PERTH – Australia’s just-announced net-zero target, perhaps the developed world’s hardest-fought climate target, is 10 years ahead of its biggest export market China’s at 2050 – though in scale there is less to decarbonize.
The climate target faced last-minute resistance from the National Party arm of the coalition government, which argued the targets were bad for their cattle and coal electorates.
The question now is how the world’s largest liquefied natural gas (LNG) exporter will manage a transition that sees it and its customers all declare carbon neutrality, or net-zero targets, although the companies that produce much of the commodity put their own scope 1 and 2 targets in place long before Canberra.
Total LNG revenue this year is tipped to be just over A$51 billion (US$38.2 billion), after a precipitous drop last year thanks to the earlier oil price crash and pandemic. On a monthly basis, China sometimes overtakes Japan as both Australia’s largest export market and the world’s largest importer.
China, however, will not attend COP26 this week, suggesting the main hurdle to Australia’s continued resource exports remains politics, not climate policy. Australia has the largest single share of the Chinese LNG market and unlike coal diplomatic issues have not hit shipments.
Australia’s coal exports to China remain low and climate is a middling factor, although they rose in October as China experienced a sudden power crunch.
“The shift in global supply chains brought about by Chinese informal import restrictions against Australia has added to the average length and duration of coal freights, leading to a rise in average freight costs since mid-2021,” the September Resources and Energy Quarterly said. The rest of Asia has been soaking up Australian coal exports.
Australia’s closest ally the US has been pushing Canberra to sign up to its Global Methane Pledge, to reduce methane emissions by 30% by 2030. Canberra has refused, fearing the impact on agriculture, and to a lesser extent the gas industry.
Clearly, submarines and the destruction of a working relationship with one of the EU’s heavy hitters are easier to get across the line than a threat to cattle – Deputy Prime Minister Barnaby Joyce maintains the only way to reduce agricultural emissions is to shoot the cattle.
Last Tuesday, the Australian government released a 129-page document – with plenty of graphics taking up space – outlining its net-zero plans. This left most people unimpressed, given it was light on detail outside of broad brush strokes already outlined – soil carbon, carbon capture and storage, offsets, blue and green hydrogen, and, of course, tech and not taxes.
What tech remains to be seen, but there is no real mechanism to get industry to actually decarbonize.
This is despite former federal Liberal senator Matthias Corman, now head of the OECD, calling for a global carbon price. Until his retirement from politics, Corman was always on the conservative side of the party.
Chinese President Xi Jinping announced China’s 2060 carbon-neutral target in September last year at the UN and declared peak emissions by 2030. Canberra noted it, but didn’t worry too much given coal tariffs were a larger short-term issue.
Analysts were largely clear: it would be unlikely China’s climate ambitions would derail Australia’s LNG exports given it would need far more gas – liquefied, pipeline imports and domestic increases – in the short- and mid-term on its decarbonization push.
China’s coal-to-gas switching has been growing in recent years and began as an anti-pollution drive, the Battle for Blue Skies, before it was designed to limit warming, and Australia has done very well out of that in successive years and remains the country’s single largest importer, with 40% of the market compared with Qatar’s 12%.
In September, Chinese pipeline gas imports were 3.9 million tonnes and LNG imports 6.75 million metric tonnes per annum (MMTA).
Australia has done well from China’s rising demand, but given most of its contracts are long-term oil-linked ones, it has missed much of the spot market bonanza of record-high prices.
However, China has not signed any new long-term contracts with Australian LNG exporters since a 1MMTA one in 2019 with Woodside Petroleum for gas from its undeveloped Scarborough field.
But in recent months China has signed about five with US export concerns, finally beginning to make good on the trade deal Beijing and Washington hashed out under Donald Trump.
Former Woodside CEO Peter Coleman said in February Chinese companies had indicated they could not take a stake in the Scarborough project until Canberra-Beijing relations improved. It seems the same for any new LNG contracts. Woodside has been seeking to farm down a share.
Canberra drags its feet
Unlike other nations either transitioning more rapidly and easily, such as South Korea and Japan, which with China make up Australia’s three-largest LNG customers, China likely won’t decrease consumption or hit Australian LNG with climate tariffs.
The problem for Australia is that the government’s climate targets are not considered ambitious enough by much of the business community and those who, in Australia and internationally, control capital flows.
There is a reason the country’s largest oil and gas companies all declared net-zero ambitions before Canberra, and it isn’t simply around National Party stonewalling about including agriculture in emissions calculations.
Large investors are already calling for stronger 2030 targets from Australia’s big end of town, as opposed to Canberra’s unchanged 2030 targets. The Investor Group on Climate Change has A$69 trillion (US$51.7 trillion) worth of assets under the management of 733 institutional investors and has been frustrated by years of Australian intransigence.
IGCC members have signed a pledge calling to end fossil fuel subsidies and phase out coal-fired generation. A spokesperson told Australian media that while it was welcome, the 2050 target did not go far enough as investors started working toward tougher 2030 targets.
Australia’s firm target is for emissions to fall from 26-28% by 2030 with an “aspiration” for 35%. This puts Australia at odds with much of the world, including the EU, US, UK and major energy markets Japan and South Korea. Ultimately, the EU may begin imposing a kind of green tariff.
However, money will be needed to expand or develop new fields to keep existing plants running; if that fails or loans become more expensive, companies may struggle to economically develop resources, leading to less competitive offers compared with Qatar or the US, which China will happily turn to.
Large scale foreign investment may prefer to go where policy is clearer, and didn’t take so torturously long to arrive at.