Russell: Australian Refinery Closure Adds to Litany of Energy, Climate Failures

Commentary by Clyde Russell

LAUNCESTON, Australia (Reuters) — The closure of one of Australia's last remaining oil refineries, carbon border taxes in Europe and a proposal for the world's biggest battery storage plant may seem unrelated at first glance.

But they all speak to the ongoing failure of Australia's conservative government to produce a coherent energy and climate change policy, one that gains public and business sector support and recognises the reality of a changing world.

It's no secret that many leading members of Prime Minister Scott Morrison's Liberal-National coalition government are in favour of ongoing, and increased, use of fossil fuels over renewable alternatives.

But it seems the federal government can't even get a fossil fuel policy that works, and the closure of the Exxon Mobil oil refinery in Melbourne is a case in point.

The U.S. oil major announced on Wednesday that it plans to shut its 90,000 barrels per day Altona refinery in Australia's second-largest city and convert the 72-year-old plant to an import and storage terminal.

When Altona shuts it will leave Australia with just two refineries, and one of those, the Ampol plant in Brisbane is under review with closure a likely outcome.

The country had eight refineries at the start of the century, which were capable of meeting national fuel demand at the time, but the sector has been hit by shutdowns as plants grew older and less competitive and struggled to compete with the new mega-refineries built across Asia, but especially in China and India.

The government has made an attempt to keep some refining capacity, offering up to A$2.3 billion ($1.8 billion) in a fuel security package, but this was only accepted by Viva Energy , which operates a plant near Melbourne.

Australia will likely become almost entirely dependent on fuel imports in coming years and the government has yet to reveal plans on mitigating the risk. It could, for example, build joint storage facilities with regional partners or more tanks locally.

If the government's fuel policies leave something to be desired, the power generation sector is in even worse shape from a policy perspective.

Morrison has been pushing what his government calls a gas-fired recovery from the economic hit caused by the coronavirus pandemic. That involves potential subsidies for natural gas pipelines and the construction of a massive gas-fired power plant north of the Sydney, the country's biggest city.


The problem is that outside of the gas industry itself, there is very little interest or appetite for these plans, with private electric utilities and financial institutions reluctant to get involved.

Instead, power companies are travelling further down the road of renewable energy, with one of the country's largest, AGL Energy, planning on building a 500 megawatt (MW) battery storage facility at the site of its ageing Liddell coal-fired plant, which is slated for closure in the coming years.

This is just one of a series of large battery storage projects, which include a 1,200 MW plant, which would be the largest in the world.

A key factor in these battery projects is that many are in the Hunter Valley region, north of Sydney, which is currently a major coal-mining area and home to several coal-fired power plants that are reaching the end of their expected lives.

Utilities are effectively saying that renewable energies, backed by storage, are what's needed to offset the loss of coal generation, as opposed to subsidised gas pipelines and a 1,000 MW gas-fired power plant, that would most likely produce more expensive electricity than the renewable alternatives.

While the private sector is moving to de-carbonise Australia, the government is still clinging to the view that it doesn't really have to do that much to mitigate climate change.

Morrison made a somewhat vague commitment to net zero emissions, saying last week it should be "as soon as possible" and preferably by 2050.

But at the same time the government has no framework as to how this will be achieved and has ruled out a carbon price, something that is increasingly at odds with Australia's major trading partners.

The European Union is moving closer to carbon border taxes, which would likely mean that Australian exporters would have to buy European carbon permits, at prices likely to be far higher than what they would be should an Australian carbon price be implemented.

It's possible that U.S. President Joe Biden will look at similar measures, raising the risk for Australia that the world increasingly adopts carbon pricing and punishes laggard nations that don't.

One constant refrain from Morrison and his government is that they won't put Australian jobs at risk by implementing climate change policies that raise the costs of doing business.

But the government's failure to recognise the changing world reality is more of a risk to Australian jobs than policies that embrace renewable energies and carbon pricing.


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