Australia is moving quickly towards a changed economy under the Government’s proposed Carbon Pollution Reduction Scheme (CPRS), at the heart of which lies an emissions trading scheme (ETS).

The Government’s Green Paper and the Garnaut Climate Change Review Final Report have received mixed reactions from different sectors of the industry. While the liquefied natural gas (LNG) industry feels somewhat exposed under the proposed scheme, many generators are looking forward to the important role natural gas will play with renewed economic incentives.

Garnaut calls for global action

With an ETS at the heart of Australia’s efforts to mitigate the effects of climate change, the Garnaut Review Final Report said that there is a path to Australia being a low-emissions economy within around 40 years, with continuing strong growth in material living standards.

“The case for strong mitigation is a conservative one. Of all developed countries, Australia probably has the most to lose from inaction and the most to gain from global mitigation. Australia should throw its full weight behind securing an effective international agreement from 2013,” said Professor Garnaut.

He said that Australia should offer to play its “full part” in a global agreement that aims to reduce emissions from 2000 levels by 10 per cent by 2020 and 80 per cent by 2050.

In the absence of a comprehensive global agreement, however, the report recommends that Australia’s first step from 2013–20 should be along the linear path to a 60 per cent cut in emissions by 2050, which would see a 5 per cent reduction by 2020.

Responding to the CPRS

In a joint submission to the Green Paper, the Australian Pipeline Industry Association (APIA), the Energy Supply Association of Australia (ESAA), the National Generators Forum and the Energy Retailers Association of Australia proposed a number of critical design features that it said would assist in a smooth economic transition to a lower emission energy supply system.

“Preserving Australia’s reliable and internationally competitive energy supply, while transitioning to a low emission economy, must be a primary objective for an ETS,” the submission stated.

The response from gas-fired generators has been largely optimistic.

An ACIL Tasman study for the ESAA found gas-fired generation would triple by 2020 in response to the carbon signal. This would require an additional 7,000 megawatts of installed gas-fired plant capacity, and would increase gas use for electricity from the current rate of 139 petajoules per annum (PJ/a) to 375 PJ/a.

ESAA Chief Executive Brad Page said “In Victoria, power stations such as Mortlake and Santos’ Orford are seen as the first projects influenced by the development of a CPRS. The combined cycle gas turbine power stations will be used as load growth for generation impending the introduction of a carbon price.”

ERM Power has stated that its power stations – built or under construction – will save approximately 100 million tonnes of carbon pollution and 9 billion litres of water over their lives compared with conventional coal-fired generation.

Origin Energy, which currently has $2.3 billion of gas-fired generation projects being built, has called for Australia to show leadership and commit to significant emission reduction targets of between 10 and 20 per cent, whether a global agreement is reached soon or not.

An Origin spokesperson said “Open Cycle Gas Turbines (OCGT) provide peaking capacity for electricity generation. It is possible that, as the National Electricity Market takes on more and more intermittent wind generation; the demand for gas back-up will increase, making investments in OCGT attractive.”

However there may also be a down side to gas as a peaking power. As gas plants can ramp up and down easily and efficiently compared to coal-fired power plants, Luke Berry, Principal of Engineroom Infrastructure Consulting, has said that it is likely that gas will be the first form of energy switched off as intermittent or renewable sources of energy come online. While this means that gas-fired power plants will be able to provide efficient peaking capacity to be used in conjunction with renewable energies, it also puts gas-fired generation at a disadvantage under the National Electricity Market (NEM).

LNG – a heavy price to pay?

Indeed not all industry stakeholders anticipate a bright future for natural gas. In the lead up to the Government's release of its CPRS White Paper, stakeholders have continually raised their concerns about the implications of the CPRS and the LNG sector.