The Climate Institute - A comparison of emission pathways and policy mixes to achieve major reductions in Australia’s electricity sector greenhouse emissions

The Australian government is set to introduce an emission trading scheme (ETS) which it plans to commence in 2010. Although the government has released a Green Paper outlining the parameters for the design of an emission trading scheme, one of the key debating points is around the caps on emissions, particularly over the medium term. On the one hand, there are calls for a soft start to provide appropriate investment signals for low emission technologies, but not put Australia too far ahead of global action. On the other hand, there are calls for decisive action to drive absolute reductions in emissions and for the national target to be calibrated towards driving an ambitious global response. A second debating point is about the role for complementary measures such as energy efficiency targets and an expanded renewable energy target. Some argue that such measures will be superfluous once an emission trading scheme is in place, whilst others argue that emissions trading would, of itself, not overcome the many market failures that inhibit uptake of low emission technologies, and that removing the complementary measures will increase the cost of abatement on the economy. The Climate Institute commissioned MMA to examine these debating points. Using a simulation model of Australia’s electricity markets, MMA estimated the benefits and costs of alternative trajectories, or pathways, for emission caps and for a range of complementary measures. The “benefits” mainly related to the level of abatement of greenhouse emissions and accelerated technological development. The “costs” covered the additional capital, fuel and operating costs involved in bringing on low emission technologies and in altering the natural merit order in the dispatch of generating plant.