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Do we really need emissions trading?

25 August 2008 957 views No Comment

There’s been a predictable black and white response over the last fortnight to former federal resources minister Ian Macfarlane’s advocacy of nuclear power as a realistic energy option for reducing greenhouse emissions.

But what has largely been ignored is the role of gas-fired energy generation.

The deleterious impact of emissions trading on our economy will be felt most severely in the Latrobe Valley of Victoria where such a scheme will result in significant job losses in a number of brown-coal fired power stations. The same applies to New South Wales, because its power stations are old and predominantly fuelled by black coal.

While the federal Government may consider compensation and adjustment packages, in reality they will be, at best, band-aid solutions to what will become a major economic adjustment for Australia. Queensland, however, is well placed to withstand the economic storm, because the State Labor Government spent the best part of the last decade preparing for the eventuality of emissions trading.

In 2000, the Beattie Government introduced an energy policy — the Cleaner Energy Strategy — which, among other requirements, insisted that, by 2005, at least 13% of electricity would be sourced from gas-fired power generation. As a result, there are four new gas-fired power stations in the Sunshine State, contributing over 1000 megawatts of capacity to the system.

This forward thinking energy policy has been the catalyst for the development of a whole new industry in Queensland — the coal seam gas sector. Billions of dollars have already been invested in this sector and the coal seam gas fields in the Surat and Bowen Basins are now one of Australia’s great energy provinces rivaling the Bowen Basin coalfields and which potentially has greater gas reserves than the North West shelf. As a consequence, major multinational energy companies such as Shell, BP and the BG Group are currently trying to buy into Queensland’s coal seam gas assets.

Gas is the fuel source of the immediate future. If we are to reduce our reliance on coal for power, gas is the most viable option for power generation. New investment in power-generation will occur where there are abundant cheap sources of gas. In terms of east coat Australia, that means southern and central Queensland.

NSW has only limited access to indigenous gas reserves and while Victoria has access to Bass Strait and other sources, there are questions over the amount of available gas for power generation.

Under this scenario, an emissions trading scheme will result in further investment in Queensland at the expense of other eastern States. This will exacerbate the two-paced economy that currently exists in Australia: the crucial divide between the resource-rich, export-focused states of Queensland and Western Australia, and all the other states.

In a macroeconomic environment where the Australian Government is trying to balance excessive demand pressures of the growth States against the subdued performance of the southern States, emissions trading will only make the task harder.

So do we need a national emissions trading regime to achieve the greenhouse gas reduction targets that we expect?

There’s no need to rush in and implement an Emissions Trading Scheme. Australia will meet its Kyoto protocol targets, largely as a result of the Queensland Government’s decision to ban broad-scale tree- clearing. So we have some time to get it right and, more fundamentally, lay the foundations for an energy sector that transitions from its reliance on coal to gas and ultimately renewable energy.

The alternative is for individual States to establish mandatory targets for the production of electricity from gas-fired generation. This doesn’t have to be at the 13% level established by Queensland, but it should be at a level that will result in the development of new gas fired power stations, particularly in NSW and in Victoria where a target can be set so that it doesn’t wipe out the viability of the brown coal fired generators in the Latrobe Valley.

As Queensland has demonstrated, the gas target does not merely result in the development of power stations, but also in the encouragement of new gas resources, which are essential for Australia’s long term economic development.

The gas scheme can co-exist with other programs such as the Mandatory Renewable Energy Target, which can be maintained at modest levels to encourage the development of the renewable energy sector. Once we have established new gas-fired generators in Victoria and NSW and have developed new viable sources of gas supply, it is then that the federal Government should consider implementing emissions trading.

These suggestions may jar with policy makers in Canberra who want a national scheme, not a number of State based schemes. However, before our federal policy makers jump to premature conclusions, they should closely look at Queensland’s energy policy and its impact on reducing greenhouse gas emissions and developing the gas sector.

Ross Fitzgerald is Emeritus Professor of History and Politics at Griffith University. Professor Fitzgerald is the author of 29 books, most recently The Pope’s Battalions: B.A.Santamaria and the Labor Split. He is contributing co-editor of Growing Old (Dis)Gracefully: 35 Australians reflect on life over 50, recently published by ABC Books.