Climate Change Authority

Towards the next generation: AEMC and CCA release new report on energy

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The Australian Energy Market Commission (AEMC) and the Climate Change Authority today released a new report on solutions for affordable, secure and lower emissions energy.

The joint advice released today 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 emissions reduction targets in the Paris agreement.

Dr Wendy Craik AM, the Authority Chair, said: “Energy and emissions reduction policies have been largely pursued as separate agendas.

“The advice in this report is geared towards the better integration of energy and emissions reduction policies, to provide greater investment certainty and in doing so, help keep electricity prices as low as possible while enhancing power system 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 megawatt hour. 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,” Dr Craik said

The AEMC and the Authority are of the view that an Emissions Intensity Scheme (EIS) is the preferred policy mechanism for the electricity generation sector, consistent with the options they analysed in previous reports.

AEMC Chairman, John Pierce, said today the joint advice drew on existing analysis and independent modelling. It is consistent with previous advice from both the Commission and the Authority.

“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 Authority considers many different policies or policy sets can help to reduce emissions although their impacts on electricity prices and power security will vary depending on their nature and design features.

The Authority also thinks that good design and implementation are as important as policy choice if measures are to meet the three objectives of affordability, security and emissions reductions.

The Authority has 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 generation technologies including gas and carbon capture and storage (CCS).

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.

In addition to the recommendation on the EIS, the Authority and the AEMC also support the ongoing reforms of the east coast gas markets, agreed by the COAG Energy Council, and the continued development of a competitive energy services market as important elements of delivering affordable, secure and lower emissions energy.

The Government has said that this report will serve as an input into the Independent Review into the Future Security of the National Electricity Market being led by Professor Alan Finkel. The Finkel review will inform the Government’s 2017 review into climate policies.

About the AEMC and the CCA

The AEMC is an inter-jurisdictional body with many functions and responsibilities in the Australian electricity and gas markets. The Authority is a Commonwealth agency established to provide advice on emissions reduction policy.

Media contact:

Climate Change Authority – Aileen Muldoon 0419 112 503

AEMC – Prudence Anderson 0404 821 935

Friday, 2 June, 2017