GST and the great gas con

Protesting unconventional gas mining in Tara, Queensland.
Thursday, October 5, 2017

Tony Abbot’s recent suggestion that the army take control of gas resources in states that have banned or limited unconventional gas mining shows the lengths to which the recalcitrant fossil fools will go to defend dirty energy corporations, which are under increasing fire as the national debate over energy security continues. 

Abbott is not in favour of any kind of nationalisation. But he is extremely upset that farmers in Victoria, the Northern Territory, Tasmania and New South Wales have forced state governments to protect agricultural land and aquifers from being poisoned. 

He is the stalking horse for the federal Coalition government, which is keen to help the gas giants continue to make windfall profits on the international gas market while feigning concern about domestic supply and price. 

Australia’s gas — mostly liquid national gas —mainly goes to Japan, Korea and China. ANZ analysis from 2015 said Australia will need to lift its 2014 output by 50% just to meet expected exports in 2020. This, and the domestic backlash from high and rising energy prices, is adding to government pressure on the states to fast track unconventional gas projects, such as Santos’ Narrabri Gas Project in the Pilliga in NSW, which has attracted about 23,000 submissions, almost all opposed.

GST backmail

The debate over energy security reached a new high recently with federal finance minister Mathias Cormann saying he thought it would be a good idea to penalise those states and territories that have imposed part or full moratoriums on unconventional gas mining. Specifically, he thinks they should lose GST revenue.

“GST-sharing arrangements are a potential lever to encourage and incentivise the states and territories to develop their economies to their full potential,” Cormann said on October 1.

The Commonwealth Grants Commission (CGC), which recommends how GST revenue is shared between the states and territories, is currently reviewing the formula, known as the horizontal fiscal equalisation (HFE). It is set to make its recommendation in 2020. So, this debate still has a way to run.

The federal Coalition has been amping up the pressure on the states and territories to exploit gas — particularly unconventional gas — using the same discredited arguments that it is a “transition fuel” that can coexist sustainably with agriculture. 

But over the past 5–10 years, a movement of farmers, among others, has managed to force state and territory governments to pass laws prohibiting or restricting unconventional gas. 

This is because evidence from the industry in Queensland, where it is most advanced, shows that coexistence between unconventional gas and agriculture is not possible. The otherwise strongly pro-mining farmers have led the drive against this fossil fuel industry. 

This explains why Nationals MP Andrew Broad has come out swinging against Cormann’s plan. He rejected the federal government’s scare campaign, saying exports are to blame for the high prices and gas shortages, not untapped reserves.

He reminded the government that two-thirds of the gas on the east coast is exported, while only one third is used domestically. And while prices are higher overseas, gas companies are not going to sell gas to domestic consumers for low profit margins. All gas corporations know that the global gas price is the benchmark on which domestic gas prices are set. And the federal government knows this too.

Argument debunked

The idea that there is a gas shortage and prices will come down if more gas is produced has been debunked by many.

Richard Dennis of the progressive think tank The Australia Institute said on October 3: “There is nothing  Malcolm Turnbull can do to simultaneously make gas cheaper for customers and more profitable for gas exporters so he is working desperately instead to shift the debate back to blaming environmentalists, the Labor Party and, of course, the state governments. 

“The problem is that while the blame shifting buys him time, his story about gas stacks up about as well as Matt Canavan’s attempt to blame his mum for his citizenship woes.

NSW Premier Gladys Berejiklian is reluctant to push for more unconventional gas given the huge opposition that forced her predecessors to put some minimal regulations in place and cancel multiple exploration licences. That is why the CGC acknowledged in 2015–16 that unconventional gas revenues were “insufficient to be material” in affecting GST distribution. 

Dennis notes that Turnbull and Cormann’s push to penalise state governments for modifying their policies in accordance with their residents’ concerns is likely to backfire — on them and the fossil fuel giants they are protecting.

“The first problem is the gas industry pays so little to state governments. Queensland has the biggest CSG [coal seam gas] industry in Australia but the low levels of royalties combined with the collapse in the oil price meant that in 2016 the Queensland government had to revise CSG royalties down from $129 million to just $33 million. To put that into perspective, in the same year the Queensland government collected $504 million from car registrations. But that fact didn’t stop the owners of the APLNG export terminal taking the Queensland government to court arguing they should pay even less.

“But the big risk is the latest debate about punishing states for protecting their water and farm land from CSG drilling might shed light on the opaque state government subsidies to the resource sector as a whole. That is, if the Commonwealth Grants Commission is tasked with examining state government resource policies, it’s hard to believe it wouldn’t take a close look at all of the financial support state taxpayers have been providing. Traditional miners such as BHP and Rio Tinto may pay the price for the mistakes of the gas drillers.”

Public scrutiny

Dennis says that if the fossil fuel giants push too hard, it may come back to bite them in the form of greater public scrutiny of their generous public subsidies and tax concessions.

“While the mining peak bodies are always quick to talk up the tiny proportion of state government revenues that flow from their members, they are typically reluctant to discuss the tax concessions, subsidies and dedicated infrastructure funding they so frequently secure. That might all be about to change.

“It’s not state governments or environmentalists who forced the gas industry to spend too much money building too much gas export capacity at exactly the time the world price of gas collapsed. And allowing more CSG drilling will not push the world price of gas down or do anything to prevent blackouts this summer. But there might be a silver lining to this most recent threat to the states. If the CGC really does take a close look at state government mining policies it will make for uncomfortable reading.”

The government may be talking tough, but it is also directly contravening its own CGC, which purports to adhere to the principle of “neutrality” towards the choices the state governments make.

The CGC review states: “[The commission] will aim to ensure that assessments do not unduly penalise or reward States which, in similar circumstances, adopt very different policies towards potential mineral and energy developments (for example, coal seam gas production).”

Abbott’s “khaki solution” may be unusual, but then so too is Cormann and Turnbull’s push to penalise states that refuse to extract more gas. Just because a resource can be exploited does not mean that it should be. 

Science, not profit, has to be the determinant of what is exploited. Movements based on science have successfully protected old growth native forests from being cleared, stopped the Gordan-below-Franklin Dam and stopped the use of asbestos, to name a few science-based community-led campaigns.

Abbott’s kite flying could embolden the NSW government to fast-track Santos’ project and encourage the NT and WA governments to allow new unconventional gas pipelines to go through the Kimberley, south-west Western Australia and Arnhem Land. This means that the movements for sustainability, that are based on science not fiction, have to keep organising to defend and extend the gains made by movements of ordinary folk. 

The federal government wants to smash the states’ restrictions on the unconventional gas industry. It is in lock step with the industry body the Australian Petroleum Production and Exploration Association, whose chief executive Malcolm Roberts put it this way: “The current [GST] system disadvantaged jurisdictions that developed gas resources while rewarding those that did not … this provides a perverse incentive to impose unscientific bans on gas development … As Queensland has shown, responsible development of onshore gas resources also helps stimulate employment and economic growth in regional areas.”

The stakes could not be higher.

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