Commodities, Federal policy, International, Location, Markets, People and policy

Where will gas fit in new climate policy?

While the federal government in August finally announced its carbon emissions target of 26 to 28 per cent below 2005 levels by 2030, energy industry representatives say more needs to be done.

The government reasoned that the 26 to 28 per cent reduction will strike the right balance between environmental and economic responsibilities, and alleged that emissions per person will decline by at least 50 per cent between 2005 and 2030, while emissions per unit of GDP will fall by 64 per cent.

The announcement came after the Australian Climate Roundtable in July presented a suite of principals to the federal government calling for swift action on climate policy.

The Australian Climate Roundtable is made up of the Australian Aluminium Council, the Australian Conservation Foundation, the Australian Council of Social Service, the Australian Council of Trade Unions, the Australian Industry Group, the Business Council of Australia, the Climate Institute, the Energy Supply Association of Australia, the Investor Group on Climate Change and WWF Australia.

The principals called for the country’s climate policy to bestable and drive abatement across all sectors of the economy; prevent unnecessary loss of competitiveness in trade-exposed industries; stimulate research; open new work opportunities for the community; protect and avoid disproportionate impacts on vulnerable individuals and low income households.

Energy Supply Association of Australia Managing Director of Policy Kieran Donoghue welcomed the federal government’s move on climate policy, but says delivering on the target will require a comprehensive policy review.

Mr Donoghue added that the new target was a material increase in abatement but demands more than simply the Emissions Reduction Fund, which was established in 2014 to buy emissions to reach the current target of 5 per cent by 2020.

“We won’t be able to buy our way to 26 to 28 per cent and beyond. We will need a credible, durable and bipartisan carbon policy to achieve this target,”? he says. “We have shared the frustration of the stop-start approach to climate policy over the past decade, but at the same time we have learnt a lot, both here in Australia and globally, about what works and what doesn’t.”?

But what could the new target and a new climate policy mean for the gas sector – an industry touted as the transition fuel to help Australia reach its lower emissions target but slowly focusing its energies on exports?

According to Mr Donoghue, without any stable policy outlook, the future for gas remains in paralysis.

“It is almost impossible to evaluate where new gas developments sit without long-term consistency in the political spectrum on this issue. Whereas if we had that [policy] it would be easier to see how
a new gas development would be consistent with the government’s policy ambitions,”? he says.

“From the ESAA’s point of view, gas has the capability to play a valuable transitional role, though at this stage it is hard to know exactly what that will look like.”?

Mr Donoghue listed emissions offset regimes and carbon capture storage technologies as two areas where gas could improve its suitability to a more climate-focused policy environment.

“There are also potentially interesting opportunities for using plant materials to convert into gas, which effectively should be carbon neutral over the full life cycle. But which of those things becomes useful in the long term, we will only find out if we have the right policies in place to allow development of the most cost-effective options.”?

But while Australia’s stagnant climate policy remains a difficulty for industry as a whole, the future remains bright for Australian LNG production and, according to Mr Donoghue, safe.

The commodity is entering a boom period with demand from Asia forecast to maintain handsome levels over the coming decade.

Currently there are four LNG developments in operation across Australia with another six – including two world first floating LNG projects – in the pipeline and expected to come on stream by 2020, effectively trebling production in the coming decade.

And with such a promising economic impact on the horizon, the ESAA policy director says gas would not be forgotten in a new climate policy framework.

“Good climate policy is always going to be informed by the direction and travel of the economy,”? Mr Donoghue says. “But it probably plays even more into the broader angle that Australia is a net exporter of resources and we cannot expect climate change policy to be developed based around what our exports are going to be used for.

“Maximising opportunities for supply are also good for gas. We would like to see the Victorian and New South Wales governments really engage with issues around onshore gas exploration and production. We recognise there needs to be a balance between landholder concerns and environmental concerns, but a moratorium on onshore gas is simply not balanced, is it?”?

With Australian industry awaiting decisions from the government on climate policy, Mr Donoghue sees two potential outcomes for an effective, holistic framework to guide industry over the coming

The first, he says, is the “most straightforward”?, a policy that prices emissions across the board at a single rate.

“But given the fact that we as a community have already rejected such a policy framework rather recently, I doubt that will be on the agenda,”? he laughs.

The second, he says would price carbon emissions specific to each industry with as many elements and activities across the economy covered by a range of policies.

And meanwhile, he believes, it might be prudent for gas to be recognised for its emissions reduction efforts in comparison to coal, and its viability as an effective “transition fuel”?.

“For example if the policy is focused on incentivising renewables only, it will essentially deny gas credit for being less emissive than coal generation. And given the fact that gas generation is far more
expensive than coal, it makes it difficult to really see the space for gas in that policy setting.

“Conversely if you have a policy that recognised the intensity of emissions between gas and coal, then yes gas will certainly have a place in that policy framework moving forward,”? he says.

The federal government committed to a number of future climate policy-related updates off the back of its 11 August emissions target announcement including reviewing Australia’s emissions reduction policies in detail in 2017-18, in consultation with businesses and the community.

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