The Role of Economic Modeling in Australia's Energy Decarbonization Pathways

The Australian Pipelines and Gas Association (APGA) represents the owners, operators, designers, constructors and service providers of Australia’s pipeline infrastructure, connecting natural and renewable gas production to demand centres in cities and other locations across Australia. Offering a wide range of services to gas users, retailers and producers, APGA members ensure the safe and reliable delivery of 28 per cent of the end-use energy consumed in Australia and are at the forefront of Australia’s renewable gas industry, helping achieve net-zero as quickly and affordably as possible.

APGA welcomes the opportunity to contribute to the Climate Change Authority (CCA) consultation on economic modelling of potential Australian emissions reduction pathways (the Consultation). We commend the CCA on its dedication to delivering accurate modelling standards to drive the most economically efficient decarbonisation pathways for Australia.

APGA supports a net zero emission future for Australia by 2050[1]. Renewable gases represent a real, technically viable approach to lowest-cost energy decarbonisation in Australia. As set out in Gas Vision 2050[2], APGA sees renewable gases such as hydrogen and biomethane playing a critical role in decarbonising gas use for both wholesale and retail customers. APGA is the largest industry contributor to the Future Fuels CRC, which has over 80 research projects dedicated to leveraging the value of Australia’s gas infrastructure to deliver decarbonised energy to homes, businesses, and industry throughout Australia.

The Australian public and business community deserve equal access to all economically viable energy decarbonisation options to decarbonise their energy needs. The scale of the decarbonisation challenge is immense. We need access to all tools in the tool chest if we are to be successful. Economic modelling is critical to enabling access to these tools – a simple sniff-test rarely recognises the broader complexities of the energy transition.

For example, the most energy efficient energy decarbonisation choices are not always the most economically efficient choices. The misnomer that Australia requires the most energy efficient decarbonisation pathway demonstrates the complexity that can be missed without economic modelling. Rather than the most energy efficient decarbonisation pathway, Australian citizens and businesses – and especially low-income Australian households – deserve access to the most economically efficient energy decarbonisation choices.

In the pages that follow, APGA provides general advice relating to effective economic modelling practices required to identify economically efficient energy decarbonisation pathways. Many of these practices increase complexity and hence difficulty in modelling. The opportunity to identify lower cost or cost competitive pathways for energy customers must beheld above the desire for a simple model or simple model outputs.

Based upon its general advice, APGA recommends that the CCA:

• Provide the Australian public with greater choice, opportunity, and capacity to decarbonise their energy use by analysing renewable energy options for all energy vectors, be they solid, liquid, gas or electric, on equal grounds to one another.
• Endorse a shift away from using and producing single datapoints in economic modelling, and a shift towards using and producing more robust data ranges as a minimum standard.
• Consider renewable energy options to be cost competitive where combined cost ranges for firm renewable energy supply and appliance use overlap significantly.
• Recognise the impact of customer choice on purely economic outcomes by making recommendations which recognise that some customers may choose to pay more for the decarbonisation option which they prefer for non-economic reasons.
• Consider the cost of firm energy supply in its modelling, rather than energy generation/production costs alone.
• Consider the application of Diffusion of Innovation theory in projecting potential new technology uptake rates rather than straight line trajectories.
• Include analysis of job and emission offshoring, potentially as a relative impact between decarbonisation pathway choices.
• Commission research into how to best address difficult to factor aspects of Australian decarbonisation such as sector coupling and supply chain constraints.

APGA also provides details of macroeconomic modelling which it has commissioned and is currently underway to demonstrate the economic impacts of a Renewable Gas Target. It is hoped that this analysis can be used as an example of why cross sectoral modelling is needed to understand decarbonisation options for all energy vectors in Australia.

Beyond general advice, APGA provides feedback on the 6 questions posed within the consultation. To these questions, APGA recommends:

• Q1: The CCA seek to create decarbonisation plans for each energy vector by introducing a third modelling question – What are the likely emissions reduction pathways, outcomes, risks and opportunities for Australia’s four energy vectors (solid, liquid, gas and electric energy vectors) under different national emissions pathways to net zero?
• Q2: The CCA note of the lack of gas system modelling capability within the CSIRO. APGA and its members offer direct engagement with CSIRO or any modelling resource the CCA engages to provide expertise in support of robust gas system modelling.
• Q3: The CCA ensure that Australian data be used ahead of more generic global data for supply chain economics and all renewable energy alternatives where available.
• Q4: The CCA would gain the most valuable modelling insights from analysis of scenarios which include a gas supply chain which is allowed to or driven to decarbonise towards net zero emissions by 2050.
• Q5: The CCA should consider advanced manufacturing practices to lower the cost of renewable energy component production onshore in Australia, and separately consider modelling of increased risks to low-income and other disadvantaged communities through emission reduction pathways and scenarios.
• Q6: While regional analysis was ruled out by the CCA, some aspects of analysis will need to be regional in order to deliver robust results. In particular the cost of decarbonising heat in the home and in industry between cold and warm climates requires regional analysis.

Robust economic modelling of all renewable energy pathways provides the opportunity to identify and enable better decarbonisation outcomes for all Australian citizens, businesses, and industry. APGA looks forward to supporting the CCA in delivering the most robust analysis practical for gas use decarbonisation options.

To discuss any of the above feedback further, please contact me on +61 422 057 856 or jmccollum@apga.org.au.

Yours Sincerely,

JORDAN MCCOLLUM

National Policy Manager

Australian Pipelines and Gas Association