Gas set to face ALP capital punishment

Labor’s proposed green-ratings system would reject gas as a sustainable investment under a draft framework, despite the Albanese government declaring it ‘key’ to net zero by 2050.

Gas is set to be excluded from a list of sustainable investments under Labor’s draft green-ratings system.

Labor’s proposed green-ratings system would reject gas as a sustainable investment under its draft framework, despite the ­Albanese government declaring the energy source was “key” to its ambitious renewables rollout and pursuit of net zero by 2050.

Under the proposed ratings rules, institutional investors looking to improve the sustainability rating of their portfolios would likely be turned away from pouring capital into the gas sector.

Gas has been listed as a “phase down” sector in a consultation ­report released by the Australian Sustainable Finance Institute, which has been tasked by Jim Chalmers with creating a green ratings system to “help drive capital into activities that will decarbonise the economy at the speed and scale required to reach our global climate goals”.

Under the “sustainable finance taxonomy” proposal to be finalised by the end of the year, sectors in the “green” and “transition” categories are recommended as investments that will help Australia reach its net-zero goals.

The snubbing of gas is despite the consultation paper acknowledging that there would be a “short to medium-term role for low-capacity gas as backup firming capacity while alternative firming technologies such as batteries are scaled up”. “As an activity, gas firming plants have been assessed as ‘phase down to phase out’,” the ­report says. “Gas firming has an uncertain role in the 2050 economy.”

The Australian understands the Business Council of Australia – which had a representative on the taxonomy advisory panel – was pushing for gas to be included as a “transition” asset in the draft framework.

The federal government’s ­Future Gas Strategy backed gas as an energy source beyond 2050 to assist the rollout of renewables, while energy market operator’s latest report forecast electricity generation from gas would be higher in 2050 than it is now.

The taxonomy draft did not include nuclear as the energy source is not legal in Australia.

Carbon-capture and storage was left out “due to the low technological readiness level”, but green hydrogen was included in a contradiction that “gobsmacked” senior figures in the energy sector.

The European Union’s sustainable finance taxonomy framework classifies nuclear ­energy generation as sustainable, while gas generators also qualify if they have plans to switch to ­renewable or low-carbon gases by 2035. The draft report says that the taxonomy will initially be voluntary but that Treasury is likely to “consider options for embedding the taxonomy in Australia’s regulatory architecture”, including through legislation.

While ASFI will finalise its taxonomy framework by the end of the year, the government has the discretion to make amendments to the proposal.

A spokesman for the Treasurer did not say whether the Albanese government would push for gas to be included in the final taxonomy framework.

"Gas will play a crucial role in the energy transformation and our policies are helping to ensure there’s sufficient supply at reasonable prices,” the spokesman said.

A government source said the taxonomy framework would not dictate “what can or can’t be ­financed, built or operated”.

The source said the framework would define investments that should be “proactively classified as sustainable in financial markets” and is aimed at cracking down on greenwashing.

Business Council of Australia chief executive Bran Black said gas was a “transition fuel that helps us get to net zero by 2050”.

“In the short-term we need more gas for our energy mix, and in the longer term, we need the firming capacity support that gas provides as we transition to net zero,” Mr Black said.

In a submission to the taxonomy consultation paper, the peak body for the oil and gas industry said gas should be given the transition classification.

Business Council of Australia chief executive Bran Black. Picture: Britta Campion

“Australian Energy Producers’ key concern with the proposed Taxonomy is the proposal to classify natural gas as a ‘phase-down/out’ activity,” the submission said. “This is at odds with the critical role natural gas in Australia’s transition to net zero by 2050, that was confirmed in the federal government’s Future Gas Strategy.

“Australian Energy Producers recommends natural gas be classified as a transition activity and abated natural gas, carbon capture and storage (CCS), and hydrogen production with natural gas using CCS should all be classified as green activities.”

ASFI chief executive Kristy Graham defended gas being left out of the draft taxonomy framework. “The taxonomy does not mandate what can or cannot be invested in,” Ms Graham said.

“The taxonomy simply creates a common language for the market to be able to identify green assets and assess net zero claims that are being made by corporates and financiers. It is designed to tackle green washing and increase investor confidence.

“The International Energy Agency (IEA) and all other science-aligned scenarios determine that unabated fossil fuel electricity generation needs to be phased out as soon as possible to ensure achievement of the Paris Agreement temperature goal.”

The government’s ­Future Gas Strategy released in May declared gas would be a key energy source “through to 2050 and beyond”, arguing it was essential in supporting the rollout of renewables. “Ensuring Australia continues to have adequate access to reasonably priced gas will be key to delivering an 82 per cent renewable energy grid by 2030, and to achieve our commitment to net zero emissions by 2050,” Resources Minister Madeleine King said when the strategy was released.

The latest report by AEMO predicted gas powered generation would increase from 11.5 gigawatts now to 15GW in 2050, providing firming for renewables.

“As coal-fired power stations retire, renewable energy connected with transmission and distribution, firmed with storage, and backed up by gas-powered generation is the lowest-cost way to supply electricity to homes and businesses through Australia’s transition to a net zero economy,’ AEMO chief executive Daniel Westerman said.

ASFI’s taxonomy advisory panel has 25 members, led by former Reserve Bank of Australia deputy governor Guy Debelle.

There are also representatives from the BCA, Australian Industry Group,the major banks, superannuation funds, CSIRO, the Clean Energy Finance Corporation and the Insurance Council of Australia.

The taxonomy is based on keeping global warming to 1.5C from pre-industrial levels. The Paris Agreement aims to keep warming “well below” 2C.