Gas policy? It’s a dog’s breakfast

Unfortunately, current progress suggests the former is looming. Here’s a brief summary:

• The federal government is battling to land a domestic gas reservation scheme that can deliver investment and supply to meet the objective of gas access for Australians at affordable prices. 
• South-east Australia remains at risk of gas shortfalls if unplanned but plausible combinations of supply and demand events occur, as has happened in recent years.
• Consumers are acting in self-interest to move from gas usage to electricity in their homes – but if unmanaged, this development will create safety and stranded-asset risks for the gas networks and risks of unfair prices for those who cannot afford to make the switch. 
• There are no comprehensive policies to require and/or support commercial gas users to electrify. 
• The Safeguard Mechanism is the only emissions-reduction policy that applies to gas and it does so via a declining limit on the largest 200 or so sources of domestic emissions. Ten major liquefied natural gas (LNG) processing and exporting facilities are covered by this mechanism. To date, the cost of reducing their own emissions has meant these companies have used offsets from other sectors to meet their obligation.    
• Gas-powered-generation is the only credible technology to provided firming backup for a high-renewables economy, but its commercial attractiveness is falling, not growing.
• At about $70 billion per annum, Australia’s LNG exports sit behind only coal and iron ore as our largest sources of export revenue, and, as recently covered by Rick Wilkinson in this publication, this position could continue for many years. Yet Australians receive little financial benefit from the tax that is supposed to collect rent on our resources. And future exports are not assured, because the countries that import our LNG will take actions to reduce their own emissions.

The result of this dog’s breakfast shows up in the numbers. Gas-related greenhouse gas emissions at 90 million tonnes per annum are about 20 per cent of Australia’s total.  The government’s projections indicate that these emissions will decline to around 65 million tonnes by 2050. This would be far from consistent with Australia’s objective of net zero by 2050. 

The adoption of carbon capture and storage and renewable gases such as biomethane and hydrogen could reduce that by a further 25 million tonnes. But that would still leave a non-trivial challenge to remove 40 million tonnes from the atmosphere every year. 

But Australia’s gas story is not just about reducing emissions, as demonstrated by the above list of current and emerging challenges. We need a comprehensive strategy that actively plans for a transition where the role of gas goes from being a widespread fuel to occupying a vital niche in a mostly electrified economy. 

This strategy should consist of:

• Introducing a domestic gas reservation scheme. The government’s proposed scheme is an important policy reform, but its proposed design and possible impact on the gas market has met very substantial opposition from domestic suppliers and exporters.  With better communication and goodwill it remains possible to create a workable version of the scheme that maintains the centrality of markets and meets the government’s primary objective of adequate domestic supply at affordable prices but in a way that reflects market realities and consequences. 
• Reducing gas demand across the economy. The choices, technologies, and timeframes will be different for each area of gas usage. The best approach will require targeted and coordinated policies across households, industry, and power generation. 
• Reforming regulation and planning of gas distribution networks to enable and encourage the safe, progressive decommissioning of the network as households electrify. This will bring political and financial costs, but those costs will be higher if we don’t act. The costs should be shared between consumers, industry, and government through a grand bargain.
• Adopting the recommendations of the Nelson Review of the National Electricity Market to reform the market settings such that gas-powered generation can play its best role in an electricity supply mix dominated by renewable electricity and battery storage.
• Managing the LNG sector more actively to maximise its benefit to Australia. That means preparing for a post-LNG economy by reforming gas taxes, requiring emissions cuts from LNG production, and using industry policy to replace the economic contribution of LNG exports.

Australia’s energy resources, even including our fossil gas, can make a material contribution to global decarbonisation in a world where energy security is a global priority. We have some way to go in crafting a future gas strategy that supports that contribution and protects the economic interests of all Australians in such a world. The search must go on.