The shape of the government's intervention on gas and electricity prices is becoming clearer: here's what to expect

He can't yet tell us what it will be because that'll depend on the outcome of negotiations with gas and electricity companies, and possibly on legislation he might have to get through parliament.

But already, thanks to the head of his department, Treasury secretary Steven Kennedy, it's possible to get a pretty good idea of what he has in mind.

Kennedy shared his thoughts with a Senate estimates committee last week, and while he presented them as his own thoughts, rather than the government's, Kennedy's day job is helping the government work out what to do.

The first thing to note is that Kennedy, like Chalmers, doesn't like the idea of intervening in markets just because prices are high.

As he told the Senate, usually the solution to high prices "is high prices".

What he means is that usually when prices jump it's because there isn't enough of something. The high prices encourage new suppliers to get into business supplying that something and the extra supply forces prices down.

If that can't happen quickly enough, the high prices will encourage users of that something to switch to a substitute, as we did when cyclones hit Queensland's banana crops in 2006 and 2011. We switched to other fruits grown elsewhere and weren't much bothered.

Interfering with high prices interferes with those adjustments. Usually.

However, at the moment, there needn't be an Australian gas shortage. Australia's east coast produces roughly three times as much gas as it uses each year.

Although most of the rest of the gas is exported in accordance with long-term contracts, an increasing amount is being exported over and above those contracts to take advantage of the temporary spike in international prices to exorbitant levels that followed Russia's invasion of Ukraine.

If that gas was sold here at pre-invasion prices, there wouldn't be a shortage, and Australian prices wouldn't be up to four times what they used to be, pushing manufacturers to the brink and pushing electricity prices way beyond normal.

Kennedy's first point is that the global price hike is likely to be temporary, or as he put it, "hopefully temporary". Even if the conflict persists, international supply and demand are likely to adjust to bring global prices back down. That means any intervention should be temporary, so it doesn't distort markets forever.

His second point is that the gas exporters selling for ultra-high prices over and above what they are contracted to sell are making exceptionally high profits - "well beyond the usual bounds of investment and profit cycles". They would do just fine if their profits were merely ordinarily high rather than super high.

Kennedy's third point is that the temporarily high prices are hacking into the profits of other Australian businesses and "raising questions about their viability". Households, especially lower-income households, will be severely affected.

Summing up more clinically, he says what's happening in Ukraine is "leading to a redistribution of income and wealth, and disrupting markets".

The national-interest case for this redistribution is "weak, and it is not likely to lead to a more efficient allocation of resources".

In August the government signed a sort of gentleman's agreement with the three east coast gas exporters in which they've agreed to offer uncontracted gas to local customers first before offering it overseas.

But (and it's a big but) they'll offer it at international prices, with the only stipulation being that local customers "not pay more" than overseas customers.

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Although well-intentioned, and although it was the most the Australian government was allowed to do under the law, it will allow prices many times higher than the $8 a gigajoule that was common before COVID and send customers to the wall.

The solution Kennedy is pointing to goes beyond what's legally permitted, temporarily. The first track is likely to be to ask the producers to do more than what's required and supply enough gas domestically to get prices down to $10 a gigajoule, an idea suggested by the former head of the Australian Competition and Consumer Commission, Rod Sims.

Sims thinks they are likely to agree. Export controls are in the hands of the Commonwealth.

If they don't agree, Kennedy has hinted at what's next.

The fallback position would be a temporary tax on the excess profits of exporters and use it to subsidise domestic prices, along the lines of the temporary tax in the United Kingdom.

Economic purists, including those surveyed by The Conversation this month, would prefer the tax was paid to the victims of ultra-high prices in cash rather than in subsidised prices, because it would encourage them to get off gas.

But Kennedy thinks the high prices are temporary.

Both Kennedy and Chalmers want to bring down the current ultra-high rate of recorded inflation. It's something price subsidies would do, but cash handouts would not.

The two-track nature of the process is probably why it is taking so long. Chalmers and colleagues need both to ascertain what the exporters are prepared to do if merely asked, and to prepare legislation should they need to go further.