In this column, Jordan McCollum, National Policy Manager at APGA says that Victoria’s new gas connection ban – politics is winning against physics and prices at the cost of future energy consumers. But why would the Victorian Government pursue the misleading narrative of electrification being cheaper for households than renewable gas?
Energy markets are typically governed by the three Ps – physics, prices, and politics.
Physics can’t be broken; prices drive customer choice within the boundaries of physics; and politics help or hinder efficient market outcomes.
In the case of the Victorian ban on new gas connections, the politics of climate urgency have forced an unnecessary and backward step in spite of physics and prices – and it will be Victorian households that pay a much higher price for energy. But how does this happen, and why?
After three studies concluded households need to be urgently electrified and new gas connections banned, it may seem that the political choice to ban new household gas connections was based on physics and prices. However, a closer look shows that it could be the other way around.
The first signs of political motivations were in the Victorian Gas Substitution Roadmap (VGSR). Despite modelling predicting 35 to 70 per cent of future gas use decarbonisation being best achieved through renewable gas uptake, the Victorian Government continued to push for household electrification.
Ironically, this seemingly popular move is anything but. By all indications, through multiple surveys, the majority of Victorians are against the move, and Labor voters feel the most aggrieved.
In fact, two in three Victorian Labor voters are in favour of using renewable gases in the home.
Nonetheless subsequent VGSR fact sheets showed the pro-electrification case was based on heroically low electric appliance cost estimates, inclusive of electric appliance rebates. The Victorian Government’s $14,500 electric appliance replacement cost assumption would come as a surprise to anyone who has undertaken home renovations in 2023.
The Victorian Government stands by this number despite acknowledging the 2022 Frontier Economics study Cost of switching from gas to electric appliances in the home. This study found real world electrification costs for existing households of between $14,000 and $42,000. Considering VGSR quoted bill savings of $1,110 per annum, it would only take electrification costs of $22,500 before electrified households would be paying more in combined energy and appliance costs.
The Grattan Institute’s recent Getting Off Gas study called for a ban on new residential gas connections. This report chose to continue using artificially low appliance cost figures in its study despite referencing the abovementioned Frontier Economics study for other purposes.
The Grattan Institute justified its gas ban on analysis showing electrified household gas demand having a net present value of -$169 to $13,908 compared to renewable gas uptake. It is likely that they would have come to the opposite conclusion had Grattan considered Frontier Economics’ real-world appliance cost data with its median electrification cost of $28,000.
Alongside artificially low appliance costs, unachievably high emissions reduction targets can also skew decarbonisation pathway choices. This is seen in the work of the Independent Expert Panel for the Victorian 2035 emissions reduction target which recommended Victoria significantly step up the ambition, urgency and scope of actions to electrify homes and buildings and to electrify or deploy alternatives in other sectors.
This may only be necessary due to the Panel’s recommendation of an 80 per cent emissions reduction target by 2035 – a move they acknowledge as being among the most ambitious in the world and puts Victoria ahead in the global race to net zero emissions.
It is clear that, in setting one of the highest emissions reduction targets in the world, the Victorian community will have to bear the cost of faster emissions reduction in contrast to their global equals. But who could the Victorian Government convince to do more – and pay more – than necessary for the energy transition?
In the VGSR, the Victorian Government identifies public education as one of its actions. In this action, the government states that it will target households in winter noting that they can free up significant gas demand at peak time by educating them that using reverse cycle air conditioning to heat homes will help them save on household energy bills.
If its analysis does not stack up, why would the Victorian Government want to convince its citizens through an education program to spend their hard-earned cash – in the midst of a cost-of-living crisis – on a more costly gas use decarbonisation pathway?
Victorian businesses and industries take emissions reduction advice from energy experts. They have the ability to undertake their own analysis. The Victorian Government knows the broader business community will not pay more to decarbonise quicker than their peers if it is irrational to do so.
The only sector left to bear the economic burden – the cost – of the state’s world-leading emissions reduction targets is the residential sector.
Could it be that Victorian households will have to bear the cost burden of the government’s high decarbonisation targets rather than the state’s taxpaying businesses and industries?
If so, this would allow business and industrial gas customers to delay taking action on emissions reduction options that cost less per emissions reduced than household electrification.
There is a better way. All gas users – be they household, business or industrial – can access lower cost gas use decarbonisation if governments enable a domestic renewable gas industry.
The gas industry knows this because the physics of a gas-based energy system can deliver firm, reliable renewable energy at lower prices compared to a firm and reliable electricity-based renewable energy system – and no level of political imposition can change that.
The other states get this reality. Every other Australian state that has commented on the Victorian ban have dismissed such a move because physics and prices should always trump politics.
We can only hope the Victorian Government has the same realisation.
This article featured in the September edition of The Australian Pipeliner.
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