Australian Energy Regulator: Gas distribution network tariffs review 2023

The Institute for Energy Economics and Financial Analysis (IEEFA) welcomes the opportunity provided by the Australian Energy Regulator (AER) to comment on its Review of Gas Distribution Network Reference Tariff Variation Mechanism and Declining Block Tariffs. We echo the sentiment expressed by the AER’s stakeholders, that this review is important in the context of proposed amendments to the National Gas Objective (NGO).

Specific parts of the proposed amendments that are material to the issues discussed here are: the explicit reference to Australia’s greenhouse gas emissions targets; and jurisdictional targets that are expected to contribute to reducing Australia’s greenhouse gas emissions.

Although emissions reduction commitments have featured in Australian jurisdictions for some time, the current conflict between such policies and the existing NGO has created uncertainties for the energy system.

An amended NGO will provide greater certainty and will enable the AER to more readily incorporate policy signals into its decisions. This is particularly important for the issues discussed here, as recent policy developments are increasing the likelihood of decreased utilisation of gas distribution networks. Some specific developments include:

• 2050 net zero emissions targets federally and in New South Wales, Queensland, Tasmania, South Australia, Western Australia and the Northern Territory;
• 2045 net zero emissions targets in Victoria and the Australian Capital Territory (ACT);
• prohibition of new residential gas connections in the ACT;
• the release of Victoria’s Gas Substitution Roadmap;
• introduction of new electrification activities under the Victorian Energy Upgrades scheme, and removal of activities that encouraged purchase of new gas appliances;
• legislation of a 1.5 degree-aligned 2035 emissions reduction target in Victoria and
• the recommendation by Victoria’s 2035 target independent expert panel that natural gas use be largely phased out by 2035, with a focus on the built environment.

This submission responds to the issues around reference tariff variation mechanisms and declining block tariffs in the context of these policy developments, and the proposed amendments to the NGO.