Bowen has to rule out CoalKeeper — and we need a windfall profits tax

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Bernard Keane writes in Crikey

With Energy and Climate Minister Chris Bowen meeting state and territory counterparts and energy regulators on Wednesday 8th June 2022, the ghost of Angus Taylor hangs over the gathering beyond his role in creating an energy crisis by trying to shackle Australia to coal.

Bowen and the Energy Security Board will press ahead with Taylor’s “capacity mechanism” that would see retailers — and thus customers — pay providers for dispatchable power capacity, even if it’s not used.

Under Taylor, it was a mechanism to prop up coal-fired power beyond its economic life, as renewable energy dramatically undercut the deadly fossil fuel. Taylor wanted households to pay fossil fuel companies to keep burning coal even when it wasn’t needed, aka CoalKeeper.

The Energy Security Board insists it’s the only way to ensure that we don’t face energy crises every time unreliable and increasingly intermittent coal-fired power suffers another fire or breakdown, like the ones that have pushed demand for already expensive gas to record levels this winter.

CoalKeeper was resisted by the states, and Bowen needs to rule out the “capacity mechanism” supporting fossil fuels — either gas or coal — in the future. It must be confined to storage and pumped hydro and not used as a backdoor way to prop up a decrepit fleet of coal-fired power stations that pump up massive levels of carbon emissions and kill hundreds of people a year through their pollution, or embed expensive gas as a “transition fuel”.

And how will it be paid for? Is the message from governments that consumers must face still higher bills on top of what they were facing?

Consumer interests risk being omitted from the energy debate as key players take up their business-as-usual positions — big energy users and energy-intensive manufacturers call for intervention to redirect exported gas domestically, the gas industry insists anything that stops them making massive profits from gas exports will destroy them, and suggest everything would be fine if they could just frack wherever they like.

This is not business as usual — gas exporters face an historical boom as Russia’s assault on Ukraine drives up prices and Europe looks to replace Russian gas with gas sourced elsewhere. The only ones benefiting from soaring gas prices are multinationals like Exxon and Chevron and local fossil fuel giants Santos, Woodside and Origin, none of whom pay significant tax on their massive revenues. Meanwhile, households and small businesses face surging power costs, which in turn feed into higher interest rates.

The government faces a simple matter of equity here: while large corporations that pay minimal tax make tens of billions in windfall profits driven by factors beyond their control, the rest of us suffer the consequences, with flow-on implications for economic growth and employment.

A windfall profits tax which Treasurer Jim Chalmers wrongly keeps ruling out — could be used to fund cost-of-living measures such as a power bill offset for low- and medium-income households and small businesses. It would be better than imposing a domestic gas reservation on existing supplies, which might endanger long-term export contracts, and would partly remedy the major fiscal problem that one of our most valuable resources is being sold without any benefit to Australians.

The fossil fuel multinationals are already complaining about any mention of a windfall profits tax in Australia after the UK Conservative government imposed one. Chevron evidently sees a new government as an opportunity to reopen the issue of the decommissioning levy that the previous government imposed on the industry after fossil fuel companies tried to dump the cost of decommissioning an oil platform in the Timor Sea on taxpayers. Chevron lobbied hard against the levy, trying to convince the Morrison government to abandon the idea and making its own unsolicited proposals for how the decommissioning cost should be paid for, but in a rare rebuff for the industry, failed to sway the government.

The predictable argument against a windfall profits tax or any other kind of intervention is that such regulatory uncertainty would deter investment. That claim was fatally undermined in May when the British head of BP — who had described the company as a “cash machine” given its massive profits — said there was no investment BP wouldn’t undertake even if there was a windfall profits tax there.

A windfall profits tax was good enough for the UK Tories. It was good enough for Scott Morrison to impose on Australian banks when they were making huge profits while gouging and ripping off Australian consumers.

It’s certainly good enough at a time when foreign shareholders are enjoying massive returns while households and small businesses here struggle.

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics

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