Keynote address at COSBOA National Small Business Summit Melbourne
30 August 2019
ANGUS TAYLOR: Thank you, Mark, for that very kind introduction. It's fantastic to be back here. You're quite right, I think it was about two days after I had been appointed as the Minister for Energy, I came and spoke at this very event in Sydney, I think, on that occasion. And there was nothing more appropriate for me to speak to small business because it's where I've come from. I firmly believe in the importance, both economically and politically, of the role of small business in this country and around the world - and we lose small business at our peril for our political culture and for our economy. So it's wonderful to be back here again.
It's also great to see Bill English here. You talked about my grandfather William Hudson. He was in fact a Kiwi from Nelson, on the South Island of New Zealand. As was my grandmother. Now, I'm okay. It's been checked.
I did have a rough 24 hours looking at this a while back just to make sure it was all under control. I'm not a Kiwi.
But both of my grandparents were from the South Island of New Zealand, from Nelson and Fairlie.
I've watched Bill and the extraordinary work he's done in New Zealand over all those years, similarly from a rural background, and what a contribution he's made. It is a real privilege for me to be here with Bill English.
Now, look, today, I was very keen to just spend a few minutes talking about our energy policy, and in particular how it relates to small businesses. There's a lot of water under the bridge from a year ago and it is almost exactly a year since I've been in this role, and I wanted to outline where we are, what work we've still got to do, because this is work in progress, and what it means for small business. One of the things I'm very conscious of is, in this space, almost every decision we make has an impact on small businesses in some shape or form.
It's very easy to make the mistake to ignore small business in the decisions you're making in any policy area. And to focus on niche issues for small businesses is not the way to think about it. Almost everything we do has an impact in some way, shape, or form, and as a Government, we're very conscious of that - and as a Minister, I'm very conscious of that.
I'm particularly conscious of it as someone who spent my career involved in and starting small businesses. I've seen the struggle. I remember back to the early 1980s drought. People talk about tough droughts - the early 1980s where I grew up near the Snowy Mountains in southern New South Wales was an extraordinary drought. The strain and pressure that put on my life, my family, my parents, and everyone in the region was extraordinary.
The thing that's distinctive about small business of course is family and business very often know no boundaries. They're the same thing. They're the same thing. So I'm very conscious of this in everything I do, and I know the Government is more generally.
Whether it's the butcher or the cafe owner, or a small manufacturer in my hometown of Goulburn, energy has become the second largest expense after wages for small businesses in this country - both electricity and gas. It's an expense that most small business owners can't afford easily. In most cases, you can't turn off your fridge, you can't afford not to run your equipment. It's not an expense that you can easily dispense of - and as I say, I see it time and time again with my own small business constituents right across my electorate.
Now as I said, it's been 12 months since I've been in this role. It's been 12 weeks since the Government was re-elected, and an enormous amount has happened even in that last 12 weeks in the electricity and gas market.
I never thought early on in my career of energy as a highly dynamic market, but it is these days, perhaps a little too dynamic, and that's one of the things I'll talk about, and one of the things we've got to settle down over time.
The first thing I'd say is that we shouldn't think of energy as a special portfolio. Now it has been highly political in this country in recent years, but it's not special. Just like everything else in life, delivering results in the energy portfolio is about lining up tough issues and knocking them over one by one. Gradually dealing with the issues we have in front of us. There's no silver bullet. There's no single simple easy answer. There's a lot of stuff we have to do over a period of time to sort this out.
It's no different from business. If you're seeing a change in your business and you've got to deal with that change, there's a whole series of changes you have to make over time to sort those out. So that the constant search for a single silver bullet, I think it is absolutely wrong.
It's true of other portfolios. If you look at health, if you look at environment, national security, education, it's always a whole series of changes that are necessary when you are in a dynamic environment.
I know that some people will say, and they usually use my first name when they do that: “So Angus, we just need everyone to agree so we can have investment certainty”. Investment certainty - it's become a bit of a bit of a buzz word in this industry and some others as well.
I don't take the issue of investment lightly. Investments about calculating and managing risk, and you all, in your businesses, make investments every day and you've got to think very carefully, as Government, about how we make sure that there is that encouragement to invest. The Treasurer Josh Frydenberg has been talking about that a lot recently, but you can't remove risk.
What we can do is make transparent and accountable to those investing what we are doing so they can manage their many risks that arise when they're starting or investing in a new project.
Now the first part of transparency and investment is transparency about our current situation. What is the situation we are facing? In energy, what's been intriguing is that there have been an enormous number of falsehoods in recognising what is the situation we have in front of us.
Right now, Australia is in the middle of an investment boom in energy - an absolute investment boom. Both in, not just in gas, where we know, we understand there's been enormous investment in the export trains and the export capacity in the industry - but also in electricity. As a nation, we have never seen anything like it. I'll go through the numbers in a moment. The challenge for me as a Minister is not to encourage further growth in investment - we're getting it - but to make sure that the current levels of investment are managed and guided to the right areas, that we're giving the right signals for them to go to the right areas, in a way that will have a positive impact on the energy market.
In 2018, Australia had over $13 billion of investment in clean energy - $13 billion - with similar or even higher investment forecast for this year. Per capita, we have the highest level of investment in the world - double or more that of most countries in the world like France, Germany, UK, Japan and so on.
Now, you're all business people and as business people you know the challenges of rapid growth. It's no different in the energy sector to anywhere else. We saw what's happened in South Australia, the end of 2016, with a massive blackout affecting almost a million consumers. Unfortunately, we're seeing it again in Victoria. We saw it on January, just before Australia Day. When rapid investment and change is mishandled, you see serious unintended consequences, and in the energy sector, those consequences are in the form of serious reliability and affordability issues.
It's a sobering fact that Victoria was once the energy capital of the nation, and perhaps one of the energy capital, almost certainly one of the energy capitals of the world. It exported to neighbouring states, but it's now an importer of both electricity and gas.
The AEMO issue - which is their way of assessing where we stand in terms of supply and demand in the electricity market - stated that very clearly recently. Victoria has a significant risk of blackouts this year despite this record investment, and if you think about it, it's absolutely astonishing, that an industry is in the middle of an investment boom, but it can't be sure that it can keep the lights on.
That may not be as remarkable as you think, when you look at the reason for the boom, and the nature of that boom. The boom in investment has almost exclusively been in variable renewable generation that underpins an ambitious agenda to reduce emissions. Now, in achieving that purpose it's clear that it's been highly effective in reducing emissions. Electricity sector emissions fell over 2 per cent in the year to March, and we'll meet our Paris targets in the national electricity market about eight years or more ahead of time. About eight years or more ahead of time. So on the emissions side, we are going absolutely gangbusters in reducing emissions in the national electricity market.
So let's take stock. We've got this record investment in renewables, but along with that we've got record high prices and unprecedented reliability challenges. So our focus has to be on addressing the negative consequences of this record investment and making sure in the future, it is balanced. It's balanced investment. Now the history is clear that the investment hasn't delivered on the most important two goals of the energy market - delivering affordable and reliable power. That's what we're absolutely focused on. It's not that emissions don't matter - they do matter - but we're achieving in the electricity market. What we need to do now is to continue to put the emphasis on affordability and reliability. We're starting to see people call out the issues that they're seeing in the market. We're starting to see a focus on reliability and pricing more places than just the Commonwealth, and we're seeing the implementation of Commonwealth policies having a real impact in the market.
The Retailer Reliability Obligation, which came into place from the beginning of July, and the Government's program to invest in new reliable generation dispatchable, 24/7 generation are important mechanisms to drive reliability into the system and to ensure we drive prices down.
I am heartened by the early results. Analysis following the implementation of the reliability obligations shown the lowest prices in some time across the months of July and August. Average wholesale prices across South Australia, Victoria, New South Wales, and Queensland for the months of July and August were about $20 a megawatt hour, lower in 2019 than comparable prices several years earlier.
Also the average AER futures prices across the four quarters of 2021 is currently sitting on around $71. As we look out further into the future well within striking distance of our target of below $70 a megawatt hour that we've set before the election.
These are very positive signs, but we know we need to go further. We need to guide energy investment into the right areas. And if that market doesn't show that it can, we have to give it a nudge.
I have a short list, the Government has a short list of 12 projects through our underwriting program that we're working on. They won't all get built, because this is a program that will bring only those generators that make economic sense - the business case has to stack up - but we are well advanced on a number of those projects and they will have an impact.
The short list has pumped hydro in almost every market. We have gas generators in key markets that can knock the top off the wholesale price. We have an upgrade to coal generation that will increase reliability, lower emissions, and increase flexibility. These are very tangible projects, and they're important projects.
Now, this is not an area where the Commonwealth has traditionally played a significant role. We want to play as little as role as we have to, but as much as we need. State governments have traditionally been the custodians of local generation capacity. But it is a place we have had to go.
It's not only the wholesale market where we've had to make changes, the Default Market Offer was introduced in the retail market from the 1st of July this year, and that provides a safety net, a price cap for households and small businesses, who find the market confusing and don't have time to shop around for a better deal.
Small businesses that were on the higher standing offers, can expect to see annual savings of almost $3,000, depending on which jurisdiction they're in as a result of that reform, and we're seeing that having a positive impact.
Indeed, the last two CPI's have shown us the last two quarters electricity prices coming down across Australia.
Now we know that isn't enough.
We've got to continue to drive flexibility for users to get a better deal and shine a spotlight on the industry to encourage better prices.
It may seem like the most simple things for a government to talk about, it's been proven time and again, that those simple things are the most powerful. We have to create a market where it's easy and transparent for the time poor, particularly small businesses - because there's no one more time poor than a small business person with all they have to do - to understand their bill and to switch plans or switch providers.
Now there's many ways for this to happen, but I've got to say, there is no better regulator for any market than a well-informed customer. They are always the best regulators.
So the Consumer Data Right is a reform that I think is absolutely fundamentally important, and it's not just because it was one of the initiatives that I championed when I was assistant to the Prime Minister with responsibility for digital, but because it has the potential to create a market that is focused on and driven by well-informed customers.
A market where you, all of you, small business owners, own your data and can use it with third party aggregators to switch more effectively and efficiently to a lower cost plan. We know there are enormous savings up for grabs in achieving that, but the key is to understand the user, their tradition, their historical use, and to find the best plan for them.
There is no reason we can't have a wotif.com for energy. Customers should be able to compare prices based on the historical data very easily with the click of a button, and switch in minutes with that if they choose to do so, if they want to do so.
You will be able to do that with the Consumer Data Right, which is what we've announced in recent days, we are accelerating that now in the energy market, just as we are pursuing it in banking and over time will do the same in other industries.
Now electricity isn't the only issue in the energy space that requires action. We all know that the price of gas for domestic users is too high.
The recent ACCC report identified that $10 plus gas in Victoria and 26 per cent retail margins are now a reality, and they are a wake-up call for Australia.
We have been developing a strong agenda on the supply side for gas, and we will back those states that back exploration in gas. We're doing it in the Beetaloo, in the territory right now, states and territories.
Now I'm prepared to look at and fight for other opportunities right across Australia.
We've begun our review of the domestic gas security mechanism, our review into gas pipelines, and we've also committed to begin working through what, I guess, reservation scheme might look like for forward looking projects.
We've done this so we won't repeat the terrible decisions of nearly a decade ago, when the Gillard Labor government opened up new gas export trains without any policy to support domestic requirements.
Now all of this work will have an impact. We'll drive to the greatest possible efficiency in the market that we can. However, the most effective way to lower gas prices on the east coast right now is to increase supply. Nothing else will have a bigger impact. That must be the exploration and opening up of new resources, and new sources of gas being released as quickly as possible into the domestic market.
On new sources, the Commonwealth will continue to highlight the absolute absurdity of the situation we have in the southeast of the country right now.
The moratorium on domestic gas exploration and extraction, not only unconventional but also conventional gas, is adding between $2 and $5 on the cost of gas per gigajoule right here where we are today. That's on a total gas price now of over $10. Every consumer in Victoria should be outraged, should be outraged.
That cost is being imposed because at the end of the day, you have to get access in Victoria to gas from way up north. If you had it here, it would cost $2 to $5, probably closer to $5, less than it's costing you right now.
If you simply had domestic transportation or domestic Victorian transportation of gas, that transport would cost you 20 cents rather than $2 to $5.
So that's the difference. We've got to have gas here, enough gas here in Victoria to continue to support what has been, as I said, one of the energy capitals of the world.
All of this could be simply corrected by opening up new gas here in Victoria.
I'm making this one of my priorities when I work with any of my state counterparts.
If states want something from the Commonwealth, I want more gas from them. If states want something from the Commonwealth, I want more gas from them.
Now, the other area that we're focused on in gas is electrification. Many industrial processes within Australia run on gas that could be electrified and in doing so, release more gas for other gas users. We can unlock more gas for the domestic market that would otherwise not be available.
On the retail side, we'll be closely looking at the recommendations that have recently been made from the ACCC.
I wont to apologise for being tough on the retailers. We need a fair deal on gas, not just on the wholesale price but on the retail price.
I consider gas to be a utility business and margins have to be appropriate for a utility business.
But just as with electricity, there's nothing more powerful on this than empowering customers with data, with what they need to get the best possible deal.
Now, let me spend a couple of minutes finally on emissions policy. If there's one thing the so-called ‘climate change election’ demonstrates, it is that governments and prospective governments need to clearly articulate the costs and impacts on households and businesses of their emissions policies.
It's not enough to glibly draw a line on a page to a target in a distant year and say we'll figure out the details later. That doesn't cover it. Small businesses, in particular, are likely to be caught up in this, not necessarily directly in these steeply declining emissions baselines or caps, but the interconnected nature of our economy is such that ultimately the cost of those policies will reflect back to small businesses.
For our part, the Government has clearly articulated our goal and a plan down to the last tonne as to how we're going to get there.
In 2015, we committed to reduce national emissions by 26 per cent on 2005 levels through the Paris Agreement.
We have a strong record on delivering on our international agreements.
We beat our Kyoto 2012 protocols in 2012, as I said, and in 2020, we expect to beat them by some 367 million tonnes.
In February this year, we announced the $3.5 billion Climate Solutions package - a fully costed, funded plan that sets out to the last tonne how we'll deliver the final 328 million tonnes we need to deliver for Paris in 2030 - twelve years ahead of time - we laid out to the last tonne how we were going to go achieve it and all the detailed costings on how we would do that.
Now, while Australia can't solve this problem on our own - we're just over 1 per cent of global emissions - we can and are playing an important role in responding to the global challenge.
We have world-class carbon accounting methods and we're helping countries like China, Indonesia and Thailand build their capability in this important area.
Highly efficient Australian developed solar cell technologies appear in solar panels right across the world now.
The research has received substantial support from the Government through agencies like the CSIRO and ARENA.
We're also one of the biggest exporters in the world of clean fuels like LNG, and in fact, we've just pipped other countries in the world to become number one just in the last year or so.
Gas is playing an enormously important role in reducing emissions all around the world. Gas generation produces about half the carbon dioxide of coal electricity generation, and when flexible gas generation is being used to backup variable renewable sources like wind and solar, its emissions intensity is even lower and we get firm, reliable, affordable power if we've got access to that affordable gas.
Now, today, my Department has just published the latest stocktake of Australia's emissions - the quarterly Greenhouse Gas Inventory.
The report shows that Australia's emissions fell in the first quarter of this year and has fallen for two of the last three quarters. Australia's emissions on the year are up 0.6 per cent or 3.1 million tonnes to March 2019, although we're on now a downward trend.
For obvious reasons, much of the media focus no doubt will be on that annual number, but the report also shows that Australia's emissions are down 14 per cent on the 2007 peak, sorry, the 2007 peak and 11.7 per cent below emissions in 2005, which was the baseline year for the Paris Agreement.
The emissions intensity of the economy is at its lowest level in nearly three decades, down 62 per cent since 1990.
Emissions from electricity generation, Australia's largest source of emissions, fell over 2 per cent over the course of the year, but importantly, all of the 0.6 per cent annual increase came from an increase in LNG production and exports which grew by 19 per cent, as I said, to be the leader in the world.
I want to focus on that last statistic for a moment. In the year to March, Australia exported 71 million tonnes of LNG worth just under $50 billion. The infrastructure needed to support those exports has created more than 100,000 construction jobs while more than 26,000 Australians are directly employed in oil and gas extraction today.
The economic activity benefits small businesses all around the country both directly and indirectly.
Our annual LNG exports have the potential to reduce carbon emissions, global carbon emissions by up to 152 million tonnes of carbon dioxide - equivalent to 28 per cent of Australia's total annual emissions - by displacing coal consumption, often dirty local coal, in places like China but also throughout Southeast Asia, Japan and Korea.
This is a very substantial global contribution to be proud of.
Of course, that reduction in global emission shows up in other countries, carbon accounts, not Australia's. We don't get any benefit from those reductions from our LNG exports, and the increase in emissions in Australia over the year from our LNG production.
So our emissions have gone up by 4.7 million tonnes because we've grown our LNG exports. If you take that out, our emissions would have fallen substantially. But perversely, perversely, if you take that out, if we stop the exporting, global emissions would be higher, would be higher.
Now, the Australian Government is not going to trash a successful export industry that's reducing global emissions. We're simply not going to do it in order to deliver an improved carbon accounting outcome for Australia which ultimately, if we were to take that industry out would result in higher global emissions.
Instead, we're taking a sensible balanced approach to securing a better future for all Australians by reducing emissions while ensuring our economy stays strong and ensuring we're doing our bit for the reduction in global emissions.
So in conclusion, I want to again reinforce that we are sharply focused on the interests of small businesses, in particular energy policy and the impact it has on small businesses. That's why we are so sharply focused on price and reliability. You deserve the right, at small businesses, to have reliable and cheap energy, and while we are starting to see price drops, we will continue to focus relentlessly on a fairer energy deal for all small businesses.