Integration of energy and emissions reduction policy

09 December 2016

Final Report 9 December 2016
Submitted to the Council of Australian Governments Energy Council

The Australian Energy Market Commission today provided advice to the COAG Energy Council that analyses the impacts and characteristics of mechanisms to reduce emissions in the electricity sector in line with Australia’s Paris accord commitments.

The report is in response to a request from energy ministers for advice on the alternatives that could be applied to the wholesale electricity generation sector to help achieve Australia’s 2030 emissions reduction target.

We examined the potential impacts of three mechanisms on prices to consumers, costs to the economy and power system security

  • market-based, emissions intensity target (EIT): a mechanism requiring generators with emissions intensity above a nominated target to buy credits and allowing those with emissions below the target to create and sell credits
  • LRET: extending the existing Large-scale Renewable Energy Target (LRET)
  • government-regulated regulatory closure (REG): based on current forecasts of demand, this is a regulatory mechanism whereby government determines when to close various fossil-fuelled generators

All options are compared to a business-as-usual scenario that does not meet Australia’s Paris commitments.

Analysis shows the emissions intensity target delivers the best outcomes for consumers in terms of price; power system security and certainty of meeting the emissions target.

The emissions intensity target lets generators decide what technologies they want to invest in given incentives to move towards cleaner energy

It is different to emissions trading schemes suggested in the past because its financial impacts are contained entirely within the energy sector with those generating carbon levels above the target required to pay those under the target.

An emissions trading scheme taxes every tonne of carbon, regardless of whether it can be avoided, and gives that money to the Government. Under an emissions intensity target, the penalty for generating carbon above the target is paid to those able to generate below the target.

See full report here.

Media contact:
AEMC Communication Director, Prudence Anderson 0404 821 935 or (02) 8296 7817