An Emissions Intensity Scheme (EIS) is the preferred policy mechanism for the electricity generation sector, according to a new report released by the Australian Energy Market Commission (AEMC) and the Climate Change Authority (CCA).
The joint advice released last week was requested by the Commonwealth Minister for the Environment and Energy to provide advice on policies to enhance power system security and to reduce electricity prices consistent with achieving Australia’s emission reduction targets in the Paris Agreement.
The government has repeatedly ruled out an EIS, claiming it would threaten energy stability.
Energy Minister Josh Frydenberg told Lateline an EIS would “quickly push out the black and the brown coal generators that we can’t afford to lose because of the impact it would have on the stability of the system.”
CCA chair Dr Wendy Craik AM said the advice given in the report was geared towards the better integration of energy and emissions reduction policies to help keep electricity prices low and enhance energy security.
“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 MWh,” Dr Craik 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.”
AEMC chairman John Pierce said government policy certainty is needed to generate the investment required to transform the 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,” Mr Pierce said.
The CCA said good design and implementation are as important as policy choice if measures are to meet the three objectives of affordability, security and emissions reductions.
It recommended a Low Emissions Target (LET) be considered as an alternative policy given that the EIS has been ruled out by the Commonwealth Government.
“The Authority believes that a LET could support a wide range of technologies including gas and carbon capture and storage (CCS),” a statement from CCA and AEMC said.
“The AEMC has not conducted any quantitative analysis of a LET-type emissions reduction policy mechanism and how it compares to an EIS.
“Without such analysis it is not possible for the commission to assess the impact of such a policy mechanism on the electricity market, and specifically its impact on prices and system security.”
The report will serve as an input into the Independent Review into the Future Security of the National Electricity Market, which is expected to be released this week.