Damon Mcknight
The classification of electricity as a good or a service has implications for international conduct and the restrictions that can be imposed. While electricity is considered a good under international law and the Harmonized System, some scholars argue that it is a service due to its dependence on grids and non-physical nature. This debate is ongoing, with courts and international organisations like the WTO also divided on the issue. In Australia, electricity prices and plans vary across states and territories, with the Australian Government providing a price comparison service called Energy Made Easy for households and small businesses in some regions.
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What You'll Learn
International law vs. national law
The classification of electricity as a good or a service has implications for international conduct. Under international law, electricity is considered a good. However, some argue that it is more akin to a service due to its dependence on grids and its non-physical, non-fuel nature. This debate is significant because WTO Member States can impose more protectionist restrictions on services than on goods.
Australia, as a WTO member, is subject to international laws and regulations, including those related to goods and services. The nation has engaged in processes under UNCLOS and worked with the United Nations to agree on norms of responsible state behaviour in cyberspace, demonstrating its commitment to international law.
International law plays a crucial role in shaping global interactions and providing a framework for resolving disputes. It establishes norms and standards that nations are expected to follow, promoting stability and order in international relations. However, the effectiveness of international law can be challenged when states act unilaterally or in contravention of established rules, as seen in the examples of Russia's invasion of Crimea and China's actions in the South China Sea.
In contrast, national law refers to the domestic legal system of a country, such as Australia's system, which includes legislation, regulations, and judicial decisions specific to that nation. National law addresses a wide range of issues, from economic and social matters to criminal justice and human rights. For instance, Australia's Office of International Law (OIL) within the Attorney-General's Department provides international law advice to the government and works on issues such as aviation, maritime, and cyber security, as well as refugee law and asylum seekers.
While international law sets broad standards and principles, national law fills in the details and implements these standards through specific laws and regulations. National law also reflects a country's unique cultural, historical, and political context, adapting international norms to fit local needs and priorities.
In the context of electricity, the classification as a good or service under international law can impact how it is regulated and traded between nations. However, national law may also play a role in determining how electricity is treated within a specific country's borders, including any applicable tariffs or restrictions.
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The role of the WTO
The World Trade Organization (WTO) is the only international organisation that deals with the rules of trade between nations. It is headquartered in Geneva, Switzerland, and has over 160 members, representing 98% of world trade. The WTO's primary purpose is to open trade for the benefit of all.
The WTO's top decision-making body is the Ministerial Conference, composed of all members and convening biennially. Below this is the General Council, which handles day-to-day functions. The WTO's annual budget of roughly 220 million USD is contributed by its members, based on their proportion of international trade.
The WTO has several key roles. Firstly, it operates a global system of trade rules, providing a framework for negotiating trade agreements. These agreements aim to reduce or eliminate tariffs, quotas, and other restrictions, and are signed and ratified by member governments. Secondly, the WTO acts as a forum for negotiating these trade agreements, with the goal of ensuring smooth, predictable, and free trade flows. Thirdly, it settles trade disputes between its members through an independent dispute resolution process, interpreting agreements and ensuring countries' trade policies conform with them. Finally, the WTO supports the needs of developing countries, helping to improve the welfare of the peoples of member countries.
The WTO's role in regulating trade is particularly relevant to the classification of electricity as a good or a service. Under international law, electricity is considered a good, as defined in the Harmonized System, an international nomenclature for the classification of products. However, there is a debate among scholars as to whether electricity should be classified as a service, given its dependence on grids and its non-physical nature. The WTO's agreements and rules impact the classification of electricity, as they govern the trade of goods and services between member countries.
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Energy grids and borders
The classification of electricity as a good or a service has implications for international conduct. While electricity is considered a good under international law, its dependence on grids makes it more akin to a service. This distinction is important as it determines the restrictions that can be imposed by WTO Member States, with services being subject to more protectionist restrictions.
In Australia, the electricity sector has historically been dominated by coal-fired power stations, but renewables are rapidly increasing their share of the market. The National Electricity Market (NEM) is an arrangement that connects the synchronous electricity transmission grids of eastern and southern Australia, creating a cross-state wholesale electricity market. NEM operates on one of the world's longest interconnected power systems, spanning 5,000 kilometres from Port Douglas in Queensland to Port Lincoln in South Australia. However, Western Australia and the Northern Territory are not connected to the NEM.
The Australian Energy Market Commission (AEMC) is the expert energy policy adviser to Australian governments and is responsible for creating and revising energy rules and providing advice. The Australian Energy Market Operator (AEMO) manages the NEM and maintains the Australian National Electricity Rules (NER), which are enforced by the Australian Energy Regulator. Despite the complexity of the electricity grid system in Australia, the supply is generally secure and reliable, with outages rarely occurring outside of extreme weather events.
The interstate transmission network is crucial for securing Australia's electricity supply, connecting large power generators in remote areas to metropolitan locations. However, with the predicted closure of coal-fired generation, stronger transmission networks are needed to move power interstate. The Australian Energy Market Operator's Integrated System Plan has outlined scenarios for achieving net-zero emissions by 2050, including the need for expanded transmission lines to accommodate increased wind and solar farm capacity.
Australia has been criticised in the past for its low adoption of solar power, despite its abundant resources and sunshine. However, this trend has been reversing, with Australia becoming the world leader in solar energy per capita in 2019. As of April 2021, over 2.3 million customers had equipped their homes with solar photovoltaic (PV) panels, representing 30% of all households. Additionally, wind power, hydropower, and bioenergy are also contributing to Australia's renewable energy mix.
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Australian electricity prices
Electricity is an essential part of modern daily life in Australia, powering everything from lights and appliances to devices and transportation. As reliance on electricity increases, the cost of this valuable resource continues to rise. Electricity prices in Australia vary significantly across different states. The cost of electricity is a major concern for households and businesses alike.
In 2023, New South Wales (NSW) had the highest average electricity bill, with an estimated cost of $1,560. This is followed closely by Victoria (VIC) at $1,480 and Queensland (QLD) at $1,400. South Australia (SA) and the Australian Capital Territory (ACT) also have relatively high average bills at $1,350 and $1,330 respectively. The major contributing factor to these high electricity bills is the energy rates in these states. As of December 2023, NSW had the highest energy rates at $0.27/kWh, followed by VIC at $0.30/kWh and QLD at $0.29/kWh.
Factors such as population, geographical location, and type of energy sources can also impact the average electricity bill for households. For example, in one quarter, prices fell in the northern regions due to a reduction in the number of high-price events, while prices rose in the southern regions due to higher-than-average demand and an increase in the number of high-price events. Additionally, Tasmania experienced higher prices due to a reduction in the volume of low-priced hydro offers because of dry weather conditions.
Understanding the average electricity costs per kilowatt-hour (kWh) in one's state can help make informed decisions about energy usage. Households in states with higher electricity costs should be mindful of their electricity usage and explore ways to reduce their consumption to save on their energy bills.
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Courts' differing opinions
The classification of electricity as a good or a service has been a subject of debate in various jurisdictions, including the United States and Australia. This classification has significant implications, particularly in bankruptcy cases and the priority of claims of electricity providers.
In the United States, the Southern District Court of New York and its bankruptcy court have been at the centre of this debate. While the court's decisions provided support for both sides of the argument, a definitive conclusion was not reached. The court's opinion acknowledged the complex nature of electricity and the challenges in defining it as solely a good or a service. The court's ruling considered the "movability" and "identification" of electricity, concluding that while the physics of electricity may be constant, the economic and business arrangements for its delivery are variable.
In the context of bankruptcy cases, the characterisation of electricity as a "good" or "service" carries weighty consequences. Under the Uniform Commercial Code (UCC), the definition of "goods" is pivotal in determining whether electricity claims receive administrative priority. Courts interpret expert opinions on the intricate physical nature of electricity to inform their decisions.
The NORPAC courts, for instance, have consistently found electricity to be a "good" under the UCC, setting a precedent. However, other courts have grappled with the multifaceted characteristics of electricity, leading to a lack of consensus. The ability to store electricity in batteries for future use, similar to natural gas, has been a point of contention in these deliberations.
The debate extends beyond legal definitions, as the electricity sector itself encompasses distinct stages, from raw material to consumed product. This further complicates the determination of whether electricity generation is a service or a manufacturing process.
While a clear resolution to this debate remains elusive, the implications of the electricity-as-a-good-or-service debate are far-reaching and impact both legal and economic realms.
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Frequently asked questions
Electricity is considered a good under international law.
The Harmonized System is an international nomenclature for the classification of products. It classifies electricity as a good.
The WTO is an organization that regulates energy. While the organization has historically not subjected electricity to the same security clearances as other products, it does consider electricity a good.
The Australian Government provides a free energy price comparison service called Energy Made Easy for households and small businesses in New South Wales, Queensland, South Australia, Tasmania, and the Australian Capital Territory. The website includes information on how to understand energy offers and reduce energy bills.
No, there is no clear consensus. Some courts and scholars consider electricity a good, while others view it as a service or a mixture of both. The debate revolves around the unique characteristics of electricity, its dependence on grids, and the different stages within the electricity sector.
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