What happens to CSG if fugitive methane levels are high?

So Marn is unhappy some scientists have talked to the press about their preliminary, yet to be peer reviewed data on methane levels in Queensland’s CSG extraction areas. If Marn and the federal government hadn’t been doing its best ostrich impression on this issue for at least the last year, I might be more sympathetic. The federal government was happy to invoke the precautionary principle for a fishing trawler that won’t actually catch any additional fish, but equally happy to not invoke it for CSG mining despite evidence that methane fugitive emissions might be a huge problem.

In any case, let’s imagine for a moment that the follow-up science is done, and it turns out that methane is leaking from Australia’s CSG fields in massive quantities, quantities that should result in a huge carbon tax liability. What would happen?

Well, that depends on a number of things, most notably whether the sources of the fugitive methane can be easily plugged.

But let’s for the moment assume they can’t, and they are ongoing through the life of the project. What happens then? On the face of it, Australia’s CSG producers would then be up or massive carbon tax liabilities, and they are really as high as feared the tax liability would be enough to make CSG uneconomic. However, at least until 2020, emissions-intensive trade-exposed industries get a pile of free permits – up to 94.5% of the industry average emissions intensity, though reducing a little every year. However, as the regulations currently stand, CSG is treated the same as conventional natural gas (being extracted in huge quantities for export off Western Australia).

At least as I understand it, there’s nothing to stop the Minister responsible amending the Jobs and Competitiveness program regulations to create a new CSG-specific emissions intensity baseline. Voila, and only voidable through a disallowance motion of the parliament (would the Opposition really side with the Greens to vote down such a regulation – I doubt it), the problem largely goes away for the CSG producers.

There are two reasons why I don’t, however, think the government will do that. The first, and least persuasive reason, is that the government doesn’t want to take the hit to its green credentials. Yeah right. However, more persuasive is what this would do to the government’s Kyoto commitments. If we suddenly discover that we’re emitting methane left, right, and center, to meet our Kyoto target the government will have to either not make available as many permits for auction domestically as it would have, or buy credits on the international market. Voila, instant multi-billion dollar hit to the budget!

My guess is that the CSG industry is going to have to wear this one. They’d better start hoping that the initial data from that study was somehow not representative of the true picture, or that they can clean up their mess quickly.

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