Gas transition to low emissions

Scott Morrison declared on Wednesday: “We need to get the gas from under our feet.” Amen. A gas superpower must use its plentiful reserves to cut power prices, costs and lead the transition to cleaner energy. As the political year swings into gear, the Prime Minister is doubling down on climate and energy policy, staring down critics of his government’s approach to reducing emissions amid the bushfires crisis. Mr Morrison concedes Australia is facing “longer, hotter, drier summers” and advocates adaptation, mitigation and resilience measures as a form of national insurance. He is betting practical “climate action now”, as he terms it, will carry voters who backed his victory last May and want lower power prices but have been alarmed by the scale of this summer’s disasters.

To this end, on Friday Mr Morrison inked a $2bn deal with NSW Premier Gladys Berejiklian that aims to inject 70 petajoules of gas into the domestic market each year, or more than half of the state’s annual usage. Procurement could come from a range of sources, including a Santos Narrabri gas project that is in the final stages of assessment; Ms Berejiklian said a decision would come in the next couple of months. If the $3bn Santos project is knocked back, NSW will have to source the gas from imports or open up new areas for exploration. Getting new supply on line has been politically fraught, especially in NSW and Victoria, where a ban on exploration is up for review. Both states need to encourage exploration.

The NSW deal also includes grants for climate-friendly projects such as carbon capture and storage and methane reduction from landfill. There will be new money for clean energy, including a pilot renewable energy zone in NSW’s central west. The Morrison government intends to strike more bilateral deals as Liberal states such as NSW and South Australia shift to 2050 net-zero carbon emissions plans.

Mr Morrison is a “direct action” man, opting for abatement via regulation and taxpayer funds rather than a market mechanism. Cap and trade policies that provide a price signal offer least-cost abatement. We are conscious of the diabolical politics around climate policy: Coalition upheavals, dumping of the national energy guarantee, the trail of wreckage left by Labor’s “carbon tax” and the utter bastardry of the Greens at every turn. Yet, long term, some form of carbon pricing is needed if companies are to make the major investments in clean energy, new technology or expensive nuclear power necessary to reduce emissions to the levels required to meet international obligations.

But a price mechanism is not where Mr Morrison has settled; nor is it likely to be part of his approach any time soon. He told Canberra reporters, many of whom are hostile to his climate policy, there was no dispute Australia must act to reduce global emissions and that our actions were comparable with like-minded countries such as Japan, Canada and New Zealand. He said the Paris Agreement was flawed, allowing major emitters such as China and India to keep increasing their emissions. It’s the cumulative emissions that count, he argues, adding “emissions do not have accents”. Innovation is the only way to decouple economic growth in developing countries from emissions. The same applies to us. But without a carbon price signal and national energy policy, our efforts will be ad hoc, more costly and second best.