Carbon Price Passes Lower House

12 Oct 2011

Against last-minute efforts by the opposition to delay the passage of the Carbon Price Bills and 11th hour pleas for amendments by some business groups, the government passed its 18 pieces of legislation by a vote of 74 to 72 just before 10am. As the Government and Greens have a clear majority in the Senate it is likely to pass there in mid-November.

We do not anticipate any particular reaction for the STC market, as the STC market is completely separate to carbon trading.

What is the carbon pricing scheme?

Australian industry has always operated without taking into account the environmental cost of their operations. From 1 July 2012, Australia’s top 500 polluters will be required to buy permits to emit carbon pollution. The permits will be purchased from the Government at a fixed price of $23 per tonne of CO2-e for the first three years of the scheme. From 1 July 2015, the scheme will transition to a full emissions trading scheme, and permits will then be traded. Annual targets, or caps on the amount of total carbon emissions will be enforced, and the price will fluctuate according to supply and demand.

Isn’t that similar to the Renewable Energy Target schemes?

A price on carbon penalises polluters by placing a liability on them to purchase emissions permits. This operates inversely to the SRES or LRET schemes, which reward renewable generators by paying for certificates generated. These schemes are completely separate, the permit/certificates are different commodities and pricing is not linked. However, as both relate to electricity use, the carbon price may influence the renewable energy market as the price of electricity rises and renewables become more competitive with fossil fuels.
Small-scale systems and STCs.

As fossil-fuel generators will be required to buy emissions permits, electricity prices will rise. According to Treasury modelling, the average household will pay about $9.90 a week in extra living costs, including additional electricity bill increases of $3.30 per week.  However, this will be offset by an estimated $10.10 in extra benefits and tax breaks for many families.  We know that many households already invest in PV and SWH to minimise the burden of rising electricity prices. Many households will receive more compensation than required to meet the expected cost of carbon pricing. More than enough STCs have now been created to meet the 2011 target. As the oversupply grows, there will continue to be downward pressure on the STC price.

Large-scale renewables and LGCs

The income for a large-scale renewable project comes from the sale of both the electricity and LGCs generated. So far this year, no new major projects have been committed, as the LGC price remains low. With a price on carbon, wholesale electricity prices will rise, meaning project developers may not have to rely on rising LGC prices before their project becomes financially viable. The announcement that all GreenPower purchases will be treated as additional to Australia’s emissions reduction targets may also increase the demand for renewable electricity.

What else does the package include?

A number of new programs were announced to support the carbon pricing scheme. These include:

• Two new programs added to the Low Carbon Communities initiative aim to support low income households reduce energy bills. The Low Income Energy Efficiency Program and the Household Energy and Financial Sustainability Scheme will provide grants for residential energy efficiency activities. Local councils and community groups may also be eligible to receive grants to retrofit their facilities.
• The Remote Indigenous Energy Program will follow on from the discontinued Renewable Remote Power Generation Program, providing grants for 55 remote indigenous communities to install renewable technologies including PV. It will also provide training on system usage and maintenance to ensure full benefit is gained.
•  Further work is to be completed on the need for a National Energy Savings Initiative (which may be a certificate-based scheme), as recommended by the Prime Minister’s Task Group on Energy Efficiency in 2010. The implementation of NESI would be subject to the closure of all existing state-based schemes (including VEET).
• The Clean Energy Finance Corporation will offer financial support for the development, manufacture and commercialisation of new renewable energy and energy efficient technologies.
• Funding distribution for new and existing large-scale renewable programs such as Solar Flagships will be overseen by a new independent body of experts – the Australian Renewable Energy Agency (ARENA).