Big dol­lars ride on car­bon de­ci­sions

The Weekend Australian - Review - - Clean Energy - ANTONY CO­HEN

THE po­lit­i­cal de­ci­sions made based around sus­tain­able en­ergy pol­icy over the next six to 12 months will have a ma­te­rial im­pact on bil­lions of dol­lars of new in­vest­ment, and the value of nu­mer­ous com­pa­nies across Aus­tralia. The tran­si­tion to­wards a car­bon- con­strained econ­omy is likely to re­sult in win­ners and losers, so the Gov­ern­ment will need to take care on pol­icy de­vel­op­ment to en­sure the best emis­sions out­comes do not have large, un­in­tended con­se­quences.

The Gar­naut Cli­mate Change Re­view, re­port­ing in Septem­ber 2008, will rec­om­mend an approach to de­liv­er­ing an Aus­tralian emis­sions trad­ing scheme ( ETS) for com­mence­ment in 2010. Gar­naut is fill­ing lec­ture halls across the coun­try each time he gives an in­terim up­date, as com­pa­nies in­creas­ingly recog­nise the po­ten­tial op­por­tu­nity or dam­age to their bot­tom line prof­itabil­ity. One of the more con­tentious de­sign el­e­ments is whether some of the per­mits ( the right to emit a tonne of car­bon diox­ide or its equiv­a­lent in other green­house gases) will be free to af­fected com­pa­nies or whether all of the per­mits will be auc­tioned.

The neg­a­tive ef­fect on the value of a coal power sta­tion, by re­quir­ing it to buy all per­mits at auc­tion, could pre­vent cur­rently an­tic­i­pated re­li­a­bil­ity and/ or car­bon mit­i­ga­tion fo­cused in­vest­ment. While it is gen­er­ally ac­cepted that power prices will rise as a re­sult of the ETS, the po­ten­tial for in­creased whole­sale power price volatil­ity, re­sult­ing from a less re­li­able power sta­tion as­set base, and for re­duced in­vest­ment in mit­i­ga­tion have so far at­tracted lit­tle at­ten­tion.

Re­new­able en­ergy pol­icy has been in place since 2000 at a fed­eral level through the manda­tory re­new­able en­ergy tar­get ( MRET) to de­liver an ad­di­tional 9500GWh of clean en­ergy by 2010. State gov­ern­ments keen to pro­vide fur­ther stim­u­lus to the re­new­able en­ergy in­dus­try have leg­is­lated ad­di­tional tar­gets within their in­di­vid­ual states. In or­der to bring fur­ther cer­tainty and growth to the in­dus­try, the com­mon­wealth and states agreed in De­cem­ber 2007 to work to­wards bring­ing the ex­ist­ing MRET and the var­i­ous state- based tar­gets into a sin­gle na­tional MRET scheme by early 2009 tar­get­ing de­liv­ery of 45,000GWh by 2020. It is un­clear to what ex­tent the cur­rent sup­ply pipe­line of re­new­able en­ergy projects will in­crease as this may re­quire a steeper tra­jec­tory to­wards the 2020 tar­get than ex­pe­ri­enced un­der the ex­ist­ing scheme.

The MRET scheme it­self is tech­nol­ogy ag­nos­tic lead­ing prin­ci­pally to the de­vel­op­ment of wind farms as the most eco­nomic form of re­new­able en­ergy at present. The in­te­gra­tion of more re­motely lo­cated wind­farms into the na­tional trans­mis­sion grid will be­come in­creas­ingly costly and so ad­versely af­fect the eco­nomics.

One po­ten­tial route for funds re­ceived by gov­ern­ment from the auc­tions of some of the per­mits un­der the ETS is to­wards sup­port­ing in­fra­struc­ture costs for clean en­ergy which could sup­port re­al­i­sa­tion of the up­graded MRET.

It is ex­pected that over time as the cap on emis­sions gets in­creas­ingly tighter un­der the ETS, suf­fi­cient sup­port for re­new­able en­ergy will be pro­vided via higher elec­tric­ity prices and the need for an MRET sup­port mech­a­nism will di­min­ish.

When 2008 draws to a close, it is an­tic­i­pated that in­creased cer­tainty over sus­tain­able en­ergy pol­icy will be given through de­tailed ETS de­sign and draft leg­is­la­tion and the ex­panded MRET. This will en­able busi­nesses to make in­formed de­ci­sions which will guide Aus­tralia’s tran­si­tion to a lower car­bon econ­omy.

Antony Co­hen is a KPMG part­ner

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