Australia’s net zero pledge reaffirms support for gas

The Australian government unveiled its plan to reach net zero carbon emissions by 2050 this week, just days before the start of the UN Climate Change Conference (COP26) in Glasgow.

Australia, a major producer and exporter of natural gas and coal, has been under mounting pressure from the international community to do more to reduce its carbon footprint.

The Australian government has until now shied away from committing to a net zero target, being worried that such a move would not only undermine the country’s resources sector but also the government’s “gas-fired recovery”, which was only unveiled in September 2020. Australian Prime Minister Scott Morrison only confirmed his attendance to COP26 on October 15, after several weeks of hesitation.

And while Australia has committed to reaching net zero by 2050, Morrison has made it clear that the resources sector will not face any new taxes or restrictions. By placing the onus on new technologies, some of which do not even exist, Morrison appears to be trying to square the circle when it comes to reducing emissions and upping fossil fuel production.

Net zero roadmap

Morrison and Australian Energy Minister Angus Taylor launched the Long-Term Emissions Reduction Plan on October 26, saying in a joint statement that it was a “credible pathway” to net zero by 2050 that would embrace a “technology not taxes” approach.

The statement added that the 2050 target would not be a legal mandate, thus avoiding placing “industries, regions or jobs at risk” during the country’s shift to a net zero economy. Taylor took pains to note the plan would not involve shutting down coal or gas production.

As it stands, the government believes the country can reduce its carbon emissions by 85% from 2005 levels through public and private investment in low-carbon technologies, carbon abatement strategies and high-integrity offsets. Canberra is betting on technologies that have not even been developed yet to cover the final 15%.

The Liberal-National Coalition’s internal division over climate change commitments perhaps explains why the plan avoids tackling the coal and gas industries. Conservatives from both parties have argued against the long-term economic sense of such targets.

Indeed, the National Party only gave its in-principle support for the Long-Term Emissions Reduction Plan on October 24, though that support came at the opposition of Nationals leader and Deputy Prime Minister Barnaby Joyce. Moreover, it came with a number of demands that have remained firmly under wraps.

While Australia’s adoption of a net zero target brings it in line with its peers at the COP26 global climate, the country’s refusal to slash its gas and coal production speaks volumes about the government’s priorities.

Gas fired recovery

Not only is Australia the world’s largest exporter of LNG, but the government last year unveiled its roadmap for how gas would be the cornerstone for the nation’s economic recovery from the coronavirus-led recession.

Morrison first unveiled the so-called “gas-fired recovery” in September 2020, stating that raising gas supplies for domestic consumption would lead to a fall in local gas prices that would, in turn, encourage a manufacturing renaissance.

As part of this recovery strategy, the government has supported both gas production and consumption projects over the past year. It has provided funding to speed up exploration and development in three of the country’s basins – with support for two more basins still on the cards – while also backing a new gas-fired power plant.

Morrison’s plans have not always been met favourably, however. The upstream has argued that the government’s manipulation of market prices is not only unrealistic but will also scare off investors, while the environmental lobby has naturally argued against a greater dependence on fossil fuels.

The CEO of Australian consultancy EnergyQuest, Graeme Bethune, told NGW that the government had adopted the “gas-fired recovery” idea from the National COVID-19 Commission Advisory Board, which was assembled in 2020 to advise the government on the best way to encourage a post-COVID economic rebound.

Bethune added: “I don’t think the idea was ever suggested by the energy industry. Lots of people also pushed for a green-led recovery, which didn’t happen either. The recovery has really been a money-printing led recovery.”

Rystad Energy’s senior analyst for Australasia upstream research, Jimmy Zeng, told NGW: “Any economic recovery in Australia is much more nuanced than simply relying on unlocking more gas.”

He added: “It is easy to think of hydrocarbons as leading a recovery because it is a production business. But the strength of an economy and its diversity are a very multi-faceted thing.”

Continued support

Since Morrison unveiled his recovery plans, they have not only failed to win support from gas producers and the environmental lobby but also from the Australian Energy Market Operator (AEMO).

AEMO warned earlier this year that despite the prospect of cheaper gas supplies industrial gas demand unlikely to grow over the next 20 years. Moreover, it could even fall significantly amid industrial decarbonisation efforts.

In its latest Quarterly Energy Dynamics report, which AEMO published on October 21, the market operator said renewable energy had supplied a record 31.7% of total power generated in the National Electricity Market (NEM) in the third quarter.

Despite AEMO’s quarterly report highlighting renewables’ gains, Taylor argued that the figures demonstrated the need for more “dispatchable energy to support the growth in renewable energy and to ensure grid reliability and to keep prices low”.

He said: “Australia’s competitive advantage has always been based on cheap energy. This report demonstrates the importance of ensuring that there is enough gas in the market to supply times of high demand and to provide security for our manufacturing sector.”

The minister said the government’s “gas-fired recovery” would increase the country’s energy security, while continuing to put downward pressure on gas prices. Taylor is not wrong to assert that investment in greater gas production and storage will improve the country’s energy security. After all, turning off gas supply is a much simpler prospect than halting gas demand.

Bethune said: “There is a risk of gas supply falling faster than demand. This leads to an inevitable increase in prices and energy security issues if reductions in gas supply aren’t matched by increased clean energy investment.”

But the government’s instance on promoting a “gas-fired recovery” is beginning to look increasingly out of step with the realities on the ground.