Leaked Covid-19 commission report calls for Australian taxpayers to underwrite gas industry expansion

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Australian taxpayers should underwrite a massive expansion of the domestic gas industry – including helping open new fields and build hundreds of kilometres of pipelines – according to a group advising on Covid-19 recovery.

A leaked draft report by a manufacturing taskforce advising the National Covid-19 Coordination Commission (NCCC) recommends the Morrison government make sweeping changes to “create the market” for gas and build fossil fuel infrastructure that would operate for decades.

Its vision includes Canberra underwriting an increased national gas supply, government agencies partnering with companies to accelerate development of new fields such as the Northern Territory’s vast Beetaloo Basin, and states introducing subsidy schemes for gas-fired power plants.

It says the federal government should help develop gas pipelines between eastern states and the north, and potentially a $6bn trans-Australian pipeline between the east and west, by either taking an equity position, minority share or underwriting investments.

The taskforce, headed by the Dow Chemical executive and Saudi Aramco board member Andrew Liveris, positions lower-cost gas as the answer to building a transformed manufacturing sector that it says could support at least 85,000 direct jobs, and hundreds of thousands more indirectly.

But it does not consider alternatives to gas, or what happens if greenhouse gas emissions are cut as promised under the 2015 Paris climate agreement. Gas is usually described as having half the emissions of coal when burned, though recent studies have suggested it could be more.

The Liveris report does not mention climate change, Australia’s emissions reduction targets or the financial risk, flagged by institutions in Australia and overseas, of investing in fossil fuel as emissions are cut.

While several assessments have found renewable energy backed by storage is now the cheapest option for new electricity generation, the report says gas is “key to driving down electricity cost and improving investment in globally competitive advanced industry”.

Its focus is consistent with the NCCC chairman, Nev Power, a former Fortescue Metals chief and current board member at gas company Strike Energy, who has said in interviews that cheap gas would be critical to Australia’s future. Gas has been strongly backed by the prime minister, Scott Morrison, and the energy and emissions reduction minister, Angus Taylor, who has argued for a gas-fired recovery from the pandemic.

Emma Herd, the chief executive of the Investor Group on Climate Change, representing investors managing $2tn in assets, said the taskforce’s proposals could expose Australia to future economic shocks and billions of dollars in public and private sector investment being wasted as global markets moved to cut emissions.

“With the commission now making recommendations for decades-long economic, energy and industry policy, it must be required to integrate Australia’s long-term climate change commitments under the Paris agreement and consider all net-zero emissions options for recovery,” Herd said.

“With the flow of international capital increasingly swinging to renewable energy, greener industry and electrified transport, all options to capitalise on this potential investment must be fully explored.”

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Taylor was asked on Wednesday if he supported the idea, raised in an interview by Power with the Australian Financial Review, of a pipeline to bring gas from Western Australia to eastern states. He said people were getting ahead of themselves.

“What I do support very strongly is a strong gas market in Australia. That means having strong pipelines and strong investments in pipelines, and a good network of pipelines around Australia to support that,” Taylor told the ABC.

The NCCC did not directly respond to questions on whether it had considered alternatives to gas, and the basis for the taskforce’s claim that it was key to reducing electricity prices. A spokesman said its focus was currently on supporting businesses to reopen. He said the NCCC had liaised with more than a thousand stakeholders, including some with renewable energy expertise, and the manufacturing taskforce was one of several working groups it had set up. Options for economic recovery would be provided to government in due course.

In the draft report, the taskforce says its recommendations on gas aim to correct “market failures of our current energy supply”. It says an expanded gas industry should work closely with a developing hydrogen industry and Australia could become a world leader in exporting hydrogen developed with renewable energy and gas.

Other recommendations from the taskforce include:

  • Considering tax incentives for priority gas infrastructure.

  • Lifting remaining gas exploration moratoria in New South Wales and Victoria, and easing regulations in the Northern Territory to allow quicker access to new supply from the massive Beetaloo Basin.

  • Using a reverse auction “contract-for-difference” scheme, such as that used for wind and solar in Victoria, for state governments to buy gas-fired power at lowest cost.

  • Providing support, such as low-cost capital, for existing small and medium-sized gas companies to invest.

  • Rapidly cutting regulations, described as “green and red tape”, to allow developments.

  • Introducing gas reservation policies for the NT and east coast developments, as exist in Western Australia, to ensure not all gas is exported.

On electricity generation, the taskforce says gas-fired power is central to more rapid adoption of renewable energy at lowest cost, and could contribute 10-15% of total generation as back-up for wind and solar as coal declines. If gas prices stay low, it says combined-cycle gas generation – a form of “baseload” power that the federal government has not backed as part of the future – would “likely expand significantly”.

Its assessment that gas is necessary to support variable clean energy is at odds with the Australian Energy Market Operator, which last year listed pumped hydro, batteries and “demand-side participation” schemes, which offer energy users cash to cut down consumption when needed, as potentially cheaper alternatives.

The government’s push for gas escalated as the price plunged from about $12 a gigajoule to about $4. Analysts have said future investment will in part depend on whether it can settle at about $6. The NCCC taskforce says a huge government emphasis on gas development could keep it at $4 a gigajoule in the long term, below what most assessments have considered likely.

Bruce Robertson, an analyst with the Institute for Energy Economics and Financial Analysis, said the government risked backing a losing industry. He said major gas companies were losing money, and consultants Rystad had found 67% of Australia’s discovered but undeveloped gas reserves were currently uneconomic. “Governments are not meant to back winners, but they’re certainly not meant to back losers,” he said.

Morrison established the NCCC in late March to advise the government on non-health aspects of its pandemic response. Its terms of reference were not published until May, and it has a broad remit. Concerns have been raised about its lack of transparency and the absence of a conventional governance framework for a taxpayer-funded enterprise.

A Senate inquiry into the Covid-19 response last week heard Liveris, who is considered a special adviser to the NCCC, was not subject to the conflict of interest declarations that other commissioners faced. The NCCC’s chief executive, Peter Harris, said the manufacturing taskforce was “appended to the commission” and the group was “set up in an informal manner”. He said he did not believe Liveris was being paid for his advice.

Harris said it was unclear how the manufacturing group’s advice would progress through government decision making after being handed to the NCCC.

Analyses before Covid-19 hit suggested the government was not on track to meet the 2030 emissions target, a 26-28% cut below 2005 levels, without using a carbon accounting loophole. The Intergovernmental Panel on Climate Change found global emissions need to fall 45% below 2010 levels by 2030 and reach net zero by about 2050 to give the world a chance of limiting global heating to 1.5C.

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