Regulators and hammers - recent folly of the ACMA

In the great wash up of regulatory analysis, one of the reasons why regulation should be avoided is because it requires regulators. And regulators have a tendency to supplant the objective of the regime they are regulating with the objective of regulating.

The Telecommunications Act 1997 expressly recognised this regulatory risk, and specifies a regulatory policy at section 4.

The Parliament intends that telecommunications be regulated in a manner that:

                     (a)  promotes the greatest practicable use of industry self‑regulation; and

                     (b)  does not impose undue financial and administrative burdens on participants in the Australian telecommunications industry;

but does not compromise the effectiveness of regulation in achieving the objects mentioned in section 3.

 
Way back in the late 1990s the then Australian Communications Authority labelled the regime 'co-regulatory' to reflect the fact that the regulator had significant powers to require the development of codes, to register and enforce codes and to make 'standards' in the absence of codes. The Minister can direct the ACMA to make a standard.

The regime also very clearly delineates three kinds of entities covered by the legislation - carriers, carriage service providers and content service providers. To own network infrastructure that is used for supply to the public a person needs a carrier licence, which you obtain from the ACMA. Anyone who supplies services is a service provider, and there are obligations under the Act that then apply including being a member of the TIO, but you don't need to apply to be a service provider.

In 1999, for no other reason than the Government was trying to highlight the extensive consumer protections in the regime, some Parts of the TA were deleted and re-legislated as the Telecommunications (Consumer Protections and Service Standards) Act 1999. (By recollection the current Minister for Communications was at the time an Adviser to the then Minister). This largely pointless, and unsuccessful, political gesture has simply made interpretation of the regime difficult. As a simple example the concept of a 'standard telephone service' does some heavy lifting in both Acts, but is defined in s6 of the T(CPSS)A. 

That the existing legislative structure is complex and confusing has been demonstrated recently by the regulator (the Australian Communications and Media Authority) itself, that in a submission to a review of legislation has simply made errors in its own interpretation of its powers. The conclusion the ACMA reaches is, as suggested by my introduction, that the regulator needs to regulate more, writing:

We consider that clearly drafted and properly enforceable rules made by the regulator—rather than the current co-regulatory arrangements— are required to deliver these essential consumer safeguards. Simple, clear and better-defined commitments would also provide more certainty to industry of its obligations to consumers than current code requirements, which are often confusing and not necessarily well-understood or applied by all providers.

The ACMA starts its Executive Summary by asserting that self-regulation was chosen as policy because the focus of the Act was introducing competition and 'the framework prioritised the use of industry selfregulation so that the then nascent industry could develop rules as real-life issues emerged.' Noting there are now some 1400 providers the ACMA concludes the Act has achieved that goal and self-regulation is no longer appropriate. 

This is simple bunkum - the Explanatory Memorandum to the Bill states:

The Bill also contains a statement to the effect that the Parliament intends that telecommunications be regulated in a manner that promotes the greatest practicable use of industry self-regulation and does not impose undue financial and administrative burdens on participants in the industry, but does not compromise the effectiveness of regulation in achieving the objects of the legislation (see clause 4).  This is intended to guide the telecommunications regulators in the performance of their functions and the exercise of their powers.

The ACMA then informs us that telecommunications is now an essential service - which perhaps comes as a surprise since the Acts include the Universal Service Obligation created because they already were an essential service. What the ACMA may be trying to address, and doing pooorly, is that broadband internet access is now an essential service not just voice telephony.

It was in recognition of this development that the Rudd Government introduced the National Broadband Network - universal wholesale access to the NBN provides universal broadband and telephony access. 

The NBN, we are then told by the ACMA, is part of complex supply chains which somehow or other are also meant to be new. Once again this is not the case -- apart from Telstra everyone else was providing most broadband over infrastructure that had similar supply chains (the ULL for access plus acquiring transmission from exchanges to internet nodes). The ACMA shows the ongoing confusion about carriers vs service providers by listing as different modes of supply:

> licensed carriers that provide services to customers and carry other retail providers on their networks

> retail providers that do not own their own network infrastructure.

 

Only Telstra as a carrier was ever carrying the majority of its traffic end-to-end over its own infrastructure. The industry works through interconnection, an activity undertaken entirely on the basis of processes agreed through the self-regulatory framework - with pricing determined by the ACCC in some circumstances.

In reality it is only carriage service providers that provide services to the public, in some cases that uses some infrastructure owned by the provider who also therfore is a carrier.

The ACMA also thinks there is a need for 'transparency of the performance of carriage service providers (CSPs) against key metrics related to essential consumer protections.' As a citizen I don't need to provide a report to anyone on a peridic basis that I haven't stolen anything, or that I haven't littered, or how often I've treated others as I would like to be treated. 

The ACMA says its research shows 'In addition to the factors identified in the consultation paper, recent ACMA data and research reveals an increasing misalignment between matters that are important to consumers and the performance of industry in these areas. Unsurprisingly, our research shows that the majority of Australian adults, households, and small and medium-sized businesses consider customer service and faults management to be important telco issues.'

There is a real problem in the telco market because consumers either have such a low expectation of customer service that they buy regardless or they have such a high level of expectation they buy regardless. More regulation only creates more of the latter, while the ACMA's survey only provides more of the former. What is needed is clarity for consumers that service provider quality is a variable and how to find out about it. I made my own suggestions for how to do this back in 2009. But you solve nothing through reporting on 'essential' consumer protections.

The issue with the ACMA research process is that it doesn't help consumers in exercising choice. The survey needs to be about actual providers and rate providers on their performance on things that matter to consumers. To do this effectively the ACMA needs to use a biased sample to make sure enough customers of smaller telcos are sampled to be statistically significant. 

The ACMA further asserts 'The absence of an ability to exit providers that are responsible for repeated or egregious failures to comply with essential consumer protections from the market has made it easier for some unscrupulous providers to continue to operate. This is to the detriment of consumers.' This is an interesting observation, but no evidence was provided of the magnitude of the problem. The provisions to be able to get a carrier to exit or prohibit return were all to do with the liability of the carrier to pay licence fees and USO levies - not customer service outcomes.

The ACMA is also wrong to assert that in energy providers have to register. Retailers do, because they have financial obligations to settle in the market. But to date thousands of 'embedded network operators' haven't been required to do so.

While personally I support the idea of a 'register of carriage service providers' the only criterion that should apply to the register is providing evidence of TIO registration. However, a similar outcome could be achieved by a simple determination that carriers (including NBN Co) can only provide services to a service provider once the provider has demonstrated their membership of the TIO.  

Further the ACMA makes what are simply ludicrous claims about the state of competition, saying:

There is also evidence that impediments exist for a significant number of consumers to take advantage of Australia’s competitive telecommunications sector by changing provider. Our 2020 telco consumer experience research shows that 47 per cent of Australian adults had not changed their mobile service plan or provider in the previous two years. A little over half (53 per cent) of Australian adults have been with their current telco for their mobile phone for more than five years.

Given that plans that include the bundling of handsets are still widely prevelant it is unsurprising that consumers don't churn at durations less than contract terms. Secondly, mobile coverage is not uniform between providers and for this reason alone a degree of 'stickiness' is to be expected. 

The ACMA also still seems to be tying itself in knots over artificial distinctions between 'over the top' services and 'telephony' and the archane description of a 'standard telephone service.' There is a far simpler approach than empowering the ACMA to make some additional rules - simply change the definition of the STS. A 'standard telephone service' is any service that enables the establishment of a communications channel to another person by means of a telephone number. 

The ACMA in seeking the power to make rules provides no evidence that it has been frustrated by the existing process. Given the ACMA can make standards if requested codes are not forthcoming or there are deficiencies in existing codes, one would expect the ACMA to have exercised this power if the codes process was deficient. Similarly, if the matter was egregious and important, the ACMA would have had the opportunity to seek a direction from the Minister.

The central consumer protection code - the Telecommunications Consumer Protection Code - was initially made in 2012 when Senator Conroy was Minister and I was a new adviser in his office. The development of the code had reached an impasse over some clause (that I can't remember) and the ACMA was preparing to reject registration of the code and move to make a standard. When the ACMA understood that the Minister would regard this as a failure a new round of negotiation took place between the ACMA, CommsAlliance and ACCAN and a resolution was reached.

My personal experience is that regulations made by regulators are usually so abstracted from operational reality as to be worse than the drafting of industry codes. Once again the ACMA provides a littany of assertions about code processes without any demonstrated cases. 

I simply won't be drawn on the ACMA's poor discussion of the differences between aspects of the consumer protection regime, other than to note that providers are still bound by the Australian Consumer Law. One of the drawbacks of the telco regime has been the propensity for the ACCC and ACMA to both stand back and argue it is the other who should take action over some specific conduct. The ACCC quite rightly notes the hurdle for the ACMA direction is much lower than the legal hurdle for prosecution, while the ACMA argues its directions have little effect.

The practical matter is that increasing the ACMAs enforcement powers will only have two consequences - the first is that it will constrain the ACMA in deeper levels of legal analysis and secondly the scope of any proposed regulations will be much narrower than the existing provisions.

The ACMA's submission is a perfect case study in regulation and why regulators are the central problem in most regulatory schemes. 

Unfortunately the paper to which the ACMA was responding was also poorly constructed. It should have started with a simple question - what consumer protections required in a communications market made up of broadband, telephony over broadband and widespread mobile penetration? What is the most effective way of delivering these protections?

As the saying goes, when all you have is a hammer everything looks like a nail. The policy principle favouring self-regulation is as relevant today as it was in 1997, and the ACMA's submission provides the bulk of the evidence of why that is so. 

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Life is what happens while you are busy making other plans JWL

History is always written by the victors - MTM morphs back to NBN

Today the Communications Minister announced a plan to bring 'ultrafast broadband' to millions of families and businesses and he welcomed the release of the NBN Co corporate plan demonstrating how this can be financed from the company's internal resources and assume on its own books the debt previously provided by Government. (2)

The recognition that the MTM isn't the ending point seems to have surprised some. But it was always Malcolm and Paul's contention that the most cost effective way to this future was in a two stage build. These upgrades include some fibre to the premises but it also includes the actual deployment of G.fast and HFC upgrades that have been part of the government's and the company's rhetoric for seven years.

We do need to be thankful that the coalition has managed to churn through its leaders though. Tony Abbott may well not yet be convinced that 25 meg is 'more than enough' for any household as he famously declared in April 2013. Malcolm Turnbull may not yet want to admit that the advice he received in his strategic review and cost benefit analysis that higher bandwidths would never be required because of compression was just ex post justification of the MTM by advocates rather than experts.

Let's just revisit some of this. Quoting a report of one of these advocates (Robert Kenny) the Strategic Review (P. 78-9) said:

A recent UK study estimates that the median UK household today requires a maximum download speed of 8Mbps...  By 2023, even as new applications (such as over-the-top video and cloud computing) become more widespread, this is forecast to grow to 19Mbps. This takes account of improvements in compression.

The review also noted:

Only a small proportion of consumers in Western countries have so far taken up plans offering greater than 50Mbps (11 percent or less in 2012), and penetration of greater than 50Mbps plans is expected to remain less than 20 percent by 2017 in most Western countries. 

At any point in time, there will be consumers willing to pay more for higher speeds.However, consumer research indicates that for the majority, price is the most important factor in selecting a broadband service, and faster broadband speeds have diminishing marginal value.

The review used these arguments to reduce the revenue forecasts included in the NBN plan and hence increase its total funding cost, unfortunately the Strategic Review did not include any detail on the revised expected take up of different speed tiers. Today the Minister announced that 75% of consumers are selecting plans of 50 Mbps or more. Yet the Strategic Review and the counterfactual embedded in it remains the narrative that the media accepts.

It is indeed rewarding to see Fletcher make the announcement. Even though he and I worked together on alternatives to Telstra's 2005 pitch for a regulatory holiday to build FTTN, in his boook Wired Brown Land he argued Australia had no broadband crisis and that it was all only a play by Telstra to get that access holiday. My then new CEO at AAPT Paul Broad (now of Snowy Hydro) shared the fantasy that an FTTN build could be constructed as infrastructure based competition. 

COVID-19 has shown us all how much we can do online, why upload speeds are as important as download speeds and that it is easy to have five or more services operating needing high speeds simultaneously. There is no doubt that the experience would have been better had we had FTTP NBN in place everywhere. But the coalition has successfully claimed the space that the true NBN could not be rolled out on time and on budget. Their rhetoric is 'thank goodness for the MTM because it gave us broadband in time for the pandemic.'

My former colleague Andy Byrne (he whose premises were raided by the AFP - remember that) wrote a really great piece for Labor's 2016 election policy that manifestly destroyed the three counterfactuals that had been spun by the coalition about the true cost of the true NBN. These three counterfactuals (their 2013 policty, the strategic review, and the analysis with the first MTM corporate plan) are however what is now believed.

Never mind that had we proceeded with the FTTP rollout the upgrade to gigabit access would have already occurred. The cash flow of NBN Co would now be diverted to extending fibre into areas currently served by fixed wirelees. This was never documented.

The NBN may be unique as being one infrastructure project financed as part of two financial crises. The reason why Conroy had to meet Rudd on a plane in January 2009 to get agreement on the NBN was that Rudd was jetting around the country that way on a speaking tour talking about GFC response (1). Wayne Swan revealed in his book The Good Fight that the NBN was nearly announced as part of the February 2009 statement on additional stimulus. Today Finance Minister Cormann said This is the right time for this network upgrade. There is a long term trend of broadband demand growth – with a very significant spike this year as COVID-19 has changed the way we use the internet. This is a major infrastructure investment which will bring immediate demand stimulation, with some 25,000 new jobs over the next two years. 

The really depressing part is the other part of the work Conroy was prosecuting as the Minister for Broadband and the Digital Economy. Labor recognised the need for other work to be developing society and the economy to deliver the full benefits of the investment in broadband. This included, among other things, programs to develop rtele-health and tele-education. When the pandemic hit we saw the government scambling to temporarily introduce telehealth by telephone calls -- we should already be at the point where telehealth by video call is a normal mode of delivery. Students and teachers who had no experience of tele-education were plunged into online resources and hastily developed zoom skills -- how much better if we had developed the ability to join a student from anywhere to a class already, be it for specialist teaching, remoteness or quarantine.

Ignoring the 'why' of broadband of course fitted the coalition narrative that the 'what' of broadband needed to be so much less than Labor's plans.

Finally, lurking online I am continually hearing complaints about NBN Co pricing - which alludes to the comments above about consumer expectations of price. The ABS in its CPI data publishes index numbers for the goods and services that make up the CPI. The data for telecomms has been around since September 1980. The chart below shows the real telecommunications index (telco index/CPI) and for comparison the real electricity and gas indexes. It is an interesting graph. Firstly it shows a steady price decline across four decades in telco prices (the blue trend line). The green trend line is prices from the start of competitive fixed broadband (2000 with declaration of ULL) to September 2013 as the NBN built up speed and the brown trendline is the period post 2013. The rate of price decline has been accelerating under the NBN (and structural separation). 

An alternative data source is the ACCC's etail price monitoring. The chart below shows this as two series with 2013-14 set to 100 (the ACCC changed its methodology after the 2015-16 report).

For comparison the double blue line is the ABS index rescaled to make 2013-14 equal 100. Important parts are that fixed broadband series starts in 2006-07, that fixed line voice is now not measured and that mobile has been split between voice and broadband. These also are for all sectors not just households. They reveal that the ABS data is reliable, but that mobile prices continue to decline faster than fixed broadband. This in itself is fascinating because when we were heading to the 4G auctions the talk in telco land was that operators were worried that they couldn't make money out of 4G.

In short, it is pleasing that the Liberal/National government are understanding the signiificance of broadband as national enabling infrastructure. Consumers are doing very well on prices as well. It would be nice if the Morrison government could now address the other programs to further leverage the infrastructure investment 


Footnote

1. It is refreshing to hear it again being called NBN Co rather than 'nbn' which was some marketing gurus scheme to rebrand the unrebrandable.

2. The meeting on the plane has been subsequently repeatedly written up as the NBN being crafted on a beer coaster or a napkin on these flights. As the original story (that in the SMH) notes there was nothing of the sort - the Minister was having a perfectly normal discussion with the Prime Minister about the need to take a different policy proposal to cabinet. That is how cabinet works, Ministers can only work up submissions approved by the PM. The actual plan was discussed by the cabinets sub-committee (the gang of four) and full cabinet before announcement. Rudd's movements that week are detaile in John Button's A Year in My Father's Business. 

I haven't linked to the various documents housed on my digecon.info website as I am having some DNS issues with it at the moment. 
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Life is what happens while you are busy making other plans JWL

More confusion in energy land

Phil Coorey in the AFR told us the PM's tactic (it isn't big enough to call it a strategy) is to use 'energy week' to reset focus on the recovery Today he rocked up to Newcastle for the second element of this with some very confused messages about electricity and gas. 

The big announcement was:

To ensure affordable, reliable power, we need the market to deliver 1,000 MW of new dispatchable capacity by the summer of 2023-24, with final investment decisions by the end of April 2021. Now that’s less than eight months - and we’re counting. Each day.

So, this is the plan. If the energy companies choose to step up and make these investments to create that capacity, great, we will step back. If not, my Government will step up and we will fill the gap. 

And to this end, Snowy Hydro is already developing options to build a gas generator in the Hunter Valley should the market not deliver.

The problem is, Snowy Hydro is just one of the companies. Indeed, despite its name, Snowy Hydro does more than just hydro - it already owns and operates three gas-fired power stations, with a total generating capacity of 1,290 MW and it also owns 136 MW of reciprocating diesel engine peaking generation in South Australia, located at three facilities. So Snowy Hydro can go make that investment. And for those who don't know Snowy Hydro is one of those 'gentailers' the 'big stick' legislation was designed for. It runs those outrageous jingoistic - if not xenophobic - 100% Australia Red energy ads. 

At the same time the PM seems greatly worried about gas prices. Gas is an essential feedstock in a number of chemical processes, especially for making fertiliser. It is also the best fuel if you want industrial heat. As pointed out here it makes more sense to stop burning gas for elerctricity. 

What the NEM needs is storage, and it isn't getting as much as it needs because of the market overhang from Snowy 2.0. For the historically inclined, Liddell has previously been responsible for power shortages in NSW. In 1981 stator winding faults took out three of the 500MW generators with some power restrictions in June and further power restrictions imposed for twenty days in December 1981, and twenty-six days in March-April 1982. The situation was temporarily relieved by additional power provided by 12 25MW gas generators purchased by Elcom and permanently once the first 660MW generator at Eraring came on line. 

The PM's announcement (or threat) continues the shambolic governance in the sector. The Australian Energy Council and Energy Networks Australia have commissioned a report from CEPA that has questioned the adequacy of the governance arrangements for the Australian Energy Market Operator, saying:

Given AEMO’s crucial, and growing, role in the NEM, we suggest it is timely to

revisit the existing governance framework. We consider that there is a case for reconsidering the strength of the accountability mechanisms that apply to AEMO, consistent with the level of scrutiny that is applied to system and market operators in other markets. 

This is a significant concern given the centrality of AEMO's work to the conclusions being drawn by Ministers. The simple facts are that AEMO has the incentive to 'catastrophise' the state of energy supply. But its own Integrated System Plan still saw value in new gas generation only if the price of gas is significantly lower than it is today.

The CEPA report also suggested that, in keeping with other global models, AEMO as a monopoly market operator should be subject to economic regulation by the AER. But the AER came in for its own scrutiny from the Australian National Audit Office that found it only 'partially effective.'

The PM in his statement also said:

We must also though, modernise the way the electricity market operates to take account of technological change and to put more power into the hands of consumers. Now 21st Century electricity market needs 21st Century rules. A package of market reforms will come forward next year as part of the biggest shake-up of the National Electricity Market since it was created in 1998. New rules will take account of the increasingly distributed nature of generation and better recognise the critical stabilising role played by dispatchable generation.

The immediate focus will be on security measures, better integrating different generation technologies and a reliability framework. Longer term reforms will focus on rules for a two-sided market, revised investment programs and a framework for the exit of ageing thermal generators. 

These reforms, to be developed and agreed through National Cabinet’s new Energy Reform Committee, which tasked this work at our last meeting in fact just over a week ago. 

This of course is a reference to the Energy Security Board's Post 2025 project. This is a most curious project that began as an aside after discussion of summer readiness plans at the COAG Energy Council's October 2018 meeting. The Communique noted:

Ministers discussed the ongoing work by market bodies to implement Finkel recommendations on reliability and system security in the NEM. Ministers also asked the ESB to provide advice on a longterm, fit-for-purpose market framework to support reliability that could apply from the mid 2020’s as the market transitions. The ESB will report back to Council in December 2018 on a forward work program for endorsement. 

After the December 2018 Council noted:

Ministers also agreed a work program for the ESB to develop advice on a long-term, fit-forpurpose market framework to support reliability that could apply from the mid-2020s. 

 In March 2019 the work program for the project was posted on the Energy Council website with the following commentary:

The COAG Energy Council has tasked the Energy Security Board with developing advice on a long-term, fit-for-purpose market framework to support reliability that could apply from the mid-2020s. By the end of 2020, the ESB needs to recommend any changes to the existing market design or recommend an alternative market design to enable the provision of the full range of services to customers necessary to deliver a secure, reliable and lower emissions electricity system at least-cost. Any changes to the existing design or recommendation to adopt a new market design would need to satisfy the National Electricity Objective. This forward work plan was approved by the COAG Energy Council at its December 2018 meeting.

Any significant changes to the electricity market design would need to be well considered, including substantial input from stakeholders and detailed consideration of alternative market designs, and telegraphed well in advance of any change to ensure there is minimal disruption to the forward contract markets for electricity.

If changes are required to deliver a long-term, fit-for-purpose market framework by the mid-2020s, then consideration of any required changes should be concluded by the end of 2020 to enable sufficient time for the market to transition to the new market framework.

The very clear expectation was a full consideration of changes considered by the end of 2020. 

There is only one aspect of this project that needs to be highlighted here, which is the question of scenarios. The work plan stated:

Market design options will be informed by reasonable expectations of the generation mix in 2025 and beyond, the extent of take-up of distributed resources, the ways consumers interact with the system, the configuration of the transmission network, external policy settings, future technology price paths, the potential development of a hydrogen industry, and the way these factors could all evolve over time (several of which of course will be influenced by market design options). Clearly there are various ways in which these factors can diverge from where we are today. Well-developed scenarios are also necessary for testing expected outcomes from the alternate market designs. This does not mean that the alternate market designs will or should be tailored to the scenarios, given that they represent only a handful of possible futures. 

Various parties, including the energy market bodies have developed and are developing multiple scenarios to inform their own analysis. However, scenarios are always to some extent designed for the particular use to which they are being put, and so this project will need to develop its own set of scenarios to be an appropriate tool for analysis. In doing so, it will undoubtedly draw on other similar exercises for input.

The work plan also listed scenario development as an activity in March-May 2019. When the ESB published its Issues Paper in September 2019, the accompanying website post said "The ESB is seeking feedback on the possible future scenarios that will be used when assessing options for change." The paper itself said:

The most comprehensive future scenarios of the NEM are set out in the Integrated System Plan (ISP). It is likely that the post-2025 project will use the ISP scenarios as the starting point for investigating possible future market designs across different technological scenarios.

How the ESB went from the belief that it needed to develop its own scenarios to a proposition that it should adopt the ISP scenarios has never really been explained. A particular weakness of the ESB scenarios as used for the 2020 ISP is that none of them - including Step Change - is consistent with a patrhway to net-zero emissions by 2050.

The April 2020 Design Paper advised the focus of the project had now changed to three phases of program development and would constitute seven 'market design initiatives.' It also announced that initiatives would be assessed against a 'balanced scorecard' of the strategic priorities identified by the ESB in its Strategic Energy Plan. 

The intent of Energy Council in initiating the Post 2025 project was clearly on a 'longterm, fit-for-purpose market framework.' The different alternative future pathways of system development - the scenarios - are a critical element for ensuring a longterm design is fit for purpose. All the indicators are that the combined efforts of the Eneregy Council, the ESB and other market bodies will not be a market design for the full transition, but will be another instance of The Fifth Risk referred to in Michael Lewis's book of that name...pursuing short-term solutions to long-term problems.

Or as Fiona Simon so succinctly described it in her book Metaregulation in Practice, the need of politicians to be seen to be doing something. 

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Life is what happens while you are busy making other plans JWL

National Cabinet misfires on energy ministers’ ‘tasking’

George Santayana’s dictum “Those who cannot remember the past are condemned to repeat it” should be foremost in the mind of policy makers as we face a period of economic change and stress. The history of Australia’s energy markets and the policy making approaches provide valuable lessons that should guide future policy. We are at another critical juncture due to the announcement by Scott Morrison in May that the Council of Australian Governments (COAG) is no more and is to be replaced by the National Federation Reform Council, the National Cabinet, and six National Cabinet Reform Committees announced in June.

Following National Cabinet on Friday the Prime Minister told his media conference “We also agreed to the tasking of the National Cabinet Subcommittee on Energy … with short and medium-term priorities, and that does include the resetting of the gas market.”

Later, as reported in Australian Energy Daily, a media release provided a little more detail:

Energy National Cabinet Reform Committee

Leaders agreed to the tasking for the Energy National Cabinet Reform Committee. The Committee will progress critical reform of the energy system as a key component of Australia’s economic recovery. It will work to ensure an affordable and reliable energy system to support job creation and economic growth for the long-term benefit of customers.

The Committee’s work program will focus on developing:

• Immediate measures to ensure reliability and security of the electricity grid ahead of the 2020-21 summer
• The redesign, by mid-2021, of the National Electricity Market to take effect after 2025; and
• A package of reforms, by July 2021, to unlock new gas supply, improve competition in the market and better regulate pipelines.

These reforms will ensure the market serves consumers by promoting efficient investment, operation and use of energy services, and by delivering secure and reliable energy at least-cost.

At the time of writing that was the only detail available.

The National Cabinet has missed the opportunity to reset energy sector governance and make real progress to managing the energy transition at least cost to consumers while maintaining security and reliability.

As the Energy National Cabinet Reform Committee energy ministers have had at least one meeting without the leadership of the market bodies present and without issuing a communiques from the meeting. Decision making without expert advice and in secret seems to be the fundamental change. This is the wrong direction, reform needs to empower the independent institutions and reduce the role of ministers.

The Council of Australian Governments (COAG) effectively ran from the Special Premiers Conference in October 1990 to its aboloition in May; in effect it existed from recession to recession. Despite the mythology, electricity sector reform in Australia wasn’t a result of Hilmer’s report on National Competition Policy, it was a decision of the second Special Premiers Conference in July 1991. The practical step taken at that meeting was the creation of the National Grid Management, as the Communique records:

The Council will encourage open access to the eastern and southern Australian grid and free trade in bulk electricity for private generating companies, public utilities and private and public customers. It will also co-ordinate planning of the generation and inter-connected transmission systems and encourage the competition sourcing of generation capacity and the use of demand management.

The National Electricity Market itself was created as a code agreed between the operators authorised by the ACCC. It wasn’t until the June 2001 COAG meeting that a commitment to a National Energy Policy created the Ministerial Council on Energy as one of its priority actions. COAG noted that “The new Council will have responsibility to provide effective policy leadership to meet the opportunities and challenges facing the energy sector and to oversee the continued development of national energy policy.”

This body subsequently became the Standing Council on Energy and Resources in June 2011. The latest iteration, the COAG Energy Council notes on its webpage that it was “a Ministerial forum for the Commonwealth, States and Territories and New Zealand, to work together in the pursuit of national energy reforms. The Council was established by the Council of Australian Governments (COAG) in December 2013 as part of a decision to streamline the COAG council system and refocus it on COAG’s priorities.”

The 2001 policy recognised the progress that had been made since 1991, but noted “there remain immediate and long-term issues that need to be addressed.” The issues they cited were National Electricity Market (NEM) issues of capacity, interconnection, pricing, (including transmission pricing), NEM governance, and regulatory overlap, the facilitation of increased market penetration of natural gas and improved demand management.

The agreed national policy objectives were listed as:

• Encouraging efficient provision of reliable, competitively-priced energy services to Australians, underpinning wealth and job creation and improved quality of life, taking into account the needs of regional, rural and remote areas;
• Encouraging responsible development of Australia's energy resources, technology and expertise, their efficient use by industries and households and their exploitation in export markets; and
• Mitigating local and global environmental impacts, notably greenhouse impacts, of energy production, transformation, supply and use.

We need not go any further into the detail of the 2001 policy, the outcomes of the high-level independent strategic review of medium to longer term energy market directions also established by the policy, or the specific tasks COAG assigned to the MCE. It is sufficient to simply compare the outcomes of the “effective policy leadership” of the Energy Council against the objectives specified.

The doubling in prices of electricity and gas in the decade after 2007 is well documented, the former in detail in the ACCCC’s Retail Electricity Price Inquiry. The ‘success’ in developing a natural gas export industry has come at the expense of the efficient use of gas by industries and households. And the ongoing failure to effectively join emissions policy and energy policy has been the fundamental failure of the last decade.

This failure was well described in the 2015 Review of Governance Arrangements for Australian Energy Markets chaired by Michael Vertigan. The review concluded that:

The pace of change in the energy sector is arguably unprecedented; and a ‘strategic policy deficit’ exists which has led to diminished clarity and focus in roles, fragmentation and a diminished sense of common purpose.

The most recent attempt to close the strategic deficit was the creation of an additional market body, the Energy Security Board, made up of the leaders of the three existing bodies plus independent chair and deputy chair roles. This structure has been recently reviewed and the intention is to replace it with a simple Market Bodies Forum.

To find an explanation for these very explicit failures we need look no further than Stephen Littlechild’s 2006 description of the reform process in the preface to Sioshansi and Pfaffenberger’s Electricity Market Reform: An International Perspective:

Proponents of electricity reform have had many and diverse aims, not always mutually consistent. The Introduction suggests that “the over-riding reform goal has been to create new governance arrangements that provide long-term benefits to consumers.” These benefits are to be realized by creating competitive wholesale and retail markets to improve efficiency and responsiveness to customer preferences, by incentive regulation of privatized transmission and distribution networks to improve their efficiency and facilitate competition across them—and, I would add, by reducing the role of government and political interference generally.

It is in the last of these objectives that the Australian arrangements have so spectacularly failed. Unfortunately, the National Cabinet has not recognised that there is something fundamentally wrong with the governance arrangements, and that reliance on a committee of ministers seems to be the cause of the problem. The ‘tasking’ from National Cabinet is doing little more than saying ‘keep doing what you are doing but look at improving gas supply.’ The latter follows the 2016 creation by COAG of the Gas Market Reform Group that completed its task in 2018, so in effect they are being instructed to redo this work.

A contrast between telecommunications regulation and energy regulation reveals that the superiority of the former isn’t really because of the clarity of the national constitutional responsibility, it is because the independent regulatory institutions (the ACMA and to a lesser extent the ACCC) have very clear mandates and full authority.

National Cabinet really needs to undertake its own review of the governance arrangements for energy rather than just effectively giving the cabal of energy ministers its fourth name in twenty years. To encourage National Cabinet, here are a few simple steps that could be taken:

1. Recommit to the Australian Energy Market Agreement, but refresh it and rename it the Australian Energy System Agreement. Extend the scope of the agreement to incorporate safety regulation and supply of all energy services in Australia. Make the core objective of the new agreement the transition of Australia to a net zero carbon emissions future (without a date though all states and territories have a 2050 or earlier target).
2. Recognise that the corporations power gives the Commonwealth the ability to legislate for energy (as it has recently done with the market conduct rules) and move the legislative authority to the Commonwealth. However, maintain a Council of Energy Ministers, and for constitutional clarity still have States adopt the national laws.
3. Create a new body – let’s call it the Australian Energy Authority – that replaces the Australian Energy Market Commission. Give it very clear objectives about managing the transition at least cost to consumers while maintaining security and reliability, with protection for vulnerable consumers.
4. Make the AEA the secretariat to the Council of Energy Ministers and abolish the committee of senior officials that currently sits beneath the Council. Give the AEA the ability to make subordinate instruments (Rules) on its own volition. Provide for the ability for the Council of Energy Ministers to disallow subordinate instruments.
5. Make the Chair of the AER and the CEO of AEMO ex officio members of the AEA. Change the legislation so that the powers, role and function of AEMO is specified by the AEA rather than in the legislation. Transfer some of the regulatory functions from the AER to the AEA, the AER should be focussed on the regulation of the natural monopolies.

The creation of strong independent agencies is not an undemocratic action. Our democracy is primarily defined by parliaments not the arrangements of executive government; indeed as an institution parliaments evolved to place constraints on executive governments.

Reconfiguring how often Energy Ministers meet or how many officials are in the room is not a substitute for substantial governance reform.

And finally, if governments really want to know how to increase the supply of, and reduce the price of, gas for industry there is a relatively simple solution. The most recent published Australian Energy Statistics cover the year 2017-18. Of 4,731 PetaJoules of natural gas produced in Australia, 1554 went to domestic consumption. A third of this, 572 PJ, was consumed in electricity generation.

While AEMO’s projections in the Integrated System Plan are for there to be no new gas peaking plants built it still foresees this demand for gas. However, more renewables backed with both short term storage and long term storage (batteries and off river pumped hydro) are a substitute – indeed they have characteristics that outperform gas. An aggressive program supporting the development of storage – in particular smaller distributed pumped hydro projects than Snowy 2.0 - will release more gas for industry. Considering that industry, with the exclusion of mining, only consumed 432 PJ accelerating renewables and storage would double the gas available to industry. 

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Life is what happens while you are busy making other plans JWL

Who is responsible for energy policy

Last week has seen the interesting prospect of the Victorian Government introducing derogations from the National Electricity Law in relation to transmission investment and instead providing quite broad planning powers to the Minister directly.

This raises two different sets of issues - the first is about constitutional responsibility for energy and the second is about the appropriate role of independent regulatory and market bodies and that of Ministers. This post is exclusively about the former.

In discussions of the move it is not uncommon to see variants of the claim that 'energy is constitutionally a state responsibility' as claimed in the Australian Energy Council's analysis.

It is important that we unpack this and realise that the correct expression is 'there is no explicit constitutional power for the Federal government over energy.' Then by default it remains with the States. Put simply State constitutions have very few limitations on what thy can make laws in relation to, but the Federal constitution specifies the things over which the Federal Parliament may legislate. These are mostly listed in section 51 of the constitution.

How items got included or not included in that list is an interesting part of history. For example subsection (v) gives the Comonwealt the power over 'postal, telegraphic, telephonic, and other like services.' Earlier drafting included only the internatioonal dimensions of those services, though they also had interstate trade characteristics.

Railways famously were not included - there was no international dimension and interstate trade was by coastal shipping (covered by subsection (vii)). Energy services were not included because they virtually didn't exist. The NSW Parliament only legislated after Federation to provide the power for municipal councils to generally provide electricity and gas services (earlier operations having been authorised by specific Acts).

So it is important to realise there wasn't a decision made that energy was a State constitutional responsibility, there just was no decision made.

We have seen recently however that the Commonwealth has been able to use other heads of power to unilaterally legislate. The decision to repeal Limited Merits Review, the imposition of the Default Market Offer and the Market Misconduct Bill were all achieved through the Competition and Consumer Act. That in turn depends on the corporations power.

While the States have all adopted net zero carbon targets, the practical rality is that Australia's emissions reduction obligations occur through a treaty. Were the Commonwealth to legislate in relation to this treaty and a state law was in conflict with it, federal law would prevail.

The interesting question is how other areas that weren't considered in the constitution have been subsequently dealt with. The radiofrequency spectrum is one such case. The Commonwealth has legislated for it, and initially did so for the purposes of managing the spectrum for defence purposes. But I believe the generic right is claimed through 51(v) on the basis that in 1901 the only use of radio was the telegraph, and so frequency is a like service.

This could be said of electricity - because the bulk of electricity being carried over wites in 1901 was telephony and telegraphs. Indeed, when the first Posts and Telegraph Act was debated it had a provision that gave the PMG complete rights over electric wires because of the interference they could cause to telphone and telegraph services.

While it is hard to argue that the Commonwealth has demonstrated it would manage energy well, there appears to be a very strong case that the Commonwealth could legislate the complete regulation of the energy sector under the corporations and external affairs powers with more than a nod to 51(v).

We might be better off with one Government and empowered regulators rather than nine Ministers all of whom want to be seen to be doing something.


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Life is what happens while you are busy making other plans JWL

EVs

I just can't get enough of KKK doing the Coalition over on the EV scare campaign....



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Life is what happens while you are busy making other plans JWL

What about the Climate Change Authority?

Alan Kohler in the Oz has written a piece that concludes:

It seems to me the best way to achieve that, given the apparent seriousness of the situation, would be an independent body, a bit like an expert, permanent royal commission, made up of a cross-section of scientists, statisticians and economists, to pull together the data and advise the government. 

It can’t be left to the Environment Department, the CSIRO or the Bureau of Meteorology because they are either not independent or not broad enough, although they should be represented on it of course. 

The aim would not be to try to convince people like Barnaby Joyce, Angus Taylor, Maurice Newman and Terry McCrann, or catastrophists at the other end of the spectrum, but to come up with the most likely impact of global warming on Australia and a set of recommendations and costings for dealing with it and to do it publicly.

He links to a website called Climate Change in Australia run by the aforementioned bodies.

What he seems to have forgotten is that the Climate Change Authority was established in 2011 for exactly this purpose. The Explanatory Memorandum to the Bill establishing the authority states:

The Climate Change Authority Bill 2011 sets up the Climate Change Authority, which will be an independent body that provides the Government expert advice on key aspects of the mechanism and the Government’s climate change mitigation initiatives. 

The Government will remain responsible for carbon pricing policy decisions.

The authority was rocked with turmoil when Tony Abbott tried to abolish it and subsequently lost a number of Board members (see also this and this). It is constituted to have a Board composed of a Chair, the Chief Scientist and up to seven others - it currently only has three others. It continues to be funded but the 2019-20 portfolio budget statements show (p. 199 ff) the Authorities expenditure to be basically constant at $1.5 million per year and a staff of nine. This should be contrasted with the $252 million in Government advertising, including $5 million expected in the last week of the campaign. 
Six million dollars is a reasonable estimate for the "Make the Call" campaign under powering forward alone - that is the same as the Government is prepared to spend on independent expert advice on climate change mitigation.

Labor's policy commits to $17.4 million funding over the forward estimates to, in its words, 'reverse the Government’s abolition of the Climate Change Authority and ensure that it continues to be appropriately resourced to achieve its role.' (This number comes from the FactSheet - the Policy Document says $24 million).

Maybe Alan Kohler would like to revisit his column and just say - Vote Labor.

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Life is what happens while you are busy making other plans JWL

Understanding 'Paris'

I made a big mistake this week. I decided to correct Chris Kenny on Twitter about the speed at which an electric vehicle (an EV) could charge. Of course I then uncovered a few crazies.

At the same time I have been thinking about how successful the Government has been in peddling the line that our "Paris commitment' is a 26-28% reduction in greenhouse gas emissions by 2030 on 2005 levels. Even the bulk of last week's Four Corners only got around to the interviewees explaining the agreement at the end of the show.

So let's just recap for everybody.

The Paris Agreement's objective (Article 2) reads:

This Agreement, in enhancing the implementation of the Convention, including its objective, aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by: 
(a) Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change; 
(b) Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production; and 
(c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

The 'Convention' referred to is the United Nations Framework Convention on Climate Change, adopted in New York on 9 May 1992. The Objective of the Convention is:

The ultimate objective of this Convention and any related legal instruments that the Conference of the Parties may adopt is to achieve, in accordance with the relevant provisions of the Convention, stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner. 

The primary mechanism by which the agreement 'aims to strengthen the response to the threat of climate change' is a series of 'nationally determined contributions' to the global response to climate change, and all Parties are to undertake and communicate ambitious efforts as with the view to achieving the purpose of this Agreement as set out in Article 2. The efforts of all Parties will represent a progression over time, while recognizing the need to support developing country Parties for the effective implementation of this Agreement.

The proposed support for developing countries is outlined in Articles 8, 9 and 10. Taken together these include direct financial assistance, technology development and transfer and capacity building.

The 26-28 percent 'Paris commitment' is merely our first nationally determined contribution (NDC). Our next one is due to be delivered to the UNFCCC in 2020. No one seems to ever ask the Government what it is planning for this NDC.

The current assessments of the carbon budget requirements to reach the goal of 2 degrees basically requires global energy systems to be net zero emitting by 2050.

Objections to action

Now the set of commentators who object to action on climate change usually have one of three core arguments:

1. The whole theory is rubbish, the climate isn't changing
   OR
   Any changes in climate are due to natural events and human activity is not affecting it
2. Australia only constitutes 1.3% of global emissions and so any action we take will make an insignificant difference
3. Any action to reduce emissions will 'wreck the economy' because we are dependent on our access to cheap electricity from coal, and renewable technologies cannot meet our needs.

The first objection should be put aside. Yes there are some like Tony Abbott in 2018 arguing sticking with Paris agreement was lunacy, but most are like Tony Abbott 2019 we should stay in the deal (but Abbott still thinks we should stay because the targets could be met with existing policy - so I suspect he confuses the NDC with the Agreement). 

The simplest case for sticking with the decision to take action is based on a risk assessment. If the theory is correct and the consequences as catastrophic as thought, then inaction is massively punishing on the planet and mankind. The real sting is that by the time the evidence became totally incontrovertible nothing could be done about it.

The second good reason is that we know fossil fuels are not in infinite supply. While the earlier forecasts for things like peak oil have been thwarted by new discoveries and new technologies, this can't go on forever. At some point we have to make a change to renewables and because of the climate risk it makes most sense to do it now.

The second objection is the real killer. The realities are that Australia's share might well be less than 1.3% (the Kenny number). Sources I have for 2016 suggest our share is lower at 1.14% but we are still the 16th highest emitter (and twelfth highest per capita). More importantly the cumulative total of all those smaller than our emissions is 24%. So if we should take no action the logic would suggest a quarter of the planet shouldn't.

But wait you here the objectors - developing countries aren't being required to contribute at all yet. But the first three countries behind us are the UK, France and Italy. And only six countries have a share of greater than 2% (Germany, Japan, Russia, India, United States and China.)

The whole point of the treaty is that we jointly take action. To convince others to take action we need to take action ourselves. And when it comes to that difficult question of developing countries we have to recognise the objective of 'supporting developing countries.'

Now we come to the third objection, there is no way to reduce emissions without wrecking the economy. For this the objectors use some inaccurate claims about how renewables can and do work in the electricity supply, and ignore some important technology developments.

But the best way to ensure the transition can be done in a way that supports the economy is to plan for it. That is what we need to do.

The need for a plan to 2050

The challenge confronted by a plan to net zero (energy) emissions by 2050 is formidable. It requires the complete replacement of coal, gas and oil as primary fuel sources and their complete replacement with renewables. Our choices in Australia are limited to wind and solar - we don't have appreciable un-utilised hydro opportunities (though we do for pumped hydro as storage). Solar can be PV in small (rooftop) or large scale, and can be solar thermal.

To replace all the fuel sources this needs to generate about three times the amount of energy that we currently consume from the electricity grid, probably more to allow for conversion losses from storage. Said like this it sounds like an impossible transition.

And yet we have to make it work. And the Australian public is expecting us to make it work.

Four surveys published in the last half of 2018* provide a consistent picture that a majority of Australians believe that the Earth is warming and that this is a result of human activity.  (Essential 63%, Australian Beliefs towards Science 55%, Australia Institute 56%)

Australians don’t believe that the move to renewable energy sources is a major cause of higher electricity prices, ranking it behind profiteering, privatisation, policy uncertainty and gas exports. 84% say they support focus on renewables over traditional energy sources.

A majority of Australians believe we should stay in the Paris Agreement. Almost two-thirds agree that Australia should enact a serious policy plan to deliver the commitments it gave in Paris to get to zero net emissions. 

No-one of course can develop a plan that will represent exactly what happens over the next three decades. But by developing some credible 'end states' and asking ourselves what would need to occur to get us there we can develop an idea of what are the actions that we need to take to give us any hope.

The work I think involves four main components. The first is identifying the optimal distribution of large and small scale generation to reach the ambitious goal and to plan for a 'system' (or grid) to support that. The second is an EV plan. The third is a hydrogen plan. And the fourth is an international engagement plan to fulfill the commitment to developing countries.

More on these over the next few days.

* Four surveys
 The Essential Report
The Australian Beliefs and Attitudes Towards Science Survey 2018
Lowy Institute Poll 2018
Australia Institute Climate of the Nation 2018


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Life is what happens while you are busy making other plans JWL

Is this really the Deputy Prime Minister?

I just want to share with you this brief extract from AM this morning.

Sabra Lane: Australia's population will reach 25 million tonight. Is it time the government came up with a formal population policy?

Michael McCormack: Well those discussions have taken place too, and I'm just pleased that in the infrastructure space we've got a ten year tax plan as far as rolling out the right taxation ends we have. As I said as infrastructure and transport minister an investment pipeline there for a decade long to help ease the congestion to make sure we build the infrastructure our nation needs both through tax and infrastructure we're making sure that we've got that long term vision over the next decade to make sure that we're well placed to cope with 25 million tonight and who knows how many it will be in ten years time.

Sabra Lane: What number would you be comfortable with.

Michael McCormack: Well that's a difficult question. Australia needs more population. Many of our regions are crying out for more people to fill the jobs to make sure we take advantage of those trade opportunities that the Liberals and Nationals have created.

Apart from the mangled first answer where clearly the DPM got confused once he started talking about ten year plans between tax (irrelevant to the question) and infrastructure.

But here's the real question - how can he be confidant he's got a good ten year infrastructure plan if he thinks that the population number is a matter of "who knows how many." Of course, Peter Costello figured out that we better care about demographics and instituted the Intergenerational Reports.

The first of those reports (2002) forecast total population by 2022 of only 23.2 million, the second (2007) forecast a faster growth rate but still only 23.2 by 2017. Total population is actually 6% higher than forecast though the share of working age people is as forecast at 66% (actually a tiny bit higher than forecast. Without doing a lot of analysis the biggest source of that difference is temporary migration visas.

And just in case the DPM and Infrastructure Minister is wondering the 2015 IGR forecasts population for 2025 of 28 million and 2035 of 32 million - that growth of 0.4 million a year would make the 2028 forecast 29.2 million. We just don't know if he is 'comfortable' with the number since he doesn't seem to know it.

Who in goodness name briefed this man before he went on radio?



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Life is what happens while you are busy making other plans JWL

Further prof that Anthony Abbott is not fit for leadership

Today's Oz carries a story  that a new coalition ginger group calling itself the Monash Forum has been formed to promote government support for a new coal fired power station.

This is simply absurd on so many levels.

Firstly Abbott was Prime Minister when Australia agreed to the Paris Accord to limit global temperature increase to two degrees. There is no escaping that the achievement of that goal requires zero emissions from electricity generation by 2050, especially in advanced economies. 

The emphasis on advanced economies reflects the fact that we are the ones responsible for most of the existing greenhouse emissions - we have a responsibility to get our emissions down faster.

A new coal fired power station would take over three years to build and be expected to have a life of t least fifty years. So a new coal fired power station is incompatible with the accord that Abbott agreed to.  And Barnaby I think was already his Deputy PM by then.

The second is that I don't know where these blokes (only males mentioned in the story) think this plant should be built. But wherever it is it makes interesting calls on transmission planning.

The third is the misuse of Monash's name. He was the first Chairman of the State Electricity Commission of Victoria who implemented the plan to use Victorian brown coal. But he wasn't an instigator.

He is most notable for his 1924 Presidential address to the Australasian Association for the Advancement of Science in which he extolled the benefits of 'linking up the system.' At that stage it was the linking up of just Victoria but his speech referred to a continental ambition. That continental ambition in 1998 became the National Electricity Market.

A key motivator for the NEM development was to provide the opportunity for private sector investment in generation. That was further supported by the sale of most of the government owned generators.  Despite opinions to the contrary that system is working, though currently at much tighter margins between capacity and peak demand. 

The fourth is that this is all about base politics and not about policy. 

The Oz story reports One member of the new group said: “Some of us see ­energy as being the only ticket to ride in the next election and the NEG is clearly not going to cut it for us.”

But fear of electoral defeat is not the only politics being played here (and it is certainly unclear that backing coal is an electoral winner). This is about the Liberal Party leadership - nothing more nothing less.

The fact that it is the Oz and News Corpse (as Mike Carlton calls it) tabloids running with the story tells you all you need to know. 

Meanwhile the SMH had a great little piece about how politics is changing. Voters descriptions of themselves show the proportion on the right hasn't changed, while the proportion in the centre has contracted with a real growth in the left.

This, not Turnbull, is the existential threat the right needs to deal with. 

Let's go down to the shore in boats

Twitter was ablaze with #yachtbanter today when for the second year in a row CEOs were stupid enough to (a) participate in KPMG's boat race and (b) to go on the record at said event about what troubles them in 2018.

To get us in the picture the AFR happily reported:

It was a postcard perfect day at the Sorrento Yacht Club for the 20th Annual Couta Boat Classic in Victoria. A morning shower briefly threatened festivities for Australia's captains of industry but swiftly disappeared like so many bottles of Bouchard Aine and Fils Rose at the race's conclusion.  

Not content with sharing with all of Australia this picture of largess hosted by one of the 'big four accounting firms' (yes one of those making all the money from the outsourcing of Government policy work) the CEO's titilated us with details of their concerns for 2018. The AFR told us:

Australia's top business leaders have nominated the destructive impact of rising costs on stretched household budgets as one of their key concerns for this year. 

Chairmen and chief executives have singled out spiralling energy costs for consumers and business and the impact it threatens to create for the economy as a "must-watch" issue.

One captain of industry decided he should do some serious sucking up to the Prime Minister by blaming it all on State Governments (at least I assume that is the reason for his statement, because as the ACCC price inquiry has shown it has nothing to do with state policies).

Of course, concern for stretched households can only go so far. We were also told:

Rising costs in the form of looming wages growth and the numbers of full-time employees were also front of mind for the banking, hospitality and entertainment sectors.

And there you have it - the sheer idiocy of CEOs informed by a leading accounting firm who can't figure out that the households with 'stretched budgets' are the same things as the workers for whom there might at last be 'wages growth.'

Yes it has been fair enough to pizzle these execs for pontificating from their pontoons. But we miss the real detail - they are all fundamentally idiots who shouldn't be trusted with a couple of bucks to buy an ice cream let alone running major corporations.

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Life is what happens while you are busy making other plans JWL

Never accuse Tony Abbott of being quick on the uptake

So The Oz reports this morning that Tony Abbott has 'slammed the government’s in-­principle support for including international carbon credits in Australia’s energy policy.'

We are told that Minister Frydenberg announced the new stance when 'releasing the final report of his 2017 review of climate change policies on ­December 19.'

The same story tells us 'In recent days, the Prime ­Minister has hailed his government’s national energy guarantee as a “real breakthrough” and key achievement in 2017' and that the government won support for the guarantee in the Coalition partyroom.

It all gets very confusing because he advice from the Energy Security Board that constituted what was agreed by the partyroom clearly said 'Australian carbon credit units (ACCUs) and international units could be permitted to meet a proportion of the retailer’s guarantee.'  The conditional 'could' here refers to the hypothetical state of the guarantee being implemented, not something subject to another decision.

The biggest issue of course is that the prospect of trading in carbon credits flows two ways. The way we are heading it is more likely that Australian businesses would be sellers of carbon credits, not buyers.

But never allow logic or economics to get in the road of Our Tone's ability to try to turn something into a slogan. The Oz quotes him saying 'I don’t support carbon trading, which is a carbon tax under a different name.' 

Redfern - how bad can the NSW government get?

The single word 'Redfern' has recently been most evocative of the song in Keating the Musical (here at 14:44) which itself derives from PJK's great speech in which he observed:
 It might help us if we non-Aboriginal Australians imagined ourselves dispossessed of land we had lived on for fifty thousand years - and then imagined ourselves told that it had never been ours.

But today just over 25 years later 'Redfern' is now evocative of the absolute mess that the Liberal Government (in the thrall of every developer led proposal and desire to sell its own assets) is making of Sydney.

Redfern is known to most Sydney-siders as 'that stop before Central' as most train lines pass through it. Otherwise it was renowned as a working class suburb that housed the home ground of South Sydney.

At its Southern end on both sides of the tracks lies the Everleigh Railway yards the Eastern portion of which was re-purposed as the Australian Technology Park in 1995.

In 2015 the NSW Government's own property development arm UrbanGrowth NSW sold the site to the Commonwealth Bank for $263 million.  After years of decentralising its workforce to Parramatta, Sydney Olympic Park and Lidcombe the bank had had enough of waiting for the promised transport infrastructure.

Over more recent decades as the University of Sydney has expanded into Darlington, Redfern station has become the favoured transport hub for many students. During term an almost continuous swarm of students four abreast stretches from the station in to the campus.

But the NSW Government like all its predecessors has meanwhile done nothing to increase the capacity of the train network. Current transport plans dominated by light rail and the metro whittle away at the network but still it is the trains that carry the heavy load.

The original plan for a Chatswood-Parramatta train line was to alleviate some of the train volume on the main Western line. But that plan was long ago abandoned as NSW Treasury viewed the new line as nothing more than an opportunity to rip apart the engineering culture and industrial relations nightmare of our trains.

As part of the latest attempt to squeeze more capacity out of the infrastructure, the latest timetable has some interurban trains bypassing Redfern.

Sydney University Vice-Chancellor Michael Spence said the decision for trains on the line to bypass Redfern in favour of Central Station had "added greatly to the university's already significant public transport pressures."

But the latest people to discover the problems of Redfern Station are Mirvac who is developing the ATP site for the Commonwealth Bank. With 10,000 bank employees expected to use Redfern or transport more focus is turning on Redfern.

A spokeswoman for the bank, meanwhile, said it had been "working with Mirvac and relevant government agencies to explore how accessibility to the site, and known issues with Redfern Station, can be improved for our people and the community prior to our move". 

 A Mirvac spokeswoman said: "Mirvac is aware of accessibility issues at Redfern Station and is in constant dialogue with a number of parties, including the state government and its agencies, on how to improve the access at the station."

It is a fascinating tale. UrbanGrowth NSW has enticed the bank out of Western Sydney. The bank is moving because the promised transport in Western Sydney wasn't delivered. Even before the development at ATP is complete, the pressure of bringing more and more people to the CBD and surrounds means service to Redfern has been reduced! Now the bank and its developer realise Redfern station can't cope with the extra passengers they hope will be delivered on non-existant trains.

You couldn't make this stuff up!

REDFERN!

On science, climate and economics

Back in 2014 I attended a seminar at the Centre for Independent Studies entitled The Grit in the Oyster: In Praise of Contrary Opinion.

Amongst the contrary opinion that speakers thought were worthy of praise was the proposition that climate change is either not occurring, if it is occurring isn't man made or can't be stopped, or s entirely a scientific hoax.

I drew the panel's attention to the hen recent comment by Steve Keen that it was time for a 'Copernican revolution' in economics - and that heterodox theories in general were worthy of more attention.

This view was, of course, dismissed by those on stage because, they claimed, the truth of neoclassical economics was well established.

That similar crazy views still endure was today demonstrated on the pages of the Australian.

In one column Judith Sloan attacked the whole field of behavioural economics and the insights it offers on the circumstances in which humans don't behave like the 'econs' (to use Thlaer's term) of neo-classical theory.  Most behavioural economists accept the neoclassical model as the accurate theory of markets and seek to correct it for deviations occurring on the surface.

Sloan perhaps realises the far greater threat it poses - that the evidence on framing, sequencing of decisions and other biases means that consumers do not have  single ordering of preferences. Their preferences are perpetually changing on the basis of the events that have just occurred and their expectation of future events. This brings the whole model crashing down.

The second column was by Maurice Newman on his favourite topic - that climate science is a hoax. His reason for the latest foray was the revelation that the Bureau of Meteorology had deleted some recent temperature records for Goulburn. This deletion was for the perfectly rational reason that the measuring device (thermometer) was measuring a temperature (-10.4) outside its calibrated range (minimum -10). The issue for BoM is that being outside the measuring range it has no idea whether the correct reading is -10.4, -10.2, -10.6 or some other reading.

Asking a measuring device to operate outside its range is like asking a person with perfect pitch to identify a note that is four octaves above human hearing range.

Now unfortunately I have to agree with Newman that there is an awful lot of a Kuhnian paradigm at work in climate science - a reinforcing echo chamber that includes some doubtful work. But the stand out challenge for the public in understanding climate science is that it involves a great deal of complexity theory - the weather and climate are complex dynamic systems.  It is a hard field to make definitive statements about.

At core both Sloan and Newman are suffering from the same inability to comprehend complexity.

We all like to joke about the accuracy of weather forecasts - but in reality they are far better at predicting the temperature than economists are at predicting economic growth.

Tony Abbott is no Conservative

In Launching the book Making Australia Right Tony Abbott has outlined what he claims is a conservative manifesto.  This has five elements:

We’ll cut the RET, to help with your power bills; we’ll cut immigration to make housing more affordable; we’ll scrap the Human Rights Commission to stop official bullying; we’ll stop all new spending to end ripping off our grandkids; and we’ll reform the Senate to have government, not gridlock

Touching as it sounds this manifesto fits no definition of 'conservative' and even struggles at times to be identifiable as 'right.'

Let's start with the change to democratic institutions to increase the power of the executive with respect to the legislature. It is extremely radical, not conservative, and has been floated with no consideration of what happens if it is successful when the other side wins. Can we imagine the delight if that referendum was carried but Labor won in 2019? Changing the democratic system is not the action of a conservative.

Curbing immigration is only conservative if the curb is targeted at social groups thought to be inimical to 'Australian values.' But immigration itself is highly valued by the right, recognising as they do that labour force mobility changes the dynamics in the labour market in favour of employers.

Cutting the RET is also at this point an anti-business strategy, because there is more interest in that new investment than any other - and it will fail because the levelised cost of energy from wind and solar is cheaper than new coal (but not old coal; but plants are being retired for age not from competition).

Stopping all new spending is also not a conservative approach - a conservative approach is certainly to preserve the old and reject the new, but it is also heavily dependent on retargeting to conservative values from new.(Like investing in chaplaincy schemes ratrher than family planning; investing in policing not child welfare).

The Human Rights Commission is certainly a totemic bogey of all conservatives. But it is the least impactful of all the measures.

At his core Abbott has never been anything at all; he is as belief free as Kevin Rudd. He is primarily a sycophant; out to please those he sees as being worthy of supplication. And he is very good at deciding what he opposes, as with this list. But his opposition has nothing to do with conservatism.

In his previous manifesto, his book Battlelines, in the chapter 'What's Right' Abbott provides a survey essay on definitions of 'conservative.' He started the discussion by recounting the challenge from the right to Howard from One Nation Mark I. He went on to a description of the Liberal Party as an amalgam of liberalism and conservatism, Quoting Sam Roggeveen he rather approvingly notes' the difference between conservatives and liberals is that conservatives have not been infected with the spirit of improvement.' He suggests that the reason the Liberal Party should now be more 'conservative' is because the original liberal agenda (to repel collectivism and secure the rights of the individual) has been won.

But that isn't really the Abbott story. He earlier in the chapter stresses the importance of Liberals winning elections - because Governments have to focus on building a better Australia.

And here is the reality of the Abbott agenda. He isn't just a liberal committed to the rights of the individual over collectivism, he isn't just a conservative who wants to resist change.

Abbott is a full-blown reactionary who believes that the powerful should be able to exercise their power - unfettered by Government - against the powerless. He has been a life long opponent of feminism because he believes men should have the power the patriarchy has granted them. He believes in Catholicism and the monarchy because they are redolent with power. He supports the coal industry and business in workforce relations, because he supports the money power.

Nothing is worse in Tony's world than the idea that someone with power should be restrained from using it.

He isn't a conservative, he isn't 'centre-right' he is that hideous monster we thought we had constrained to history - the reactionary authoritarian.

Anyone who seriously believes the manifesto he sprouted this week has any value to Australian society is either deluded - like most of the Murdoch journalists - or malicious - like Rupert himself.