CHAIR (Senator Cormann) —Welcome. I declare open this public hearing of the Senate Select Committee on Fuel and Energy. The Senate has referred to the committee matters associated with fuel and energy, including the price of fuel, regulation and taxation arrangements and alternative fuels. The committee is due to provide its final report to the Senate on 30 June 2010. Today, the committee is focusing on energy and fuel security, in particular to the terms of reference relating to the existing set of federal and state government regulatory powers as they relate to fuel and energy products, taxation arrangements on fuel and energy products, the role of alternative sources of energy to coal and alternative fuels to petroleum and diesel, the domestic energy supply and the domestic oil and gas exploration and refinement industry.

This is a public hearing and there will be a Hansard transcript of the proceedings. Before the committee starts taking evidence, I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. The committee prefers all evidence to be given in public, but under the Senate’s resolution witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

I remind senators that the Senate has resolved that an officer of the department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for the claim.

I particularly draw the attention of officers to an order of the Senate of 13 May 2009 specifying the process by which a claim of public interest immunity should be raised. I would also ask witnesses to remain behind for a few minutes at the conclusion of their evidence in case the Hansard staff need to clarify any terms or references. I remind people in the hearing room to ensure that their mobile phones are either turned or switched to silent. Finally, on behalf of the committee, I would like to thank all those who have made submissions and who have sent representatives here today for their cooperation in this inquiry. I invite you to make brief opening statement and then the committee will ask you some questions.

Dr Sheales —Before I make an opening statement I would like to apologise for two of my colleagues who have been temporarily held up at security. Hopefully, we will have them here before long. That was our mistake and one of our party’s mistakes.

Since ABARE last appeared before the committee in June 2009, we have undertaken some further work that is relevant, we believe, to the terms of reference of this committee. In particular, ABARE was commissioned by the Department of Resources, Energy and Tourism to compile an Australian energy resource assessment in collaboration with Geoscience Australia—our colleagues here at the table. This resource assessment brings together for the first time the complete picture of Australia’s energy resource endowment, covering both fossil fuels and renewable energy sources. It comments on where we are now in relation to those resources and where we will be in the future, and it does that by integrating geoscience and long-term economic outlooks for the different energy sources.

The project was led by Geoscience Australia, with Geoscience providing information and analysis on the current and potential resource size, distribution and characteristics. ABARE’s input to the process was to provide the economic analysis and modelling underpinning the longer term outlook. In assessing the long-term outlook to 2030, the key factors that we believe are likely to affect the development and utilisation of energy resources were considered. These include economic growth both domestically and globally, population growth, energy prices, cost of technologies and technological developments and policy drivers. Our Geoscience Australia colleague Dr Jaques, who is next to me, will provide a brief overview of the main features of the Energy resource assessment, and following that we would be happy to take any questions that the committee may have.

CHAIR —Thank you very much. This is a very valuable piece of work. It has been a very interesting read. I would not admit to being across all of it, but I think it is a very important work for Australia. Well done.

Dr Sheales —Thank you.

Dr Jaques —Thank you. Geoscience Australia appeared before this committee on 26 June 2009 and provided information in relation to Geoscience’s role and especially to Geoscience programs and activities to encourage exploration and discovery of new energy resources in Australia. This included a presentation on its activities under the Energy Security Initiative, which is providing new information to encourage the discovery of new hydrocarbon resources in Australia’s large offshore jurisdiction and hydrocarbon, geothermal and uranium resources onshore. As my colleague from ABARE said, Geoscience Australia and ABARE were commissioned by the Department of Resources, Energy and Tourism to undertake this comprehensive and integrated scientific and economic analysis of Australia’s energy resources. The purpose of this assessment is to inform future industry investment analysis, decision making and government policy development. It is the first time that such an assessment of this nature has been undertaken.

The assessment itself was released on 1 March 2010 by the Minister for Resources, Energy and Tourism, the Hon. Martin Ferguson AM, MP. The assessment covers Australia’s non-renewable and renewable energy resources. The non-renewable resources are dominated by the fossil fuels: crude oil, condensate and LPG, we also considered shale oil, conventional gas, coal seam gas, tight gas, shale gas, as well as black and brown coal. The assessment also included the nuclear energy fuels uranium and thorium—a potential future fuel.

The renewable energy resources are a diverse group of energy sources that are expected to play an increasingly important role in Australia’s energy mix in the future. They included geothermal, hydro, wind, solar, ocean—that includes wave, tidal and ocean thermal—and bioenergy resources.

I see you already have a copy but I have made copies of the executive summary, which I am happy to table.

CHAIR —Thank you.

Dr Jaques —I will touch on the key messages on the front page. The assessment assesses, as we have said, not only the resources but the factors likely to influence the use of Australia’s energy resources to 2030, including the technologies being developed to extract energy more efficiently and cleanly from existing energy and new energy sources. We concluded that Australia has abundance and a diversity of energy resources. Australia has more than one-third of the world’s known economic uranium resources, very large black and brown coal resources that underpin both exports and our low-cost domestic electricity production, and substantial gas and increasing coal seam gas resources. This globally significant resource base is capable of meeting both domestic and increased export demand for coal and gas and uranium exports over the next 20 years and beyond. Not only that, there is good potential for further growth of the resource base through new discoveries. Identified resources of crude oil condensate and LPG are more limited and Australia is increasingly reliant on imports for transport fuels.

Australia has a rich diversity of renewable energy resources: wind, solar, geothermal, hydro, tidal, wave and bioenergy. Except for hydro energy, where the available resources are already mostly developed, and wind energy, where use is growing strongly, these resources are largely undeveloped but could contribute significantly more to Australia’s future energy supplies. Greater use of many energy sources with lower greenhouse gas emissions, particularly the renewable energy sources, is currently limited by the immaturity of the technologies and the cost of electricity production. Advances in technology supported by industry and government actions are expected to result in commercial electricity production by 2030 from sources that are currently only at the demonstration stage.

Australia’s energy usage in 2030 is expected to differ significantly from that today under the influence of the 20 per cent energy renewable target and other government policies such as the proposed emissions reduction target. In addition, the government has established a clean energy initiative which includes the Carbon Capture and Storage and Solar Flagships programs and the Australian Centre for Renewable Energy.

Australia’s long-term energy projections, which are the subject of a separate report by ABARE but included in our energy assessment, show total energy production nearly doubling due to strong export demand, primary energy consumption rising by about 35 per cent and electricity demand increasing by nearly 50 per cent by 2030. Whilst coal is expected to continue to dominate Australia’s electricity generation, a shift to lower emission fuels is expected to result in a significant reduction in coal’s share and increases in gas and renewable energy, especially wind.

We also found that Australia’s energy infrastructure is concentrated in areas where energy consumption is highest and the major fossil fuel energy sources are located. Greater use of new energy resources, particularly renewable energy resources, will require expansion of Australia’s energy infrastructure, including augmentation of the electricity transmission grid.

The energy assessment is structured as follows. Chapter 1 presents a summary of the assessment and identifies key findings. Chapter 2 is an overview of Australia’s energy resource base and market and provides a realistic assessment of our combined energy resources, energy-related infrastructure and Australia’s energy consumption production and trade, as well as our place in the world energy market. It also assesses the key factors likely to affect the development and utilisation of Australia’s energy resources in the next two decades, including economic and population growth, energy prices, cost competitiveness of energy sources, government policies, technological developments, and environmental considerations.

Chapters 3 to 12 contain detailed individual assessments of each of Australia’s key energy sources. Each resource assessment follows a similar structure. The first part is a summary of the key information in the chapter. The second includes background with definitions, the structure of the industry and the world market. The third covers detailed information on the resources, such as economic and total demonstrated resources, location and characteristics. It also provides information on the Australian market for that resource, including production, consumption, recent growth and any trade that occurs. The fourth part contains the outlook to 2030, which is a critical part of the assessment, and includes an assessment of key factors which will affect the resource over that 20-year time frame, including prices, cost of development, government policies, technological developments, infrastructure and environmental considerations. It includes an analysis of potential resources not yet identified as well as projections of production and consumption and trade to 2029. These projections incorporate the renewable energy target of 20 per cent of electricity supply by 2020 and a five per cent carbon emissions reduction below 2000 levels by 2020.

In summary, the Australian energy resource assessment is the first national assessment that brings together information on all Australia’s energy resources, both renewable and non-renewable. As such it provides a better framework for consideration of Australia’s energy resources and their future development and use.

With your permission, chair, I have prepared a set of summary slides which I could table or I am happy to talk to it if you so desire.

CHAIR —Perhaps you can table them. If you want to take us through them quickly, that would help. Given that there is only Senator McEwen and me, we might be able to squeeze in enough questions.

Dr Jaques —Thank you, chair. I will not pause on the first three slides, which simply provide the framework I have already outlined to you, including the structure and content on slide 3. Slides 4 and 5 come from the executive summary and you see there the map that attempts to bring all the different energy resources onto the one page, both the demonstrated non-renewable resources by petajoule but also where the resource base is for the emerging renewable energy resources. We are unfortunately were not able to show hydro and bio on that same map.

The key findings, as I have said, are Australia’s abundant and diverse energy resources, major uranium, coal and large conventional gas and coal seam gas resources. This globally significant resource base can underpin both domestic and export demand to 2030 and beyond and there is potential for future growth. The exception is our resources of oil, which, as I have said, are more limited and Australia is increasingly reliant on imports for transport fuels. There is a diversity of renewable energy resources, as we show on page 4, largely undeveloped apart from hydro and wind.

Slide 5 shows the same map but essentially summarises the points that I have previously made in summary about the fact that many of the emerging energy resources with lower greenhouse gas emissions are currently limited by the immaturity of technologies and cost of production. We expect that to change over the outlook period and there will be commercial electricity production from many of these sources that are presently under development.

In slide 6 we show in chapter 2 the non-renewable resources, again demonstrated resources by petajoule and type showing the distribution of our major energy sources by size, to give you a feel for the relative size. On the right-hand side at the top right we see the economic demonstrated resources in petajoules, which show the importance of our coal and uranium resources and our important gas resources. On the lower right we see the renewable electricity capacity by installed capacity by megawatts. We see the dominance of hydro and the growing importance of wind, followed by biomass and other energy sources.

Slide 7 is based on the ABARE energy projections. It shows Australian energy projections out to 2029-30, with energy projected to grow at 3.2 per cent per annum and the different growth profiles for each of the individual commodities there. The two right-hand slide graphs show, firstly, primary energy consumption, where consumption is projected to rise by 1.4 per cent. It shows you there the relative percentage of those energy types in 2007-08 and in 2029-30. You see there the strong growth in gas particularly and the decline in the relative consumption of coal, which is reflected in the fuel mix in electricity generation in the graph on the lower right. That shows you projections that by 2029-30 coal will be contributing less to the electricity generation mix and it will be displaced by increased contribution from gas and wind.

Turning now to the individual commodities, we will start with oil on slide 8. That shows you the distribution of Australia’s crude oil, condensate and LPG resources, including—in the pale colour—the past production of oil. That shows you the size of the original resource and the remaining resource in petajoules. We see that Australia has a declining crude oil resource base, but we have additional condensate and LPG resources associated with the offshore gas fields off the north-west coast of Western Australia. There is exploration potential to add to those resources, and exploration of course is continuing. Much of that exploration potential is in frontier areas in deeper water.

In slide 9 we look at the projections that oil production is to decline by two per cent per annum and consumption to rise by about 1.3 per cent per annum. Net fuel imports are projected to rise 3.3 per cent per annum and by about 2029-30 are projected to constitute about 75 per cent of net liquid fuels. Australia is increasingly reliant on fuel imports. Yes, new discoveries are made—as I said, they are in both proven and frontier basins and there is potential for both—and we also have other sources of oil, particularly shale oil, which is not presently used. There are other possibilities in terms of gas to liquids, coal to liquids and biofuels. The graph on the left in green shows you the estimated potential size of some of these, including undiscovered crude oil, which might help to fill the declining production in the future. On the right the graph shows you the projected production and net imports without further discoveries.

Slide 10 outlines Australia’s very large gas resource base, about 1.6 per cent of world gas reserves, a big conventional demonstrated gas resource lying mostly off the north-west coast of Western Australia. There is a record of exploration success and more finds are likely. These major gas resources, some of which were found years ago, are now being increasingly developed for LNG exports. In eastern Australia we have coal seam gas resources associated with our large coal basins, and the coal seam gas resources are growing rapidly and increasingly playing a part in eastern gas markets. Coal seam gas LNG exports are now proposed.

Slide 11 summarises why some of that growth in gas is taking place. It is a flexible, clean energy source and it is the fastest growing fossil fuel to 2030. Australian gas production is projected in the ABARE projections to grow by 6.7 per cent per annum to 2030, doubling its share in the energy mix. LNG exports are projected to grow by 9.5 per cent per annum to 2030. You can see below there on the left-hand side a graph of existing, under construction and proposed new LNG facilities for both conventional and coal seam gas. Gas consumption is projected to rise by 3.4 per cent per annum to 2030, when it will constitute about 33 per cent of consumption and its share of Australian electricity generation is projected to be around 37 per cent. You can see the projected growth in exports and consumption on the top right-hand graph out to 2029-30 and both the projected increase in the electricity generation in terawatt hours and gas’s share of electricity generation rising to 2029-30 very strongly in the graph on the lower right-hand side.

Turning to slide 12, coal is Australia’s largest energy resource, with substantial black and brown coal resources. This large low-cost resource base has underpinned our cheap electricity and of course our major coal exports, both metallurgical and thermal. We have very large high-quality resources that are adequate for many years of production for both black and brown coal. Globally, coal is the fastest growing fossil fuel, driven by strong global demand, particularly from China and India.

Slide 13 shows you the distribution in little more detail of our operating coalmines, known coal mineral deposits and the black and brown coal basins, which are widely distributed across Australia. We have seen high levels of exploration in recent years, and these have added new resources, particularly in the Gunnedah and Galilee basins. There are major expansions planned, both mine expansions at existing mines and new mines and coal-loading facilities. This investment in mine and production facilities needs to be matched with the appropriate infrastructure to meet this growing export demand. At the same time, we are starting to see competing land-use and groundwater resource management issues arising in areas where the land is already used for agriculture and other purposes.

Slide 14 summarises the results of the forward projections, which show that Australian coal production is projected to increase at about 1.8 per cent per annum out to 2029-30 and exports to nearly double by 2030—a 2.4 per cent growth, with exports to potentially reach 450 million tonnes in 2030. At the same time, domestic consumption is projected to fall over that period by a little less than one per cent per annum, and coal’s share of electricity generation is projected to be replaced by growth in gas and wind. You see there the graph on the lower left-hand side showing the growth in coal production and exports, with strong growth in exports projected to 2029-30 and, on the right-hand side, the decline in coal’s percentage of electricity generation. Carbon captured and storage is expected to play an important role in reducing coal emissions for coal in the future, and the government has made significant investments to support and accelerate the development of carbon capture and storage in Australia and particularly the Carbon Capture and Storage Flagships Program.

Slide 15 summarises uranium and thorium. Australia has around 38 per cent of the world’s uranium resources, the largest in the world, and large thorium resources, mostly tied up in monazite in mineral sands. There presently is no market for thorium. We have seen high levels of exploration for uranium in recent years which have made new discoveries, and there is potential for further discoveries of resources. A number of new mines have been proposed to meet growing world demand. You see there on the lower left the proposed range of new mine production going into the out years. Whether or not these come to pass is yet to be seen, but certainly there are a lot of projects that are planning to produce in the future.

Looking forward, on slide 16 you see that Australia’s uranium resources are adequate for about 140 years of current production and can therefore meet growing export demand, even more with the new mines planned. Global demand, growing at about 3.7 per cent for uranium, is built on the back of renewed interest in nuclear power. There are 53 new nuclear power plants in progress and 135 others planned. This was at the end of last year. Australian uranium exports are projected to increase and could reach 21 kilotonnes in 2030, up from 8.5 now. You see that strong growth projected in the graph below. However, we face increased global competition in world markets for uranium exports from countries such as Kazakhstan, Canada and Namibia.

By 2030, new generation IV reactors and fuel cell technologies are likely to be available. These are likely to result in safer reactors using less fuel and particularly emitting less high-level radioactive waste. Whether or not thorium will be used in that time frame is uncertain, but we do not expect to see significant commercial-scale use of thorium reactors in that time frame.

I now turn to slide 17 and geothermal energy. Australia has significant but not yet well defined geothermal energy resources. These have only recently been recognised because they are not the conventional hydrothermal resources typically found in countries that have young volcanic chains. We have two types of geothermal resources, known as hot rock geothermal resources, which are the result of radioactive decay of old rocks—as you can see on the right-hand side—and water circulating within them is heated to temperatures that are potentially suitable for baseload power generation. We also have geothermal resources in hot sedimentary aquifers. These are commonly lower temperature resources but potentially still suitable for electricity generation and certainly suitable for a wide range of direct use applications. The technology involved in geothermal energy production is feasible but not yet commercially demonstrated in Australia. The government has provided strong support for commercial demonstration plants—a drilling program—and there are several projects at proof of concept or early stage of commercial demonstration. The forward projections envisage commercial production by 2030, perhaps producing around 12 terawatt hours, or a little under two per cent of electricity generation.

Slide 18 shows estimated temperatures at five kilometres depth, the hottest being the red and the coldest being the blue. The inset map that looks like flyspecks is a reminder that our resource base is not well defined because the data are inadequate to objectively show that. We have also shown a screen over the map which shows you areas of thick sedimentary cover—more than three kilometres—which potentially might host hot sedimentary aquifer resources, and areas that are greater than 200 degrees Celsius at a depth of five kilometres.

Slide 19 is a summary of our hydro energy resources. Hydro energy is a mature, low-cost energy and is currently our largest source of renewable electricity. The resource potential was realised early and the resource largely developed. There are opportunities for refurbishment of existing plants—there are a number of plants already engaged in that—and the development of mini-hydro schemes. However, growth is likely to be constrained by a lack of water resources. Australia is a very dry continent with low run-off and high evaporation, and the lack of water resources has been exacerbated by drought, particularly in eastern Australia in recent years. On that basis, hydro energy is projected to grow only slightly—by about two per cent—but its share of electricity generation is projected to fall from a little under five per cent currently to around 3.5 per cent by 2030.

Slide 20 summarises the wind energy resources. The map shows the average wind speed in meters per second. The strongest wind speeds are shown in the richer, redder tones, and you can see there that Australia has a world-class wind resource which extends around the coast and inland for much of southern Australia, and anything above seven metres per second would be considered a potentially suitable wind resource. The important point is that this wind resource extends well inland in many areas, and this is increasingly being developed. Shown there are the operating wind farms of greater than 10 megawatts, and the proposed and under-construction wind farms are shown in pink. We have seen a major growth in the number and size of wind farms, with 200 megawatt-plus wind farms now common. The technology is now mature. Wind turbines have evolved over the last 20 years to a mature state. Wind is a fast-growing energy technology worldwide and in Australia will overtake hydro as our No. 1 renewable source of electricity. There are more than 11.3 gigawatts of proposed additions to capacity. Those projections suggest that wind energy production will increase by around 11 per cent per annum to about 40 terawatt hours by 2030. The wind share of electricity generation will increase from currently less than two per cent to about 12 per cent by 2030. Associated with this major increase in use of wind resources are the grid integration and management issues and upgrades and extensions to the transmission network required to match the resource, which is often in remote areas, and decentralise away from the current focus on non-renewable fossil fuel based electricity generation.

Slide 21 summarises the solar energy resources. This map from the Bureau of Meteorology shows the annual average solar radiation. It is not the best indicator of resource. What we need is direct normal irradiance data. Work is in train to improve the data set that is available for that. Australia has a world-class major solar resource. Its use is relatively modest, largely as solar thermal heating and PV, particularly in off-grid remote areas, where it has been employed as an alternative to diesel. Solar PV production costs are coming down and we are seeing greater deployment of solar PV in urban areas.

The government has invested strongly to support the acceleration in R&D of all types of solar energy generation, particularly with the Solar Flagships program, which aims to accelerate solar thermal, with commercial production by 2030. Projections suggest that solar energy generation will grow very strongly, at around 17 per cent, and reach around four terawatt hours by 2030.

Turning now to the ocean energy slides, we have tidal energy on slide 22. Australia has a significant tidal resource, mostly in Northern Australia. The brighter colours indicate where the greater resource is. It is also localised by geography in other areas, including parts of Bass Strait and Queensland. The technologies for extraction of tidal energy are largely immature at this point, apart from tidal barrages, which are generally not favoured on environmental grounds.

Most technologies these days are now focused on the use of kinetic energy in tidal energy, using some of the learnings from wind turbine technology in tidal turbines, as shown in the picture below. That is a particular type of tidal turbine. A number of these different types of technologies are under development in trials around Australia and there are some small-scale demonstration plants. Tidal energy has off-grid applications, particularly in remote areas. In fact there are proposals to use tidal energy at Koolan Island. We expect commercial production by 2030. At this stage it is difficult to quantify what that would be.

CHAIR —It is going to be a big year, 2030!

Dr Jaques —Indeed. On slide 23, we have wave energy. Australia has a world-class wave energy resource along its southern margin. The stronger colours there indicate the wave energy in terajoules per metre. Again, many of the wave converter technologies are still immature. There are different technologies being trialled in Australia and around the world. You see an example of the CETO technology, a pump-type action being developed by the Carnegie group. There are a number of small-scale demonstration plants and there is the potential for both on-grid and off-grid applications and other applications, perhaps including desalination plants. We see some commercial production likely by 2030.

Finally, the last chapter deals with bioenergy. Australia has a diversity of biomass resources as fuels. The forest, agricultural and other organic waste is largely underutilised. We also have biogas resources and other urban residue waste which could be used. This map shows you simply where the current electricity generation facilities from biomass are. Mostly that is bagasse associated with cane production in Queensland.

We have some biogas production there in the southern states—which you can see in the yellow—and some biofuel production. To date, generation of first-generation biofuels has been limited by available feedstock. Current R&D is focusing on emerging non-food stocks and conversion technologies, particularly to use tree crops and other materials and in future perhaps algae to produce a wide range of biofuels. Some of these new generation biofuels have the capacity to produce aviation fuel, which is not available at present from much of the first-generation fuels.

The issue worldwide for use of bioenergy, particularly in biofuels, has been competition for arable land—competing with food production and the use of water and land. The new generation technologies are intended to use less water and to use more marginal lands and therefore not be in competition with food sources. The graph on the lower left there shows the projected growth in the use of bioenergy and particularly its share of total energy, shown there as a percentage on the right.

With that overview we have drawn together a range of energy sources. Some of those energy sources are already well developed and being readily deployed. Others are more dependent on the development of technologies and the energy projections are based on what might happen in terms of the rate of development of some of those energy technologies. They may in fact accelerate more rapidly due to technological advance, but these are the energy projections and our assessment as we are able to do it today. We hope that this energy assessment will provide a better framework for consideration of Australia’s energy resources and their future development and use. Thank you.

CHAIR —Thank you very much, Dr Jaques, for that very detailed opening statement. I note how you make the observation that Australia’s energy usage in 2030 is expected to differ significantly from that of today under the influence of the 20 per cent renewable energy target. Then you mention other government policies such as the proposed emissions reduction target and in your statement you mention the five per cent emissions reduction target. You have not mentioned other government policies such as the Carbon Pollution Reduction Scheme; rather you have mentioned policies such as the proposed emissions reduction target, which of course has got bipartisan support. Was that a deliberate decision? Can you just talk us through that?

Dr Jaques —I will pass that on to my colleagues who did the modelling. I think they are in a better place to answer that.

Ms Melanie —In terms of the policy settings for the energy projections we have taken into account existing government policies and the policies that can reasonably be expected to be implemented over the outlook period to 2030. As part of that we have included the renewable energy target, which has already been legislated. We have incorporated a five per cent carbon emission reduction target below 2000 levels by 2020. We have done that by being consistent with what was proposed in the white paper on the CPRS, so it is the essentially the same design. Some of the assumptions are drawn from that report. The carbon prices, for instance, that we have used are consistent with the modelling that was undertaken for the white paper adjusted for the midyear economic and fiscal outlook that came out in November of last year.

We have also included other government policies such as the Clean Energy Initiative, which includes the Solar Flagship Program and the CCS Flagship Program, as well as trying to capture a range of energy efficiency measures that are in place. We have also got in there some state-level policies, a lot of which will be phased out when the CPRS or a carbon emission reduction target is implemented.

CHAIR —Do you have a list of the energy efficiency measures that are in place, or forecast to be in place, in the period to 2030? I see you nod—yes?

Ms Melanie —Not in the energy projections report, but we have done some work on energy intensity in Australia, focusing on trends in energy efficiency across different sectors and, in that report, there are some policies that are described and we would be happy to provide some further information if that would be of interest. We have not made any assumptions about what policies would be in place. We have just looked at the trends in energy efficiency across sectors and extrapolated that over the next 20 years or so.

CHAIR —You have looked at past trends and extrapolated from them. So you have not taken into account any possible policy decisions around that?

Ms Melanie —To the extent that they have not been implemented, no.

CHAIR —The reason for that question is that we have, so far, struggled to get a clear answer from any department around energy efficiency targets around government. But, just going back to my original question: as I take it, you have not included an assumption that the CPRS is in place over the next 20 years in considering this; you have only assumed that a five per cent emissions reduction target will be in place, given that that has bipartisan support—is that right?

Ms Melanie —That is right.

CHAIR —You might not be able to answer this but, if you can, I would be interested in your answer: to what extent would your findings be different if the Carbon Pollution Reduction Scheme were legislated?

Ms Melanie —The way that we have implemented the Carbon Pollution Reduction Scheme is very consistent with the way that the CPRS is being proposed. So I would not envisage that there would be a lot of differences in terms of the final outcomes.

CHAIR —Okay. I will give that some thought. I might get back to you on that. In terms of the energy mix that you envisage for Australia in 2030, nuclear is not part of that mix. I can guess the answer as to why, but can you just talk us through that?

Dr Jaques —Yes. That was not considered because there is no plan to produce nuclear energy. That would require policy change and so we have not considered that.

CHAIR —So, in terms of the brief that you were given by the government, that was one of the no-go areas? As to the way the government told you to look at our energy mix by 2030, nuclear was going to be out—is that right?

Dr Jaques —It would require a policy change for us to adopt nuclear power. There has been a report on not only what would be required in terms of the policy change but also the regime that would need to be established and the supporting infrastructure that would be needed. And I think we refer to that in our chapter on uranium. I think, from memory, that was estimated to be in the order of 10 to 15 years.

CHAIR —Sure, and the only reason I am asking is because you clearly did a lot of work around quantifying uranium and thorium as energy resources available to us, and there is a lot of work around how much our exports are going to develop. I just wanted to be very clear that you have not assessed how the energy mix would look if nuclear were to be part of the mix?

Dr Jaques —No, we have not included nuclear power as part of Australia’s energy mix. We consider it as an important energy export, and the resources have been assessed in that context—as the basis for exports.

CHAIR —You looked at how the energy mix would be expected to develop by 2030, and you say it is expected to differ significantly from that of today. In that context, given that you have also looked at it from an economic point of view and integrated the science with economic analysis, did you look at the cost implications of that in terms of the energy mix by 2030 compared to the energy mix today?

Ms Melanie —Basically, the aim of the report of the long-term energy projections which then fed into the Australian energy resource assessment was to provide the long-term view of Australia’s energy production, consumption and trade. So we have not, as part of that, looked at the cost implications. But we have taken into account some of the costs of the technologies.

CHAIR —But—just before we go into the costs of the technologies—if you talk about looking at trends in production, consumption and trade, cost would be a significant factor in that, wouldn’t it?

Ms Melanie —Yes. In terms of the assumptions relating to the modelling exercise, we have looked at the cost of technologies. We have looked at energy prices, economic growth assumptions, government policies, technological developments—these are some of the key factors, the key drivers of energy production, consumption and trade over the 20 years. So, to that extent, from that perspective, we would look at the cost.

CHAIR —Have you included an assumption around costs over the next 20 years?

Ms Melanie —Costs of?

CHAIR —Of energy.

Ms Melanie —Yes.

CHAIR —So what is your assumption as to what the trend in the cost of energy is going to be over the next 20 years, given the change in energy mix which you are predicting?

Ms Melanie —We have looked at energy prices, what prices might do over the next 20 years or so.

CHAIR —And what is your conclusion?

Ms Melanie —It is an assumption. So by assumption we have assumed that energy prices generally are likely to increase over the next 20 years or so and depending on which type of energy you are talking about the trend is slightly different, but because there is a fair bit of substitution between energy sources, they tend to move pretty much in the same direction.

CHAIR —Clearly the challenge is that we are looking at energy security for Australia moving forward. We are expecting a growing economy, we are expecting a growing population, so energy demands and energy use is going to continue to increase but we want to reduce emissions at the same time. That is what we are talking about, is it not? Does that summarise the challenge, the reason we are doing all of this work? I see a couple of nods.

Dr Jaques —Correct. Our assessment is of the energy resources and their potential use. We did not particularly address the emissions from that.

CHAIR —You are making the observation on how the energy mix is going to develop over the next 20 years and I think that is in the context of these are all of the resources we have, these are the resources we are most likely to use, given that at the same time as increasing use we also want to reduce emissions. Is that what is driving your—I see again a couple of people nodding. Is that correct?

Dr Jaques —Certainly the renewable energy target is driving a lot of the modelling because it is already legislated, so yes, there will be—

CHAIR —Sorry—not meaning to interrupt but the context for my question is that I think I have read somewhere we have 500 years of brown coal reserves left and we have about 90 years of black coal reserves left. We expect to reduce consumption domestically but we expect to double exports. So are we not either expecting to shift emissions into other parts of the world or deferring it over a longer period but expecting the same Australian coal—brown coal, black coal—to be used and ultimately result in global emissions? They way I am reading your assessment, looking at domestic trends, there is a doubling of exports of coal over the same period. Really we are looking at reducing emissions in Australia, irrespective of what happens with our coal in other parts of the world. Is that a fair observation?

Ms Melanie —I guess the purpose of this exercise was not really to look at energy resources from a climate change perspective. It was more to provide information that could be used by government and industry in investment decisions. So it was about putting together as much information as possible on a range of energy resources, bringing together the scientific perspective and the economic perspective to help make that decision. That was the objective of the Energy resource assessment. So it is one input in a broader question.

CHAIR —Sure, but if it was not for our assumptions around wanting to reduce emissions in Australia, then our energy mix moving forward presumably would look very different. In fact, it would be much more similar to what it is now. We would probably continue to rely on cheap coal. You have made the observation that historically we have relied on cheap coal. What is shifting us away from cheap coal is that drive towards wanting to reduce emissions. Yet everything I am looking at, and your report as well, talks about doubling our exports of coal over the same period.

Dr Jaques —Perhaps I could add a comment and that is the reference to where we sit globally. The International Energy Outlook has produced two scenarios, one of which is the 450 scenario, which assumes that countries globally take efforts to reduce their carbon emissions and they end up with a different set of energy projections from the reference scenario, which is based on current energy use and projections. So I think globally there is a framework in which Australia sits and that drives the export markets.

CHAIR —Sure. You can take this further but I am just interested, looking through these graphs, that you put in with wind energy an expected share of electricity generation by 2030 of 12 per cent. It might well be in the report but for solar energy you put in your growth expectations of 70 per cent per annum. Do you have an expected share of electricity generation from solar or is it—

Dr Jaques —Yes, we do.

Ms Melanie —It is still below one per cent by 2030.

CHAIR —So by 2030, our expectation is that the share of electricity from solar will still be below one per cent?

Ms Melanie —Yes.

CHAIR —With tidal energy, there is an expectation that there will be commercial production by 2030. In looking at the resource, do you have a list of most likely to least likely projects which might come on stream by 2030? In making that observation of commercial production by 2030 of tidal energy—it will have to be in the north, presumably, because that is where the resource is, according to your graph.

Dr Jaques —In each of the chapters, we have reviewed in the outlook a range of projects which are currently under way. Some of them are at a relatively advanced stage and most of them—in the case of tidal energy, are listed in our energy report in table 11.11—are at a less advanced stage. Some of those have proposed start-up dates associated with them and capacity. So our comment there about expecting production is based on the summary of what companies have reported in terms of their own plans and a view of what is likely to happen in developments in the outlook period.

Dr Sheales —Each year, ABARE puts out twice a year publications on both new energy generating projects and new minerals projects. That is a bit nearer to them but, of course, these projects would have lives of 20 years or whatever.

CHAIR —Sure, but essentially at this stage it is best guess and you have done an audit of what people are saying out there but it is not a line in the sand with a specific target where you are saying very confidently that by 2030 these are the projects which are likely to be up and running. Is that a fair characterisation?

Dr Jaques —I think that is a fair comment, but I do not think we would be wanting to say that, given that many of these projects are still at early stages of demonstration and many things can happen along the chain to commercial development. We have seen this pattern both globally and in Australia—often technology moves slowly and suddenly there is an advance and things can change quite rapidly.

CHAIR —This leads me then to a question and you have touched on it before. Clearly, the dominant source for electricity generation in Australia today is coal. For a whole range of reasons, principally to reduce emissions, we want to shift away from coal. Our projection is that solar is going to be less than one per cent moving forward, we think that wind is going to be about 12 per cent and then there is a range of technologies which have a lot of promise although they may or may not come to fruition—there is still a lot of uncertainty. Then we have nuclear out there as a proven, reliable technology. We have a third of the world’s know resources in uranium; I do not know how much in terms of thorium. It seems to me we are leaving ourselves a bit exposed there, are we not?

Dr Jaques —That is a policy issue, Senator.

CHAIR —Fair point. Can I ask—and again tell me if you cannot answer this—you mentioned we have 140 years of production of uranium, given current—

Dr Jaques —Current production.

CHAIR —And current export trends?

Dr Jaques —Current resources against current production. Both are growing and that number is expected to change in the future. Clearly it is adequate for exports for years to come.

CHAIR —This is a hypothetical question, but in the context of energy security moving forward I think it is an important question and you might be able to answer it. If Australia did have nuclear as part of its domestic energy mix, how many years of resource would we have available to us?

Dr Jaques —I could not comment, Senator.

CHAIR —And nobody has done any of that work in the context of—

Dr Jaques —I would have to take that on notice. I cannot recall whether the uranium energy report included that.

CHAIR —It seems like an obvious question, I would have thought.

Dr Jaques —Well the fact that Australia is able to supply several countries which use nuclear energy as a significant component of their electricity supply would suggest that Australia has plenty of uranium resources adequate to support both exports and any potential possible future use. Australia’s uranium resources are expected to grow with the current high levels of exploration. That follows a quiet period of exploration until, say, five years ago when uranium prices were fairly depressed and there was little demand, but the growth in demand for world uranium resources has lifted exploration for uranium globally and certainly in Australia. We would expect to see further discoveries of uranium.

CHAIR —I am not meaning to ask inappropriate questions but I am trying to understand how a government can make an informed decision on our energy security moving forward in the context of wanting to reduce emissions at the same time as energy use is going to go up if they do not have that piece of information in front of them. Is there somebody else in government you can point me to who would be doing this sort of work or would your organisations be the most obvious organisations to do that work if a government was inclined to ask the question?

Dr Jaques —I think that is a policy question.

CHAIR —No, I am not asking you a policy question; I am asking you a question of capability.

Dr Jaques —The resource issue—are there enough resources?—I think I have answered. Certainly that is a geoscience issue. The development of a nuclear industry or otherwise is firstly a policy issue and then a technology issue. I do not think my organisation would be well placed to provide any advice on the technology requirements.

CHAIR —I am honestly and truly not meaning to ask you a policy question. Let me rephrase it. It is really not my intention to ask you a policy question. If a government wanted to know from expert organisations across the Public Service how much uranium and thorium resource there is out there to supply domestic or industrial nuclear energy, where would that government go in the federal Public Service?

Dr Sheales —Senator, maybe a little simplistically, but I think we have the answer in front of us with the slide here. You can see there is a huge production, which is for export under current policy. It would merely be a matter of diverting some of what is projected to be exported to domestic use, but it is a hypothetical question, as we all acknowledge at this point.

CHAIR —Yes, sure.

Senator McEWEN —You will just have to wait until you are in government, Senator Cormann, and you can be the minister for nuclear energy.

CHAIR —Hopefully sooner rather than later.

Senator McEWEN —Hopefully not. Thank you for your excellent reports. In your assessments of what portion of the energy mix for Australia each of the renewable and non-renewable energy sources will take leading up to 2030, do you take into account the extent of government support for exploration and development of renewable technologies? You were talking about assumptions about costs et cetera. Do your projections take into account the level of government support?

Ms Melanie —One of the main drivers of what happens to renewable energy is the Renewable Energy Target Scheme. That is a new major policy that has major implications for renewable energy so, yes, we have taken that into account.

Senator McEWEN —You mentioned other government programs such as the Solar Flagships Program and the CCS Flagships Program.

Ms Melanie —That is right.

Senator McEWEN —If those programs did not have government support, presumably they would not exist; is that correct?

Dr Jaques —Certainly the government programs are hoping to accelerate the development of these technologies. Some of these technologies have been under research for several years; some of them are quite new. But certainly geothermal is a new industry in Australia and that has come along very quickly, and certainly the support the government has provided there has obviously been important. Similarly, carbon capture and storage is an emerging technology globally. It is a difficult problem, and the government support there I am sure is going to be very important. Similarly with the Solar Flagships Program, solar thermal power is an important challenge, and I think the government programs there will again be important in moving towards enhancing our capacity to use those energy sources in the future.

Senator McEWEN —So presumably if there were a government in the future that did not support those technologies by providing funding, in particular, for research then those technologies might not continue to fly or might not come to maturity?

Dr Jaques —I think that is difficult to say. It is important that industry and government fund the R&D. Indeed, at this point the development of much of the geothermal industry will require investment capital to be established. I think that is a point that each industry gets to, where it moves from the RD&D stage to the commercialisation stage. That is when private capital becomes important. It is difficult to say what impact—other than the fact that obviously both industry and government support for RD&D is important.

Senator McEWEN —Did your projections in your report about the development of the different types of energy resources take account of current government regulatory, taxation and legislative regimes as well?

Ms Melanie —What we have taken into account are the major government policies that are already out there and some of the state level policies that have direct implications for energy markets. That will cover the bulk of what we have looked at.

Senator McEWEN —But you have not made any recommendations that the committee could look at for future incentives, legislative changes or regulatory changes—

Ms Melanie —No.

Senator McEWEN —that could encourage different kinds of developments? Okay. I just want to ask a question about wind. During this inquiry, energy from wind has got a bad rap from some people, who are saying that it is no good as baseload and that it has other issues, including being visually polluting or noisy or whatever, but I notice from your report that you anticipate that energy from wind will increase over time. Does that therefore suggest that perhaps some of those issues that we have heard earlier in this inquiry about wind are not as significant as people claim?

Dr Jaques —I think locally the placement of wind farms may be an issue in certain locations. That is a local issue. The issue of managing an intermittent wind energy source within a transmission framework is a challenge as the level of wind penetration increases but, at the levels we are talking about here, studies indicate that it can be managed. There is important research going into wind forecasting so that the programming of wind use in dispatch can be better done. There is also important research going into storage.

Increasingly what we are seeing, though, is that wind generation is being backed by expansion of gas, which is a fast peaking source of power, and we are seeing matching growth of gas and wind. So I suspect that gas is being used increasingly to back the wind at times when it is not available. Of course, a greater dispersion geographically of wind farms creates more stability because you have greater averaging of wind availability. So I think, overall, we can say that wind is projected to increase in Australia significantly, as it has globally. It is a mature technology. The development of the wind turbines continues to improve their performance and power output, but much of that has already taken place so it is a relatively mature technology which is able to fulfil the need in the immediate outlook.

Senator McEWEN —You mentioned there an issue of storage, and that is something that this committee has dealt with in terms of security of supply, whatever form of energy it is—storage and where it is located and backup supplies in case of emergencies and stuff like that. What are the major issues that we are facing in Australia in regard to that? We know, for example, we are very reliant on oil for transport and fuel, and there are issues now around location of oil as to whether it is accessible et cetera. But is that issue of storage and security of storage an issue for the other forms of energy that we are talking about as well, and what do we need to do?

Dr Sheales —Are you talking about solar or that sort of thing?

Senator McEWEN —We mentioned wind; can you actually store the energy from wind power? Is that something we need to deal with?

Dr Jaques —There is research going on to support storage systems—superbatteries and things. The CSIRO, in fact, has programs in that. I am not fully across the details of what is being done in terms of storage development, but I know it is an important research priority for them—and of course there are others researching that as well—which would also apply to solar and to wind and, potentially, to other intermittent electricity-generating technologies. There is also tandem use—for example, pumped hydro is being proposed as a backup to wind where water is pumped locally up to a holding pond and then released when the wind energy or solar is not available. That is being developed and trialled locally, and in places overseas. In terms of other storage, storage of the non-renewables has not been seen to be a problem in that the transport systems are in place to distribute gas particularly. I am not sure that I can comment any further on that.

Senator McEWEN —What about in terms of, for example, gas extraction in Central Australia that has to be either converted to liquid for transport or transported by pipeline to centres of population? There is always a complaint that we are not investing enough in infrastructure to deliver the fuel or the power from the source to the centres of population where it needs to go.

Dr Sheales —That is certainly one of the challenges with some of the renewables such as thermal. If you recall the graphic that you saw on thermal resources, some of them were located in very isolated areas. The issue there is that you could generate electricity on site but then you have got to have a grid to get it to places. That is certainly an issue. I would have thought that gas, though, which you mentioned, is fairly well covered. Of course there is continuing investment in the distribution of major pipelines. The importance of gas, as I think Dr Jaques referred to earlier, is that it can provide the baseload backup to solar, wind and some of the other renewables that are not there 24 hours a day. You do need some baseload backup, and gas is one of the lower emitting sources of energy that can be used in that context. My colleagues might correct me here, but I think that, given that we are just working with current policies on renewables and also on the five per cent emissions reduction, one of the reasons that we see the big increase in the percentage of electricity coming from gas is that it is lower emitting than the current sources of fuel.

Dr Jaques —Infrastructure will be a problem in some areas for remote resources—remote solar, remote tidal, remote wind, remote geothermal. But there is no doubt that it has been recognised that the already long transmission grid will need to be further augmented, and there are considerations of more nodes, and distributing generating centres around these nodes, in the future. In the early stages of commercialisation of remote energy projects, proximity to grid is an important consideration, so I think that is going to be a factor. But one would expect that the existing transmission infrastructure will be expanded in time and there will be nodes and hubs developed which integrate better some of the renewable energy resources than is presently possible.

Senator McEWEN —Finally, in terms of the inputs into your report I think you said that the cost of all energy would go up over time. My memory is that Dr Jaques said that there might be a differential in the cost increase for the different types of energy but that over time the cost will go up. Is that right?

Dr Jaques —I think that comment was made by ABARE in the context of the inputs to the projections. Perhaps they could clarify that.

Ms Melanie —Yes, these are assumptions in our modelling.

Dr Sheales —That is one of the things that will also help drive efficiency gains, because clearly there is an added financial incentive for people to think about efficiencies in terms of their consumption and use of energy.

Senator McEWEN —That is right. But energy, like every other cost input in life, will go up in cost over time, I suppose.

Dr Sheales —You would have to expect that, but also we make the point in the report that the energy intensity of much of manufacturing, for example, and other industries is declining through time in Australia. Again, that is for a range of reasons, many of which we have discussed already today.

Senator McEWEN —Yes, but the way to save money on energy is to not use as much.

Dr Sheales —I suppose that is right.

CHAIR —Thank you very much for your contribution today.