A leading energy expert has warned the Coalition’s plan to charge gas exporters a levy to force them to sell more to the domestic market could backfire and force local prices up instead of down.
The Coalition on Tuesday night revealed a report from Frontier Economics that outlines its policy plan, claiming it would reduce household gas bills by 7% and see electricity prices drop by 3%.
While several experts and the gas industry said the policy was light on detail, the report revealed the Coalition intended to impose a levy on gas that was not tied to long-term export contracts. That levy would make it uneconomical for producers to sell that gas overseas.
Producers would also be told how much gas they should sell domestically; if they met the target, they would have the levy refunded.
Prof Bruce Mountain, director of the Victorian Energy Policy Centre, said: “There is a non-trivial possibility here that if [the Coalition] constrains exports in this way, local prices will rise because the gas producers will choose not to produce gas.”
The Coalition has promised to get gas prices to below $10 a gigajoule, and wants to spend $1.3bn to encourage more gas to be developed and to build more pipelines and storage that often run at capacity.
Mountain said it would be a “seismic policy shift” to tell LNG exporters that “apparently for every gigajoule of uncontracted gas they export, there’s a tax on that”.
The long-awaited analysis, which Dutton had declined to detail despite days of questioning, was finally released after the first leaders’ debate with Anthony Albanese late on Tuesday night.
But the Coalition’s energy spokesperson, Ted O’Brien, said the effects would take some time to feed through to consumers, with even a best-case scenario seeing lower prices for wholesalers by the end of 2025 but not flowing through to households for at least a year – assuming the changes would not face any opposition in the parliament, which is not a given.
The Coalition commissioned Frontier Economics for the analysis, the same firm which conducted the modelling for its nuclear plan.
O’Brien pledged on ABC radio that wholesale gas prices would come down “very quickly” once the plan was legislated, but conceded there was “likely to be a lag” on reducing consumer power bills.
He said savings would start coming through “within the 12-month period” of the changes passing the parliament, but that it would be influenced by individual consumer contracts.
There are expectations that after the 3 May election, Labor or the Coalition could end up governing in minority in the lower house, and neither party will command a majority in the Senate. If the Coalition can pass their gas changes through the House of Representatives, they are likely to face opposition to new gas projects in the upper house.
The Greens have stated they will not support new gas projects. Senators Jacqui Lambie and David Pocock have previously expressed support for increasing gas supply in Australia by limiting exports and overseas contracts, but have also opposed new projects.
The energy minister, Chris Bowen, pointed out the section of Frontier’s report on electricity prices was only 135 words, and called the analysis a “scamphlet” that was “full of holes”.
Danny Price, the managing director of Frontier Economics, told Guardian Australia Bowen’s statement was “just a sledge” that was “completely unjustified”.
Samantha McCulloch, the chief executive of the gas industry group Australian Energy Producers, said the Frontier report “leaves many unanswered questions about how the policy would work and reaffirms industry’s fundamental concerns”.
She said it was “yet another heavy-handed intervention that will drive away investment and [risks] exacerbating the supply pressures in the longer term”.
“Rather than increasing gas supply, the Coalition’s policy risks reducing domestic gas production and supply because there would be no incentive to produce sub-economic gas, and it would damage already suppressed investor confidence.
“The modelling also ignores the material infrastructure constraints that limit how much gas from Queensland can be sent to the southern states, with the pipes already running at full capacity during peak periods – a point the Coalition made less than six months ago.”
Tony Wood, the director of the Grattan Institute’s energy program who previously worked in the gas industry, said the policy was “hugely interventionist” and could have unintended consequences.
On Wednesday, Dutton defended the policy against the industry’s claims it would create more supply issues and drive up costs.
“Are we here to line the pockets of big gas companies? No, I’m here to support consumers,” he said outside a steel factory in Sydney’s western suburbs.
“Under our policy, you’ll see an increase in investment, you’ll see more exports, and you’ll see more domestic consumption and more domestic supply, which is about bringing down the price.”
Asked whether the gas security charge amounted to a levy, and whether it was constitutional to apply it to east coast producers but not those elsewhere, he said: “We don’t believe that we book any revenue out of [the] measure.”
Price said complaints from the gas industry that the policy would discourage investment were “not legitimate” because the gas security charge still allowed producers to make a profit and would give long-term gas users confidence.
He said all the major LNG projects had been developed when gas prices were half of current rates. “They will still make profits, just not as much as they would like.”
Amanda McKenzie, chief executive of the Climate Council, said the Coalition’s plan would “lock in climate pollution for decades”. Greenpeace said gas was a “dangerous fossil fuel” and could not compete with renewables on price.
