The Australian Energy Market Commission today provided advice to the COAG Energy Council that analyses mechanisms to reduce emissions in the electricity sector.
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 under the Paris commitment.
The AEMC examined the potential impacts of three mechanisms on prices to consumers, costs to the economy and power system security.
These included a market-based, emissions intensity target; an extension on the existing Large-scale Renewable Energy Target (LRET); and government-regulated regulatory closure (REG).
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,” AEMC said in a statement.
“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.