Emissions Intensity the stick to go with Renewables carrot
A proposed emissions intensity scheme has a lot of support in Australia. The AEMC, AEMO, the ALP and some academics have all supported the scheme. That’s because despite a few issues relative to an economy wide carbon price/tax an emissions intensity scheme was regarded as more politically saleable. Its politically saleable because the value of emissions credits equals the value of emissions penalties and this means that electricity price increases minimized.
In this 16 minute podcast Danny Price talks to ITK about the Emissions Intensity proposal. We discuss what the scheme is and the outcomes of the modelling done by Frontier Modelling.
Danny Price is a principal and founder of Frontier Economics and we regard him as one of, if not the leading electricity consultant in Australia. Danny and Frontier Economics many roles include having advised the AEMC, IPART, the former NSW State Govt. and various private companies including acting for AGL in the Competition Tribunal hearing re AGL’s acquisition of Macquarie Generation.
This is a great opportunity to hear Danny discuss the scheme.
ITK’s view is we need a stick and a carrot
Some may not agree with the conclusions of the Frontier Economics modelling done for the AEMC as it basically results in gas gradually replacing coal and not that much of a role for fully renewable generation out to 2030. In the real world we think the gas generation step will be bypassed and one way or another Australia will go from largely coal to largely renewables with a big share of distributed energy. Still that remains to be seen. We also think that “emissions intensity” modelling as good as it is when done by Frontier Economics is still an example of the “old fashioned” centralised modelling that is prevalent in Australia and these models will struggle to fully incorporate distributed energy including storage.
Those comments aside, what emissions intensity schemes do is produce the “stick” in the form of a penalty for high carbon emissions that could be coupled with reverse tenders for new renewable supply. The problem with a “renewables carrot” but no stick approach is that renewables force out the lowest emitting thermal generation first. Ie renewables force out gas before black coal before brown coal.
Regulations that include say higher coal royalties or increased sox and nox requirements are another way around this process.
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.