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We should get used to paying more for gas

By Benjamin O'Sullivan - posted Friday, 6 December 2013


The policy would disincentivise investment in the gas sector at a time when LNG projects in Australia are already under pressure from spiralling costs. If the scheme was applied retrospectively (on existing investments), the impact on investment would be greater still.

It follows that gas reservation could have the opposite outcome than that intended: by reducing incentives to invest, it could threaten the long-term supply of gas in the Australian market.

The prospective ‘acreage reservation’ system favoured by MacFarlane would not avoid this outcome. The government would simply limit the incentive for firms to explore and invest on the reserved land. Domestic supply would suffer over the long run.

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In short, reservation is misguided. Domestic manufacturing and households would benefit from lower gas prices, but the benefits would not outweigh the considerable costs.

It might be tempting to slug the big gas companies, but when barriers to trade are constructed the community as a whole loses. As the Deloitte study made clear, the value of gas production ‘flows not merely to directly affected industries, but is diffused across the economy via wages to workers, profits to shareholders, income to interlinked sectors and tax revenues to government.’

Not only would a gas reservation policy cause economic harm, it would be prohibited by international law.

World Trade Organization (WTO) rules do not allow countries to introduce quotas on their exports. There are two relevant exceptions: where a measure is imposed temporarily to relieve a critical shortage and where a measure is aimed at conservation of natural resources, provided that the measure is accompanied by domestic restrictions on use.

To put it simply, gas reservation is not a temporary measure and there is no critical shortage. The latter exception isn’t of much use either because an accompanying restriction on domestic use would defeat the very purpose of reserving gas.

All things considered, reservation is not in the national interest. We need to accept that higher gas prices are here to stay.

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About the Author

Benjamin O'Sullivan is a student at The University of Queensland's TC Beirne School of Law and is a Global Voices youth delegateto the current WTO Ministerial Conference.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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