First, it’s important to restate an important detail that is often overlooked. The carbon price is not a tax. The Prime Minister has acknowledged the fact that the mechanism has a fixed price for three years, meaning it is effectively a tax, but the Government has consistently referred to, and is implementing, an ‘emissions trading scheme with a fixed price for three years’. All commentary that I have seen refers to the ‘carbon tax’ and doesn’t acknowledge this important distinction.

For the majority of circumstances, it isn’t really material whether or not it is a tax. For the gas transmission industry, it is. This is because the industry is underpinned by long-term contracts. Many of the contracts that dictate commercial terms were entered into before climate change action was a policy commitment, and do not mention the allocation of carbon costs.

This issue has not been addressed in the exposure draft of the legislation. On finalisation of the legislation, transmission companies will have to open contracts and attempt to negotiate appropriate cost pass-through. The Government has previously signalled that it hopes the issue will be solved through commercial negotiation and that it will revisit the issue in the event it is not. APIA will hold the Government to this.

A new development in the exposure draft of the Clean Energy Bill 2011 is contained in 'Part 3 – Liable Entities, Division 3 – Natural Gas.' The Government is proposing specific requirements for users of natural gas, varying on how natural gas is supplied to a user. This amounts to:
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• If you are a large user of natural gas you are directly liable for emissions;
• If you are a retailer of natural gas you are liable for the emissions of your small customers that you supply with natural gas through distribution networks; and,
• If you are a small user of natural gas that acquires natural gas outside a distribution network, you will be directly liable for the emissions resulting from the combustion of that gas.

The first two consequences were expected and are acceptable – large users of fossil fuels will have large emissions and will be directly liable. Small users supplied by retailers through distribution networks will have carbon costs managed by retailers and incorporated into their gas price.

But the third consequence is unexpected and has consequences for smaller gas users. In effect, the Government has done away with the 25,000 tonne CO2 equivalent emission threshold determining direct liability for facilities that use natural gas acquired outside the downstream retail supply chain. All such facilities are directly liable. For the gas transmission industry, this means every pipeline that produces emissions from the combustion of natural gas is now directly liable for emissions.

The Government has done this because it believes a large portion of total natural gas consumption is consumed by small facilities outside distribution networks. Questioning of the Department of Climate Change and Energy Efficiency (DCCEE) has revealed they have no data to support this. APIA has surveyed major gas transmission companies and found that a very small percentage of pipeline throughput – less than 0.5 per cent – is supplied to small facilities. APIA has supplied this data to DCCEE.

Further, using DCCEE’s own emissions factors, the emissions produced by these facilities is tiny in comparison to the total emissions covered by the Clean Energy Bill. The Clean Energy Bill puts a price on the emissions of Australia’s largest polluters, covering approximately 300 MMt of emissions. Including small gas facilities provides less than 0.01 per cent extra emissions coverage.

To achieve this less than 0.01 per cent gain, small gas-using facilities will have to fully comply with National Greenhouse and Energy Reporting obligations and Clean Energy Bill obligations when they currently do not, and were not expecting to have to. In many cases, these compliance costs will outweigh the cost of paying the carbon price for the emissions. The Clean Energy Package has a stated intent of minimising costs to business and focussing on large polluters for exactly this reason. Compounding matters, it appears the Government has made no effort to identify and inform small gas users of the implications of the Clean Energy Bill.

APIA continues discussions with the Government to address this issue, but the speed at which this important legislation is being progressed means that there is a real chance problems will be acknowledged but not fixed.

Energy efficiency opportunities

As part of the Clean Energy Plan, the Government has declared that the existing exemption for energy networks to the Energy Efficiency Opportunities (EEO) Program will be removed or allowed to expire. The EEO Program requires companies to assess energy use and report on potential efficiency measures that have a payback period of less than four years. The idea being that once such efficiency measures are identified, a rational company will implement them. For the gas transmission industry this is a moot point; the major source of energy use is compressor operation. For the most part, system use gas is supplied by shippers, so a company would not receive immediate benefit in reducing gas use.

The Federal Department of Resources, Energy and Tourism has contacted APIA to commence discussion on how the EEO Program will affect and work in the gas transmission industry. If you have any interest in the matter please let me know and I will be in touch directly.