• We'll create our own emissions trading markets, say power companies
We'll create our own emissions trading markets, say power companies
13 Mar, 2018, No Comment

Summary: Energy companies have signalled they could create their own carbon trading market to deal with the lack of a similar mechanism under the government's National Energy Guarantee policy.....

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In the first round of feedback for the NEG, the energy sector outlined the need for a carbon price to help the industry reach Australia’s Paris Agreements of lower emissions, however, others believed the market would trade carbon certificate equivalents on its own, regardless of government interventions.

Grattan Institute Energy Director Tony Wood said that the National Energy Guarantee would be more effective and address retailer emissions issues and compliance if there were emission reduction certificates, but if it doesn’t exist the market will likely create one.

"When you don’t have tradeable [carbon] credits then it becomes more complicated," he told Fairfax Media.

"The certification of emissions or emissions intensity would make it easier for retailers to comply with the guarantee and for compliance to be checked. The methodology for emissions calculation for liable retailers is made more complex by the need to avoid creating and trading emissions reduction certificates."

Mr Wood said the market would likely create its own a shadow trading scheme within the NEG, however, he was quick to state it would not be a traditional emissions market as it features no permits or tradeable credits.

AGL agreed that a shadow carbon trading market was likely to arise, regardless of government mechanisms.

"In our view, imposing a limit on emissions for retailers will naturally create a secondary market for retailers to buy and sell entitlements that are tied to emissions, in the event they significantly outperform or underperform on their requirements," it said.

"We strongly support a detailed design that does not restrict the possibility of a secondary market emerging."

Energy generators believe they should shoulder the emissions obligations, not retailers.

Energy generators believe they should shoulder the emissions obligations, not retailers.

Photo: Bloomberg

Both AGL and Origin, Australia’s two largest generators, called on the government to completely shift the emissions obligation from retailers to back on the generators as well as instituting more ambitious emission reduction targets.

AGL stated that the obligation to reduce emissions "would seem to more naturally sit on generators".

Origin agreed that pushing obligations onto retailers complicated the process.

"Placing the point of liability at the retail level for the reliability and emissions obligations adds a layer of complexity to the NEG design which is unnecessary," it said.

"Contracting entities do no align neatly with individual generating assets, making assignment of emissions factor difficult for a portfolio generator. The use of contracts to trace a market participant’s liability could prove to be administratively complex with financial contractual volumes exceeding physical.

"Given the absence of a natural link between purely financial contracts (such as ASX futures) and emissions, there are outstanding questions on how this exercise could be undertaken with the requisite degree of accuracy."

Both believed the government need to set higher emissions reduction targets.

"The best way of reducing wholesale prices over time is by increasing supply through policy certainty on emissions reductions, which may necessitate a further refinement of the existing market settings," AGL said.

In Origin’s submission, it stated: "We believe the electricity sector can be responsible for more than its proportionate share of any national carbon reduction measure."

Origin welcomed the development of the NEG as a solution to solving the energy crisis, stating that overall the objectives of the policy are sound.

It added that Australian industry needs to get cleaner and that carbon offsets may hamper, rather than support, investment in low emissions technology.

"We do not support the use of offsets in the NEG," Origin said.

"We are concerned that the use of offsets may undermine signals to invest in new low emissions and reliable generation," it stated, although it does support assistance of emissions intensive trade exposed industries.

A Clean Energy Target, which would put a price on carbon emissions, was one of the 50 recommendations of the Finkel Review into Australia’s energy sector, and the only one not implemented by the government in its shakeup of the industry, a factor which the energy industry believes has hamstrung the sector’s transition to more sustainable generation.

smh.com.au 11/3/2018

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