Interview with Laura Tingle, 7.30, ABC
LAURA TINGLE:
I was joined a short time ago by Treasurer Jim Chalmers.
Treasurer, welcome to the program. You've said repeatedly in recent weeks that this was an extraordinarily complex problem to deal with and no one seems to be disagreeing with you. Can you start by explaining how you set these prices of $12 for gas and $125, for coal?
JIM CHALMERS:
Well, the $12 is on advice from the ACCC and what it tries to do is not cap this price at the cost of production, but to allow for a reasonable rate of return as well for the gas companies. And one way to understand how the ACCC have recommended this number to us is if you look at the last 6 months of wholesale offers in the market, the average has been about $20. The 6 months before that, the average was about $10. Or if you think about the prices that were offered in the market in 2021, there was 289 wholesale offers made in that period, 96 per cent of them were under $12 and the average was something like $9.20. So what the ACCC and now the Government is trying to do is to cap these gas prices at something which looks a bit like more normal prices from before when the Ukraine war intensified and sent the global energy markets into this kind of chaotic situation that is putting such pressure on our industries and on Australians around the country.
And so, what we're trying to do is allow for a reasonable rate of return, but to cap the prices so that we recognise that what's happening in the market is an extraordinary situation which warrants an extraordinary response and that's why we're proposing this $12 cap. And in coal, the states are largely responsible for imposing this cap - New South Wales and Queensland in particular - and they've got different ways to go about it but it reflects a similar kind of calculation and consideration that we've seen on the gas side.
TINGLE:
Well, you say it's extraordinary times and there's certainly been an extraordinary reaction from rather agitated gas producers in the resources sector. They're alarmed by your separate proposal to have a, quote, 'reasonable price' provision written into what will become a mandatory code of conduct for the gas sector. It's been variously described as reckless or a declaration of war. Can you explain what this reasonable price provision is designed to achieve? And why has it emerged now?
CHALMERS:
First of all, it's obviously neither of those things. And I do want to say that I have a lot of respect for the role that the gas industry plays in our economy and in our transition to net zero - it is an important part, inevitably there will be differences arise, we're not unrealistic about that. First of all, there's the $12 temporary price cap but you're right that what we are proposing here after a consultation period of a couple of months is a reasonable pricing regime which comes in after the cap is removed - most probably after 12 months. And what the reasonable pricing regime is all about or what the proposal is all about is to recognise that this market hasn't been working as it should or as good as it should for all of the players in the market, it does require reform and buyers need somewhere that they can go for some kind of arbitration if they feel like they're only being offered dud deals and we've seen that in the past - the ACCC has come to that conclusion. So we do need an ongoing regime beyond the temporary price cap that we are proposing but the legislation before the Parliament on Thursday is about the framework to make that temporary price cap possible, it's about the enforcement mechanism for the cap and it's about the household assistance that the Government wants to provide. There is still time and still room for a couple of months of consultation about the reasonable pricing mechanism which will be settled by regulation early next year.
TINGLE:
The Greens are unhappy about the suggestion that coal companies may be compensated for lost earnings on coal and you and the Prime Minister say that isn't the case. If you're going to give them money to cover costs of production over $125 that looks and quacks a lot like compensation. What will be the mechanism for paying that because you said there isn't legislation to actually allow for it?
CHALMERS:
A couple of things about that, Laura. What we are proposing to do or prepared to do in a reasonable way is to support the state governments who are imposing this coal price cap and we've said that we will work through that and finalise that in consultation and in conjunction with the state governments of New South Wales and Queensland and that remains the case. But the point that the Prime Minister and I have been making is that the legislation before the Parliament on Thursday is not about the arrangements for coal. It's not about any kind of compensation for the coal industry. The legislation before the Parliament on Thursday is about imposing this gas cap and it's about household assistance. And what I can confirm tonight, Laura, is that the legislation presented on Thursday will be a package to enable the household assistance and to enable this price cap on gas. And so what Peter Dutton and the Coalition have said they will do is they will vote for higher prices for gas and for no assistance for households when this legislation is put forward as a package on Thursday. And that's the difference between the Government and the Opposition - we support lower gas prices and more assistance for families doing it tough, the Coalition wants to vote for higher gas prices and no assistance for families doing it tough. Now, when it comes to the crossbench, we will engage as we always do in a respectful way with crossbenchers of all political persuasions in an attempt to try and pass this important legislation. There is a degree of urgency here. We do want to get these arrangements in place whether it be the cap on gas, whether it be the household assistance, there's an element of urgency here - it can't wait and that's why we brought the Parliament back.
TINGLE:
Well, both the Greens and Senator Pocock continue to ask why you aren't proposing a windfall tax on quote 'eye watering profits' by coal and gas companies. What's the answer to that question?
CHALMERS:
The position of the Greens and of Senator Pocock is well known. We continue to engage with them respectfully as we always have to try and pass our proposals through the Parliament - that's as it should be. And I think it is true, frankly, to be upfront with your viewers, Laura - most of the pressure that the Government comes under when it comes to doing something about these high and rising prices putting pressure on our industries and on our households - most of the pressure is to do even more than what we are proposing, whether that be a lower cap, whether that be a windfall profits tax, whether it be something which has a detrimental impact on international contracts. We think we've found a better way than some of those proposals put forward by others. There are a range of ideas in this space, we have been thinking about it for some time and working in a collaborative fashion with the states and territories and we think we've come up with the best proposal.
TINGLE:
Finally, if I can turn to a speech you made today - you're proposing a new regime of mandatory disclosures by companies on climate risks. What does that regime seek to achieve and why haven't you also extended this straight away to the public sector - the massive sovereign wealth fund our Future Fund?
CHALMERS:
Well first of all, these near term steps that we're taking and some of these other changes that we are proposing when it comes to investment in cleaner and cheaper, more reliable, more renewable energy, are all part of the same story, which is - how do we make our energy markets more resilient and more affordable after a decade of energy policy chaos. Australians are paying a hefty price for a year of Russian aggression in Ukraine and a decade of energy policy incompetence by our predecessors. And so we do have to take meaningful steps in the near term to take some of the sting out of these price rises for electricity and gas, and also in the medium term and the longer term.
So what I'm proposing today is all about clarity and consistency so that investors can make good decisions about investing in the future energy and the future of our economy, in ways that satisfy our national objectives around net zero and the like. There has been incredible support from the investor community for what we're proposing today. And when it comes to government entities, I will work closely as I always do with my friend and colleague Katy Gallagher who's responsible for the government owned corporations and the government entities that we do want to bring into the program. But we want to begin with the biggest companies - a number of them are disclosing their climate risks and opportunities already. We want to apply a level of clarity and consistency to that. We want to bring in government entities as well, but it makes sense to begin with the ASX 200.
TINGLE:
Treasurer, thanks for your time tonight.
CHALMERS:
Thanks, Laura.
