Inpex Corporation, the biggest Japanese investor in Australia and owner of a massive LNG project in the Timor Sea, has become the first LNG exporter out of the blocks to openly seek carve-outs from Labor’s new proposal to drive down carbon emissions.
The company, which taps the Ichthys gas field 220 kilometres from West Australia’s coast and processes the gas in Darwin, is urging the Commonwealth to reconsider its ban on counting international carbon credits. It is also pushing for “gradual” emissions reduction and special treatment to guard against losing a competitive edge in the global LNG market.
Ichthys, partly owned by France’s TotalEnergies, is the second-largest carbon emitter covered by the safeguard mechanism policy – behind the Woodside-run North West Shelf venture – producing 6,351,245 tonnes of emissions in 2020-21, according to the Clean Energy Regulator.
Saul Kavonic, an analyst at Credit Suisse, told The Australian Financial Review the proposed toughening-up of the policy could result in “leakage” where gas customers seek LNG from countries without carbon costs – like Russia – but said Labor’s proposal was unlikely to dent the international competitiveness of LNG exporters.
“There’s going to have to be a bit of a balancing act, and not everybody is going to get the carve-out,” Mr Kavonic said.
But he said it was “unlikely” LNG exporters would be significantly hit by the requirement to buy Australian carbon credits to offset emissions.
“If you look at where carbon offset prices are in Australia at the moment, it would be an impost on Australian LNG exports, but it’s still a relatively modest impost.
“It’s a single-digit percentage on the overall cost structure of Australian LNG exports,” Mr Kavonic, said. The Australian Carbon Credit Unit (ACCU) spot price closed at $28 a tonne on Friday.
Energy Minister Chris Bowen’s proposed policy, unveiled last week for five weeks of consultation, is a soft “cap and trade” system designed to help deliver Labor’s targeted 43 per cent cut in emissions on 2005 levels by 2030.
The nation’s 215 largest carbon-emitting facilities, which together account for about 28 per cent of Australia’s greenhouse gases, will face caps or “baselines” that will progressively lower over time, by between 3.5 and 6 per cent each year, according to the safeguard mechanism reform consultation paper released on Thursday.
An Inpex spokeswoman urged the government to impose emissions caps slowly.
“We believe the emission baselines should be reduced gradually over time, to support international competitiveness and economic growth and that there should be consideration for treatment for emissions-intensive, trade-exposed industries such as LNG,” she said.
Carve-outs may be granted to some trade-exposed sectors and concessions granted to develop new technologies, which Mr Kavonic said would be useful for the LNG sector is likely to rely on fledgling carbon capture storage (CCS) technology.
But Tony Wood at the Grattan Institute, warned against concessions to certain sectors because “what if the technology doesn’t work?”
If one sector gets a carve-out, he said, another will have to pick up the slack if the federal government is to meet its 2030 target.
He also cautioned against the government individually negotiating with each of the 215 facility owners, warning of creating “loopholes before the policy has even started”.
Under the proposal, big emitters who lag will have to buy ACCUs from those who beat their targets, and from other ACCU sources generated by farming and rewilding land.
While Inpex endorsed the idea that tradeable credits should be given to companies that stay below their baseline, it said: “we encourage the Albanese Government to consider introducing the option to access international carbon credits”.
Mr Wood backed the government’s decision to rule out big emitters using international carbon credits because they are too opaque and impossible to regulate, unlike Australian offsets which are currently being investigated to ensure the integrity of the system by Ian Chubb, the former chief scientist.
Mr Kavonic also suggested the proposed review of surrender provisions on ACCUs in the proposed policy – to avoid double counting by generating revenues from ACCU sales as well as counting them towards a net zero commitment – might undermine the business model for Santos’ circa $200 million Moomba carbon capture and storage project.
“Santos are looking forward to being able to participate in the consultation process,” a spokesperson said.
Industry players have until September 20 to submit their views, with a detailed policy proposal and exposure draft released in December.
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