Coalition steps on the gas ahead of a Covid-recovery budget

The ALP is exposed by the government’s energy pivot.

Illustration: Tom Jellett

The Morrison government has shifted the politics and policy of energy — with an interventionist stance that elevates gas to the heart of its strategy and moves the debate away from coal — along with signs the chasm between Coalition and Labor over emissions reduction targets will diminish.

The climate wars are not over but they are evolving. COVID-19 is bequeathing a new Coalition energy policy with four aims — pressure to reduce prices, promoting gas as a “kinder” fossil fuel, enlisting the manufacturing industry and its workers behind the Coalition, and reliance upon a technological road map to tackle the 2050 emissions reduction goals.

It has been coming for the past two years but this week Scott Morrison did his pivot — he leans in on gas and leans out on coal. With Australia in recession, the Prime Minister seeks a new fusion between climate policy and economic recovery. He is constructing a stance to sustain the 2019 voting axis that delivered him re-election — keeping pro-fossil fuel conservative voters in the resources states while mitigating the resentment of middle-class climate change awareness voters in the suburban seats of Melbourne and Sydney.

Labor is now under serious pressure on energy. Its 2019 election agony is being accentuated — when Bill Shorten ran with an ambitious 45 per cent emissions reduction policy at 2030 but was trapped with an economic backlash from the regions, Queensland and the west. Morrison, in political terms, is substituting gas for coal. He is going to recruit manufacturing — bosses and workers — in fertilisers, chemicals, brickworks, cement, food processing and beverage manufacturing among others; enlist them and turn them against Labor.

Anthony Albanese faces a critical question: does he believe in gas as a dynamic transition fuel? His supporters are split. But the progressive movement has decided. The Greens and the environmental lobby have declared all-out political war on Morrison’s new policy. Meanwhile, opposition resources spokesman Joel Fitzgibbon, who believes in gas, wants Labor to assist Morrison.

The scientific foundation of Morrison’s strategy came from Chief Scientist Alan Finkel on the ABC’s Q&A program last May when he said dependence on gas arose because battery storage technology was still decades away from sustaining a majority renewables grid. This is the technological key to Morrison’s policy.

“The quickest way to develop our renewable energy system is to support it with gas,” Finkel said. “Gas has much more scale than batteries. Gas is effectively the perfect complement to solar and wind. We can build a lot of solar and a lot of wind and use gas for the times when we don’t have the sun shining and the wind blowing to deliver the energy we need. The reality is we’re going to have to rely on it (gas) for 10 to 20, perhaps 30 years, up to three decades.”

Interviewed by Inquirer, Energy Minister Angus Taylor said: “Gas has always been seen as a transition fuel. It’s always been gas that’s the complement making renewables work. And if you don’t have it, then things don’t work.”

Morrison said renewables won’t work without “firming capacity” in the system, hence the need for reliable dispatchable power generation through gas that can be switched on and off cheaply. Here is the new government argument — gas and renewables fit together.

This launches the next stage in the climate wars — whether gas is the complement or enemy of renewables. “Our world is on fire, the Liberals are pouring fuel on the flames and Labor is egging them on,” Greens leader Adam Bandt said. “Gas is as dirty as coal, Scott Morrison is locking in climate collapse and Labor is walking away from the Paris Agreement. Under Anthony Albanese, Labor risks becoming just as bad for the climate as the Liberals.”

The environmental lobby argues all fossil fuels must be replaced by renewable energy but also the economic proposition — that gas is not competitive and that the numbers won’t work, contrary to the claims of Morrison, Taylor and Finkel.

Albanese has avoided taking a firm stance. But Liberals are convinced Labor is vulnerable on the inflection point Morrison has raised — it must support gas as a reliable long-run energy source yet this will expose Labor to electoral assault from the Greens and smash its credibility with progressives. The polarities in the Labor camp are Fitzgibbon as resources and agriculture spokesman and Mark Butler, climate change and energy spokesman.

The reality, however, is that Morrison faces a litany of obstacles in implementing this new policy. Can it work?

Scott Morrison and Energy Minister Angus Taylor at BlueScope Steel in Port Kembla this week. Picture: NCA NewsWire/Simon Bullard

The complications are immense. Morrison and Taylor need state government co-operation to release new gas supply, the early test being the NSW decision on the Narrabri gas field; they need resolution of the export/domestic east coast gas price discrepancy punishing local customers and killing jobs; and they need to show their policy has a near-term impact given Butler’s critique that it scarcely creates “a single job” in the “time frame needed”.

The pivotal question still hangs in the balance — whether renewables and battery technology will ultimately render gas uncompetitive. Former Dow Chemical chief and now Morrison adviser Andrew Liveris, along with National COVID Co-ordination Commission head Nev Power, argues that if you want to change manufacturing in this country, you’ve got to deal with gas.

Yet the story of our manufacturing for much of the past century is littered with false dawns.

On the politics, Morrison must hold his own side together after years of pro-coal internal dissension. The Prime Minister said coal would continue to be “important” and could have a longer life if carbon capture and storage technology evolves. But any talk of a government-backed coal-fired plant is as good as dead. The brutal reality here is often overlooked — no state government would approve it.

The Coalition used to talk of replacing the Liddell coal-fired plant in NSW with another coal-fired plant — now it’s a gas-fired plant. “I’m not interested in having a 10-year debate with people about getting an approval for a project that may never happen,” Morrison said. “I want to focus on something that will happen.” There’s a stack of meaning beneath this remark.

The critical test is how this policy plays in Queensland where former resources minister Matt Canavan was quick to announce it didn’t make much sense “to build a gas-fired power plant in a state (NSW) that imports more than 90 per cent of its gas and in the middle of the world’s greatest thermal coal basin”.

Morrison and Taylor now talk the renewables script. Indeed, they have no option given market reality as the Coalition shifts from its past ideological hostility towards renewables. Morrison says “one of the great achievements of the last decade” is how wind and solar have “graduated” and stand on “their own two feet”, with one in four Australian households embracing solar. He says energy is about outcomes not “morals” — there are no good and bad emissions reductions, there are “only emissions reductions”. But don’t be fooled: this policy is based on elevated preference for gas.

The government and Labor are in total conflict over the outlook for renewables. While Labor warns investment in renewables is falling off a cliff, Taylor says renewable investment is running at “monstrous” levels and that Australia had installed 6.3 gigawatts of renewable energy in 2019 — including residential and commercial rooftop solar systems. “This is a monstrous number,” he said. “It is three times higher than Japan or the UK or Europe or 10 times higher than the global average. The investment surge is unprecedented for Australia and unprecedented for the world. It’s dramatically reducing emissions in our grid, which is good news but it’s creating challenges both on affordability and reliability, and that’s why we need more dispatchable energy in the system, and fast.”

Labor, however, points to a Reserve Bank research report from March saying the number of large-scale clean energy projects being started has slumped 50 per cent and the slump is expected to continue for the next year or two. The bank reported about 25-40 per cent of components in wind and solar came from local suppliers, highlighting the role of renewables in job creation.

“There is nothing in this week’s announcement that assists renewable energy,” Butler said.

Meanwhile, the politics of emissions reduction is also changing. Labor, spooked by the 2019 election defeat, is divided over whether it needs a 2030 or medium-term target for the next election, with its draft national platform leaked this week showing no medium-term targets.

But let’s get real. Labor, surely, cannot have forgotten the damage done to Kevin Rudd as prime minister when he retreated on climate change action. Albanese will be laughed out of court if he goes to the next election without the staging post of a medium-term target en route to achieving net-zero carbon emissions by 2050, the ALP’s long-term goal that has wide global acceptance.

Albanese said this week Labor would have a “comprehensive plan” on how to reach the 2050 targets and Butler said publicly there would be a medium-term target. Labor, of course, has argued for years the government’s 2030 targets are inconsistent with the Paris Agreement goals.

The certainty, however, is that Labor will be less ambitious than Shorten’s 2019 election platform when his dual blunder was to have an ambitious 45 per cent 2030 reduction target devoid of any document that explained its economic cost. For Labor, the deadly mix of ambition and arrogance on emissions reductions doesn’t work anymore. Incredibly, Morrison was able to mock Labor this week, saying there would be “no excuse” for Labor if it walked away from a medium-range target. If that happened, the government and Greens would cut Labor to pieces.

What does Morrison do on targets? Will he commit to net-zero emissions by 2050 given the immense political cover he has for this goal, now adopted by all state governments, Liberal and Labor? Taylor said the government’s “major focus” for emissions is 2030, not 2050. “It’s 2030 that is our Paris commitment and our immediate focus,” he said. He declared the government will meet its 26-28 per cent 2030 emissions reduction target “in a canter”.

Asked about the government pledging to the net-zero target at 2050, Taylor said: “We’re not going to do something where the costs aren’t known.” Morrison has rejected this target if it hurts jobs and prices. Yet, as a pragmatist, his options are open and he promised South Pacific leaders to assess this goal. We shall see.

The tentative trend seems apparent: the gulf in emissions reduction targets between Coalition and Labor is narrowing. With the release imminent of Taylor’s technology investment road map, the government is more confident of its emissions reduction strategy for the long term that dodges both carbon pricing and an across-the-board policy similar to the NEG.

Taylor’s message is “if we don’t get these technologies and R&D moving now” then “we won’t meet zero net carbon in the long run”. Morrison and Taylor are repositioning their climate change message onto the positives; technology, not taxes.

The gas policy is interventionist and security-conscious. The government will enlist Snowy Hydro to build a new gas generator in the Hunter Valley to replace the Liddell power station that will close in 2023, if the electricity sector does not commit to deliver 1000 megawatts of new gas-fired energy. Distrust between the government and the sector is rife, notably with AGL. Many industry figures see this threat as absurd and counter-productive.

Amid protests from the sector that such supply is excessive and unnecessary, Taylor said: “Over the last decade, the private sector has not built a single new reliable power plant in NSW.” Morrison, if necessary, will flex his interventionist muscles. “That is not our plan A,” Morrison said. But the aim is “to get there one way or the other”. Taylor’s thinking is price-oriented. He said of Liddell, that’s 1000MW going out of the market, and “the price will go up if it’s not replaced”.

When asked about the criticism by Sarah McNamara, chief executive of the Australian Energy Council, who pointed out the shortfall was only 154MW, Taylor shot back: “She’s ignoring price. And she will ignore price because she wants the price to go up.”

Morrison slammed the electricity companies for saying a new gas plant was unnecessary. “They said the same thing when Hazelwood closed down,” Morrison said. “They said, oh, there’s plenty of projects and plenty of supply coming on and the prices won’t go up. Well, that’s not what happened. And the customers know that too. They’re not mugs.”

Labor hammers the essential point — investment is undermined because, since the 2018 demise of the NEG, there is no across-the-board policy to deliver certainty. Meanwhile, the government has announced both a $211m necessary investment in domestic fuel capacity and security and taken action to buttress the nation’s onshore refining capacity.

Morrison and Taylor, along with Nev Power, have made an epic calculation — that the time for gas has arrived after years of difficulty arising from political revolts inhibiting supply and high domestic prices crippling industry. Taylor’s “make or break” judgment is that gas prices will be lower over the next 10 years and that gas in this period offers immense opportunity because it is flexible, dispatchable and sustainable.

His task is to oversee long-term contracts for domestic manufacturers that reflect the lower international price, an objective still being frustrated by the east coast LNG exporters. But Taylor is cautious about the states opening supply. Asked about Narrabri, Taylor said “it’s not the only option” but it was “a very good option”.

Albanese said Labor has been pushing for years for tougher action on gas but he kept a wide berth from any government-backed new gas plant. The leader stuck by his main refrain: “The cheapest form of new energy is renewables.”

Butler walked a fine line. He criticised the gas initiatives on practicality, avoided being anti-gas but doesn’t believe the economics underpinning the plan will work. Butler said the existing pipeline of renewable energy projects could create up to 50,000 new jobs if the government committed to them.

In yet another policy and political switch, the government, ironically, seeks to change the mission statements for both the Clean Energy Finance Corporation and the Australian Renewable Energy Agency, both of which it once wanted to abolish.

This reflects its strategy of expanding the technological road map to combat emissions, including hydrogen development, carbon capture projects, soil carbon initiatives and other low-emission technologies.

“The funds that we currently have are restricted by law just to invest in solar and wind,” Morrison said. For the government, that’s not good enough. Morrison said he rejects an ideologically “closed shop”. In reply, Butler said Labor created these institutions and would seek to protect their integrity.

With this week’s energy initiatives, the October 6 Frydenberg budget continues to take shape. Morrison called the energy policy “a massive part of the economic recovery”. It reflects the past history — Coalition energy policy is built upon two political pillars: the repudiation of carbon pricing from 2009 onwards and the rejection of an industry-wide policy in 2018 at the time of Malcolm Turnbull’s demise.