20 January 2017 NSW Environment Protection Authority PO Box A290 SYDNEY SOUTH NSW 1232 Via email: [email protected] Re: “Clean Air for New South Wales” Consultation Paper To Whom It May Concern: Australian Gas Networks Limited (AGN) is one of Australia’s largest natural gas distribution companies. AGN owns approximately 23,000 kilometres of natural gas distribution networks and 1,100 kilometres of transmission pipelines, serving over 1.2 million consumers in New South Wales, South Australia, Victoria, Queensland and the Northern Territory. In New South Wales, AGN’s gas distribution network is used to supply residential, small commercial and a number of large industrial customers in Albury and Wagga Wagga. AGN welcomes the opportunity to make a submission to the New South Wales Government (the Government) regarding the “Clean Air for New South Wales” Consultation Paper (the Paper). In the Paper, the Government presents its proposed approach and associated actions in order to meet its goal of improving air quality in New South Wales. The Government is seeking feedback on whether the proposed actions outlined in the paper are appropriate and whether there are any additional issues or actions that the Government should consider. It is worth noting that we encourage the Government’s consideration of the air quality in New South Wales and consider that there is a role for gas distribution networks to play in achieving this objective. As a result, we would encourage the Government to ensure they apply a technology-neutral approach to policy-setting. In particular, we consider that this approach should be adopted by the Government because: • it ensures market forces are able to determine the future energy mix, rather than government policy supporting the development of particular technologies; and • it enables least cost carbon abatement for energy users as we move toward a low carbon future. As the Queensland Productivity Commission (QPC) states in its “Solar Feed-In Tariff Pricing in Queensland” Issues Paper: 1 “Policy frameworks typically include a principle that policies should be technologically neutral. The idea is that what is important is the quality and price of the service, not the specific platform, technology or approach to delivering the service. The focus is on the long-term interests of consumers and not the industry or the development of a specific technology.”1 Similarly, the Australian Energy Market Commission supports the adoption of this principle as follows: “In a time of rapid technological change, it is particularly important to ensure technology neutrality in market design. Specifying arrangements for a particular technology in the regulatory framework may lock it in, whilst locking out evolving new technologies that might not even have been anticipated when market design was considered. This means that market design should consider what is supplied rather than how it is supplied.”2 Consistent with these views, AGN considers that a key policy principle of the Government as it develops its final approach to improving air quality in New South Wales should be technology neutrality. As further evidence of the benefits of technology-neutral policy, AGN (through Energy Networks Australia (ENA)) has worked with Jacobs to develop a further understanding of least cost carbon abatement policy options Australia-wide. Jacobs’ findings indicate that technology neutral policy would achieve lower cost carbon abatement than the current policy mix. In particular, Jacobs conducted analysis to understand the least cost abatement path for Australia under three policy scenarios: • Business as usual - a continuation of the diverse range of various State and Federal abatement initiatives (which frequently prescribe specific technologies or scale, such as solar feed-in-tariffs); • Level playing field - replacing current initiatives with technology-neutral programs focused on the outcome of lower emissions; and • Alternative level playing field - current policies are replaced with a carbon equivalent mechanism. Importantly, Jacobs found that more cost-effective abatement outcomes can be achieved through technology-neutral policy (i.e. the ‘level playing field’ option), rather than technology-specific abatement programs that seek to encourage the up-take of renewable energies (i.e. ‘business as usual’), for example. Additionally, Jacobs developed forecasts of the typical residential bill under each of these three scenarios and has found the following: “Jacobs’ analysis shows a typical residential electricity bill in 2030 would be lower under a 45% target scenario with a Level Playing Field, than under the smaller 26- 28% abatement target with our current, inefficient policy mix”.3 For further information regarding the analysis developed by Jacobs, please refer to Attachments A-C of this submission. AGN encourages the Department to actively consider the 1 Queensland Productivity Commission, ‘Issues Paper – Solar Feed-In Tariff Pricing in Queensland’, page 12. 2 Ibid. 3 Energy Networks Australia, ‘Media Release: Technology neutral policies will deliver lower bills’, 10 March 2016, page 1. 2 analysis undertaken by Jacobs and AGN would be pleased to discuss the Jacobs findings further with the Department. In addition to encouraging the Government to adopt a technology-neutral approach to achieving improvements in air quality, we have responded to a few of the specific ‘goals’ detailed throughout the Paper in Appendix A. Our responses focus on: • the potential of gas to support the decarbonisation of the electricity supply in New South Wales; and • the potential of low emission vehicles more generally (i.e. not just electric vehicles) to reduce emissions generated. We understand that feedback received on the Paper will be used in the development of the New South Wales Clean Air Summit to be held in early 2017 and in the finalisation of the Paper in late 2017.4 Please contact either Ashley Muldrew (08 8418 1115) or myself (08 8418 1129) if you would like to discuss the matters raised in this submission, further. Yours sincerely, Craig de Laine General Manager – Strategy and Regulation 4 NSW Environment Protection Authority, ‘Clean Air for NSW Consultation Paper’, October 2016, page 4. 3 Appendix A – Feedback on Proposed Goals Goal: Minimise emissions from power stations to reduce primary and secondary particle precursors AGN supports the Government’s goal to reduce and minimise the emissions produced from power stations in New South Wales (NSW) in order to improve air quality, and in particular considers that natural gas has an important role to play in terms of transitioning the current fuel mix used to generate electricity in NSW, to a lower carbon emission environment. As the ENA comments: “Natural gas offers a number of environmental benefits over other energy sources. It is the least carbon intensive fossil fuel and creates less particulates and other air pollution.”5 Currently, NSW electricity is generated based on a combination of coal, natural gas and renewable energies. In particular, the mix of these generation sources used in NSW results in the state being ranked as second highest in terms of Emissions Factor for electricity consumed, as calculated by the Department of Environment and Energy.6 Additionally, the Emissions Factor calculated for NSW in 2016 is the same as that calculated in 2015, indicating that whilst the majority of other states and territories saw some reduction in emissions produced by the consumption of electricity, there was no such improvement in NSW.7 As a result, the increased use of gas-powered generation in NSW therefore has the potential to significantly reduce the carbon emitted from the ‘grid’ and contribute to improving the air quality in NSW, as well as transitioning to a low carbon economy. AGN also considers that natural gas is well-placed to act as a complementary fuel to renewable energy sources, such as wind generation for example. Gas-powered electricity generation technologies have low lifecycle costs, are low in carbon emissions (compared to coal-fired generation), and have the ability to quickly adapt output to adjust for the fluctuating generation from renewable energies. That is, the intermittent nature of renewable energy sources needs to be balanced by power generation systems that are able to rapidly adapt to different demand requirements. Gas- powered generation is the only technology to be able to provide the rapid response required in order to work with the intermittent nature of renewable energy and optimise the integration of renewable energies into the ‘grid’ in order to further assist in the improvement of air quality in NSW. Given the potential of gas-powered electricity generation in NSW, we would encourage the Government to broaden its proposed research into the future of coal-powered electricity generation to 2050, and consider alternative fuel types and the future energy mix more broadly, as part of this research. Further, this research should be conducted with a view to ensuring that emissions reduction and improvements in air quality are achieved at least cost to energy customers over the long-term. 5 Energy Networks Australia, ‘Australia’s Bright Gas Future’, December 2015, page 6. 6 Department of the Environment and Energy, ‘National Greenhouse Accounts Factors’, August 2016. 7 Ibid. 4 Additionally, we note the potential role of distributed energy sources in achieving emissions reduction from power stations. For example, cogeneration systems are a form of