Address to the Sydney Institute

Less than a sprint away from here is 121 Macquarie Street - the Chief Secretary’s Building.

A typically beautiful and impressive Sydney sandstone structure, it was the seat of colonial administration and is rightfully listed on the State Heritage Register.

But it was also the home of the Aborigines Welfare Board until the Board’s abolition in 1969.

The Board could control where Aboriginal people lived and worked and was authorised to remove Aboriginal children from their families.

It housed some of the cogs of the machinery of the Stolen Generation.

So, as we acknowledge the elders of the Gadigal people of the Eora Nation, I also acknowledge that the work of repair and reconciliation is far from complete. 

But we can take a huge step forward in recognition and reconciliation later this year. 

The Australian people will vote on what is a simple proposition at its heart: that our First Peoples be recognised in our nation’s governing document, and they be consulted on matters affecting them. 

It will be an important inflection point for our country.  It is a conversation and a change I know our nation is ready for, and I am confident we will answer the Uluṟu Statement from the Heart in the same positive spirit with which Indigenous Leaders made it nearly six years ago. 

Thank you to Gerard and Anne for your invitation to address the Sydney Institute again this evening. 

I thought the most productive thing I could share this evening is some thoughts about our approach to climate and energy policy ten months into Government, as we approach our first anniversary in office in roughly 10 weeks’ time.

To share some thoughts on what we have managed to achieve in our first year, and what we need to achieve over the coming decade.

I’ll start with perhaps a brief personal reflection.

People often ask me if I am enjoying this job.

My answer is: how could I not be?

I’ve held a lot of portfolios over the years.

This is, in my view, by far the most important of them. It’s the most important job I’ve ever had, and one I relish every day.

The stakes are high.

Climate change is an existential threat to our health, our environment, our economy, our national security.

There are a myriad of examples I could give you as to why it is so important for our country that climate change be tackled.

But I will leave you with just one.

Our country was ravaged by bushfires in 2019 and 2020.

The toll was physically, environmentally and emotionally enormous for our country.

If climate change continues unabated, the conditions that led to those firestorms will be the average climactic conditions by the 2040s.

By the 2060s, the conditions of 2019/20 will be regarded as a “good year”.

We can’t let that happen to our country.

Conversely, action on climate change is arguably the biggest economic opportunity for our country in the next two decades.

For 235 years we have been in search for comparative advantage.

Renewable energy is probably the biggest chance for comparative advantage we have ever been presented with.

It is unthinkable to me that we would miss that opportunity.

And the task is massive.

The world’s transition to renewable energy is the biggest economic change since the Industrial Revolution.

And the timeframe is tight.

The key to holding the world as close as possible to 1.5 degrees of warming is the reduction of cumulative emissions between now and 2030.

2030 is now 82 months away.

This is a comparative blink of an eye.

And of course, the size and importance of this task is magnified even further, when you factor in the complexity of undertaking this task against the backdrop of a dramatic dislocation of world energy markets.

The responsibility of putting downward pressure on energy prices for household budgets and the viability of Australian businesses, particularly energy hungry manufacturing, within this complex environment, is not one I take lightly.

This task is encapsulated by the concept of the energy trilemma: the imperative for affordability, security and emissions reduction.

The good news is, the answer to each element of the trilemma is the same: a transition to the cheapest form of energy, renewable energy which is much faster and much more orderly than it has been over the last decade.

As I said, tonight I will share with you some of the thinking which underpins our approach to climate and energy policy.

But first I do want to spend a few moments on one of the most urgent challenges we have faced across the economy: dealing with sky-rocketing global energy prices.

Energy Prices

We’ve recently marked the one-year anniversary of the illegal and immoral invasion of Ukraine by Russia.

A tragic, brutal, unnecessary anniversary.

And even more sadly – it’s unclear when, or how, it will end.

One of the most significant global repercussions of the crisis was the impact on the global energy market.

The Russian invasion of Ukraine has had devastating impacts on energy security, with much of Europe held captive over the supply of oil and gas from Russia.

It has also had severe impacts on energy affordability.

The World Economic Forum found that the conflict has nearly doubled household energy costs worldwide.

And despite our distance from the conflict, Australia has not been immune.

These pressures transformed into the greatest global energy crisis since at least the 1970s energy price shocks.

We saw the price of gas and coal jump across the globe, including in Australia, and these price hikes had a devastating impact on domestic energy markets.

We saw the domestic average price of gas jump from $10 GJ at the time of Russia’s invasion of Ukraine, to $32 GJ by the time of the election.

Along with similar price hikes for coal, the impacts on electricity prices were severe.
Average wholesale electricity prices jumped from $85 MWh at the start of the Russian invasion to $286 MWh at the time of the election.

This hike in energy prices was seen across the world, and the IEA reported 90 per cent of these price hikes were due to the impacts of Russia’s illegal invasion of Ukraine.

Our Government has been frank about what this means for household energy costs.

Treasury forecasted a 20% rise in electricity costs in 2022-23, and a 36% rise in electricity costs in 2023/24.

For gas prices, it was a 20% increase in 2022/23, and a 20% increase in 2023/24.

Of course, this is what led to the Government’s decision to introduce gas and coal price caps in December – we couldn’t sit on the sidelines while international markets spun out of control – with skyrocketing prices to hit Australian consumers.

Our caps were set to account for a reasonable profit margin, not an unjustified one.

And encouragingly, we are starting to see signs that the action is having an effect in dampening price rises.

Far from the peaks seen in the middle of the year, average wholesale electricity prices in February this year, one year after Russia launched its invasion, were down to $83 MWh.

At the time the interventions were announced, Treasury estimated that electricity prices nationally would be 13 percentage points less in 2023-24 than if we hadn’t taken action.

And futures markets have responded accordingly – a recent comparison of 2023 wholesale electricity prices in November with the prices in February shows that forecast wholesale prices for 2023 have dropped by up to 48%.

And yet, there are still some who criticise the action.

This week the Australian Energy Regulator will release the draft Default Market Offer – the reference price for residential and small business electricity prices in NSW, SA and South East Queensland.

And while I’m not going to pre-empt the AER’s determination of this, I do want to give some new insight into exactly why the Government had to act in December.

In November, the AER advised Government that without action, the Residential DMO would increase:

• between 35 and 44 per cent in NSW
• in SA – 51 per cent
• in South-East Queensland, 41 per cent.

Based on these numbers, the Government estimated for small business customers, the increases were:

• 37 per cent in NSW
• 53 per cent in SA and
• 50 per cent in South-East Queensland.

We simply had to act.

I expect the draft DMO released this week to be significantly lower than the AER’s predictions pre-intervention.

But I know that will be cold comfort for people who will still have to deal with the resulting energy bill increases.

That’s why our Energy Price Relief Plan also included consumer and small business rebates – additional, targeted assistance to those who need it most.

Climate and Energy Policy: Ambitious and Achievable

Of course, the public debate around energy prices is highly politically contested just as the broader climate debate is. 

Climate politics in Australia has been tribal for many years.

There remain climate deniers and delayers in the Federal Parliament, and the Opposition remains stuck in the same gear as they have for the last decade: decrying action on climate change as being dangerous to the economy and remaining silent on the risks of inaction rather than seeing it as the massive investment and job creation opportunity that it actually is.

Likewise, others are quick to label any action as not good enough, rapid to call for more while ignoring the complexities and imperatives of managing this complex transition smoothly to ensure our lights stay on and our industrial base is nurtured and expanded during this vital transformation.

What each of these approaches lack is a melding together of ambition and a focus on being achievable.

Those who opposed our Climate Act in Parliament, with its target of 43% emissions reduction by 2030 as being too ambitious – that is to say, the Federal Opposition – are simply ignoring the imperative of acting.

They also voted against our electric vehicle tax cut, our energy bill relief package and are currently opposing the reforms to the Safeguard Mechanism.

They are making themselves irrelevant, in this, the most important economic and policy challenge facing our country.

Similarly, slogans and calls for faster action often ignore the realities and complexities of the task we are undertaking.

Our approach is centrist, but it is far from timid.

We receive criticism from the left and the right.

But we continue with alacrity because this middle way is the right way.

And it is our great responsibility to make policy, not just a point.

Because to achieve a 43% economy wide emissions reduction by 2030 from a standing start, we are going to need a massive whole of society effort, which embraces every sector of our economy.

Let me concentrate on the task at hand for just two sectors tonight: electricity and, topically, industry. 
 
Electricity

When we came to office, 32% of our electricity came from renewable energy.

Our commitment is to lift this to 82% in the next 82 months.

This is no small task.

We will do this a number of ways.

The passage of our Climate Act through Parliament was vital in sending the message to renewable energy investors that Australia has an ambitious but stable policy environment to foster investment.

Large-scale wind and solar farm investment commitments grew nearly 50% in 2022, with 4.3 gigawatts (GW) of large-scale renewable energy capacity achieving a final investment decision (FID), most from the election onwards.

To put this in perspective, 4.3 GW is enough to power more than 3 million homes.

The second half of last year also saw a step up in rooftop solar investment by households and businesses, with over 300,000 small-scale rooftop solar systems installed in 2022, contributing an additional 2.8 GW of renewable energy capacity.

And there is much, much more to do.

We will achieve our 82% target through various policy levers.

Our Rewiring the Nation policy is absolutely vital in upgrading the grid to cater for much greater renewable penetration.

Because there is no transition without transmission.

I’m pleased that in our first ten months, we have inked comprehensive deals under Rewiring the Nation with New South Wales, Victoria and Tasmania.

And negotiations with remaining jurisdictions are advancing well.

And we will keep the much-needed focus on reliability, through the Capacity Investment Scheme.

After 4GW of dispatchable power coming out of the grid in the past decade, and only 1GW to replace it, States and Territories unanimously agreed with the Commonwealth in December on a model to further enhance stability and certainty for investors and unleash at least $10 billion – and 6GW – of investment in dispatchable renewable energy.

We will do this several ways.

We will do it by working with several communities around Australia to develop Australia’s offshore wind industry.

It is many different levels of crazy that Australia, the world’s largest island, doesn’t have any offshore wind.

To give some idea of the scale.

One proposed wind farm, in the Offshore Wind Zone I have officially declared off the Gippsland Coast would generate 20% of Victoria’s current energy needs.

That’s just one proposed wind farm.

We are currently consulting on the appropriate borders for the Hunter Offshore Wind zone. But the 5000 square kilometres in the draft zone would be enough for eight gigawatts of power, or enough to power six million homes.

We will do it through building storage for our renewable industry.

400 community batteries, the large grid-scale batteries I announced funding for last year and more.

This is the sort of effort we will need to achieve our important targets. 

Safeguard Mechanism reforms

As important as the electricity sector is, converting our electricity grid to 82% renewable won’t be enough to see our emissions come down by 43%.

The reforms to the safeguard mechanism that we are currently steering though the Parliament cover 28% of our emissions and are also vital to our efforts.

The safeguard reforms are complex in their nature, but they are simple in their intent.

To ensure our biggest emitters contribute their fair share to our emissions reduction targets.

205 million tonnes of abatement.

Equivalent to around a third of our emissions reduction task – Or taking 2/3rds of cars off the road between now and 2030.

It’s an ambitious reform, but a sensible one.

Ensuring industry takes a fair share of responsibility for emissions reduction, while including variables to account for increased productivity and growth.

And critically, it incentivises onsite emissions reduction through the creation of Safeguard Mechanism Credits.

What this means in practice is if a facility is close to its baseline (or ‘emissions ceiling’) and that baseline declines by a small percentage a year, the facility has the choice of buying offsets or making big capital investments in technology that could halve its emissions. 

Without crediting, those capital investments are not rewarded and will inevitably be put off.

Again, our approach is to be ambitious but to focus on the achievable.

Providing a framework for 4.9% emissions reduction each and every year from Safeguard facilities is ambitious.

Because of that level of ambition, and the breadth and variety of sectors covered, it’s necessary to provide flexibility to industries to ensure that ambition is achievable.

I understand the emphasis on possible new facilities in the public debate.

But this reform is about reducing emissions from all facilities: old and new, industrial and resources based.

The fact is this: if our reforms are passed, there will be a scheme to ensure emissions come down from big emitters, whether they be old or new.

If they don’t pass, there will be no such scheme.

It will be business as usual.

Emissions from covered facilities have gone up 4% since the scheme came in 2016.

No reform means no change: it means emissions continuing to rise.

One of the issues that has been raised in relation to our reforms is the future of gas.

Again, there are ideological positions on both sides.

Our position is clearly grounded in practicalities.

The previous government promoted a “Gas-Led Recovery”.

It was, and remains, a fraudulent concept.

Between 2014 and 2021, east coast gas production increased 300 per cent.

Yet despite supply going up significantly the prices paid by Australian households and Australian industry also went up by 420 per cent (in real terms) over that same period of time.

The former government was warned on at least a dozen occasions that because of their inaction we were hurtling towards a supply problem in the domestic market.

In July 2017, the Australian Energy Market Commission warned: “Reform was needed now … so consumers don’t pay more than necessary for their gas.”

But nothing happened – apart from slogans.

On the other side of the debate, some call for an immediate ban on future gas.

Or the cancelling of long-term contracts with key trading partners.

These options are both irresponsible and not countenanced by the Government.

These are the same trading partners we will need to help drive the energy transformation – the sovereign risk created would be untenable.

I have mentioned our plan to lift the energy mix to 82% renewable by 2030.

As big and ambitious as this lift is, it would leave 18% of our electricity mix as non-renewable.

And as aging coal-fired power stations leave the grid, that 18% will increasingly be focussed on gas.

Gas is a flexible fuel necessary for peaking and firming as we undertake this transformation.

And what I have just mentioned relates only to electricity.

This is before we get to the needs of industrial manufacturers for gas as feedstock and direct energy.  

And I’m an optimist about the role for biofuels and green hydrogen in that task, but we’re a way off yet.

The Australian Competition and Consumer Commission’s (ACCC) January Gas Inquiry Report forecast a 30 petajoule shortfall for 2023 in Australia’s east coast gas market, if LNG producers export all of their uncontracted gas.

But the ACCC notes that there is 58 PJ of uncontracted gas available for the domestic market.

What this means is that in 2023, east coast LNG producers have sufficient uncontracted gas available to address the forecast shortfall.

We want to see that uncontracted gas flow to Australian households and businesses at a reasonable price.

But in future years, the ACCC notes the situation is not as secure.

Specifically, in the east coast from 2027, the ACCC notes that there are likely to be shortfalls across the east coast gas market arising from domestic and export demand without steps being taken.

This isn’t ideological, it’s practical.

Electrification will ramp up –

Renewable adoption will grow –

But there will still be a need for gas as a supporting fuel, especially for industrial and commercial users.

Hence Minister Madeleine King is progressing consideration of reforms of the Australian Domestic Gas Supply Mechanism, known affectionately to some and less affectionately to others as the Gas Trigger, and I, together with the Treasurer am progressing a Mandatory Code of Conduct.

And hence, we will continue to take a practical and evidence-based approach to policy questions around gas. 

Conclusion

Practical and evidence-based policy is good policy.

But being practical and evidence based should not be portrayed as lacking passion.

I mentioned earlier how much I relish this task.

Getting this transition right is the main game in determining the prosperity of our nation in coming decades.

There is no imperative greater for governments in this age, than playing our role in holding the world as close as possible to 1.5 degrees of warming.

There is no greater economic opportunity for our country than developing our potential as a renewable energy powerhouse, to provide for our own energy needs and, increasingly to be a supplier of cheap renewable energy to the world.

Too much time has been wasted in this country on climate-related identity politics and tribal games. 

We now have not a second to waste.

I’m pleased with the progress we have made in our first ten months.

Pleased but far from satisfied.

Because there is so much more to do.

On this, the most important task before us.

And getting on with the job is exactly what we intend to do.