Ahead of a likely Labor-Green coalition victory in the May elections, Australian fossil fuel investments have had their position strengthened by the West’s sanctions on Russian fuel exports. In March alone we have seen Esso Australia reach FID to the tune of $300 million USD concerning oil and gas platforms in the Bass Strait. The ruling Liberal Party is as supportive of fossil fuels as ever with a spate of gas infrastructure funding announcements in recent weeks – $38 million across seven projects in the North Territory, South Australia, and the east coast of the country.
Once again the Liberal Party is pressuring regulators to go easy on fossil fuel companies even to an extent that may violate legal requirements – this month it’s Resources Minister Keith Pitt telling the National Offshore Petroleum Safety and Environmental Management Authority to only consider direct emissions from projects – in direct contrast to yesterday’s news that the US SEC will expand monitoring of Scope 3 emissions.
In 2021 the Australia fossil fuel sector received $20 billion in new investments. This situation may soon be looked back on as the last gasp of such huge investment in Australia – it depends on whether the Labor and Green parties win, as seems likely, and how they behave in office.
If the polls are anything to go by, the Labor Party will win handily. The polls said the same thing falsely ahead of the last election, but this time the ratings are even worse for the liberal party, and the polls have been corroborated by a crushing victory for the Labor Party in South Australia state, proving that opinion really has swung dramatically against the government in the past six months.
We have remarked several times before that in Australia, there is a stark contrast between the federal government, which supports fossil fuels, and practically the entirety of the rest of the institutions – regulators, state governments (the Liberal Party holds two of eight), and private enterprises. Australia’s third-richest man, Cannon-Brookes, even tried recently to buy three coal plants from AGL just to decommission them, but the offer was refused.
The upcoming likely Labor election win would resolve that tension, with policies floated by Labor and its partner the Green Party including a decade-spanning US$14 billion wage subsidy for coal sector employees who transfer to other jobs (coal mining alone employs the better part of 100,000 people), tackling NIMBYism by giving local communities and farmers more monetary incentives for hosting projects, and beefing up the existing Safeguard Mechanism to force companies to reduce their emissions. However, the Labor party has shied away from fuel standards.
Election promises are dubious, and any politician can be lobbied by vested fossil fuel interests – but we can see some big changes already happening in South Australia since its election. Where the Liberal state Premier Koutsantonis was skeptical if not outright opposed to a $1.7 billion transmission link from South Australia to NSW, the Labor Premier Malinauskas will see the project completed – with all that implies for curtailment-free renewables development.
South Australia has attained 64% green energy and it reaches 100% solar power for a longer period each summer – but the scale of green hydrogen electrolysis will see its renewables build out go far beyond what existing society and industry would need. Melinauskas’s election will see hydrogen planning lean more heavily on government funding, starting with a $450 million hydrogen complex, whereas Koutsantonis had placed more emphasis on private investment and on using hydrogen as “grid firming” to integrate renewables.
As for the challenges facing the prospective government, there are two that stick out: the cost of far-flung transmission infrastructure, and the continued prevalence of coal in the three most populous states, New South Wales and Victoria. Just five years ago the New South Wales Treasury was still planning coal use increasing constantly through to 2056 – now in an update to its strategy it has one scenario with coal production ending as “early” as 2042. That’s just one example of how much catching-up Australia has to do.
There is 23 GW of coal power plants across these three states which could have been mostly decommissioned by 2030 – requiring an investment of $40 billion for replacement renewables.
Besides Australia’s own politics there is the global sanctions war to consider.
The West’s sanctions on Russia should see green energy investment and government transition strategies accelerate – but as we have remarked, attacking the supply of Russian coal, gas and oil provides an opportunity for fossil fuel backsliding as well. Any investor in new fossil fuel infrastructure will demand guarantees they it will be used long enough to pay back its initial cost, or to be compensated otherwise. Since President Biden’s election in the US, Australia has stood out as the last Western economy in which fossil fuel extraction and generation still receives new investments – it is the biggest arena in the West for such backsliding, as it is the world’s second-biggest coal exporter and vies for the title of largest gas exporter.
Beside the election, the other event looming on the horizon for Australia’s energy sector is US sanctions on China.
This week the US announced sanctions on a selection of Chinese officials, ostensibly on the grounds of China’s internal human rights abuses. The US has stated that it’s open to “using economic measures to promote accountability,” and the Biden Administration has already shown it is willing to cause domestic and global economic damage to get at Russia. Since China has not sanctioned Russia, the US may decide it has to sanction China as well, and these initial sanctions surely had the Ukraine war in mind.
Incidentally, Ukraine itself was a very minor coal exporter at only around half a million tons of coal before the war, and Australia’s aid package to the country is planned to include 70,000 tons.
Sanctions on China could cut both ways for fossil fuels – instead of a Chinese economy whose power demand has surged up 15% year-on-year depending on the sector, you would have another 2020-style low point. At the same time disruptions to the supply of fuel would leave China, which is attempting to boost its domestic production, more eager than ever to buy Australian coal and gas. Consider Indonesia’s ban on coal exports, which has been lifted since, and how China’s September coal shortage saw restrictions on Australian coal lifted.
Speaking about the “madness” of turning to other fossil fuel sources post-Russia, UN Secretary-General Guterres recently singled out Australia as among few G20 holdouts yet to announce an improved 2030 emissions reduction target – Australia’s is still a mere 26% to 28% reduction over 2005 levels, with the Prime Minister having sought to distract attention instead to projections based on unspecified future technology. Labor’s plans would increase the emissions target to a 43% reduction – still not quite as swift a transition as the state governments have promised.