This article is more than 2 years old

This article is more than 2 years old

Electricity retailers could be allowed to defer a proportion of their emissions reductions obligations under the Turnbull government’s national energy guarantee to give the energy sector time to adjust to the new regime.

The deferral idea is floated in a new discussion paper about the guarantee prepared by the Energy Security Board to kick off consultations about how the Turnbull government’s proposal would work – assuming the Neg gets the backing of state governments.

The 58-page paper, released on Thursday afternoon, says retailers could be permitted to defer up to a mandated limit, perhaps 20% of their emissions in a given compliance year, to provide “flexibility” as the scheme takes effect.

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It also suggests retailers would be permitted to carry forward any “overachievement” on emissions reduction, and use that in the next compliance year, rather than the counter resetting each year.

The Neg, proposed by the Turnbull government last year, would impose a reliability obligation and an emissions reduction on energy retailers and a small number of large electricity users.

The new emissions reduction target proposed for the electricity sector is 26% on 2005 levels by 2030.

The government unveiled the proposal last year, hailing it as an idea that could end the decade-long toxic climate wars, but state governments led by South Australia have resisted the proposal on the basis it is not sufficiently friendly to renewable energy.

The release of Thursday’s discussion paper sets off a very tight timetable of technical consultations with stakeholders. The Energy Security Board wants feedback by March, and will brief energy ministers in April about the design of the scheme.

The discussion paper underscores the fact the Neg will require a significant overhaul of the existing national electricity market arrangements, including a new bureaucracy to ensure compliance.

The paper makes it clear the proposed emissions reduction target – considered by a number of experts as too low to see Australia meet its obligations under the Paris agreement – will be locked in for 10 years.

While energy regulators have signalled that an incoming Labor government would have scope to quickly ratchet up the level of ambition in the emissions reduction target, the language in the paper on that option is cooler.

The paper proposes that further adjustments to the target be made at five-yearly intervals to “ensure the market has, at any time, between five and 10 years of targets available to guide investment decisions”.

The Turnbull government has floated that retailers will be able to use offsets, like international permits, to help them meet their emissions reduction obligations at least cost, but the new discussion paper suggests that use will be limited.

It suggests if offsets are in the mix, then the government could “place a limit on the volume of offsets that could be used for compliance with the emissions requirement across the national electricity market”.

The paper suggests the regulation could be a percentage limit, for example, 10% of the electricity emissions target, or an absolute limit, for example, 500,000 units of offsets per year.

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The discussion paper confirms that power used by industries designated as energy intensive and trade exposed “should be effectively exempt from the emissions requirement” and it suggests other industries will “need to make up the difference” to ensure the emissions reduction target for electricity is met.

It says care will need to be taken in the design of the new scheme to ensure there is not further market concentration in the energy sector, which is already highly concentrated because generators and retailers are combined in vertically integrated businesses.

The paper also confirms that penalties will apply if market participants don’t comply with their emissions reduction and reliability targets, although it emphasises that the first resort should be a culture of compliance, rather than a civil penalty.

It suggests retailers who don’t meet their mandated requirement to supply sufficient reliable power to the market could have to meet the costs of the Australian Energy Market Operator supplying that power to the market through a reserve scheme.