Australia's Energy Options in a Low Emissions Future

Good morning. Today, I’ve been asked to comment on Australia’s energy options and how those are developed in an environment where CO2 emissions need to be reduced.

It’s obvious that any community needs a sustainable supply of affordable energy.  By sustainable, I mean reliable, and with an acceptable impact on our environment.   Both policy makers and industry have to treat these two issues together – an environmentally unacceptable energy supply, cannot be the secure energy supply that we need.

Now, meeting the increasing need for energy is becoming more difficult.  This is due to a combination of global forces that I’ll describe as the ‘three hard truths’:

The first hard truth, is that energy demand will surge as a result of population growth and industrialisation.  By 2050, the world could be using double the amount of energy we do today, as the global population grows from 6bn to 9bn, mainly in the developing countries and mainly getting richer.   Even in Australia’s case, some people predict a doubling of our population by 2050.   As a result, the hard truth is that there will be far more demand for energy than there is today.

The second hard truth is that energy supplies, especially conventional supplies, will struggle to keep up.  Today, we meet our energy needs overwhelmingly with fossil fuels - coal, oil and gas – and we’re already tapping the easy to get sources.  Future supplies will come from sources that are much more challenging technically and much more expensive.

But, to meet the extra demand, we’ll have to exploit all of these sources and all renewable sources of energy as well, which I think will grow strongly from a small base.   It is no surprise that last week, US President Obama made many of these points, when he talked about US energy policy in the face of the unfolding crisis in the Gulf of Mexico.

And that leads to the third hard truth - that the stresses on our environment are increasing.    And the environmental impacts of growing energy use are not sustainable, not only in terms of CO2 and climate change but on water and local pollution.   The intensity of debate around these subjects may vary but the drive for reduced emissions will always be with us. 

The challenges for Australia are profound.  Australia is blessed with a huge endowment of gas, coal, uranium and a range of renewable energy sources.   This provides us with the opportunity, not only to meet our own energy needs, but also to help fuel the economic growth and the rising living standards of our Asian neighbours, and to profit as a nation by doing so.

So what are Australia’s energy options and how do we address these in a low emissions future?

Clearly in Australia there will be an ongoing role for fossil fuels, especially coal - using ‘cleaner technology’, with a continual move towards gas - either ‘traditional’ natural gas or the ‘newer’ coal seam gas - in all credible scenarios.   And gas provides an energy source that is abundant, reliable and, compared to the fossil fuel alternatives, has lower CO2 emissions.

For most countries, using more gas in power generation, can make the largest contribution at the lowest cost to meeting their emissions reduction targets in this decade – in combination with renewables and CCS.    That makes gas an effective bridge from our current energy system, to one that becomes truly sustainable. 

We will also need to address our liquid fuels needs, and here I see an increased medium term role for 2nd generation biofuels, before an eventual growth in electrification of personal transport.  In this respect, we’ll need to take care that our production of biofuels is truly sustainable, as to total environmental footprint and impact on food production, but I do believe that 2nd generation biofuels have real potential here in Australia.

Australia also has a role to play in developing technologies that will help us to meet the increased energy demand in an environmentally responsible manner.    This will include continuing to use existing fuels at reduced environmental cost.   An obvious technology here is CCS, which is crucial to reduce emissions from power stations and large industrial facilities.   I hope that Australia will be a world leader in demonstrating the viability of CCS, through bodies like the CO2CRC and the GCCSi.   Commercially, we’re proud to be associated with the Gorgon project, which will be the world’s largest carbon capture and storage operation.

Now, to address the world’s and Australia’s future energy options, while at the same time lowering emissions, we need a huge scale of investment – investment in mega projects, counted individually in the billions and collectively in the trillions of dollars.  There’s a danger that if we don’t make enough large investments soon, the world will face an energy supply crunch as around the middle of the next decade and this will impact on Australia as an energy consumer and an energy producer.

Until now, one of Australia’s advantages in attracting the massive capital investment required to underpin these mega projects has been our relatively stable political and regulatory regime.  This is critical for projects that may have a lifespan of decades and require tens of billions of dollars of upfront commitment before a single dollar comes back.    So, a stable, competitive fiscal framework, that is conducive to attracting investment to meet Australia’s and the region’s future energy options in a low emissions future, is essential.   Now that’s a subject worth discussing.

I look forward to hearing the comments from our next two speakers and I welcome the opportunity for questions to the panel.  Thank you and with that I’ll hand over to Tony Concannon.