Gas firms warn of big losses from ETS

Australian
Monday 22/9/2008 Page: 6

AUSTRALIA'S $15 billion gas industry could shrink by more than a quarter by 2020 unless it is protected from the economic effects of the proposed emissions trading scheme. The industry will use new analysis to reinforce its concerns to the Rudd Government that excluding LNG from compensation under the proposed ETS will stall up to $60 billion of new investment, and will worsen climate change by forcing developing economies, including China, to build more coal-fired power stations.

The new modelling, by Frontier Economics, estimates the 10 per cent cut in greenhouse emissions by 2020 proposed by the Government's chief climate change adviser, Ross Garnaut, will require a $54 a tonne price for carbon and will slow the economy by nearly 2 per cent over the next 12 years. Victoria's brown coal industry will be forced to halve its output, while the nation's natural gas and LNG projects would be cut by about 25 per cent because they are not eligible for compensation under the scheme outlined in the Rudd Government's green paper in July.

The Frontier report says LNG and natural gas will suffer from a shrinking electricity market and the perverse effects of downstream industries such as copper and gold processing not receiving compensation under the scheme, while rival sectors such as coal mining will be eligible. The gas industry's warning of ''carbon leakage" the flight of investment to economies with no carbon price, resulting in no net benefit to the environment is in direct retaliation to claims made last week that the $15 billion LNG industry should not be protected from a carbon price.

A report commissioned by the Climate Institute Australia questioned the effectiveness of any scheme to compensate trade-exposed industries such as LNG without detailed cost-benefit analysis. The analysis by economists McLennan Magasanik Associates said all global LNG resources were already being exploited, so any reduction in Australian production as a result of increased costs under an emissions trading scheme would have no impact on global investment.

But the chief executive of the Australian Petroleum Production and Exploration Association, Belinda Robinson, said yesterday less LNG production in Australia meant the emissions of Asia- Pacific countries would worsen as they used coal instead.

"If the carbon pollution reduction scheme has the perverse outcome of penalising Australian LNG to the benefit of the Chinese coal industry, there will be massive carbon leakage and the Australian economy and the global environment will suffer for no good reason," she said. "We will be faced with a situation of leakage-plus, where lost Australian LNG production is replaced by coal production.

"For every tonne of greenhouse gases emitted in Australia through the production of LNG, between 5.5 and 9.5 tonnes are saved in China." Energy analysts Wood Mackenzie say Australia is substantially "underweight" as an LNG producer accounting for only 8 per cent of the global market and already supplies the most expensive LNG in the Asia-Pacific region. "There has been no substantial growth in Australian LNG plants despite our massive resources there are still only two, the North West Shelf and Darwin," Ms Robinson said.