Can the electricity system be fixed ?

I’m going to be talking to Steve Austin on ABC 612 Brisbane today, hopefully about COAG’s rejection of the Turnbull government’s National Energy Guarantee. As I said when this policy was cooked up in a matter of a few weeks last year

The most important thing to understand about the federal government’s new National Energy Guarantee is that it is designed not to produce a sustainable and reliable electricity supply system for the future, but to meet purely political objectives for the current term of parliament.

Those political objectives are: to provide a point of policy difference with the Labor Party; to meet the demands of the government’s backbench to provide support for coal-fired electricity; and to be seen to be acting to hold power prices down.

To expand a bit on the first point, this is a policy that won’t survive past the next election. If Labor wins, they’ll need to raise the emissions reduction target and that will entail dismantling most of the elaborate structure of the NEG. If, regrettably, Turnbull is re-elected, he’ll face immense pressure from the backbench to do more for coal. On past form, and the indications of recent weeks, he’ll comply. If it should survive, the policy won’t deliver any significant change from the current no-policy trajectory, because it’s essentially designed to do nothing.

But if not the NEG, what can be done to fix the shambles that is our electricity system? Here’s a very brief outline:

(i) a publicly owned national grid, operated by a statutory authority with a service orientation encompassing the goals of security of supply, affordable electricity, and a transition to a fully renewable generation system
(ii) the abandonment of the electricity pool market, in favor of longer dated supply contracts, with an order-of-merit system of supply management
(iii) a mixture of public and private electricity generation and networked storage
(iv) reintegration of distribution and retail services

Drawing the line

In my last post on Wednesday, I said it was time to draw a line against racism and, among other things, to boycott Sky until it cleans house thoroughly.  As it turned out, I had to put up or shut up on this, much sooner than I expected. Yesterday, I was invited (by one of the few decent commentators on Sky) to take part in a debate on the National Energy Guarantee. As readers will know, I’m keenly interested in this topic, and would have liked to have my say, but I had to decline. If this happens enough, perhaps Sky management will take notice.

Of course, as commenters have noted, it’s not just Sky but the whole Newscorp machine that is now pushing racism[fn1]. Jason Wilson has a good piece on this.

Also as noted by a commenter, I omitted to mention that Sky’s neo-Nazi talent was invited by Adam Giles, former Chief Minister of the NT. and therefore, until a couple of years ago, a member of COAG. It appears that none of his former colleagues on the conservative side of politics has uttered a word of criticism of this appalling behavior. In fact, the only criticism I’ve seen from the right has come from none other than Andrew Bolt. I assume that he was trying to put some distance between Cottrell’s diatribes and the almost identical views he published around the same time.

Some good news is that advertisers are feeling the heat, with Huggies, Specsaveras and American Express withdrawing advertising. Virgin has apparently launched an investigation into whether the interview aired in its lounges, but I’ve seen nothing from Qantas and had no reply to my protest.

!. Or rather, “white nationalism”. As I noted back in 2004, the only genuine instance of political correctness in Australia is that you are never, ever, allowed to call anyone a racist. Even Cottrell, who has openly declared himself a racist, and has been convicted of race hate crimes, is often referred to by euphemisms such as “far-right activist”.

Time to draw a line

It’s unclear to me whether the string of recent expressions of support for racism  (or, if you prefer anti-anti-racism) from Sky, Bolt and Tudge among others) represent a campaign to normalise racism in Australia or a reflection of the fact that, at least on the political right, racism has already been normalized. Either way, it’s clear that this is going to be a defining issue in Australian politics, as it has become elsewhere in the world.

Sky network’s decision to broadcast a sympathetic interview with a Nazi represents a point at which our leaders can draw the line, if they choose. Despite the mealy-mouthed apology offered after a public backlash, this episode was entirely in character for Sky, which has a stable of racist and racism-friendly commentators. I’m pleased to see that Craig Emerson has announced that he is leaving the station. All decent people should boycott Sky until it cleans house thoroughly.

Qantas routinely broadcasts Sky in its lounges. Some reports say the same of Virgin, though that appears to be only occasional. I’ve written to Qantas to complain, and will be looking at alternative options unless there is a satisfactory response.  The more people do this, the harder it will be for them to ignore us.

Contesting contestability

Economics, like fashion, has its hot ideas. Among the hottest ideas of 1982 was the theory of contestable monopoly, described as an ‘uprising’ by its leading proponent William Baumol. To quote the summary in Wikipedia

Its fundamental features are low barriers to entry and exit; in theory, a perfectly contestable market would have no barriers to entry or exit (“frictionless reversible entry” in economist William Brock’s terms).[1] Contestable markets are characterized by “hit and run” competition; if a firm in a contestable market raises its prices much beyond the average price level of the market, and thus begins to earn excess profits, potential rivals will enter the market, hoping to exploit the price level for easy profit. When the original incumbent firm(s) respond by returning prices to levels consistent with normal profits, the new firms will exit. Because of that, even a single-firm market can show highly competitive behavior

Contestable monopoly theory didn’t stay at the top of the hit parade for long. In theoretical terms, it was hard to formulate the hit-and-run analysis in the language of game theory, which was beginning its rise to dominance around the same time. More importantly, at least from my viewpoint, the predictions turned out wrong, most notably in relation to US airline deregulation, which was the primary motivation for the theory. Routes served by only one or two airlines were characterized by higher fares than more competitive routes, and “raids” of the type described by the theory were rarely if ever observed. Looking at Google Scholar, I found hardly any recent papers making use of contestable monopoly theory (feel free to point some out!)

Yet an examination of the policy statements of Australian governments would make it appear that contestability is a central idea in economic theory. Google reveals the term applied to electricity and water consumers, vocational education (a spectacular disaster), the Department of Finance, and even Tasmania.

It seems that contestability, having died as an economic theory in its native country, has been resurrected as a piece of policy jargon in Australia. Presumably, it is supposed to carry with it the positive connotations of the theoretical term. In practice, however, it’s one of the long list of euphemisms for “privatisation”, a word that is almost never used nowadays, except by its opponents.

NEGative on NEG

I’ve just joined 22 other Australian energy researchers in calling for the release of the modelling used to justify the Abbott-Turnbull government’s National Energy Guarantee. Until this is out in the open, state and federal Labor should have nothing to do with the NEG. I am confident that, once the modelling is released, it will quickly be shown to be so weak as to provide no support for this camel of a policy, designed to placate both the Abbott denialists and the business lobby who want a soft policy but can see that they can’t win with denialism. The letter is at https://t.co/X6VhZK5vQa

A bit more of the iceberg

Just a day after this post on wrongdoing in the pursuit of the government’s anti-union agenda comes the news that the AFP is liaising with the Commonwealth Director of Public Prosecutions about whether charges should be laid over leaks from Federal Jobs Minister Michaelia Cash’s office about raids on the Australian Workers Union. It remains to be seen whether charges will be laid – if so, it will be a breach of the normal protocol under which unionists are charged in the most trivial cases, while business owners and politicians are almost invariably let off.

A striking, and closely related, example was Human Services Minister Alan Tudge’s release, to a friendly journalist, of the social security files of a blogger who had complained about the department. This contrasts notably with the routine invocation of “client privacy” when the Department is accused of wrongdoing and wants to avoid responding.

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