11 Feb 2014

Australia has a serious problem that must be fixed.

The nation’s capacity to deliver large capital-intensive projects – such as liquefied natural gas plants – is being eroded by inefficient regulation and by duplication of green tape and red tape across jurisdictions.

At a time when there is pressure on government revenues and various local industries are faltering, it makes no sense to shackle one of the nation’s big economic drivers.

Yet the oil and gas industry is regulated by around 150 statutes and more than 50 agencies. And its regulatory burden continues to grow.

Much regulation appears to be prompted by political factors rather than science or operational realities.

This short-term approach adds to the time required to develop projects, the costs of developments and the risks faced by investors. It also raises questions of sovereign risk and reduces confidence in the quality of Australian governance.

The Productivity Commission has estimated that unnecessary regulation could be costing Australia about $60 billion – or 4 per cent of GDP – each year.

Its December 2013 Major Project Development Assessment Processes report found a clear need to reduce regulatory overlap and to provide certainty and transparency for investors and the community.

The oil and gas industry is pleased that the Australian Government has pledged to reduce red tape.

Prime Minister Tony Abbott has signalled his commitment by shifting the deregulation unit to his own department and appointing Josh Frydenberg as parliamentary secretary dedicated to deregulation.

On March 19, more than 8000 regulations will be put on the chopping block. This “repeal day” will be the first time the Australian Parliament has dedicated a sitting day to cutting red tape.

The new government has also moved quickly to secure the agreement of all states and territories for one-stop shops for environmental approvals. And considerable progress is being made in moving towards streamlining environmental assessment of offshore petroleum activities in Commonwealth waters.

This is a positive start in delivering regulatory efficiency without diminishing environmental standards. But low-hanging fruit remains. The “water trigger” introduced into the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) addresses a political objective rather than an environmental one.

This law was developed without any regulatory impact statement. It only covers the activities of resources companies while ignoring the vast majority of water users.

It duplicates existing state laws. Requiring new gas projects to pass two sets of environmental assessments – federal and state – adds unnecessary layers to approvals processes and increases costs by millions of dollars.

While efforts can be made to streamline the administrative complexities, further changes must be made.

Full implementation of the Federal Government’s one-stop shop environmental approvals policy will thwarted as specific provisions added to the EPBC Act last June mean the States and Territories cannot approve water trigger-related actions.

Even when bilateral agreements on approvals have been made, the water trigger could remain the sole exception to Commonwealth authorisation of State approvals of EPBC Act matters.

This is only one example of how red tape threatens future investment. Many others exist at both federal and state levels.

The coal seam gas “exclusion zones” finalised by the NSW Government last month are a clear case of arbitrary and politically driven regulations.

The gas industry has no issue with the regulation of its activities, but the rules must be based on science.

There are significant opportunities – at both federal and state levels – to reduce red and green tape and streamline the duplicative and overlapping regulatory processes that currently increase costs and cause delays without producing better environmental outcomes.

By reducing business costs, less intrusive regulation can stimulate business activity, boosting economic growth and increasing revenues from tax and royalties without diminishing environmental standards.

With each budget update bringing more bad news about falling government revenues, it is encouraging to see deregulation being recognised as a national policy priority.

But more can be done in this area. We must clarify the roles and responsibilities of State and/or Commonwealth agencies and legislation, remove duplicate reporting to agencies, and add statutory timelines where appropriate.

Australia needs to get investment moving again.

The need for reform is there. Its importance has been recognised. But the most difficult step – delivery – lies ahead of us.

This blog post was first published in The Australian on Wednesday 12 February.