From Watchdog to Lapdog

The Productivity Commission was meant to challenge bad policy. Now it recycles political spin.

The Productivity Commission should be the government’s policy conscience, not its copywriter.

Once upon a time, the commission’s job was to deliver independent economic advice and kill bad ideas as infants.

Alas, some of its recent efforts show it has turned its hand to editing government fantasy fiction to make it fit for publication.

From its early days as the Industry Commission, the agency was measured by the quality of its enemies. There were calls for its abolition, as it was attacked for being a nest of dry economic rationalists or, in the words of a former construction union boss, “a taxpayer-funded right-wing think tank”.

It wore the criticism as a badge of honour because it understood its mission wasn’t to be popular but to raise uncomfortable questions.

Productivity matters because it’s how we get more value from the same effort. It’s the difference between working harder and working smarter, and it’s what makes wages, living standards and the whole economy grow over time.

By being a hard marker, the commission made government policy better and helped make Australia richer.

Australia posted its biggest productivity gains through the Hawke-Keating reforms and into the Howard-Costello years. Workers were producing 3.1 per cent more each year on average in the five years to 1999, and we doubled the long-term average of output from the same mix of labour, machinery and materials.

The surge lasted into the early 2000s before reform momentum stalled; from 2004 onward, worker productivity halved and the gains from capital and equipment flatlined.

Things have gone from bad to worse. When Jim Chalmers ordered the commission to conduct five inquiries to feed into next week’s economic roundtable, he noted that “Australia’s productivity growth in the decade to 2020 was the slowest in 60 years”.

The agency was asked to report on priority reforms under the government’s five-pillar productivity growth agenda: making the economy more dynamic and resilient; building skills; harnessing digital technology; improving care serv­ices; and shifting to “cheaper, cleaner energy and the net-zero transformation”.

Here let’s insert an idea that rarely rates a footnote in all the talk about trying to lift productivity: no element of the economy is more fundamental than energy. Without it, nothing moves, nothing is made, nothing works. Canadian energy savant Vaclav Smil calls it “the only universal currency”.

“To talk about energy and the economy is a tautology: every economic activity is fundamentally nothing but a conversion of one kind of energy to another, and monies are just a convenient (and often rather unrepresentative) proxy for valuing the energy flows,” he wrote in Energy and Civilization: A History.

Petroleum geologist Art Berman distilled that to: “Energy is the economy.”

Underline this point: you cannot have a productive economy with chronically high energy costs. Yet that’s the trajectory Australia’s policies have locked in.

So when the Productivity Commission was asked to examine the bid to radically rebuild our electricity grid and every other energy system in the country, it could have no greater task.

This was the moment to test every unfulfilled promise that wind and solar would deliver cheaper, greener power. The chance to ask what happens when the net-zero doctrine is extended beyond electricity generation to the whole economy. The opportunity to weigh costs, benefits and trade-offs.

There is no need for hypothetical models because the transition of the eastern National Electricity Market is a live proof-of-concept slow-moving train wreck. And the world offers sobering case studies in Germany, Britain and California.

One also assumes the commission would be given access to all the work the government had done on modelling future energy prices under the road map laid out by the Australian Energy Market Operator. And if no department had done that work, the commission should surely be asking: Why not? Who would embark on this journey without rigorous analysis?

Given Australia accounts for a rounding error of the world’s carbon emissions, the commission should have checked the record on how all those national pledges of cutting emissions are tracking. Because if the world isn’t serious about acting in unison, for decades, then Australia will bear the wrenching costs of mitigation and reap zero benefits. It also will have to pay the costs of adaptation, whatever those costs may be. All of this will fall hardest on the poor.

The energy keystone of our prosperity is something worthy of serious, critical examination, something tailor-made for a body such as the commission.

So what did it do? The title of its recent report says it all, regurgitating the line from the Treasurer’s commissioning letter that reads like a press release from the Climate Council: Investing in Cheaper, Cleaner Energy and the Net Zero Transformation.

The title collapses on contact with the text. On page 10 the report admits: “But reducing emissions comes with costs. In many cases it is more expensive to use a clean product or production method than an emissions-intensive one – an extra cost known as the ‘green premium’.”

How do you square that statement with the promise of the headline? And in all the press conferences touting the virtues of net zero and the energy transition, from the Prime Minister down, has anyone heard talk of a green premium? It gets five mentions in Treasury’s Future Made in Australia paper, which argues taxpayer dollars should be poured into the void, but that’s about it.

A naive reader might expect the commission’s hardheads to sharpen their pencils at this point and ask: How much of a premium? On how many products and production methods? What is the cost? What is the benefit? And if the world’s carbon emissions rise every single year, as they do, what is the point? But scour the report and you won’t find another reference to the “green premium”; it vanishes like power from a solar panel at sunset.

To call this sin of omission an abject failure would be kind. This is a joke.

OK, what does the commission have to say about the “greener” promise in its report title?

Here the key recommendation is reforming environmental laws “to expedite approvals for clean energy projects and better protect the environment”.

True to the form of this document, the first half of that sentence tramples the second. The commission is advocating weaker environmental protections where they may impede wind, solar or transmission projects. If a Queensland farmer clears trees without approval they are branded environmental vandals and face prosecution. If a multinational industrial wind farm company clear-fells a forest on the Great Dividing Range, it’s saving the planet.

The government has provided no detailed maps of the scale of the land clearing necessary to deliver its transformation of the electricity system. The only person to have produced publicly available maps is cartographer Steven Nowakowski from Rainforest Reserves Australia. He says the total area needed is 843,902ha, but that does not include transmission lines, easements and the edge effects of clearing roads.

A recent study by Princeton University and the University of Queensland says 110,000sq km – about 1.7 times the size of Tasmania – will be devoured by 2060.

On what measure is this “greener” energy? This is burning the village to save it.

Productivity is a measure of value. The only value of this commission is in its ability to strip away sentiment and submit policy to clinical economic analysis. To speak truth to power.

If this report is any guide, its currency is in decline.