The calls to ‘reserve’ natural gas for domestic industry continue. But it is simply protectionism in disguise. I have briefly discussed this before, but Bruce’s comment on that post has led me to develop the argument further. The full discussion is at the Conversation. However, it is a nice example of the simple application of elementary economics.

A gas reservation scheme can be thought of as the ‘sum’ of two separate policies – a tax on the domestic sales of gas (which cannot be avoided due to a requirement to sell a certain quantity of gas domestically); and a subsidy to domestic manufactures who use gas.

Of course it is the subsidy that the domestic users want. But they are hiding their claim for a handout behind the arguable policy of a ‘gas tax’. By separating the two policies out we can see the argument by the domestic manufacturers for what it is – a blatant claim for protectionism.

 

3 Responses to Gas reservation protectionism

  1. Bruce Mountain says:

    Stephen

    In assessing the competitiveness of the market for the supply of gas to Australian consumers, what is the relevant market ? If its some global or sub-regional definition, then one might not have a concern – Australian domestic demand is just too small to matter. But if one adopted the geography defined by existing pipeline access then I would imagine that there are some valid concerns about the competitiveness of the market, or to be more precise the willingness of the holders of right to produce gas from the bulk of the Australian gas acreage, to sell into that market, apparently at almost any price. Perhaps it might nevertheless be suggested that that is no problem – the commodity is finding its highest value abroad, an economically efficient outcome. But can we be sure about this? The future prices in nascent export markets seem to be far from certain. There is a possibility that we could find that the Australian gas currently waiting to find its higher value consumption abroad in future, may never find such value. The rosy future might turn out to be a pipe dream (or to be more precise an LNG ship dream). And by the time we have found that out, a large chunk of our domestic gas intensive industry may have packed up its bags, perhaps never to return. So is the issue here really protectionism ?

  2. josh says:

    yes, while i think your argument are not off the mark.. i reckon there is room to considering a domestic gas industry both in terms of market failure and distortions in the importing countries.. but also the lack to sufficient value ascribed to future gas resource. While i’m not suggesting that gas should be ‘given away’ to domestic concerns, i do think that is could be a useful leverage to kickstart domestic industries.. maybe this is better done by investing/subsiding domestic infrastructure rather than per unit of gas to make using it easier. I’m guess that happens on the end of the international consumers of our gas.. so we need to consider it here.. things are hardly a level playing field.. Can we not develop a competitive advantage in Australia out of this.. ?

  3. Athan Pol says:

    Very nice blog!I will follow you Stephen!
    If you want,check mine too,its an economics greek blog:
    http://ecognomy.blogspot.gr

    Thank you a priori!

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