Gas wants cleaner billing

RESPONSIBLE for more than half of Australia's greenhouse gas emissions, the energy sector will be one of the biggest industries affected by the Carbon Pollution Reduction Scheme (CPRS).

Key industry players are lobbying the federal government for assistance from the full brunt of the scheme, which for some would require expenditure of tens of millions of dollars in emissions permits each year.

Many want a similar system to the European Union emissions trading scheme, which allocates allowances to facilities based on their past emissions, not their expected emissions during the trading period.

This approach, called grandfathering, led to 95 per cent of emission permits being allocated free of charge, with most EU member states giving away all the permits from the initial allocation for free.

In particular, Western Australia's gas sector has called for the fuel to be recognised as a cleaner alternative to conventional fossil fuels, and for the role it can play in the transition to a carbon-constrained energy sector.

Up to 60 per cent of the state's generation comes from gas, with the rest from coal.

While natural gas burns 40 per cent cleaner than coal in terms of greenhouse emissions, the processing cycle of LNG is emissions intensive.

Gas-powered electricity generator ERM Power executive chairman, Trevor St Baker, said Australia should not move ahead of the world and bring in an emissions trading scheme that would have to be amended at a later date to fall in line with a global agreement.

In the meantime, he believes Australia should provide incentives for carbon abatement activities and not penalise emissions from current generators, particularly gas.

"We need to recognise that not only do investments in renewables have to be encouraged, but also investments in gas-fired generation have to be encouraged," he said.

"A price on carbon abatement, or carbon pollution reduction, provides an incentive for investment in the solution, whereas a carbon charge simply taxes and financially threatens the viability of electricity businesses in which investors and lenders are at risk of having past investments stranded."

The CPRS is also set to impose significant costs on the LNG industry.

Chevron Australia managing director Roy Krzywosinski said while the company believes many aspects of the CPRS are well designed, more could be done to ensure the competitiveness of Australia's export trade industries, such as LNG.

"As currently designed, the scheme imposes a cost on LNG without acknowledging the benefits that LNG can play in displacing more greenhouse-intensive sources of energy, like coal, fuel oil, around the world," he said.

"Australia already ranks among the world's highest in terms of LNG project costs.

"We believe there should be no net costs to LNG through the CPRS because LNG is part of the global solution to reducing global greenhouse gas emissions."

Wesfarmers Energy managing director Tim Bult agreed that LNG should become an essential fuel within the overall energy mix in Australia.

Last week, Wesfarmers Energy opened its $137 million LNG plant in Kwinana, which will produce 175 tonnes of LNG a day and support 130 heavy-duty vehicles, two remote power stations and a large industrial customer.

"Recent Australian government sponsored testing of a 15 litre LNG powered engine produced 25 per cent less greenhouse gas emissions than the equivalent diesel engine," Mr Bult said.

Gas generation dominates the government's investments for new electricity supply to upgrade Verve Energy's ageing fleet.

The government is spending $260 million on the construction of two 100-megawatt high efficiency gas turbines at the Kwinana Power Station.

Verve Energy is also investigating the possibility of refurbishing and re-commissioning Muja coal-fired power station stages A and B, which would cost about $100 million and deliver a total capacity of 240MW.

Verve managing director Shirley In't Veld said the global economic downturn and the proposed CPRS were causing investors to delay making commitments to build power stations.

She said the government's decision would ensure there was enough power to meet WA's electricity needs during times of uncertainty.

"This creates the risk of potential power shortages in the near future," she said.

Under the CPRS, coal-fired power generators are eligible for strongly affected industry (SAI) status, in the form of a one-off payment of free carbon permits distributed over the first five years of the scheme.

Enneaba Gas is also proceeding with its 168MW Centauri 1 gas-fired power station project near Dongara and is aiming to make the site 'carbon neutral' through the conservation of 1215 hectares of remnant bush, which will offset 30.5MW equivalent of carbon credits.