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Government to fund gas and carbon storage via clean energy programs

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“Labor established the CEFC, we have consistently protected the integrity of the CEFC as a renewable energy financing body, and we will continue to do so,” said Labor climate change and energy spokesman Mark Butler.

Rejecting the CEFC changes is a shift in Labor’s internal debate over climate policies which has played out publicly through disagreements between Mr Butler and Right faction resources spokesman Joel Fitzgibbon, who has argued Labor should adopt the Morrison government’s less ambitious greenhouse gas emissions reduction policies.

Mr Butler labelled the Morrison government’s push for a gas-led recovery from COVID-19 as “another slogan”. He said the recovery must focus on expanding renewable power generation and helping manufacturing transition from gas to clean energy sources which would “create tens of thousands of new jobs”.

In August Mr Taylor lodged a bill to change investment rules to enable the CEFC to use its $1 billion Grid Reliability Fund for gas power and infrastructure projects, and remove a rule that prevents it from investing in loss-making projects. The CEFC welcomed the proposed changes, saying “critical infrastructure could be funded through the fund to improve the energy grid’s generation capacity and reliability, and noted gas investments “may be technically eligible for funding” even without changes to legislation.

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Mr Taylor told Parliament the bill would “not divert the CEFC’s existing $10 billion allocation” but would create a “trusted counter-party to investments, allowing the CEFC to support private sector involvement” in energy generation.

The road map shows how the Morrison government could expand its plans under the Grid Reliability Fund by using recommendations from the King Review which in May advised the CEFC, along with the Australian Renewable Energy Agency be opened up to consider gas projects, while the $2 billion Emissions Reduction Fund be changed to “enable a method to be developed for carbon capture and storage”.

While the government can legislate to expend the remit of energy agencies it remains to be seen what technologies are favoured by the boards which manage them. ARENA and the CEFC must comply with investment rules that require them to not only fund new technology but also deliver value for taxpayers’ money.

According to the draft road map, the government will also pursue deals with state and territory governments similar to the one it signed with NSW in January under which the state government agreed to contribute 70 petajoules more gas to the grid each year in return for federal government funding for new power transmission lines.

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The government will also invite expressions of interest to establish a “regional hydrogen export hub” and details support for gas-produced hydrogen coupled with carbon capture and storage.

“Clean hydrogen from off-grid gas with CCS [carbon capture and storage], and coal gasification with CCS is likely to be the lowest-cost clean production method in the near-term, although other renewable production methods will also come down in cost as clean hydrogen demand grows,” says the draft.

A spokesman for Energy and Emissions Reduction Minister Angus Taylor declined to comment on the documents.

The government’s support for CCS and gas has proved controversial, with critics saying that CCS technology is costly and unproven and that gas is a fossil fuel that can be as damaging to the climate as coal once leaks are taken into account.

While there is broad support for the government’s plans to develop a hydrogen energy industry, there is debate over whether the government should support so-called blue-hydrogen which is produced using gas coupled with CCS, rather than green hydrogen, which uses only renewable energy.

The draft notes that the government has proposed a bill to establish the Clean Energy Finance Corporation $1 billion Grid Reliability Fund, which includes an underwriting scheme to encourage private companies to build new power supply. The underwriting program, which is open to all energy sources, is currently considering five gas, one coal and six renewable energy projects. The CEFC must invest at least 50 per cent of its funds in renewable energy. Mr Taylor’s bill would remove these restrictions for the $1 billion in the Grid Reliability Fund.

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