National Energy Transition Authority – Constitution says no?

Last week, the Senate Economics Committee published its report on the merits of establishing a National Energy Transition Authority to coordinate and oversee the various state energy transition plans. The Labor-led Committee ultimately recommended against the passage of the National Energy Transition Authority Bill 2022 but did not cite clear reasons for its position.

Here we take a closer look at the Bill and why Labor might be approaching it so cautiously.    

What is being proposed?

In September last year, the Australian Greens proposed a Bill to establish a National Energy Transition Authority (‘NETA’ or ‘Authority’) to plan, coordinate, and fund the transition to renewable energy. The Bill would empower the Authority to give advice on things like:

• Sources of renewable energy.
• Models for return on investment on electricity generation projects.
• Preparing and/or upskilling affected communities and workers to ensure they receive equivalent employment opportunities.
• Review and propose changes to Commonwealth and State laws relating to energy.

Since it was proposed, the Bill has received stakeholder interest from different lobby groups. This interest has been mostly couched in positive language about ensuring an orderly transition, protecting workers, and empowering local communities. But, despite strong advocacy from union as well as some business groups, the Federal Government has remained uncommitted to the idea, with the Labor-led Senate Committee now formally advising against the Bill’s passage.  

In recommending that the Bill not pass, the Committee was cautious in its wording. While it ‘encouraged the Parliament to work together towards a flexible, inclusive Transition Authority’, it felt the creation of NETA was ‘premature’ and would duplicate existing Federal Government support programs (like the Net Zero Economy Taskforce) and advisory bodies, such as the Australian Energy Market Operator (AEMO).

What is also important, but not mentioned in the report, is the constitutional and political headaches a National Energy Transition Authority could potentially create for the Government.

A constitutional oversight

Given the ALP’s roots and the strong union backing, setting up a National Energy Transition Authority would appear intuitive. But it is not so straightforward for the Federal Government. Section 51 of the Australian Constitution, which lays out the legislative powers of the Parliament, does not mention electricity supply. This means that electricity supply, by default, is a state power. The full history behind this omission – which by today’s standards seems inexplicable given how essential electricity is to everyday life – is explained in detail elsewhere. In short, at the time of federation, electricity systems were small and localised, and built around the conditions of regional geographic resources.

As electricity systems evolved and matured, the states worked together in the early 1990s to create what is now called the National Electricity Market (NEM). In simple terms, the NEM is regulated through states agreeing to uniform state legislation – the Federal Government still has no legislative power. The NEM, and the regulations underpinning it, have since been cited as an example of “cooperative federalism”.

Cooperative federalism allowed for Australia’s east-coast electricity system to run with far greater efficiency and created a stable regulatory framework for attracting investment.  The focus was mostly on improving the quality of economic regulation to deliver cheaper outcomes for customers. While it was successful in this regard, another issue was emerging that deeply affected the electricity market: climate change.

Constitutional limits are now political

The rise of climate change in the public consciousness meant electricity supplies faced increased scrutiny due to their high carbon footprint. Who held the responsibility to address climate change was vague. As it was absent from the Constitution, states could claim default responsibility. However, the Federal Government was also able to assume a role through its external affairs power (s51xxix), and subsequent ratification of international treaties (first the Kyoto Protocol and today, the Paris Agreement). Either way, the sector with the greatest opportunity for decarbonisation, electricity, remained a state responsibility – a problematic outcome given a consistent national approach to climate change would be most effective.  

There were ways to navigate this legal murkiness, such as through policies like the Gillard Government’s Emissions Trading Scheme. But as is well known, political divisions ruptured Australia’s climate and carbon policy, creating a decade long federal black hole that State Governments eventually took action to fill with alternative policies. Each State Government now has a climate target and is targeting the electricity sector as its primary decarbonisation vehicle.

Unlike before, these State Government energy and carbon policies have not been built upon cooperative federalism. Instead they appear almost competitive: states have seemingly  sought to “one-up” each other through parochial policy (this has also been described as a “charismatic abatement” problem by the Productivity Commission, where government support is given to more “visible”, but more expensive, approaches to reduce carbon emissions, rather than less visible options that could be delivered via an overarching national policy, such as an emissions trading scheme). This is leading to a fracturing of the NEM, as states go their own way, prompting fears the energy transition is becoming uncoordinated and disorderly.  

It is understandable then that there are calls for the Federal Government to become the guiding figure.

So what can the Federal Government do?

Well, that is the million-dollar question. The proposed Bill envisaged NETA to be a body that would ‘provide guidance on the closure of coal- and gas-fired power stations… and… clear direction to the energy market about how much clean energy we will need where, and by when’.

Likewise, key stakeholders such as the Clean Energy Council, have supported a National Energy Transition Authority because affected communities ‘need some level of certainty and forewarning about future coal generation closures’, while union groups have pointed to Germany’s central planning as a model for Australia to follow. The AEC has previously explored the details of Energiewende here.

But the Government acting as a central planner to Australia’s electricity transition seems improbable now. State roadmaps are too advanced and hold far too much political capital to be reconfigured into a national plan. There are then the constitutional hurdles which, minus a referendum, are only resolvable through states giving tacit support. A majority of Labor State Governments could make this possible, but it would be a highly unenviable task, and the political dangers of the Federal Government taking this leap would appear too great – any blackout, energy price spike, or coal closure delay would now be an exclusive Federal Government problem.

The Government is obviously aware of these legal and political hurdles and can be seen in other policies, such as Rewiring the Nation. This name would imply to many that the Federal Government is taking a leading coordinating role in electricity transmission planning and investment. But in practice, the policy is essentially the granting of Commonwealth funds to support existing state transmission projects.

A National Energy Transition Authority could drop the central planning function and adopt a gentler advisory role, but this seems superfluous. There is already an authoritative planning process through AEMO’s Integrated System Plan (ISP), which is well-regarded among government and industry, and does not need duplication. Likewise, the Clean Energy Finance Corporation (CEFC) exists to facilitate investment in clean energy projects – in other words, empowering NETA to provide models for a guaranteed return on electricity generation projects, as was proposed, is not a current policy gap.  

The Government can still support affected communities

It is envisaged that any Authority would assist the retraining, redeployment and/or retirement of coal workers, and provide sustainable employment opportunities to affected communities. This is an obviously important function to ensure the transition is equitable and would complement existing commitments industry has made to their workers and the community, such as EnergyAustralia’s Power Your Future program.[1]

The challenge for the Federal Government is that research shows bottom-up policy solutions are far preferable to top-down models.[2] This means any national authority must work with regional bodies, such as the La Trobe Valley Authority or the Hunter Jobs Alliance, to provide place-based support tailored to the affected community.

This type of government assistance, though much needed, does not necessarily require a new independent authority to be created. Additional funds and support can be coordinated through existing federal programs like the Net Zero Economy Taskforce, Powering the Regions Fund and/or National Reconstruction Fund.

Conclusion

If the Federal Government does eventually opt to set up a National Energy Transition Authority, the challenge will be how to manage public expectations. Its symbolic value, though high, may misrepresent the Government as taking responsibility for implementing the energy transition, without the powers to make a difference.

It would appear better policy, for both affected communities and the Federal Government, to continue to support regional authorities through existing programs, and allocating additional resources to local circumstances when needed. A super-imposed top-down solution would just impose another administrative layer with questionable benefits.

[1] See, for example, Energy Australia’s Power Your Future program to assist workers at Yallourn power station: https://www.energyaustralia.com.au/about-us/media/news/energyaustralia-helps-yallourn-workers-prepare-life-after-coal.

[2] Strategen, ‘Just Transition: Navigating Australia’s Energy Transformation’, November 2022, https://www.energycouncil.com.au/media/a3jaw42b/aec-just-transition-report-final.pdf, p45.