Home: Renewable Energy News: Friday 21 March, 2008

Renewable Energy News

FRIDAY 21 MARCH, 2008 |

Prof Garnaut proposes emissions trading scheme design

Professor Ross Garnaut has released a discussion paper on an Australian emissions trading scheme, stating that the introduction of an ETS signals the opportunity for profound, long-term structural change for Australia. The paper argues for the need to design the scheme on the basis that it will ultimately be part of a global agreement on greenhouse gas mitigation.

“A global emissions trading scheme is clearly our end goal. I have looked at all the design issues through the lens of what would allow the most efficient and effective integration with international schemes,” says Professor Garnaut. The paper suggests fixed and clear limits on emissions through the establishment of defined emissions ‘trajectories’, which would transparently map the pathway to emissions reduction targets/commitments. Permits would be regularly auctioned in line with the trajectory.

“A long-term, firm trajectory for emissions reduction – which could only be tightened, not loosened, in line with emerging international commitments – would provide greater investor confidence and strengthen the credibility of the scheme,” he says.

Garnaut recommends four trajectories should be specified with the establishment of an ETS. The first up to 2012 will be based on Australia’s Kyoto commitments. The other three for the post-2012 period reflect increasing levels of ambition.

Stationary energy, industrial processes, fugitives, transport and waste should be covered from the outset of the scheme with agriculture and forestry to be included as soon as practicable, the paper states.

Garnaut says that ‘simplicity’ is the key to an effective ETS for Australia. The ETS discussion paper supports the auctioning of all permits, arguing that any increase in the price of goods or services, such as energy, will not be prevented through the free allocation of permits.

“Whether permits are allocated freely or auctioned to existing [electricity] generators, the price impact on households will be the same,” the discussion paper states.

“The auctioning of permits will generate very large amounts of revenue, and the Government will face many competing demands on how that is used. These will include from households affected by increased prices of goods and services, employees and communities dependent on emissions-intensive industries, and non-traded sectors whose costs are directly impacted,” says Professor Garnaut.

“The revenue should be spent on improving the productive or adaptive capacity of the economy, in ways that are consistent with reducing greenhouse gas emissions.

“Special attention must be given to consumers who will ultimately bear the cost of a carbon price, and in particular, low-income households,” he says. The discussion paper supports transitional assistance to trade-exposed emissions intensive industries (such as steel and aluminium manufacturers) that are unable to pass on the cost of a carbon price.

Energy Supply Association of Australia chief executive Brad Page says that time is needed to fully analyse what is a lengthy and complex report. He noted that while Professor Garnaut is aiming for a sustainable and economically efficient solution, there are aspects that warrant closer examination.

No price caps in the scheme, the auctioning of all permits, the method by which permit allocation revenues may be distributed and the ability to bank and borrow permits are complex features needing deliberation and analysis.

Of concern to esaa is Professor Garnaut’s opposition to financial support for disproportionately affected assets. Page says that the Association will respond to the discussion paper on this and related matters.

Wong releases detailed emissions trading timetable

Federal Climate Change Minister Penny Wong has announced the Australian Government’s detailed timetable for introduction of emissions trading. “The introduction of emissions trading will constitute the most significant economic and structural reform undertaken in Australia since the trade liberalisation of the 1980s,” Senator Wong says.

“The Rudd Government will take a careful and methodical approach to finalising the design of emissions trading, to get the best results for our climate while minimising the risks for our economy,” she says.

The timetable includes four phases of consultation on key design and implementation issues.

“Consultation is a key part of our methodical approach. An important step will be the release of a Green Paper in early July 2008, to encourage the community and industry to continue offering their ideas on the design and implementation of the scheme,” says Wong.

“I want to assure industry that the views they have already expressed will be taken into account when formulating our policy positions.

“We are also consulting the States and Territories through a working group of the Council of Australian Governments,” she says.

Consultation has begun with the convening of two roundtables involving peak industry and other non-government organisations in early March.

The Green Paper will canvass options and preferred approaches on issues, such as which industry sectors will be covered and how emission caps will be set.

It will also include ways to address the impacts of emissions trading on Australian households, emissions-intensive trade-exposed industries and other strongly affected sectors.

The second phase of public consultation will focus on the Green Paper and will occur from early July to early September 2008. A further phase will follow the release of the emission trading legislation in December 2008.

The design of emissions trading will also be informed by economic modelling work being undertaken by the Australian Treasury, the work of the Garnaut Review, and the work done to date at the Federal, State and Territory levels.

“The Government will continue to seek input from the public, industry and nongovernment groups to ensure emissions trading gets the best results at the least cost,” Senator Wong says.

Emissions trading is central to achieving the Government’s goal of reducing Australia’s greenhouse emissions by 60 per cent by 2050.

“The cost of carbon under the emissions trading scheme will be determined by the market, because we will set a level of emissions, we will have permits up to that level and the market will trade and the market will set the price,” says Wong.

“Ratification of the Kyoto Protocol means that we do have a target for up to 2012, but we need a mid-term target and we have said we will set that after we consider the economic modelling that I have discussed, after we consider Professor Garnaut’s report and we will set that towards the end of the year,” she says.

“We are determined to undertake this reform as carefully and as methodically as is possible,” says Wong.

Key challenges: energy security and climate change

Federal Energy Minister Martin Ferguson says there is no doubt the two major themes of energy policy for the next few years are energy security and climate change.

“Responding meaningfully and effectively to climate change while maintaining adequate, reliable and affordable energy remains a key challenge for the Government and the energy sector,” says Ferguson.

“We know from experience that competitive markets and effective regulatory frameworks help deliver the right level of investment and in turn deliver ongoing access to adequate, reliable and affordable energy services,” he says.

Ferguson says it is the Federal Government’s job to provide the leadership necessary to get the policy settings right to deliver open, competitive markets and investment certainty for the energy sector.

“As the Minister for Energy, this is my top priority,” Ferguson says. Competitive markets and effective regulatory frameworks are the cornerstones of Australia’s domestic stationary energy markets for electricity and gas.

Ongoing energy market reform is therefore vital to provide the right investment signals and ensure long-term gas and electricity supply security for Australia.

Ferguson is looking to progress the Ministerial Council on Energy work program on time and to deliver real outcomes for the benefit of the Australian economy. “We cannot afford to slacken the pace of reform,” he says.

The MCE has agreed on several reforms in recent months, including a detailed implementation plan for the establishment of the Australian Energy Market Operator; a consistent national minimum functionality for smart meters and the Australian Energy Market Commission’s review of retail competition in South Australia’s retail market.

One of AEMO’s functions will be the National Transmission Planner for electricity. The AEMC is developing a detailed plan for the implementation of this function and Ferguson says he is closely monitoring its progress. Ferguson says that transmission planning is especially important in the new carbon-constrained environment.

“The successful integration of a potentially large increase in renewable energy supply, resulting from the 20 per cent Renewable Energy Target, will rely on effective transmission planning and congestion management strategies” he says.

The MCE is also working hard to achieve COAG’s commitment to mandate a roll-out of smart meters if they are deemed cost-effective, according to Ferguson. In addition to the electricity market, he says the MCE recognises the importance of investment in domestic gas infrastructure. The current reforms embodied in the National Gas Law and Rules are designed to improve the regulatory regime and encourage such investment.

Ferguson says the most significant policy challenge facing the energy sector today is climate change.

“The Government is also serious about being economically responsible and we are committed to reducing emissions at least economic cost, whilst maintaining adequate, reliable and affordable energy supplies and the international competitiveness of Australia’s industries” Ferguson adds.

Ferguson says the introduction of a domestic emissions trading scheme is a core element in the Australian Government’s plan to reduce emissions.

The development of measures that will complement an emissions trading scheme include development and deployment of renewable and low emissions technologies; energy efficiency and conservation; and successful international engagement on energy efficiency and technologies, according to the Energy Minister.