the approval process. Australia has not had a National Energy Board (Canadian Energy Regulator) equivalent but there is a gradual shift of energy policy towards Canberra.

Trans-continental Gas Pipeline

One issue that could test the new National Cabinet and potentially end the climate wars is a proposed $6-billion trans-continental national gas pipeline running from north west of Western Australia to South Australia where it would connect to the eastern state’s gas network.

The concept of a national gas pipeline has been around since the 1970s but has arisen again out of the COVID-19 response for a variety of reasons. The population and vote rich eastern states are experiencing high gas prices. Existing fields are in decline and there are restrictions on gas extraction. This has resulted in various proposals, including LNG receiving terminals in the southeast of the nation. The concept of a national pipeline has a number of champions, but the focal point has been the body tasked with economic rebuilding, namely the National COVID Coordination Commission. It has flagged the pipeline as a means of stimulating economic growth post-COVID.

The proposal does not divide neatly on a left-right spectrum and is significantly different from Canadian energy infrastructure debates. In 2017, Acil Allen, an economics consultancy firm, conducted a feasibility study at the behest of the federal government that found the project was not viable. This has validity on short-term cost-benefit analysis, especially if compared to LNG import terminals. However, fundamental to the pipeline is the expectation of future energy demand on the eastern seaboard. The powerful Australian Workers Union backed the concept and significant sections of the business community are hopeful this could reverse the energy price inflation trend. LNG producers are obviously cautious with the proposal, as they prefer high-premium Asian export markets.

In Australia, natural gas has an important role to play in balancing intermittent renewables, and the coal generation sector makes gas, for a time, a lesser evil for the environmental movement. Interestingly, the last time a national gas pipeline was seriously considered it was being promoted by Prime Minister Gough Whitlam and Rex Connor during the 1970s. This Labor government was to the left of its successors and created a backlash in Western Australia, reminiscent of Pierre Trudeau and Alberta during a similar period and with similar concerns. These sentiments echo down to the present. Yet, in Australia there was no such defining phrase as ‘let the eastern bastards freeze in the dark!’

How the national pipeline, National Cabinet and climate policy will develop during the second half of 2020 in Australia is unclear. COVID-19 has reorganized domestic alliances but critically it has accelerated and brought to the surface many existing trends. While informative for Canada, the developments in Australia should not be viewed as a template for solutions. They can, however, demonstrate how a fellow federal Westminster parliamentary democracy with significant natural resources is grappling with energy debates as it navigates through a health crisis and economic contraction.