Emissions reduction process needs to change

By Jordan McCollum, National Policy Manager, APGA.

The months since the Federal Election has seen the pace of legislative change around energy and emissions policy ramp to record pace. But key shortcomings in ongoing reforms mean energy users ultimately have few decarbonisation pathways beyond electrification or a radical change in their business model. 

APGA has engaged in twelve energy and emissions reduction policy consultation processes in 2023 so far. Given that APGA lodged a total of 30 submissions across the entire previous year and 29 submissions in 2021, the pace of change is stark. 

The wide range of reform processes underfoot has included matters directly relevant to the future of the gas industry. This includes proposed introduction of regulated rates of return for gas as a commodity, and a separate consideration of embedding emissions reduction targets within the National Gas Objective. 

The latter could have positive impacts on preparing regulated infrastructure for renewable gas uptake. The former, however, is a sharp departure from a foundational tenet of the modern Australian economy – thou shall not regulate commodity prices. Put simply by Hilmer et al in the 1993 National Competition Policy report: “Since price control never solves the underlying problem it should be seen as a last resort”. 

Other reforms have been considering broader industry support measures on a national scale. Beyond APGA’s first submission to Treasury’s 2023-24 pre-budget submission process, we provided feedback to the National Reconstruction Fund proposal of co-funding development of Australian electrolyser production capability, highlighting the necessity of prioritising advanced manufacturing techniques to avoid high, labour-driven hydrogen prices. 

The states are also picking up the pace with Tasmania, New South Wales, and South Australia consulting on renewable gas legislation or strategies. Tasmania stands out as a shining example of a rational approach to the future of gas, contemplating the opportunity of transitioning from a net natural gas importer to a net renewable gas exporter. 

AEMO has been consulting on another electrification-heavy Inputs, Assumptions and Scenarios Report – the foundation of its Integrated System Plan. Having been given powers to direct gas market participants to avoid yet-to-have-occurred gas supply shortfalls, AEMO is also scrambling to establish procedures to enact its newfound powers, in circumstances reminiscent of the 2018 Capacity Trading and Auction reforms. 

While each of these processes have their individual shortcomings big or small, the systemic shortcomings start to be seen in combined reforms to the Safeguard Mechanism, Hydrogen Guarantee of Origin (GO) Scheme and National Energy Performance Strategy (NEPS) alongside the independent review of the Emissions Reduction Framework (ERF; governs Australian Carbon Credit Unit (ACCU) generation) and National Greenhouse and Energy Reporting scheme (NGERs) legislation. 

Each of these consultations (and legislative instruments) are separate, yet each legislative instrument is inherently interconnected. While challenging from a time management perspective, the benefit of reviewing reforms in rapid succession is that the shortcoming of the interconnections is very evident. 

Safeguard Mechanism reforms seek to reduce the scope 1 emissions of Australia’s 212 largest emitting facilities, considering emissions reductions via NGERs reporting or ACCU surrender. Alongside this, the GO Scheme is being developed to track hydrogen emissions and the NEPS seeks to set energy efficiency standards. 

On the surface, this all sounds positive. However, the Safeguard Mechanism, NGERs and ERF generation of ACCUs can’t consider emissions certified under the GO Scheme; the GO Scheme can’t consider ACCUs and doesn’t track scope 1 emissions for the Safeguard Mechanism, NGERs or the ERF to consider (despite having access to the necessary data); and the NEPS electrification focus risks implementing appliance efficiency limits above 100 per cent, which would rule out anything but electric heat pump appliances. 

All of this while the gas industry identifies renewable gases as the least cost gas use decarbonisation option for industry and a cost competitive option for gas-consuming households. 

Australian legislation is currently designed to consider electrification as the only pathway to emissions reduction. This needs to change, but it cannot change through individual legislative reform processes alone. The problem can only be resolved by a coordinated process to reform all interrelated legislation together. 

The Australian Federal Government needs to undertake meaningful cross-sector, cross-legislation reform in order to allow for emissions reduction solutions other than electrification, including renewable gases. Without this, Australia’s pathway to achieving decarbonisation at least-cost will be compromised. 

It’s not all doom and gloom however – recommendations from the independent review of ACCUs are a beacon of hope. Recommendation 5 proposes de-bottlenecking creation of robust ACCU generation methods by implementing a proponent-led approach. We have our fingers crossed that this type of progressive, common-sense reform, already endorsed by Minister Bowen, may infuse into other reform processes. 

To reference a meme, January has been a tough year, but we made it. On the upside, I’ve fit 1/3 my annual workload into two months – does that mean I can take the next two months off? Unfortunately, it is unlikely that the pace of change will slow anytime soon. 

This article featured in the March edition of The Australian Pipeliner.