(Bloomberg) -- Australian Prime Minister Scott Morrison, under fire for his climate policies amid a devastating bushfire season, announced a A$2 billion ($1.3 billion) energy deal with the country’s most populous state on Friday that will seek to reduce emissions and lower power bills.The federal government will provide as much as A$1 billion in funding to clean energy initiatives, jointly underwrite investment in two new interstate transmission links to bolster grid stability, and support new generation projects in New South Wales. In return, the state government committed to facilitating investment into gas supply into the east coast market and ensuring coal supplies to its biggest power plant until 2042.The deal may buy the premier some breathing space from the backlash over the bushfires, which scientists have warned are likely to become more extreme as a result of climate change. Still, industry analysts see the package as a costly way to tackle the issue that could serve to crowd out private investment.“Doing negotiated bilateral deals between governments is a very strange way to run an energy market,” said Tony Wood, energy program director at the Grattan Institute think tank. “This is what you do when you can’t, or you’ve chosen not to, have a policy to steer the industry toward lower emissions in an efficient way.”Morrison’s center-right government has steadfastly refused to bring in a carbon pricing mechanism, a step many in the industry see as the lowest cost way to bring about the transition to cleaner energy. Meanwhile, a plan to underwrite generation has been criticized for favoring projects, potentially deterring investment in alternative ways of boosting grid capacity.By prioritizing more gas supply the deal would “lock in higher power prices, reduced reliability and higher emissions for New South Wales,” climate-focused policy think tank Australia Institute said in a Twitter post, adding that renewable power was already cheaper than gas.New South Wales premier Gladys Berejiklian said developing Santos Ltd.’s Narrabri coal seam gas resource was one option to meet the state’s supply commitment. Narrabri, which has been the subject of strong environmental protests, is going through the state’s approvals process, with a final decision expected in the first quarter of 2020. Berejiklian added that there were other options, including two projects being developed to import gas from overseas.The Morrison government has championed gas as a transition fuel from coal to renewables, and pushed for states including New South Wales and Victoria to ease restrictions on developing new resources.Morrison’s deal with New South Wales may at least sketch out the beginnings of an energy strategy, Wood said. Given the prime minister is hamstrung by his party on stronger climate targets, “the clever way out is to start to find some projects that he can work on with the states” that would have some impact on emissions reduction and fill the policy vacuum, he said.To contact the reporter on this story: James Thornhill in Sydney at jthornhill3@bloomberg.netTo contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Rob Verdonck, Aaron ClarkFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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