We should plan for a future without gas - Grattan Institute

Victorians are the largest gas users in the nation – for many families it’s how they heat their homes, cook their food and provide hot water.

But our widespread use of gas sits uneasily with a commitment to net zero carbon emissions – a commitment the Victorian and federal governments have both made.

For many households, choosing electricity rather than gas is a healthier option: it improves indoor air quality because householders aren’t burning hydrocarbons indoors and releasing gases and particulates linked to respiratory problems. And as Victoria’s electricity supply moves away from coal and towards renewables, using electricity will be better for the environment too.

These are good reasons to switch away from gas, but when the cost of living is rising rapidly, it’s also important to consider the cost to consumers.

As part of consultation on its Gas Substitution Roadmap, the Victorian government showed stakeholders modelling from a scenario that reduced emissions from gas use by half by 2030. The modelling showed consumers could save about $700 to $1200 each year by switching to all-electric homes. By contrast, the gas industry seems to think the move will hurt households and push gas prices up.

All modelling is based on assumptions, and represents only a best guess at how things might play out in a given set of circumstances. It isn’t, and shouldn’t be used as, a guarantee of potential savings or proof of potential costs. But the reasoning that switching from gas to electricity might deliver savings is sound.

Electricity is generally better at delivering the same service – that’s why top restaurants use induction cooktops, not gas. The cost of electricity is falling as more renewables come into the mix. And gas is more expensive to extract than it used to be because all the easy-to-access reserves have been depleted – meaning gas prices might rise anyway.

Where the Victorian government needs to be cautious is in how it goes about the transition. Just encouraging consumers to self-select and switch to electricity when they’re ready could push up costs for remaining gas users, particularly the most vulnerable in the community.

This is because gas bills have two parts: a payment for the gas you use, and a payment that reflects a share of the cost of investing in and maintaining the pipelines that deliver gas to your home. This latter cost is the same regardless of whether there are 100 gas users or 100,000 using the network. It is spread across all gas users – which means that when the number of users drops, the remainder have to pay a larger share.

And it’s the most vulnerable consumers who will find it hardest to switch away from gas – renters who don’t get to choose their heating system, for example; or low-income households who simply don’t have spare cash to invest in a new electric cooktop to replace a gas one. These Victorians will be the ones having to pay a larger share of fixed costs than they do at the moment.

At the same time, a disorderly move away from coal and towards renewables will push up electricity costs. Electricity costs will continue to fall only if governments focus on market reforms to ensure efficient building of new generation, batteries and pumped hydro, and of transmission lines to share electricity between regions and states. If a bumpy transition away from coal for electricity combines with increasing gas prices, all consumers will lose out.

The Victorian government needs to set out clear transition pathways for both gas and electricity. Just setting emissions-reduction targets isn’t enough – policies that explicitly cushion impacts on vulnerable consumers are essential, as is re-engagement with national energy market reforms to make sure generation and transmission are built efficiently.

For the remaining gas demand, the government should adjust market settings so consumers get the best deal. In the short term, this could mean opening new Victorian gas reserves, or importing LNG from Western Australia. In the long term, it may mean using hydrogen or biogas. Victorians on higher incomes are already well-placed to make a financial decision to switch from gas to electricity. For others, this is not so simple, and the government should consider some form of financial support.

The final piece of the puzzle is to stop encouraging expansion of gas use. If new appliances must use gas, they should be as efficient as possible.

The building code should nudge consumers towards all-electric homes and away from gas. And there should be a moratorium on new gas connections.

Moving away from gas is in the long-term interest of Victorians and the long-term interest of the planet. Science, and economic models, point to the benefits of doing so sooner rather than later. But how we get there is as important as when.

Alison Reeve

Energy and Climate Deputy Program Director
Alison Reeve is the Climate Change and Energy Deputy Program Director at Grattan Institute. She has two decades of experience in climate change, clean energy policy, and technology, in the private, public, academic, and not-for-profit sectors.

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