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SECURING AUSTRALIAS

ENERGY FUTURE

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Prime Minister

CANBERRA

PRIME MINISTERS FOREWORD

Our nations enormous energy resources are a source of considerable prosperity for

all Australians. They provide access to low cost energy for businesses and householdsacross the land. Energy exports deliver more than $24 billion a year in export income

to Australia, and low-cost energy supports the competitiveness of significant parts of

our industrial base. Our energy industries, which directly employ 120 000 Australians,

have an enviable record of providing energy when and where it is needed.

Looking forward, Australia has an opportunity to play a major role in supplying the world

with energy, and energy-related products. Australia remains the largest exporter of coal.

New and existing projectssuch as the North West Shelf gas projectwill provide billions

of dollars of export income and economic activity into the future. Proposals for developing

other large gas fields are being actively worked on. Continuing the reliable delivery of

competitively-priced energy to industry and households will underpin jobs and growth.

Australia must grasp this opportunity while improving the sustainability of energy

production and use. Energy is a major contributor to global greenhouse gas emissions,

and although Australia is a small contributor to global emissions, we will play an active

role in developing an effective global response to climate change. We will also move

strongly to reduce the cost of meeting any future greenhouse constraints, without

harming the competitiveness of our energy and energy dependent industries in the

meantime. Our goal is to place Australia in a strong position to respond to the challenge

of climate change, while maintaining a prosperous economy.

Three themesprosperity, security, and sustainabilityunderpin the governments

approach to energy policy. The Australian Government has undertaken a comprehensive

review of its energy policies and approaches, and has developed a long-term framework

to ensure our energy advantage is utilised for the benefit of all Australians.

The framework is backed up by substantial new initiatives, including additional incentives

to encourage petroleum exploration in frontier areas; a comprehensive reform of fuel

taxation to reduce the cost of fuel in business use; innovative trials of solar technology

teamed with leading edge efficiency technologies to demonstrate solar cities of the

future; a fund to generate at least $1.5 billion in investment to demonstrate low-emissiontechnologies to reduce greenhouse gas emissions from our energy sector; extra effort to

back up our world first Renewable Energy Target with new commercialisation assistance

for emerging renewable technologies; and a wide ranging effort to ensure the careful,

prudent use of our valuable energy resources by industry and the community.

The policy framework outlined in this statement has a single, simple purposeto secure

Australias energy future.

(John Howard)

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v

LIST OF FIGURES ix

LIST OF TABLES xiii

OVERVIEW 1

CHAPTER 1. ENERGY IN AUSTRALIA 35

Why is energy important? 35

Australias energy sector 36

The policy environment 41

CHAPTER 2. DEVELOPING AUSTRALIAS ENERGY RESOURCES 45

Introduction 46

The potential resource rewardsThe Woodside story 49

Staying competitive 51

Prospectivity 53

Political, policy and regulatory risk 58

Infrastructure 61

Access to commercial markets 61

Fiscal regimes and incentives 62

Looking forward 64

CHAPTER 3. ENERGY MARKETSDELIVERING AUSTRALIAS

ELECTRICITY AND GAS NEEDS 65Introduction 66

The urgency of reform 68

Energy market issues 70

Progress to date 71

A national energy policy framework 74

December 2003 action plan 77

New electricity-generating technologies 78

Looking forward 79

CONTENTS

Commonwealth of Australia 2004

ISBN 0 646 43547 7

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be

reproduced by any process without prior written permission from the Australian Government, available

from the Department of C ommunications, Information Technology and the Arts. Requests and enquiries

concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration,

Intellectual Property Branch, Department of Communications, Information Technology and the Arts,

GPO Box 2154, Canberra ACT 2601, or posted at htt p://www.dcita.gov.au/cca.

Produced by the Energy Task Force

Printed by Goanna PrintDesigned by RTM Design

Contact Officer: Sean Innis

Department of the Prime Minister and Cabinet

3-5 National Circuit

BARTON ACT 2600

Telephone: 02 6271 5680

Facsimile: 02 6271 5802

Web address for this report: www.pmc.gov.au/energy_future

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viivi

CHAPTER 4. ENERGY MARKETSDELIVERING AUSTRALIAS

TRANSPORT FUEL NEEDS 81

Introduction 82Meeting the demand for fuel 83

Refineries 85

Wholesalers/distributors and retailers 86

Market regulation 88

The role of fuel standards 89

Alternative fuels 90

Looking forward 92

CHAPTER 5. FUEL EXCISE REFORM 93

Introduction 94

Excise on alternative fuels 96

Fuel excise relief for business and households 97

Supporting the road transport task 99

Reducing the compliance burden on business 101Excise reform timetable 102

Meeting environmental responsibilities 103

Looking forward 104

CHAPTER 6. ENERGY EFFICIENCY 105

Introduction 106

What is energy efficiency? 106

Australias energy efficiency performance 106

Scope and benefits 108

Business benefits from improved energy efficiency 108

Government action 110

Improving market signals 111

Sett in g mi ni mu m stan da rds and improvi ng in forma tio n 111

Identifying energy efficiency opportunities 112Streamlining requirements 113

Looking forward 113

CHAPTER 7. ENERGY SECURITY 115

Introduction 116

Australias energy security position 116

Transport fuels 118

World oil supplies 120

Australias involvement in IEA and APEC energy security mechanisms 122

Alternative sources of transport fuels 123

Responding to disruptions 124

Electricity and gas 126

Long-term security of gas supplies 128

Looking forward 130CHAPTER 8. CLIMATE CHANGE AND ENERGY 131

Introduction 132

Sources of emissions 132

Gre enh ouse emi ss ion s and th e Austral ian en ergy secto r 133

Australias approach to climate change 137

Meeting the Kyoto target 138

Types of low emission technologies 143

Looking forward 149

CHAPTER 9. ENERGY AND THE ENVIRONMENT 151

Introduction 152

Air quality impacts 153

Environmental impacts of energy projects 157

Examples of energy pro jects assessed under the EPBC Act 159Looking forward 161

CHAPTER 10. INNOVATIONBUILDING A BRIDGE TO THE FUTURE 163

Introduction 164

What is energy innovation? 164

Government support for innovation 165

Government support for energy innovation 166

Australias place in global energy innovation 168

International cooperation 170

Economic development with a lower emissions signature 171

Looking forward 172

ANNEXTechnology assessments 173

APPENDICES

Summary of measures 175

Abbreviations 187

References 191

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ix

LIST OF FIGURES

OVERVIEW

Figure 1. Composition of Australian energy supply 4

Figure 2. Depletable resources at current production levels 5

Figure 3. Map of Australias offshore frontier basins 8

Figure 4. Comparison of Industrial Energy Prices 4th quarter 2002 10

Figure 5. Petrol prices in OECD countries including tax,

December quarter 2003 13

Figure 6. Retail market share 2003 14Figure 7. Economic and environmental gains from demand side

management and energy efficiency 18

Figure 8. Energy efficiency potential 19

Figure 9. Net import dependency in 2000 for crude oil,

coal and natural gas 21

Figure 10. World oil supply disruptions 22

Figure 11. Share of global energy based CO 2 emissions 24

Figure 12. Timing and magnitude of reductions in emission standards

for new passenger vehicles 28

CHAPTER 1. ENERGY IN AUSTRALIA

Figure 1. Australian primary energy consumption historical

and projected 36

Figure 2. Composition of Australian energy supply 38Figure 3. Energy inputs into electricity generation 39

Figure 4. Total Australian final energy consumption 40

Figure 5. Estimated greenhouse emissions by sector in 2002 40

Figure 6. Greenhouse gas emission projections 41

CHAPTER 2. DEVELOPING AUSTRALIAS ENERGY RESOURCES

Figure 1. Wor