It is invisible and the infrastructure that transports it over long distances is out of sight and out of mind – it is the sector of the energy industry that struggles to be acknowledged. Natural gas is simply expected to step up and assist the nation to reduce carbon emissions, even though government policies could discourage further take up of natural gas by introducing an inefficient and costly system of reducing carbon emissions from energy generation.

Firstly, I must congratulate the Australian Petroleum Production and Exploration Association (APPEA), and my colleague APPEA Chief Executive Officer Belinda Robinson, for fighting for the rights of the LNG industry. The Government’s Carbon Pollution Reduction Scheme (CPRS) White Paper has clearly recognised the challenges of exporting LNG – and the benefits to Australia and the rest of the world. But that is only 40 per cent of the story! The other 60 per cent of the nation’s natural gas is used in Australia.

Natural gas provides approximately 20 per cent of Australia’s energy needs, with the majority of energy sourced from coal and oil. Of this, 35 per cent of natural gas in Australia is used for electricity generation and 47 per cent is used in manufacturing and mining. The resource is generally under-used when it comes to homes. Depending on the state or territory, its use ranges from 5 to 15 per cent. The contribution of natural gas to the economy is expected to increase as Australia strives to reduce greenhouse gas emissions. The demand for gas is increasing, but this increase could be slowed by government policies.

Federal Government policies provide $500 million of assistance to research and development for renewable energy through the Renewable Energy Fund, and a further $100 million through the Energy Innovation Fund. The Government has also committed more than $4 billion to the coal industry – $3.6 billion to offset the impact of the CPRS on coal-fired generators and a further $500 million through the National Clean Coal Initiative to support the development of carbon capture and storage (CCS). The Government has also committed $100 million per annum to the Global CCS Institute, an international initiative for CCS research.

The gas industry does not require government assistance, but neither does it need discouragement from government. Under the proposed scheme, renewables and coal receive government assistance – natural gas does not.

The Government’s current proposal to put a price on emissions through the CPRS will encourage emissions-producing companies to curb their emissions. Under this scheme, energy generators would look for the most economically efficient way to reduce emissions. The most immediate and economically efficient way to reduce emissions is to switch from coal to natural gas.

The technology is available now. Emissions from gas-fired power generation are a third to half of those emissions from coal-fired power generation. In addition, natural gas-fired power generation uses one-sixth the water used by coal – important, given the current lack of rainfall in many parts of Australia.

Depending on the price of emissions, energy generators would certainly begin to look to renewable forms of energy such as wind and solar power as the technologies becomes more sophisticated and affordable. If the CPRS is allowed to operate in its purest form, it will create a ‘market’ reaction to a price of emissions, ensuring the most economical reduction of emissions caused from power generation.

However, the Government seems determined to create a false market for renewable energy, requiring 20 per cent of energy generated in 2020 to be powered by renewable energy. This means that, for the remaining 80 per cent of their output, power generators will attempt to recoup some of those costs. And that means they are likely to slow down their transformation from coal fired- to gas-fired power generation. While it is to be expected that there would be some transference to gas, this will be limited because of the extra cost burden of the Renewable Energy Target.

There is also an argument that renewable energy generation will require natural gas to provide ‘back-up’ power. Nevertheless, with legislation mandating 20 per cent of electricity to be sourced from renewables, it is clear that gas-fired generation will not increase as quickly as it would in an electricity generation market free from government intervention. Furthermore, government has tended to focus on options other than gas. An example is the Victorian Government’s reaction to a report from Environment Victoria issued in November last year on reducing Victorian emissions. The report called for increased investment in natural gas and put forward the conclusion that “The most significant early impact (in the stationary energy sector) comes from the use of gas as early as possible to deliver early reductions in greenhouse gas emissions.” The Victorian Energy Minister welcomed the report, but failed to mention natural gas in his speech or press release, focusing instead on the report’s findings on CCS and renewables.

Natural gas is the obvious next step toward reducing carbon emissions. There is abundant gas available in Australia, the technology is available now and the industry does not need government handouts. Immediate reductions in emissions could be achieved by simply switching from coal to natural gas for power generation.

The Government is approaching the task of reducing emissions in the most costly manner possible. While some of the impact of these costs will be a reduction in the use of gas, there will also be a reduction in investment in appropriate infrastructure and there will be an increase in consumer power bills.