For the first time, the Australian Energy Market Commission (AEMC) has applied the new emissions reduction amendments in our national energy laws to the energy rules, as a way of providing clarity and investment certainty as we transition to net zero.
The draft rules are set out in a draft determination for stakeholder consultation, following rule change requests from energy ministers to ‘harmonise’ or align the electricity and gas rules with recent changes to the law, so that energy market bodies and networks can explicitly consider emissions reduction in their decision making.
The AEMC sets the rules for the national electricity and gas markets and provides independent expert energy advice to Australia’s State and Federal Governments. It is committed to supporting the transition to a lower emissions energy sector.
In order to do this, the AEMC proposes incorporating emissions reduction considerations into the national energy rules.
AEMC Chair, Anna Collyer says taking the step to harmonise our national energy rules with the new objectives is an exciting one.
“Without consistent and corresponding adjustments to our national energy rules, there’s a risk the impact of those important changes to the national energy objectives would be inadvertently diminished," Ms Collyer said.
"To address that risk, energy ministers have asked us to align the rules with the current legal framework.
“This change would present our first significant opportunity to formally consider emissions reduction in our work, helping to manage the transformation towards a net zero future, as we continue to protect the long-term interests of consumers.”
Last month’s amendments to the national energy objectives marked the biggest reform since the objectives were first developed. Those objectives govern and guide how market bodies, including the AEMC, conduct their work for the long term interests of consumers.
In this case, the ‘harmonisation’ step is required to allow emissions to be transparently considered in network and pipeline expenditure and planning and investment rules.
The existing expenditure guidance in the rules largely replicates the ‘old’ national electricity and gas objectives. For instance, the electricity rules currently focus on meeting demand and safety but don't address emission reduction targets. Without these changes to the rules, expenditure plans aimed at reducing emissions may not meet rule requirements.
Investment and Planning rules
Similarly, there are some investment and planning rules related to regulatory investment tests (RITs) and the Integrated System Plan (ISP) that don’t explicitly consider emission reduction benefits and should therefore be updated to align with the updated NEO.
Our draft rules would also allow electricity networks and gas pipeline operators to propose activities that would support jurisdiction-set emissions reduction targets in their revenue proposals.
Many of the proposed changes are consistent with recommendations made in the Commission's Transmission Planning and Investment Review – Stage 3 report.
All future determinations and reviews will continue to apply the new objectives in line with the AEMC's guide. The recently released guidance steps out how we will apply the emissions component of the national energy objectives, which is an important step in helping participants understand how the reform will impact their day-to-day decision-making tasks.
The AEMC will hold a forum in late November to give stakeholders an opportunity to ask questions and provide feedback on the draft determination and rules. Written submissions to the draft determination are being accepted until 7 December 2023, with a final determination expected to be published on 1 February 2024.
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