Wrong way, go back

Why the Gas-fired Recovery plan will fail to reduce energy prices or create jobs but will increase emissions
by Mark Ogge

What is the Federal Government’s Gas-Fired Recovery Plan? At its most base level it appears to be a series of taxpayer subsidies to export-focused gas companies.

The process for allocating these subsidies is secretive, with no publicly available criteria, or even policy documents answering many of the basic questions of what the plan is aiming to achieve and  how.

The gas-fired recovery is plagued by a lack of transparency or accountability. The original National COVID‑19 Coordination Commission (NCCC) first proposed a gas led recovery program in early 2020. Following widespread concerns about conflicts of interest due to Commissioners connections to gas companies, the Government changed the body into an advisory board making it part of cabinet. This raised further concerns that its advice would be subject to cabinet confidentiality making it off-limits to public scrutiny, a concern reinforced by the Government’s refusal to release conflict of interest declarations by the Commissioners citing again cabinet confidentiality.

What the Government has told us is that the gas-fired recovery will increase jobs and lower gas prices, the latter of which will then increase jobs in industries like manufacturing. However, none of these claims stack up.

The gas-fired recovery will create few jobs, particularly in the near term when jobs are most needed. The gas industry is a tiny employer, employing only 0.2 percent of the Australian workforce, and it is one of the least labour-intensive industries in Australia. It employs around 0.4 people per million dollars of output, compared to more than 10 jobs for the equivalent output in health or education. If creating jobs is the objective, supporting virtually any other industry would be more effective.

Nor will this plan lower gas prices. The production costs of gas from the “strategic gas basins” the Government has announced as part of the plan are $7-10 per gigajoule (GJ) with transport costs of at least $2 GJ to deliver the gas to the east coast gas market. This means the delivered costs are upwards of $9 GJ. This is well above the cost of gas from fields currently supplying Australian customers, well above current gas prices, and at least as high as pre-Covid contract prices of $8-11 GJ.

Because these subsidies will not reduce gas prices, they will not create additional jobs in flow-on industries like manufacturing. In fact only around 1 percent of Australia’s manufacturing workforce works in gas intensive manufacturing industries where gas makes up over 3 percent of input costs, and more than half of those workers are in Western Australia which does not have high gas prices (thanks to a gas reservation policy).

Furthermore if the Government was prepared to subsidise the production and transport of gas from these basins to compete or beat costs at existing gas fields, there is no policy preventing gas companies from pocketing the production and transport subsidies and continuing to charge Australians the same or higher prices than they currently do.

If the Government was really serious about reducing energy costs for Australians, it would assist households and businesses to switch from gas to electricity and speed up the roll-out
of renewable energy. Electricity is cheaper than gas for heating, cooking and hot water, often even when the cost of replacing gas appliances is taken into account. Electricity is also cheaper than gas for many industrial processes, and if the government could assist companies with the costs of electrification, many companies would lock in permanent ongoing energy cost savings.

Renewable energy is cheaper than gas for electricity generation even when the cost of firming and additional transmission is included. The one sure effect of these gas-fired subsidies, if they succeed in opening up new gas basins, will be to increase emissions fuelling further climate change. The new “strategic gas basins” are very large potential sources of greenhouse gas. The Beetaloo Basin alone could result in an additional 100 million tonnes (Mt) of greenhouse gases being pumped into the atmosphere, 40 million tonnes of which would occur in Australia, increasing Australia’s emissions by 7.8 percent annually based on 2020 levels. Recent analysis has found the total emissions potential from the five gas basins identified as part of the Gas-Fired Recovery plan is 1602Mt of carbon dioxide equivalent (Mt CO2-e). This is over three times Australia’s current annual emissions of 513Mt CO2-e.

Although the Gas-Fired Recovery Consultation Note only requests submissions on the NGIP and Wallumbilla Gas Hub, the Australia Institute’s submission and recommendations cover the Gas-Fired Recovery as a whole, including the strategic gas basins.

This is because scrutiny of these issues is important for the public interest, and there has been no opportunity for input on other aspects of the Plan despite hundreds of millions of dollars of subsidies to gas having already been allocated for development in the Beetaloo Basin.

The Australia Institute’s recommendations go to the heart of the problem – poor process.

The government should set undertake a credible and thorough policy development process that begins with explaining and clarifying what the Gas-Fired Recovery plan aims to achieve. This should include: whether it will reduce energy prices, including gas prices, and if so, how and by how much; how this plan compares to other ways energy prices could be lowered such as by expanding renewable energy, energy efficiency and electrification; and how jobs will be created, how many, when and at what cost compared to alternative job creation programs.

The government should release all commissioned and internal work for the gas-fired recovery including the National Gas Infrastructure Plan (NGIP) and the Wallumbilla Hub. This includes the NCCC Manufacturing Taskforce plan commissioned from Boston Consulting Group. This should also include tender documents and contracts for modelling and other work being commissioned from consultants.

The government should direct the Climate Change Authority to model and publish the greenhouse gas implications of the Gas-Fired Recovery, in particular, of opening up five new “strategic gas basins.” The government should publish the criteria for assessing government subsidies to pipelines and other gas infrastructure under the NGIP. Finally, it should also explore and implement policies to ensure taxpayer subsidies that reduce gas production costs (such as exploration, road and pipeline subsidies) will be passed on to Australian customers through lower gas prices, and not simply passed on to shareholders. That is if the gas-fired recovery is meant to be more than a series of taxpayer subsidies to export-focused gas companies.

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