The Australian Energy Markets Commission (AEMC), the agency that sets the nation’s electricity and gas market rules is demanding that new energy market laws should set a carbon price starting at $70 a tonne, rising steadily to six times that by mid-century.
In a report released without fanfare at the end of March, AEMC announced an interim value of cutting emissions, starting at $70 per tonne of carbon dioxide-equivalent in 2024. That price should increase steadily to reach $420/t CO-e by 2050, when Australia aims to reach net zero carbon emissions.
According to reports, the requirement for a carbon costing followed changes to national energy legislation that covers the electricity, gas and energy retail sectors. Federal, state and territory energy ministers agreed in May 2023 to make cutting carbon pollution an objective of key energy laws for the first time, with price and reliability among the other targets.
AEMC said in the report that emissions reduction is no longer considered only as part of the external context for our decision-making, but as one of the central considerations in determining if changes are in the long-term interest of consumers.
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Alan Pears, who is an energy expert and industry fellow at RMIT University, said the emissions reduction “value” was in effect a shadow carbon price that could have an “enormous” impact on the energy sector.
Australian Energy Market Operator officials told a webinar last week that the operator would need to amend its draft 2024 blueprint for the country’s energy future – the Integrated System Plan – to include the projected carbon price, Pears said. The final ISP is scheduled for release on 28 June.
“Adding $70/t-plus is a lot,” he said. “You really change the economics of the AEMO model.”
In particular, a carbon price would “make quite a difference” for the prospects of gas-fired generation that previous ISPs had assumed would play a bigger role as coal plants exit, Pears said.
The Gillard Labor government implemented a $23/t carbon price that took effect from July 2012. It was scrapped by the Abbott coalition government two years later, making Australia the first nation to introduce and then rescind a price on greenhouse gases.
Story was adapted from the Guardian.
