Alan Kohler: Australia must do what Esperance did, and get off gas

Esperance in Western Australia is a prime example of townships switching off gas, Alan Kohler writes.

Esperance in Western Australia is a prime example of townships switching off gas, Alan Kohler writes. Photo: Getty/TND

Peter Dutton is absolutely right that Labor has little prospect of achieving its target of a 43 per cent reduction in carbon emissions by 2030.

His cunning plan is to give up and oppose it, while using nuclear power to stick with net zero by 2050, which is far enough in the future that nuclear isn’t entirely laughable and keeps the Nationals in the tent.

Also, Dutton will be 79 in 2050 and long retired, so he won’t have to wear the backlash over higher power bills from nuclear reactors.

2024 is the year that matters, and nuclear gets him to an election against the ALP and teal independents with a policy of net zero, without which the Coalition would be drowned under NSW flood waters, and cooked in next summer’s bushfires.

Nuclear has its own electoral difficulties, of course, but hey … net zero!

Carbon tariffs

The other problem with just giving up on 43 per cent by 2030 is that in two years’ time Europe will start its Carbon Border Adjustment Mechanism (CBAM), or carbon tariff, making imports from countries without an effective carbon price and/or low emissions uncompetitive.

It’s true that only about 11 per cent of Australia’s exports go to Europe, but that’s not nothing, and in any case there’s likely to be CBAM dominoes after Europe does it. Will we really just bet that China won’t do it, ever?

As for Labor, neither 43 per cent by 2030 nor net zero by 2050 is achievable without moving households from gas to electricity, soon. This is the real “Future Gas Strategy” that’s needed.

The current plan of just forcing big industrial emitters to cut by 5 per cent a year mainly by buying offsets, is both too hard and too little. If both agriculture and households are not brought into the game, it’s the same as giving up.

The big switch

The most logical and efficient way to do it would be a price on carbon dioxide and methane. But that’s out, permanently it seems, and the only alternative is to pay households to switch their gas appliances to electric and to pay cattle farmers to either offset their methane or remove it in some way.

No sign of the latter happening, but the Labor government has dipped a toe into the former with something called the Household Energy Upgrade Fund (HEUF) within the Clean Energy Finance Corporation (CEFC), which will get a big round number: ONE BILLION DOLLARS!

The CEFC doesn’t give money direct to households but will work with “co-financiers” that will provide discounted loans (not grants) for families to buy solar panels, electrical heaters and stoves and EV chargers.

Last week the CEFC announced it made the first commitment of $60 million to fintech lender Plenti to fund a 2.74 per cent discount on green loans. Plenti’s website reveals that its standard interest rate is 6.57 per cent, so presumably the interest rate on a government-subsidised green loan for a new electric stove or rooftop solar system would be 3.83 per cent.

Would that entice someone to borrow money for a new electric stove who wasn’t going to buy one anyway? Unlikely. And is $1 billion enough? Only if the scheme doesn’t work, which, happily for Treasury, it won’t.

Esperance example

A good case study for switching a population from gas to electricity is the WA town of Esperance, in which the citizens woke up one day in September 2021 to news that their gas was going to be cut off.

The provider, Esperance Gas Distribution Company Pty Ltd, announced that it couldn’t keep supplying gas profitably and would cease operations in March 2022.

The government and Horizon Power, the state electricity company, cut a deal for an extra year of gas (ie they paid for it) and then set about converting the entire town to electricity, which was achieved on March 31, 2023.

The WA government spent $10.5 million to switch 379 households and businesses from gas to electricity, or $27,700 each, on average.

If that cost was applied to just half of Australia’s 10 million households and 2.5 million small businesses in a similar project, state and federal governments would be up for $175 billion, which gives some idea of how hopelessly inadequate $1 billion is.

Wait, loss

But the main problem, and the reason the government is approaching this like a bomb disposal expert dealing with an IED, is that at some point in the process of slowly converting households from gas to electricity – probably quite early in the process, in fact – gas companies will start making losses because they haven’t got enough customers any more and, like the Esperance Gas Distribution Company, would simply stop supplying and/or go broke.

Those households that haven’t converted at that point must eat raw food and freeze and, needless to say, vote for the Opposition asap.

Esperance was a small town and had a cut-off date, so the minister and Horizon Power could work towards it, actually door-knocking every house and business, more than once.

The national transition away from gas – which will be necessary for either the ALP and Coalition to achieve its target of net zero by 2050 – is likely to be a complete shambles.

The question is going to be whether, and how, to encourage or force the gas companies to keep supplying the laggards who like cooking and heating with gas while they’re persuaded or subsidised to buy a better electric induction stove.

‘Supernormal’ profits

Last week the Institute for Energy Economics and Financial Analysis published a stunning report showing that Australia’s gas networks made “supernormal” profits of $1.8 billion from 2014 to 2022.

“Supernormal” means more than allowed for by the regulator in setting their prices, based on the companies’ own predictions of demand.

It will shock you to learn, I’m sure, that gas companies have been under-forecasting demand to manipulate the process and achieve higher prices, which the Australian Energy Regulator has been falling for.

Jay Gordon, analyst with IEEFA, said: While some supernormal profits are expected, we estimate 75 per cent of profits made by gas networks since 2014 were above the expected reasonable range.”

“Consumers have been paying higher gas bills than necessary since at least 2014 – compensating networks to the tune of $1.8 billion for their exposure to demand risks.”

So gas companies should be asked to dip into the $1.8 billion they stole from consumers to help pay for their own inevitable demise.

Alan Kohler writes weekly for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor.

Topics: Gas
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