Targeted price relief welcome, but price caps will cause supply problems

ACCI’s submission on the government’s proposed energy policy supports targeted relief for households and small businesses, but expresses concern over heavy-handed market intervention that will reduce incentives for supply and investment, creating bigger problems down the road.

“The global energy crisis, partly as a result of the invasion of Ukraine, is impacting on the Australian economy, stifling business confidence and competitiveness, particularly in the manufacturing sector,” ACCI chief of policy and advocacy David Alexander said.

“Business welcomes targeted price relief that government can provide in the face of soaring energy bills. However, we are greatly concerned about the market interventions set to pass parliament, as they risk reducing investment and exacerbating supply problems.

“While targeted relief will take the sting out of forecasted energy price increases, there is little detail over who will benefit from temporary assistance, and this won’t be settled with state and territory governments until March next year.

“We are concerned about the establishment of price caps because they reduce incentives for supply and investment and create larger problems over time.

“We are also concerned that the mandatory code of conduct in which the government determines ‘reasonable prices’ would be a significant impairment to the efficient operation of the market and would further deter future investment.

“For many years short-term ‘fixes’ by governments have created larger second-round problems – investment is deterred, supply is reduced, and prices are higher than they would otherwise be. Price-capping is another policy that fits into this pattern.

“The government needs to prioritise getting the fundamental settings for energy policy right, as this is the only way to ensure affordable prices and secure supply while meeting emissions targets.”

Read the submission here.