The Productivity Commission is criticising the Trans Pacific Partnership, the head of the Australian Competition and Consumer Commission is criticising privatisation, and the electricity industry is worried that competition from renewables might deliver lower prices to consumers. What on earth is happening to the Neo-liberal “agenda”?

We are witnessing a watershed moment in Australia’s economic and political debate. The grand narrative of “market good-government bad” is dead. Killed by the rent seekers and vested interests that couldn’t resist overselling the benefits to the same consumers and taxpayers they were busy gouging.

The mining industry can’t help asking for taxpayers to subsidise their rail lines. The taxi industry can’t resist demanding regulatory protection from new competitors like Uber. And Manildra, the largest producer of ethanol in Australia and one of the largest donors to the Coalition, couldn’t resist demanding that NSW motorists be forced to buy a mixture of petrol and ethanol when they fill up.

It’s hard to maintain the argument that government spending is bad for the economy when even the Institute of Public Affairs supports taxpayer funding for dams and coal railway lines in far northern Australia. It is even harder to maintain the claim that red tape is bad for the economy when the National Party convinced the Liberals that we need new competition laws to rein in the market power of Coles and Woolworths.

The PC, which now refers to so-called “free trade agreements” as “preferential trade agreements”, recently said that the TPP includes provisions of “questionable benefit” to Australia. It was once heresy to suggest that a document called a ”free trade agreement” could do anything other than facilitate trade, but now the Lefties at the PC are encourage us to scrutinise the detail. Rules matter.

This week, ACCC chairman Rod Sims declared that unless privatised assets were well regulated they might actually harm consumers and the economy more generally. That sounds like something unions and consumer groups have been arguing for 20 years. Rules matter.

And in a week crowded with contradictions the coal industry was busy having conniptions about wind turbines while trying to argue that increasing the supply of renewable energy was pushing electricity prices up. Seriously. But more on that below.

Simple slogans about “market good-government bad” have been chanted so loudly, by such rich people, for such a long time, that they managed to drown out a simple truth that the “free-marketeers” knew all along. Rules matter. The GFC provided the clearest proof possible that far from “regulating itself” the global financial sector was simply “rewarding itself” – with other people’s money.

ACCC chairman Rod Sims says privatisation is hurting productivity.
ACCC chairman Rod Sims says privatisation is hurting productivity. Photo: Vince Caligiuri
The absurdity of the notion that it was ”markets forces”, not “regulatory design”, that mattered most for economic, social and environmental outcomes was always hidden in full view. Indeed, the banks, the mining companies and the media moguls that shouted the loudest about “free markets” have always spent up big on lobbyists to ensure they got the rules they wanted. But now the cat is out of the bag. Everyone knows the TV stations benefits from rules that prevent new competitors. Everyone knows property developers make a fortune by getting planning laws changed. And everyone knows that while they have to pay for water and waste disposal the mining industry doesn’t.

Which brings me back to the debate about renewable energy and the price of electricity in South Australia. It turns out that, surprise surprise, this not really a debate about “market forces” but a debate about the design of the rules that will govern the National Electricity Market for years to come

While we talk about the “market” for electricity, the government has always played a central role in its planning, regulation and construction. If we go back 50 years it was state governments that built the coal-fired power stations, built the mines that feed them and built the poles and wires that distribute the electricity. The fact that many of these assets have been sold to private companies in recent years does not mean we can “thank the market” for their provision.

If we had relied on the market to build our “electricity network” then the residents of regional NSW would still be splitting wood to cook dinner. Like our sewers and phone lines, there is no chance that “the market” would provide a joined up network across our vast continent.

Without public sector planning, investment and so-called red tape our coal power stations would be much closer to residential areas, and those residential areas would be a chaos of competing networks of electrical wires. Anyone who has travelled to Asia knows what I am talking about.

Just as the “nanny state” required petrol companies to phase out the use of lead in petrol in 1985, John Howard introduced the Renewable Energy Target to begin the phase out of fossil fuels from our electricity generation sector in 2001. As the RET mandates a growing market share for renewable energy it inevitably drives the decline of coal. Unsurprisingly, the coal-fired generators rage against such rules in the same way that cigarette companies rage against restrictions on smoking and the mining industry rages against having to clean up the holes they leave behind when they are finished selling our resources.

Just as the invention of mobile phones necessitated the introduction of new road rules the emergence of cheap renewable energy and new forms of battery storage like the Tesla Wall and Redflow ZCell require the creation of new rules for the electricity market. And precisely because rules matter so much, the owners of the coal-fired power stations are legally obliged to try to shape those rules in ways that maximise their profit. But just because we can’t blame them for trying doesn’t mean we have to listen to them.

As more and more batteries are installed in homes and businesses the peak load on the transmission network will be reduced, meaning that we will be able to save billions of dollars on line upgrades within and between towns and cities. Should that windfall accrue to those with an obligation to maintain the network, to the people who install the batteries, or be shared in some way? Rules matter.

The recent spike in the South Australian electricity price has as many causes as it does critics. Rule changes have made it more profitable to export gas than to burn it to make electricity in SA. Demand is higher in winter, the wind didn’t blow continuously and, most significantly the upgrade of the Heywood interconnector that joins the SA and Victorian networks reduced supply in July but will make electricity cheaper in both states for years to come.

South Australia has cheaper electricity today than it had in 2007. There were no black outs during the so-called “crisis” and the vast majority of residential and industrial customers who are on long-term contracts didn’t even notice the five-minute surges in the wholesale spot price. When the interconnector upgrade is complete, and if a new interconnector with NSW is built, not only will SA be able to rely on more power from other states when the wind is calm, but SA will be able to export a lot more cheap energy when the wind does what it usually does in SA which is blow hard.

The fear that SA may soon be an even bigger exporter of cheap wind power is what is behind the recent “debate”. Their best chance to protect their profits is to ensure that the “market regulations” restrict the growth prospects for their main competitors. Rules matter. After years of getting the rules they wanted by arguing that they simply wanted “free markets” Australian rent seekers are now forced to win public debates about why we should give them the rules they want. It’s not going well for them.

Richard Denniss is the chief economist for The Australia Institute.

Extracted in full from SMH.

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