4 reasons why a gas-led economic recovery is a terrible, naïve idea



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Samantha Hepburn, Deakin University

Australia’s leading scientists today sent an open letter to Chief Scientist Alan Finkel, speaking out against his support for natural gas.

Finkel has said natural gas plays a critical role in Australia’s transition to clean energy. But, as the scientists write:

that approach is not consistent with a safe climate nor, more specifically, with the Paris Agreement. There is no role for an expansion of the gas industry.

And yet, momentum in the support for gas investment is building. Leaked draft recommendations from the government’s top business advisers support a gas-led economic recovery from the COVID-19 pandemic. They call for a A$6 billion investment in gas development in Australia.

This is a terrible idea. Spending billions on gas infrastructure and development under the guise of a COVID-19 economic recovery strategy — with no attempt to address pricing or anti-competitive behaviour — is ill-considered and injudicious.

It will not herald Australia’s economic recovery. Rather, it’s likely to hinder it.

The proposals ignore obvious concerns

The draft recommendations — from the National COVID-19 Coordination Commission — include lifting the moratorium on fracking and coal seam gas in New South Wales and remaining restrictions in Victoria, and reducing red and “green tape”.

It also recommends providing low-cost capital to existing small and medium market participants, underwriting costs at priority supply hubs, and investing in strategic pipeline development.

But the proposals have failed to address a range of fundamental concerns.

  1. gas is an emissions-intensive fuel

  2. demand for fossil fuels are in terminal decline across the world and investing in new infrastructure today is likely to generate stranded assets in the not-too-distant future

  3. renewable technology and storage capacity have rapidly accelerated, so gas is no longer a necessary transition resource, contrary to Finkel’s claims

  4. domestic gas pricing in the east coast market is unregulated.

Let’s explore each point.

The effect on climate change

Accelerating gas production will increase greenhouse gas emissions. Approximately half of Australian gas reserves need to remain in the ground if global warming is to stay under 2℃ by 2030.

Natural gas primarily consists of methane, and the role of methane in global warming cannot be overstated. It’s estimated that over 20 years, methane traps 86 times as much heat in the atmosphere as carbon dioxide.




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And fast-tracking controversial projects, such as the Narrabri Gas Project in northern NSW, will add an estimated 500 million tonnes of additional greenhouse gases into the atmosphere.

Accelerating such unconventional gas projects also threatens to exacerbate damage to forests, wildlife habitat, water quality and water levels because of land clearing, chemical contamination and fracking.

These potential threats are enormous concerns for our agricultural sector. Insurance Australia Group, one of the largest insurance companies in Australia, has indicated it will no longer provide public liability insurance for farmers if coal seam gas equipment is on their land.

Fossil fuels in decline

Investing in gas makes absolutely no sense when renewable energy and storage solutions are expanding at such a rapid pace.

It will only result in stranded assets. Stranded assets are investments that don’t generate a viable economic return. The financial risks associated with stranded fossil fuel assets are prompting many large institutions to join the growing divestment movement.




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Solar, wind and hydropower are rolling out at unprecedented speed. Globally, renewable power capacity is set to expand by 50% between 2019 and 2024, led by solar PV.

Solar PV alone accounts for almost 60% of the expected growth, with onshore wind representing one-quarter. This is followed by offshore wind capacity, which is forecast to triple by 2024.

Domestic pricing is far too expensive

Domestic gas in Australia’s east coast market is ridiculously expensive. The east coast gas market in Australia is like a cartel, and consumers and industry have experienced enormous price hikes over the last decade. This means there is not even a cost incentive for investing in gas.

Indeed, the price shock from rising gas prices has forced major manufacturing and chemical plants to close.

The domestic price of gas has trebled over the last decade, even though the international price of gas has plummeted by up to 40% during the pandemic.




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As Australian Competition and Consumer Commission chair Rod Simms declared in the interim gas report released last week, these price issues are “extremely concerning” and raise “serious questions about the level of competition among producers”.

To date, the federal government has done very little in response, despite the implementation of the Australian Domestic Gas Security Mechanism in 2017.

This mechanism gives the minister the power to restrict LNG exports when there’s insufficient domestic supply. The idea is that shoring up supply would stabilise domestic pricing.

But the minister has never exercised the power. The draft proposals put forward by the National COVID-19 Coordination Commission do not address these concerns.

A gas-led disaster

There is no doubt gas producers are suffering. COVID-19 has resulted in US$11 billion of Chevron gas and LNG assets being put up for sale.

And the reduction in energy demand caused by COVID-19 has produced record low oil prices. Low oil prices can stifle investment in new sources of supply, reducing the ability and incentive of producers to explore for and develop gas.




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It’s clear the National COVID-19 Coordination Commission’s recommendations are oriented towards helping gas producers. But investing in gas production and development won’t help Australia as a whole recover from the pandemic.

The age of peak fossil fuel is over. Accelerating renewable energy production, which coheres with climate targets and a decarbonising global economy, is the only way forward.

A COVID-19 economic strategy that fails to appreciate this not only naïve, it’s contrary to the interests of broader Australia.The Conversation

Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Japan is closing its old, dirty power plants – and that’s bad news for Australia’s coal exports



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Llewelyn Hughes, Crawford School of Public Policy, Australian National University

Last month, the Japanese government announced a plan to retire its fleet of old, inefficient coal-fired generation by 2030. And what happens to coal power in Japan matters a lot to Australia.

Australia shipped more than A$9 billion dollars’ worth of thermal coal to Japan in 2019 – about 12% of our total thermal coal exports.

In the short term, several new coal plants are being built in Japan to replace scrapped capacity. But there are signs investors are not flocking to invest in expensive new Japanese coal technology.

And in the long run, the investment environment for new coal technology is worsening. If Japan’s commitment to coal weakens, that will mean less demand for Australia’s exports.

Coal on a ship at the Japanese port of Nakhodka.
Coal on a ship at the Japanese port of Nakhodka. Japan is phasing out its old coal infrastructure.
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Japan’s changing coal fleet

Almost all Japan’s nuclear power stations remain shuttered ten years after the Fukushima disaster. The Japanese government has positioned coal as a long-term hedge against the possibility the nuclear power restarts will not proceed as hoped.

However, Japan has also been criticised for its lack of ambition on plans to address climate change under the Paris Agreement.

Last month, the government signalled it will decommission about 100 inefficient coal-fired power units. It aims to reduce coal’s share of the power mix to 26% by 2030 – down from 32% in the 2018 financial year.




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The big questions are: what are the prospects for Japan’s coal fleet, and what does this mean for Australia?

The Japanese government is supporting investment in newer plants, including some that use a high-pressure “gasifier” to turn coal into gas. But these types of plants are expensive to build. With a typical coal plant expected to operate for about 40 years, companies are wary of making huge outlays with relatively limited time to recoup the investment.

Reflecting this, last year Osaka Gas withdrew plans to build a 1.2 gigawatt (GW) coal plant in Yamaguchi Prefecture. Tokyo Gas, Kyushu Electric and Idemitsu also abandoned plans to build a 2GW coal plant in Chiba Prefecture near Tokyo. In total, 30% of planned investment in coal power has been scrapped since 2016.

Then prime minister Malcolm Turnbull shakes hands with a Japanese dignitary at Loy Yang A power station in Victoria.
Then prime minister Malcolm Turnbull shakes hands with a Japanese dignitary at Loy Yang A power station in Victoria. Japan’s phase-out of old coal plants raises questions over its demand for Australian coal in the long term.
Julian Smith/AAP

Renewables are also becoming increasingly important. Japan has big plans for offshore wind power, and renewable electricity is falling in price.

In Europe and elsewhere, such changing economics have helped drive falls in the number of hours that coal plants operate. Globally, final investment decisions for new coal plants fell from more than 100GW in 2010 to just over 20GW in 2018. Although it might take a little longer in Japan, there is no reason to expect things to be different there.

Crucially, these dynamics are underpinned by shifts in Japan’s electricity market to encourage more competition. Over time, that should mean companies find it increasingly difficult to pass the costs of expensive investments in coal technologies to final customers.




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Machinery working in a coal pile
Australia shipped more than A$9 billion dollars of thermal coal to Japan in 2019.
Dave Hunt/AAP

Dim prospects for coal

Mining company Glencore this month announced a plan to cut production from Australian coal mines, citing weak demand due to COVID-19.

The world will recover from the pandemic. But in the longer term, coal in Japan faces even stiffer headwinds – not least market competition and increasing renewables from offshore wind and other technologies.

This creates real questions about the appetite of Japanese companies to wage the increasingly risky bet that coal-fired power represents. Changes in Japan’s power market show the need for Australia to begin transiting to an economy less reliant on carbon-intensive exports.




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The Conversation


Llewelyn Hughes, Associate Professor of Public Policy, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.