Carbon Price and the Energy Sector

June 2011

Kane Thornton

Director of Strategy & Operations

Agenda

• Carbon and the Australian energy sector

• Energy Sector Objectives

• Carbon price impact

2

The Clean Energy Council

• Peak body representing Australia’s renewable energy and energy efficiency sector.

• Represents more than 500 member companies involved in developing and deploying renewable energy and energy efficiency. 

3

Carbon Emissions

5Emissions Reductions

Source: Stern Review, 2007

Implicit carbon price 6

7

Australia’s Abatement Challenge

(DCC, 2009)

8Abatement Challenge

(Garnaut Review, 2008)

9Australia’s Emissions

Energy Sector Objectives

11

Energy Sector Objectives

1. Demand side response

2. Accelerate renewable energy

3. Support low emission generation

4. Encourage new technology

5. Phase out high emission generation

12

Australia’s Renewable Energy

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Renewable % 20% RET target

Original MRET target

13

14

Proportion of Renewable Energy

(International Energy Agency, 2009)

0102030405060708090

100

Korea

Luxe

mbo

urg

United

King

dom

Irelan

d

Japa

n

Belgium

Nethe

rland

s

Czech

Rep

ublic

Russia

n Fed

erat

ion

United

Sta

tes

Slovak

Rep

ublic

Hunga

ry

Greec

e

Austra

lia

Germ

any

Poland

Spain

Franc

e

OECD tota

lIta

ly

Mex

ico

China

Turke

y

Wor

ld

Portu

gal

Denm

ark

Canad

a

Switzer

land

Austri

a

Finlan

d

Sweden

New Z

ealan

dIn

diaBra

zil

Norway

Icelan

d

Australia

World Average

Carbon Price

16

“Climate change is a result of the

greatest market failure that the

world has ever seen”

Sir Nicholas Stern, 2007.

17Objective of a price on carbon

• Places a cost on emissions• Cost to produce greenhouse gas

intensive products will increase. • Financial incentive to reduce emissions:

– Polluters: • produce less greenhouse gas intensive products

or• invest in activities or technologies which can

reduce their emissions. – Consumers:

• purchase lower greenhouse gas intensive products (such as renewable energy)

18Alternatives

• Carbon tax• Emissions Trading

– Cap and Trade– Baseline and Credit– Hybrids (Frontier Economics, McKibbon)

• Direct Government intervention

19How it works

• The quantity of emissions produced is monitored and audited (NGERS).

• Polluters need to acquire a ‘permit’ for every tonne they emit.• The number of ‘permits issued by the Government in each

year will be limited (cap).• Firms compete to purchase the number of permits they

require.• Firms that value the permits most highly will be prepared to

pay most for them (trade).• For some firms, it will be cheaper to reduce emissions than to

buy permits.• Certain sectors and firms might receive some permits for free,

as a transitional assistance measure. These firms could use these permits or sell them.

20Key Design Elements

• Liable parties• Scheme abatement target• Use of revenue• Compensation• Offsets• International Links

21Electricity Prices

(Garnaut Review, 2008)

22

Energy Sector Objectives

1. Demand side response

2. Accelerate renewable energy

3. Support low emission generation

4. Encourage new technology

5. Phase out high emission generation

Conclusion

• Carbon price is inevitable• Australia’s competiveness is at risk• Must reduce emissions from energy

generation• Carbon price is critical

23

Carbon Price in the Energy Sector

Kane Thornton

Director of Strategy & Operations

kane@cleanenergycouncil.org.au