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

5 Emissions Reductions Source: Stern Review, 2007

Implicit carbon price6

7 Australia’s Abatement Challenge (DCC, 2009)

8 Abatement Challenge (Garnaut Review, 2008)

9 Australia’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

13

14 Proportion of Renewable Energy (International Energy Agency, 2009) 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.

17 Objective 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)

18 Alternatives Carbon tax Emissions Trading –Cap and Trade –Baseline and Credit –Hybrids (Frontier Economics, McKibbon) Direct Government intervention

19 How 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.

20 Key Design Elements Liable parties Scheme abatement target Use of revenue Compensation Offsets International Links

21 Electricity 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