ENERGY POLICIES OF IEA COUNTRIES Australia 2018 Review Secure Sustainable Together ENERGY POLICIES OF IEA COUNTRIES Australia 2018 Review INTERNATIONAL ENERGY AGENCY The IEA examines the full spectrum of energy issues including oil, gas and coal supply and demand, renewable energy technologies, electricity markets, energy efficiency, access to energy, demand side management and much more. Through its work, the IEA advocates policies that will enhance the reliability, affordability and sustainability of energy in its 29 member countries, 7 association countries and beyond. The four main areas of IEA focus are: n Energy Security: Promoting diversity, efficiency, flexibility and reliability for all fuels and energy sources; n Economic Development: Supporting free markets to foster economic growth and eliminate energy poverty; n Environmental Awareness: Analysing policy options to offset the impact of energy production and use on the environment, especially for tackling climate change and air pollution; and n Engagement Worldwide: Working closely with association and partner countries, especially major emerging economies, to find solutions to shared IEA member countries: energy and environmental Australia concerns. Austria Belgium Canada Czech Republic Denmark Estonia Finland France Germany Secure Greece Sustainable Hungary Together Ireland Italy Japan Korea Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic © OECD/IEA, 2018 Spain International Energy Agency Sweden Website: www.iea.org Switzerland Turkey United Kingdom Please note that this publication United States is subject to specific restrictions that limit its use and distribution. The European Commission The terms and conditions are also participates in available online at www.iea.org/t&c/ the work of the IEA. Foreword The International Energy Agency (IEA) has been conducting in-depth energy policy reviews of its member countries since 1976. As a core activity, the process of review by peers not only supports member countries’ energy policy development and mutual learning, but it also encourages exchange of international best practice and experience. In short, by seeing what has worked – or not – in the “real world”, these reviews help to identify policies that achieve objectives and bring results. FOREWORD In 2016, the IEA decided to modernise the reviews by shifting their focus to key energy security challenges in fast-changing global energy markets and to the transition to a clean energy system. This report on Australia offers insights into two special focus areas, which were chosen by the Australian government: the transition to a low-carbon energy economy and related challenges, and the role of natural gas in this context. Natural gas can play a crucial role as a transition fuel to a lower-carbon economy. Australia’s gas market reform and the review of the country’s emissions reduction policies were actively discussed with reform proposals under way in 2017. The report examines these ongoing reforms and explores new initiatives that Australia could put in place to encourage domestic production, investment and competition. The special focus chapter on the energy system transformation evaluates opportunities and challenges with regard to increasing the share of variable renewable energy in the power sector and beyond, in industrial heat and transport. The energy transition is under way, and efforts are required to ensure system reliability and improve market integration of renewable energy. The electricity sector is at the heart of the energy system transformation. Therefore, this report provides recommendations for the design of climate policies addressed to this sector, including ways to shape market rules and network regulation, retail market reforms, and wholesale market actions to improve electricity security during the transition. The primary aim of this report is to support Australia in its quest for a secure, affordable and environmentally sustainable transformation of its energy sector and economy. It is my hope that this country review will guide Australia in its energy transition and its contribution to a cleaner, more sustainable and secure global energy system. Dr. Fatih Birol Executive Director International Energy Agency 3 ENERGY INSIGHTS Executive summary .........................................................................................................13 Overview ............................................................................................................................13 Progress and challenges ...................................................................................................13 Energy security ..................................................................................................................15 Energy system transformation ...........................................................................................17 Special focus 1: The role of natural gas in the transition ..................................................19 Special focus 2: The transition to a low-carbon economy and system integration of higher shares of variable renewables ...........................................................................19 Key recommendations .......................................................................................................21 1. General energy policy .................................................................................................23 TABLE OF CONTENTS OF TABLE Country overview ...............................................................................................................23 Supply and demand ...........................................................................................................25 Institutions ..........................................................................................................................28 Energy strategy and targets ..............................................................................................30 Energy data .......................................................................................................................31 Assessment .......................................................................................................................33 Recommendations .............................................................................................................35 References ........................................................................................................................35 ENERGY SECURITY Summary of Part I ............................................................................................................37 2. Oil ..................................................................................................................................41 Overview ............................................................................................................................41 Supply and demand ...........................................................................................................41 Infrastructure......................................................................................................................45 Market structure .................................................................................................................47 Prices and taxes ................................................................................................................49 Fuel quality standards .......................................................................................................51 Oil supply security and emergency preparedness ............................................................51 Assessment .......................................................................................................................53 Recommendations .............................................................................................................55 References ........................................................................................................................55 5 TABLE OF CONTENTS 3. Focus area 1: Natural gas market design .................................................................57 Overview ............................................................................................................................57 Supply and demand ...........................................................................................................58 Institutions and regulatory framework ...............................................................................66 Gas infrastructure and network regulation ........................................................................67 Market operation and prices ..............................................................................................72 Gas market reform .............................................................................................................75 Security of supply ..............................................................................................................77 Emergency response .........................................................................................................83 Assessment .......................................................................................................................85 Recommendations .............................................................................................................88 References ........................................................................................................................88