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May 25th 2009 print

Tom Quirk

ETS in the Twilight Zone

In the words of Sir Humphrey Appleby, it is a “courageous act” to tax pipelines with such an extraordinary formula. It is more than courageous, it is really stupid.

Some of these regulations are so stupid
they are an insult to stupid people!

(with acknowledgements to “A Fish Called Wanda”) 

The Rudd Government’s ETS legislation will, if passed by the Senate, impose a tax on gas pipeline operators on the basis of the length of their pipelines not the amount of gas put through the pipeline. 

The Department of Climate Change in October 2008 issued a three hundred and forty nine page “Technical Guidelines” document for estimating greenhouse gas emissions by ”facilities” in Australia. Reporting these emissions is mandatory. 

On page one hundred and eighty three, Division 3.3.7 lays out the methods for “fugitive gas emissions from fuels”. High-pressure gas pipelines are dealt with in Method 1 in 3.76 and method 2 in 3.77. 

Method 1, the default option is simple: 

                                    E = Q x EF 


E is the fugitive gas emission “measured” in CO2 equivalent tonnes,
Q is the pipeline length measured in kilometres and
EF is the emission factor “measured” in tonnes of CO2 equivalent emissions per kilometre of pipeline. 

The factor EF for methane is given in an example calculation as 8.7 tonnes of CO2 equivalent emissions per kilometre. 

There is only one measured quantity in this formula and that is the length of pipeline. The other quantity EF is contentious both as a value for leakage from a pipeline and for the equivalence value of methane to CO2

The problem of leaky pipelines has an interesting history both locally and internationally. High pressure pipelines are continuously welded pipe that operate at pressures of over ten times atmospheric pressure. 

The Victorian transmission network has a series of pipelines that supply gas from Bass Strait, the Otway basin and a number of storage fields, to customers through distributors who have their own reticulation pipeline networks that operate at lower pressures. The transmission system has a length of about 2,000 kilometres. 

Pipeline leakage measurement is a notoriously difficult issue. When the Victorian gas industry was privatised there was one transmission line from Longford in the Latrobe valley where ESSO processed the natural gas from Bass Strait. There was one meter to measure the gas put into the pipeline and there were some one hundred meters measuring the gas going to the distribution companies. Each month there was a UaFG (Unaccounted-For-Gas) report. This was the difference of the one input meter reading and the sum of the one hundred output meter readings! It was no surprise to find that there was a difference. About 1% more gas seemed to be going into the system than was coming out. This is like the epic battles in mining operations where there is a discrepancy between the mine operations department and the mill operations department over how many tonnes of rock were mined and delivered to the mill. 

After very careful and detailed work by a senior engineer in VENCorp, the discrepancy was found to be an open bypass circuit around a meter so that someone was getting gas at a reduced price! When the bypass valves were shut the system came into a 0.2% balance that went positive and negative during the year. In other words ESSO occasionally appeared to put in less gas than was taken out. Of course on a daily basis the pipeline is a temporary reservoir as the gas pressure can rise and fall with varying input and output but the reporting is on a monthly basis. 

The problems are clear: uncertainty in meter readings, meters bypassed, unmetered off-takes and for longer pipelines the use of gas to drive compressors. In fact the major losses at compressor stations are not leaky valves and fittings but the methane used to drive the gas turbines for the compressors. This methane is emitted as CO2 and is around 60% to 80% of “CO2 equivalent” emissions from pipelines and should not be accounted as methane. 

The best international example of the problem of fugitive gas has been the decaying gas pipeline system in the USSR before 1990. Natural gas is widely distributed to Soviet cites through 150,000 kilometres of high pressure pipelines. In the 1980’s major new pipelines were laid to supply gas to Europe. The recognition of the great value of the gas reserves led to substantial improvement to monitoring and controlling the natural gas network. An estimate of the end result is that by 1992 the global increase in atmospheric methane had dropped from an annual increase of 12 parts per billion to 6 parts per billion, the equivalent of reducing the Soviet pipeline losses by an absolute 2.4%. 

This is one, perhaps the only one, unambiguous example of anthropogenic emissions of greenhouse gases in the atmosphere. 

So leaky high-pressure pipelines may not leak at all! It can be meter readings and legitimate use of gas to drive compressors that explains any discrepancies. 

Australia has 18,500 kilometres of pipeline carrying volumes of gas that will vary by at least a factor of twenty. The formula takes no account of this. So applying the formula gives the equivalent of 160,000 tonnes of CO2. The tax yield at $10 per tonne of CO2 emissions is revenue of $1.6 million is and, at $50 per tonne, $8.0 million. This should be judged against gas transported and pipeline revenue. In the case of Victoria 220 million Gigajoules of gas are transported annually. The inferred gas leakage is 0.05% of this amount. The pipeline revenue is of order $130 million with transport charges at $0.60 per Gigajoule.. So the tax at $160,000 is a nuisance at $10 per tonne of CO2 emissions and the time spent by the company management addressing compliance and the cost of compliance will probably be as much. 

In the words of Sir Humphrey Appleby, it is a “courageous act” to tax pipelines with such an extraordinary formula. It is more than courageous, it is really stupid.