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Advancing Climate Action in

Queensland

Making the Transition to a Low

Carbon Future

Submission | September 2016

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Contents

Introduction ............................................................................................................................................... 3

The Queensland upstream oil and gas industry ................................................................................. 3

The key role natural gas plays in reducing global greenhouse gas emissions ............................. 4

Queensland’s natural gas: integral to a low carbon Queensland economy ......................... 4

Queensland’s natural gas: integral to low carbon economies in Asia ..................................... 5

International competitiveness: the major challenge ........................................................................ 5

Comments on Advancing Climate Action in Queensland: Making the Transition to a Low

Carbon Future ........................................................................................................................................... 6

International context ........................................................................................................................... 6

Subnational action .............................................................................................................................. 6

National action ..................................................................................................................................... 7

What are the opportunities? .............................................................................................................. 7

What Queensland is already doing ................................................................................................. 7

What more should Queensland be doing? .................................................................................... 8

Resources ............................................................................................................................................... 9

Conclusion/next steps ........................................................................................................................... 10

Attachment 1: APPEA Climate Change Policy Principles .............................................................. 11

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Introduction

Since 1959, the Australian Petroleum Production & Exploration Association (APPEA) has been

the peak national body representing the upstream oil and gas exploration and production

industry. APPEA has around 80 member companies that explore for and produce Australia’s

oil and gas. In addition, APPEA’s more than 200 associate member companies that provide

a wide range of goods and services to the industry. Further information about APPEA can

be found on our website, at www.appea.com.au.

APPEA has been engaged in the greenhouse policy debate since its inception and has

participated in every major consideration of national climate change policy approaches in

Australia.

APPEA welcomes the opportunity to provide comment on the Queensland Government

discussion paper Advancing Climate Action in Queensland, Making the transition to a low

carbon future (the discussion paper).

APPEA is committed to working with policymakers as they develop policy responses to

climate change. With that in mind, APPEA has recently released a second edition of its

Climate Change Policy Principles – a copy of which is at Attachment 11 – setting out the

principles that APPEA considers should underpin Australia’s response to climate change.

Most importantly, APPEA supports a national climate change policy that delivers

greenhouse gas emissions reductions at least cost and facilitates broad-based investment

decisions consistent with an international price on carbon.

In addition to the APPEA submission, a number of APPEA members have made individual

submissions to the discussion paper. This response should be read in conjunction with

submissions from individual APPEA members.

APPEA’s submission addresses specific aspects of the discussion paper, focussing on those

areas that are particularly important for the upstream oil and gas industry.

The Queensland upstream oil and gas industry

It is also important to place our views on the issues raised by the discussion paper within the

context of the current state and, very importantly in the context of the discussion paper, the

potential future contribution of the upstream oil and gas industry to the Queensland

economy and to the welfare of all Queenslanders.

Reliable, secure and competitively priced energy is crucial to our everyday lives in Australia,

including in Queensland. Within this framework, oil and gas plays a key role in meeting

many of our energy needs.

Queensland has vast resources. The Queensland Government has estimated2 that

Queensland’s gas reserves are around 44,000 (PJ). By way of comparison, Queensland’s

production of natural gas in 2014-15 (including exports) was 515 PJ, meaning Queensland

has more than enough gas to service both domestic and export markets for decades.

1 A copy of APPEA’s Climate Change Policy Principles can also be found at www.appea.com.au/2016/02/appea-

updates-climate-change-policy-principles. 2 See data.qld.gov.au/dataset/petroleum-gas-production-and-reserve-statistics for further information.

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Provided our regulatory and policy settings are supportive, our abundant natural gas

resources place Australia in an enviable position to maintain long-term, cleaner energy

security domestically and internationally. Natural gas makes it possible for Australia to meet

the world’s growing energy needs over the coming decades while incorporating a strategy

to curb emissions and address the risks posed by climate change.

Just as importantly, the industry creates significant wealth for the State, including through

the employment of many Queensland, underpinning the revenue collections of

governments and generating valuable export revenue for the Australian economy. For

example, in recent years, the industry has invested around $65 billion in oil and gas projects

in Queensland, including the three major liquefied natural gas (LNG) export projects, now

operating from Gladstone.

This means that the stakes are high in realising the industry’s potential benefits.

However, future investment is not certain. The challenging conditions facing the industry,

both globally and in Australia, mean it is more important than ever to ensure the policy and

regulatory framework facing the oil and gas industry in Australia remains competitive and

encourages further exploration and development activity.

The key role natural gas plays in reducing global greenhouse gas emissions

Greater use of Australian natural gas – in the domestic market nationally and in

Queensland, and in Asia as LNG exports – can significantly reduce greenhouse gas

emissions.

Queensland’s natural gas: integral to a low carbon Queensland economy

Queensland (and indeed all of Australia) could generate significant additional national

economic, environmental and social benefits through greater utilisation of its substantial

natural gas resources.

Using more natural gas in Queensland’s power generation (as part of the National Electricity

Market) and resource processing would significantly enhance our ability to meet increasing

energy needs while at the same time reducing greenhouse gas emissions.

These outcomes are possible because available natural gas power generation technologies

can reduce greenhouse gas emissions by 40-50 per cent, and by as much as 75 per cent in

some circumstances3, compared to coal-fired power generation technologies. The

Australian Council of Learned Academies has found using gas to provide more baseload

and peak electrical power generation in Australia – in scenarios of higher use of both

renewables and gas – would deliver substantial emissions reductions.

The increased use of natural gas also has several additional environmental benefits, such as:

Reduced emissions of fine particulates.

3 See Australian Council of Learned Academies (2013), Engineering Energy: Unconventional Gas Production, June

(available at www.acola.org.au/index.php/projects/securing-australia-s-future/project-6). While the emissions

benefit is lower when compared to ultra-supercritical coal-fired power generation, as the Council noted on

page 146 “gas-fired electricity generation will generally replace existing coal-fired boilers that are less efficient

subcritical facilities”.

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Reduced emissions of sulphur dioxide (an important contributor to smog and acid rain)

and nitrogen oxides.

Significantly lower demand for water for power station cooling.

Much greater use of Queensland’s extensive gas resources will be crucial in meeting the

challenge of significantly reducing global greenhouse gas emissions at least cost whilst

enhancing economic and export performance.

This means the investment framework in Queensland must recognise the economic and

environmental benefits that will flow from investment in Queensland’s extensive gas

resources.

Queensland’s natural gas: integral to low carbon economies in Asia

In considering climate change policy responses and Australia’s, including Queensland’s,

current and future contribution to global emissions reduction efforts, it is important to

acknowledge the positive contribution LNG exports make now and will increasingly make to

that global effort.

Queensland’s LNG industry, as a key part of the broader Australian LNG industry, is in a

unique position to contribute substantially to the economic development of the nation and

to reduce greenhouse gas emissions.

Queensland’s vast resources of natural gas and proximity to growing markets make us

well-placed to meet the global climate change challenge while substantially contributing

to economic growth.

While the demand for energy as part of the industrialisation of Asian economies is a key

driver, the cleaner properties of natural gas as a lower emitting and cleaner burning fuel is

also driving much of the international demand for LNG.

As noted above, future investment is not certain. The challenging conditions facing the

industry, both globally and in Queensland, mean it is more important than ever to ensure

the policy and regulatory framework facing the oil and gas industry in Queensland remains

competitive and encourages further exploration and development activity.

In addition, burning gas instead of coal improves urban air quality. This is particularly

important in many Asian countries that are importing LNG or considering imports.

There are significant benefits to Queensland and internationally from the greater use of gas

as a lower greenhouse gas emitting energy source.

Much greater use of our extensive gas resources will be crucial in meeting the challenge of

significantly reducing global greenhouse gas emissions at lowest possible cost whilst

enhancing economic and export performance.

The Queensland Government should, in finalising its Action Plan, recognise the vital role

Queensland LNG exports can play in global greenhouse emissions reductions.

International competitiveness: the major challenge

The major challenge to the industry’s continued growth is maintaining Queensland’s (and

Australia’s) international competitiveness in the face of growing global competition. A

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relatively high-cost local environment, falling oil and gas prices, and the emergence of new

LNG competitors in East Africa, North America and other locations may increase the level of

competition Australia faces, as its seeks to win market share and attract investment.

The industry and our governments must do everything possible to ensure, that Queensland

secures future oil and gas investment to supply to domestic and international needs. In this

respect, it is important to note that no new LNG investments have been announced in

Australia in more than four years.

Some factors affecting current and future investment, such as movements in the Australian

dollar or oil prices, are beyond the ability of the industry to influence. However, other key

challenges must be addressed.

There are also critical policy areas that require genuine reform. Our approach to climate

change policy is one of those critical areas. That policy should be aimed at enhancing

Australia’s international competitiveness as a destination for oil and gas investments. It

should not add to the cost burden facing the industry or detract from Queensland’s

attractiveness as an investment destination.

Comments on Advancing Climate Action in Queensland: Making the Transition to a Low

Carbon Future

With that in mind, APPEA offers the following comments on specific sections of the discussion

paper.

International context

APPEA notes the Australian Government has committed to an emissions reduction target of

26-28 per cent on 2005 levels by 20304. This target forms part of the Australia’s national

determined contribution taken to the Paris Climate Change Conference.

APPEA’s submission to the UNFCCC Task Force that advised the Australian Government on

an emissions reduction target noted5:

In setting Australia’s emission reduction goals, the key consideration is that Australia

should make an equitable contribution, in accordance with its differentiated

responsibilities and respective capability to global action, to reduce greenhouse gas

emissions.

Subnational action

As was considered earlier in this submission, APPEA’s Climate Change Policy Principles note

APPEA supports a national climate change policy that delivers greenhouse gas emissions

reductions at least cost and facilitates broad-based investment decisions consistent with an

international price on carbon.

This means APPEA’s considers the majority of climate change policy responses, particularly

those focus on mitigation, should be developed and implemented at a national level and

should be not be duplicated through subnational action. Such action can be both costly

and inconsistent with a national approach.

4 See www.environment.gov.au/climate-change/australias-emissions-reduction-target for further information. 5 See www.appea.com.au/wp-content/uploads/2015/04/APPEA-Submission-Post-2020-GReenhouse-Targets-

240415.pdf for further information.

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Where subnational action may be appropriate is in adaptation and in this context APPEA

notes Queensland has an adaptation focus through the Queensland Climate Adaptation

Strategy (Q-CAS) and supports this as an appropriate area of action for the Queensland

Government.

National action

As the discussion paper notes on page 9, the Australia now has an emissions reduction

target of a 26-28 per cent reduction on 2005 levels by 2030. As the paper also notes, the

Australian Government has a range of climate change policies in place to meet these

targets, including the Emissions Reduction Fund (ERF) and its safeguard mechanism.

Importantly, in this context, the Australian Government is due to commence a review of the

its climate change policy response by 30 June 2017 and to complete that review by

15 November 2017. This review will provide all stakeholders, including the Queensland

Government, the opportunity to makes it views on the national context and the appropriate

national response known.

What are the opportunities?

The discussion paper on page 18 considers the opportunities for Queensland presented by

the transition to a clean energy, low carbon economy.

As was noted earlier in this submission, the Queensland natural gas industry, both within the

Queensland economy and as a key and growing export industry, has a key role to play in

this transition.

To support this outcome, the Advancing Climate Action in Queensland should recognise

that there are significant benefits to Queensland and internationally from the greater use of

gas as a lower greenhouse gas emitting energy source. Much greater use of our extensive

gas resources will be crucial in meeting the challenge of significantly reducing global

greenhouse gas emissions at lowest possible cost whilst enhancing economic and export

performance. The Queensland Government should, in finalising its Action Plan, recognise

the vital role Queensland LNG exports can play in global greenhouse emissions reductions.

What Queensland is already doing

APPEA notes that through the Renewable Energy Expert Panel, the Queensland

Government is assessing and establishing a pathway to a 50 per cent renewable energy

target by 2030.

APPEA supports a market-based approach to emissions reductions and also to the

operation of the national energy market, of which Queensland is a part. APPEA therefore

does not support establishing a specific target for the level of generation that comes from

any particular form of technology.

APPEA also notes the key role natural gas would play in complementing renewable energy

generation, to provide reliable baseload energy to support the intermittent nature of

renewable energy generation. As has been seen in Tasmania and South Australia in recent

months, a thoughtful and pragmatic approach to energy market design and operation, to

integrate more and more renewables into the grid.

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A recent paper6 by the US-based Syracuse University and renowned National Bureau of

Economic Research, conducted jointly with researchers from the Fondazione Eni Enrico

Mattei and Euro Mediterranean Centre on Climate Change in Italy and French Economic

Observatory Sciences Po and SKEMA Business School in France, Bridging the Gap: Do Fast

Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?, discusses the role of

fast-reacting fossil technologies, which includes most gas generation technologies, in

supporting renewable energy investments.

It does so by studying the deployment of these two technologies in 26 OECD countries,

including Australia, between 1990 and 2013. The paper finds that a 1 per cent percent

increase in the share of technologies such as gas fired generation capacity is associated

with a 0.88 per cent percent increase in renewable in the long-run.

The paper makes a number of very important conclusions based on its detailed empirical

research across the 26 countries, three of which stand out as directly relevant to the

Queensland Government’s climate action plan:

• Countries where gas-fired generation capacity was available were more likely to

invest in renewable energy generation particularly over the longer-term.

• Gas-fired generation is characterised by quick ramp-up times and lower capital

costs than traditional baseload technologies. This means gas-fired generation

technologies have enabled renewable investments by providing reliable back-up

capacity to support variable renewable energy supply.

• Renewables and fast-reacting gas-fired power general technologies appear as

highly complementary and they should be jointly installed to meet the goals of

cutting emissions and ensuring a stable supply.

This mean that as the penetration of renewable energy increases, so will the requirements

for increased back-up capacity and serious stresses will be put on the energy system unless

the relationship and the complementarity between gas-fired power generation and

renewable energy technologies are appropriately acknowledged.

Policymakers, including in Queensland, should accept that, for the foreseeable future,

Australia needs a mix of generation technologies. Policymakers should also recognise that

technologies complement as well as compete with each other. Gas-fired plant is ideal for

responding rapidly to spikes in demand or sudden falls in renewable output7.

What more should Queensland be doing?

As was considered earlier in this submission, APPEA supports a national climate change

policy that delivers greenhouse gas emissions reductions at least cost and facilitates broad-

based investment decisions consistent with an international price on carbon.

This means APPEA’s considers the majority of climate change policy responses, particularly

those focus on mitigation, should be developed and implemented at a national level and

should be not be duplicated through subnational action. Such action can be both costly

and inconsistent with a national approach.

Where subnational action may be appropriate is in adaptation and in this context APPEA

notes Queensland has an adaptation focus through the Queensland Climate Adaptation

6 Available at www.feem.it/getpage.aspx?id=8600&sez=Publications&padre=73. 7 For more on this issue, please see www.appea.com.au/2016/07/close-the-generation-gap.

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Strategy (Q-CAS) and supports this as an appropriate area of action for the Queensland

Government.

In addition, as was noted above, Queensland’s natural gas industry provides a key

opportunity for both economic growth and greenhouse gas emissions reductions, both

within Queensland and within the region.

Supporting the growth and development of Queensland’s natural gas industry is one of the

strongest contributions Queensland can make to positive climate action.

Resources

The oil and gas industry measures and reports its greenhouse gas emissions from all stages of

exploration and development under the National Greenhouse and Energy Reporting

Act 20078.

In addition, the ERF’s safeguard mechanism covers the vast majority of the industry’s

facilities, placing an obligation on those facilities to keep their emission below a set

baseline9.

The industry can also bid emissions reduction opportunities into the ERF auctions, including

through a specific method developed to encourage projects that reduce fugitive emissions

from venting at oil and natural gas extraction, production, transport and processing

facilities10.

In addition to any obligations or incentives provided through climate policies, the industry

has a very strong and direct incentive to operate its facilities as efficiently as possible,

including in ways that minimise any fugitive emissions.

There has historically been a relative misunderstanding and under-appreciation by many of

the existing and powerful drivers for energy efficiency that pervade the operations of the

upstream oil and gas industry in Australia and the industry’s history of reducing the energy

intensity of its operations and increasing its energy production efficiency. This includes in

minimising any possibility for fugitive emissions during the exploration and development

process. This is because any natural gas that is lost through fugitive emissions is gas that

cannot be processes and sold to customers.

This means fugitive emissions have a very direct opportunity cost associated with them –

every unit of gas that can be saved through reducing fugitive emissions is a unit of gas that

can be sold.

This driver, that pervades the initial design and ongoing operation of these facilities exists

independent of a carbon policy response and drives energy efficiency and fugitive

emission reduction actions throughout the facility.

8 See www.environment.gov.au/climate-change/greenhouse-gas-measurement for more information. 9 See www.environment.gov.au/climate-change/emissions-reduction-fund/about/safeguard-mechanism and

www.cleanenergyregulator.gov.au/NGER/The-safeguard-mechanism for more information. 10 See www.environment.gov.au/climate-change/emissions-reduction-fund/methods/oil-gas-fugitives for more

information.

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Conclusion/next steps

Our abundant natural gas resources place Australia in an enviable position to maintain

long-term, cleaner energy security domestically and internationally. Natural gas makes it

possible for Australia to meet the world’s growing energy needs over the coming decades

while incorporating a strategy to curb emissions and address the risks posed by climate

change.

APPEA will continue to participate in the development of the Queensland Government

response and looks forward to ongoing consultation and to working constructively with the

Queensland Government as aspects of the Queensland response are further developed.

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Attachment 1: APPEA Climate Change Policy Principles

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