Lang Hancock, “Stopping energy chaos,” Mining Review (February, 1980), pp. 7-8. (With thanks to the legendary John Zube and his LMP.) Update: this was written by Viv Forbes, of Carbon Sense fame, who gave Hancock permission to use it without attribution.
We have in the Australian resource industry two distinct sectors — the private sector, which is controlled by government departments, and the public sector, which is controlled by no one.
The key to resource management in the 1980’s will be the extent to which we can reverse this destructive state of affairs. In this article I shall try to outline those government policies which will prove of greatest long term benefit to sensible resource management in the 1980’s.
Unfortunately, everyone seems to have his own special theory on the best minerals and energy policy for Australia. In reviewing these I have some sympathy for the cynic who remarked, “Every government plan for industry consists of a number of policies held together by a few patriotic clichés to form an unworkable blueprint that offends no one.”
This is not to say that the people who drew up these plans are fools or cynics. It merely illustrates the difficulties we all have in discovering the fundamental principles which should be used to test the appropriateness of a particular set of government policies. In fact it is considerably easier to say what government should NOT do than it is to say what they should do. There is a sound reason for this. The essential role of government is to keep the peace — internationally, nationally and commercially. Thus most of its commands are negative and restraining. For example: “Thou shalt not steal”, “Thou shalt not make false or misleading statements”, “Thou shalt not break contracts”, “Thou shalt not assault peaceful neighbours”.
These negative actions are the things government does best, and few people will disagree with their usefulness. The problem comes when government exceeds its role of peace-keeper and attempts active “restructuring” in industry.
Before considering what government should do, it may be instructive to consider how a government would deliberately go about causing an energy crisis. This should provide some guide as to what policies are not useful. By way of illustration I have put together what I call the FIVE POINT PLAN FOR ENERGY CHAOS.
STEP 1 — DISCOURAGE EXPLORATION
The following policies can be relied on to decimate exploration industry —
Make frequent changes to the tax laws, especially retrospective changes. Harass foreign investors and inhibit the promotion of new exploration companies. Force the renegotiation of mining agreements after exploration has been successful. Impose super-profits tax on successful explorers. Delay offshore exploration for several years while royal commissions consider the safety of offshore drilling. Avoid open tendering for allocating new exploration areas. Make secret arbitrary decisions wherever possible. Maintain confusion as to mineral rights in Aboriginal areas.
STEP 2 — STERILISE EXISTING ENERGY RESERVES
This is best done by application of a stifling network of taxes, rules and regulations covering every aspect of production and trade in energy products. These can usually be justified if they can be related even vaguely to “safety”, “health”, “national security” or “concern for the environment”. The following policies should prove effective —
Insist on numerous environmental enquiries which fail to reach a conclusion. Prohibit the use of high sulphur fuels without considering the costs and benefits. Force the introduction of unproven air pollution devices which increase fuel usage. Limit open cut mining for cosmetic reasons, even though it is the safest and most efficient form of extraction. Impose costly controls on underground mining that force the closure of many high-cost mines. Increase mining royalties and impose export levies. Impose windfall taxes on oil producers to discourage secondary recovery and reduce the life of marginal fields.
These moves will guarantee the sterilisation of reserves that can no longer be economically extracted.
STEP 3 — ENCOURAGE WASTEFUL USE OF ENERGY RESOURCES
This can best be done by fixing the domestic price of oil, gas or coal below the world price. This will accelerate the use of domestic fuels and discourage exploration and development. It will also reduce the amount that can be profitably extracted from existing deposits. Tax concessions, power rationalisation schemes, export controls and petrol price equalisation schemes can also be used to encourage waste of fuel.
This will guarantee a rapid depletion of existing reserves.
STEP 4 — CRIPPLE PRODUCTION OF ENERGY
The following policies should ensure a shortfall in the production of energy fuels and in the generation of electricity.
Delay the construction of new refineries and processing plants with environmental enquiries, royal commissions and federal-state red tape. Prohibit the import of foreign fuels. Criticise and threaten large highly efficient producers. Prohibit the mining and processing of uranium. Delay the construction of nuclear power plants for years by making license requirements uncertain or by outright prohibition. Allow unreasonable union demands to delay and defer the construction of conventional power stations.
These policies should ensure power brown-outs and petrol queues.
STEP 5 — IMPOSE A NATIONAL ENERGY PLAN
The final step on the road to energy chaos requires the appointment of several committees of bureaucrats and academics to investigate the cause of the energy crisis. After three years of hearings and 100,000 pages of transcript these committees will conclude that the energy crisis was caused by grasping energy companies and selfish consumers. They will recommend a national energy planning authority. Electricity will be rationed, new taxes will be levied on producers and consumers, highway speed limits will be imposed and petrol coupons will be issued. All exploration shall be done by the State Minerals and Energy Corporation which will license all current producers of energy. The new dark age will descend and black market sales of candles will boom.
It has been said that the most valuable plan in any Government organisation is the one which it knows to be consistently wrong. The above Five Point Plan is thus an invaluable guide to government mineral and energy policies — it is consistently wrong in every area. I leave it to you to observe how closely successive governments have followed this plan. I dare not contemplate how far we are along the road to energy chaos.
WHAT POLICIES WILL WORK?
There are only four laws worth knowing in the world resource industry. They should be engraved on the ivory walls of every tower in Canberra and the state capitals. They are —
- The Law of Limited Resources, which says, “There is no free lunch.”
- The Law of Supply and Demand, which says, “People take notice of price when spending their own money.”
- The Law of Perverse Consequences, which says, “Whenever government intervenes in an industry, the long term results will be opposite to those intended.”
- Bastiat’s Law, which says, “If goods don’t cross boundaries, armies will.”
If we apply these laws to the question of what government should do in the mining industry, the answer is, “Not very much at all.”
But there is one essential duty they must perform. This concerns mineral titles and security of tenure.
Guaranteed property rights are the prime requirements for the long term planning required in the resource industry. Arbitrary laws force men to take short term views. When laws are just and stable, men plant oak trees (and plan great mining projects). When laws are discriminatory and unstable men plant cabbages (and run down their capital in order to maximise short-term profit).
It is an essential role of government to define, record and protect mining property rights. Unless these definitions are clear and unambiguous there will be disputes. The long disputes over aboriginal land, the Fraser Island fiasco and the numerous problems over exploration on private land or in parks and forests shows that the definition of mining titles leaves much to be desired.
In order to minimise costly and destructive disputes, every exploration or mining title should spell out clearly the rights and conditions of exploration and mining. These should not be subject to retrospective legislation, nor should they be varied during the term of the title except by mutual consent. Areas where mining is prohibited should be clearly identified and reviewed regularly. In the case of existing title disputes, these should be settled by arbitration as quickly as possible so that all parties can stop fighting and start operating by mutual consent within a stable defined framework.
There are a few other things governments could do:
They could introduce a 10 year moratorium on new laws and regulations.
The could find useful jobs for those armies of intelligent, highly educated experts who are now using taxpayers funds to produce solutions for which there are yet no problems.
They could introduce birth control of paperwork.
They could decide that the cure for centralisation is decentralisation.
They could act to curb the taxation industry — the largest extractive industry in Australia.
They could decide to live within their income.
They could even decide that export controls, capital controls and investment controls are of no assistance in the hard export markets of the 80’s.
But all this, I fear, is wishful thinking. We cannot expect a band of monks to dissolve their own monasteries.
We are now in the transfer economy, where the road to riches is not through efficiency, profits, savings and investment but through political action. The transfer economy is characterised by conflict where the beneficiaries urge faster transfer of wealth while the victims oppose every new appropriation. Resource managers of the 1980’s must learn to cope with this new uncertainty. Not only must they overcome all the usual obstacles of nature, markets and finance, they must also learn to survive in the political society.
The real heroes of the 1980’s will not be the lonely prospectors, the brilliant engineers or the skilled miners. They will not be those who spend their resources seeking loopholes and shelters from the agents of the transfer society.
They will be in the midst of the ideological battle, refusing to join the looters in all political parties and speaking out against their spurious arguments.
And they must start now.
They say that the road to hell is paved with good intentions. If you check the five point plan for energy chaos you will see we are already well down that road. You can’t keep going to hell forever without getting there.
This is the real challenge of resource management in the 80’s.
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