The government has been told wholesale electricity prices are above
long-run costs by around $27 to $40 per megawatt hour because of policy
uncertainty triggered by years of destructive political in-fighting
about carbon pricing.
The advice comes in a new report by the Climate Change Authority and the Australian Energy Market Commission, released on Friday, before next week’s Finkel review of the national electricity market.
The two agencies have recommended the government end the decade of uncertainty by adopting an emissions intensity trading scheme (EIS) – a form of carbon trading for the electricity sector now championed by most business groups and climate policy experts, but rejected out of hand by the government.
The agencies say an intensity trading scheme would deliver affordable and secure power “while also having lower impacts on power system security than other measures”.
They argue a trading scheme is better able to respond to changes in energy market conditions and is “therefore expected to be more durable than other measures”.
But acknowledging the Coalition has already ruled out the optimal
policy mechanism, the agencies say the government should consider a new
low emissions target (LET) for the electricity sector.
Their advice says a LET “if designed well” could achieve deep emissions reductions but might have smaller impacts on retail electricity prices than an EIS. “It can also be designed to enhance power system security by encouraging investment in low emissions gas-fired generation, and carbon capture and storage,” they say.
The advice paves the way for the release of the Finkel report, which many stakeholders believe will recommend a LET – which works in practice as a technology-neutral renewable energy target.
The report by the chief scientist is also expected to maintain a preliminary assessment that an EIS would be a good way to ensure the electricity grid remains reliable while reducing carbon emissions.
This week the government also began to prepare the ground for the Finkel review by announcing it would change the rules governing the Clean Energy Finance Corporation to allow investments in carbon capture and storage – to make the government’s so-called “green bank” more technology-neutral in its outlook.
But the US president, Donald Trump, has increased the degree of difficulty for the government to land a sensible resolution to a decade of partisan warfare about climate and energy policy by announcing a withdrawal from the Paris climate accord.
The government recommitted to Australia’s emissions targets in the Paris agreement immediately after the US withdrawal, but Trump’s decision has triggered ructions in the Coalition.
Conservative MPs have argued Australia should reconsider its emissions reductions commitments after the US decision, and one former Abbott government minister, Eric Abetz, said the government should also delay its response to the Finkel review to take account of the US decision.
But the prime minister on Friday shrugged off the criticism. Turnbull told reporters travelling with him in Singapore Trump’s decision was not a surprise.
“It is disappointing. We would prefer the United States to remain part of the agreement,” Turnbull said. “We are committed to the Paris agreement. We are on track to meet our 2030 targets of a reduction in emissions by 26% to 28% on 2005 levels and I should say, we are doing well.”
Turnbull said the Finkel review process remained on track, and would be presented to the Council of Australian Governments next Friday.
The CCA and the AEMC urged the government to end the policy uncertainty. The chair of the CCA, Wendy Craik, said “uncertainty has a price”.
“New analysis done for this report by the Centre for International Economics found that current wholesale electricity prices are above long-run costs by around $27 to $40 per megawatt hour,” she said. “Electricity prices could be lower than they would be otherwise if credible and durable policy is put in place to reduce emissions in the electricity sector.”
The AEMC’s chairman John Pierce said policy certainty was needed to generate the investment required to transform the energy sector.
“Well integrated emissions and energy policy that can adapt to change and support the means of exchange and risk allocation is likely to be more stable into the future,” Pierce said.
The advice comes in a new report by the Climate Change Authority and the Australian Energy Market Commission, released on Friday, before next week’s Finkel review of the national electricity market.
The two agencies have recommended the government end the decade of uncertainty by adopting an emissions intensity trading scheme (EIS) – a form of carbon trading for the electricity sector now championed by most business groups and climate policy experts, but rejected out of hand by the government.
The agencies say an intensity trading scheme would deliver affordable and secure power “while also having lower impacts on power system security than other measures”.
They argue a trading scheme is better able to respond to changes in energy market conditions and is “therefore expected to be more durable than other measures”.
Their advice says a LET “if designed well” could achieve deep emissions reductions but might have smaller impacts on retail electricity prices than an EIS. “It can also be designed to enhance power system security by encouraging investment in low emissions gas-fired generation, and carbon capture and storage,” they say.
The advice paves the way for the release of the Finkel report, which many stakeholders believe will recommend a LET – which works in practice as a technology-neutral renewable energy target.
The report by the chief scientist is also expected to maintain a preliminary assessment that an EIS would be a good way to ensure the electricity grid remains reliable while reducing carbon emissions.
This week the government also began to prepare the ground for the Finkel review by announcing it would change the rules governing the Clean Energy Finance Corporation to allow investments in carbon capture and storage – to make the government’s so-called “green bank” more technology-neutral in its outlook.
But the US president, Donald Trump, has increased the degree of difficulty for the government to land a sensible resolution to a decade of partisan warfare about climate and energy policy by announcing a withdrawal from the Paris climate accord.
The government recommitted to Australia’s emissions targets in the Paris agreement immediately after the US withdrawal, but Trump’s decision has triggered ructions in the Coalition.
Conservative MPs have argued Australia should reconsider its emissions reductions commitments after the US decision, and one former Abbott government minister, Eric Abetz, said the government should also delay its response to the Finkel review to take account of the US decision.
But the prime minister on Friday shrugged off the criticism. Turnbull told reporters travelling with him in Singapore Trump’s decision was not a surprise.
“It is disappointing. We would prefer the United States to remain part of the agreement,” Turnbull said. “We are committed to the Paris agreement. We are on track to meet our 2030 targets of a reduction in emissions by 26% to 28% on 2005 levels and I should say, we are doing well.”
Turnbull said the Finkel review process remained on track, and would be presented to the Council of Australian Governments next Friday.
The CCA and the AEMC urged the government to end the policy uncertainty. The chair of the CCA, Wendy Craik, said “uncertainty has a price”.
“New analysis done for this report by the Centre for International Economics found that current wholesale electricity prices are above long-run costs by around $27 to $40 per megawatt hour,” she said. “Electricity prices could be lower than they would be otherwise if credible and durable policy is put in place to reduce emissions in the electricity sector.”
The AEMC’s chairman John Pierce said policy certainty was needed to generate the investment required to transform the energy sector.
“Well integrated emissions and energy policy that can adapt to change and support the means of exchange and risk allocation is likely to be more stable into the future,” Pierce said.
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