Reaching our net zero targets will require significant investment and innovation across all sectors of the Australian economy.

The Australian Energy Market Operator’s 2024 Integrated System Plan (ISP) estimates that $142 billion in capital is required to deliver the optimal development pathway.

Attracting low-cost capital to critical generation, energy storage and transmission projects is essential if we are to hit our emissions reduction targets.

Domestic and global investors pay close attention to how we describe investment that will support the decarbonisation of our energy system.

Sustainable finance taxonomies, which are essentially a set of common definitions for how we describe sustainable investments, are therefore critical in providing investors with the confidence to invest capital in energy transition projects.

The process to develop an Australian Sustainable Finance Taxonomy (Taxonomy) commenced in July 2023 as a joint industry-government partnership between the Australian Sustainable Finance Institute and Commonwealth Treasury.

This provides an opportunity to send the right signals to support investment in projects that can deliver an efficient and orderly decarbonisation pathway.

Gas is critical to the energy transition

As both the ISP and the Federal Government’s Future Gas Strategy make clear, urgent investment into gas-powered generation (GPG) is needed to support the rollout of renewable energy.

The ISP forecasts a long-term role for flexible GPG to support energy supply during periods of renewable drought and of extreme peak demand.

Used as a firming technology, GPG will ‘back-up’ renewables and storage and help ensure a smooth transition as coal exits the system.

While the ISP expects all coal power stations to retire by 2037-38, GPG is expected to continue its important role in the NEM, with 15GW of GPG required by 2050.¹ Meanwhile, the Future Gas Strategy states that gas will be a key energy source through to 2050 and beyond.

The role of gas has been validated by the Climate Change Authority in their recent Sector Pathways Review, which confirmed, “gas will play an ongoing role in the electricity system as a firming technology to support an accelerated transition to renewables.”

The Taxonomy must prioritise the ‘net’ in net zero

It is no secret that new gas projects are complex and they require a supportive regulatory environment that can help unlock new investment and fast-track project delivery.

This is why we are concerned that, despite acknowledgement from government of the role gas must play, GPG has been excluded as a transition asset in the draft Taxonomy. GPG assets have instead been assessed as ‘phase down to phase out’ - a view that is out of step with the view expressed by the Federal Government and market regulators.

We need to remember that we are aiming for net zero, not real zero emissions.

Exclusion of gas from the draft Taxonomy by one part of government does not reflect the complexities and unique aspects of Australia's energy landscape that is widely acknowledged by other parts of government.

This includes recognition of the ongoing need for off-grid power generation to underpin future economic development in Australia’s remote regions, particularly in the resources sector.

Australia has an abundance of the metals and minerals needed to support the global energy transition. The Climate Change Authority has stated that we can unlock these resources in a responsible way by leveraging Australia’s renewable energy advantage.

To be a major processor and exporter of critical minerals required for the clean energy transition, we need to ensure we have firmed renewable energy available at scale.

APA’s experience in supporting the decarbonisation of remote locations such as the Pilbara² shows that long duration energy storage is not currently cost-effective for remote mining locations. GPG, together with renewables and transmission, will provide energy reliability for mining operations.

Gas generation can be located close to major demand centres and can be switched on and off as needed. GPG will also become critical if there are delays in building the necessary electricity transmission infrastructure to connect large-scale renewable generation projects in regional areas.

International best practice

The exclusion of gas as a transition asset in the draft Taxonomy contrasts with international best practice. Leading jurisdictions like the European Union, the Association of Southeast Asian Nations, Canada and Japan have reflected the critical role gas will play as a transition fuel in their respective frameworks.

International taxonomies take a nuanced approach to gas and the extent to which it is eligible is heavily influenced by jurisdictional context and its role in the jurisdiction’s decarbonisation pathway.

Again, for Australia, gas and GPG will be critical to supporting decarbonisation in our resources sector and to ensuring we can deliver the metals and minerals required to support the global energy transition.

Retiring coal

The retirement of coal power stations is one of the biggest emissions reduction initiatives we can undertake. Black and brown coal generation still dominate the energy mix in the National Energy Market (NEM) and have much higher carbon emissions than energy produced by nearly all other forms of generation, including GPG.

Failure to attract investment in critical gas infrastructure risks keeping coal power stations in the system for longer than necessary. We have just seen this play out in NSW with the extension of the Eraring and we have also seen it in Victoria.

We also run the risk of relying on LNG import terminals for our energy security, which will result in higher energy costs and higher emissions.  

To ensure a smooth energy transition, we need a Taxonomy that recognises the important role that gas will continue to play. This will ensure we attract low-cost capital to the critical infrastructure projects that will support the energy transition.  

¹ AEMO, Integrated System Plan, June 2024, p.69

² Challenges and opportunities for decarbonising the Pilbara, APA Group