Integrating emissions policy

Energy and environmental policies can have different objectives, so it is important to understand the associated costs or efficiency trade-offs. Policies that are effectively integrated help minimise costs for consumers.

A well-integrated emissions reduction policy is:

  • technology neutral to allow for the greatest number of technology options in the market to increase competition between generation sources and minimise costs
  • flexible enough to adapt to whatever supply and demand conditions the future might bring
  • designed to be sustainable so investors in all kinds of generation are confident that policy objectives can be met.

The AEMC provided options to reduce emissions at the lowest cost to the COAG Energy Council in December 2016. We considered alternative ways to reduce electricity emissions including:

  • a market-based, emissions intensity target, which is a mechanism requiring generators with emissions intensity over a target to buy credits from those below
  • extending the existing large-scale renewable energy target
  • government-regulated coal power station closure. 

The emissions intensity target delivered the best outcomes for consumers on price, power system security and certainty of meeting the emissions target. See infographic.

The AEMC's submission to the Finkel review in March 2017 also addressed the issue of balancing emissions, lower prices and system stability. International evidence suggests emissions reduction policy needs to support effective competition in the power system. Otherwise consumers bear the costs of investment risk and ongoing government intervention.

The challenges faced by coal-fired power station closures were explored by another or our submissions to government over the past year. This submission looked at the consequences of uncertainty with respect to Commonwealth and state emissions reduction policies.

In June 2017 the AEMC published joint advice with the Climate Change Authority at the request of the Commonwealth Minister for Energy. This advice was geared towards integration of energy and emissions reduction policies to provide greater investment certainty and help keep electricity prices as low as possible while enhancing power system security. 

The AEMC is currently developing design options for a clean energy target to deliver to energy ministers from South Australia, Queensland, Victoria and the ACT. A final report is due to the ministers in October 2017.

In October 2017 the Energy Security Board (comprising an Independent Chair, Deputy Chair and the heads of the AEMC, AEMO and the AER) provided the COAG Energy Council with recommendations to support the provision of reliable, secure and affordable electricity with a focus on ensuring:

  • the reliability of the system is maintained
  • the emissions reduction required to meet Australia’s international commitments are achieved
  • the above objectives are met at the lowest overall costs.