Lead!

Is an emissions intensity scheme the answer to Australia’s energy woes?

Blackouts, electricity price hikes and political debate have recently kept energy security in the news.

In response, the COAG Energy Council (Australia’s federal and state energy ministers) met last year to discuss how Australia can transition from fossil fuels to renewable electricity. The aim? To deliver a secure and reliable power supply, resilient to increasingly severe climate change impacts.

It’s clear that Australia needs to transform how we generate electricity. The electricity sector is our largest emitter, making up about 30% of Australia’s total greenhouse gas emissions. Without further action, electricity emissions are expected to grow by 20% by 2030.

To meet our Paris Agreement commitments – limiting global warming below 2oC by 2100 – we need to move away from coal and gas plants towards more renewable power sources like wind and solar but also solar thermal, geothermal, hydro and biomass.

Easy to say – but how do we do it? One proposal discussed at the COAG Energy Council meeting last year was an emissions intensity scheme, or EIS. We breakdown what that would entail below.

What exactly is an emissions intensity scheme?

The “emissions intensity of electricity” refers to the amount of carbon dioxide emitted per unit of electricity generated.

Australia’s electricity emissions intensity is relatively high compared to other nations – 6% higher than China, and 60% higher than the United States.. Why? We rely heavily on high emissions sources of energy like coal and gas-fired power.

An emissions intensity scheme is designed to increase the cost of electricity production from high-emitting sources (like coal and gas) while decreasing the cost of less polluting sources (like renewables). The end result? The market is encouraged to shift from high-emission to low-emission sources of energy.

How would it work?

An emissions intensity scheme would work by:

  1. Setting an emissions intensity benchmark for the whole electricity sector. This limits how much carbon dioxide can be emitted per unit of electricity.
  2. Coal-fired power plants above the benchmark can purchase credits from wind and solar farms or energy efficiency schemes to help them reach the benchmark.
  3. The emissions intensity benchmark would reduce overtime until it eventually reaches zero emissions. In order to meet Australia’s Paris Agreement obligations, this must happen well before 2050.
  4. Closing the scheme to international permits would drive local investment in renewable energy and energy efficiency.

Sounds great in theory, right? Unfortunately, an emissions intensity scheme does not necessarily guarantee a reduction in electricity sector emissions. For example, if overall electricity demand and supply increases, emissions intensity could go down while total emissions rise.

According to the Grattan Institute, this could be mitigated by setting a schedule of benchmarks five years in advance, and then revising targets for the next five years if greater emissions reductions are needed.

How would an emissions intensity scheme change Australia’s electricity mix?

The overall intent of an emissions intensity scheme is to encourage more renewable and low carbon electricity generation and to discourage high emissions power, particularly coal.

According to modeling done by the Climate Change Authority, introducing an emissions intensity scheme in accordance with Australia’s Paris Agreement obligations would have a huge impact on Australia’s electricity mix.


Power supplied by coal in 2030

Power supplied by Renewable Energy in 2030

“Business as usual” scenario

63%

24%

Emissions intensity scheme introduced

5%

52%

Are there other options?

The Climate Change Authority has also modeled a range of other policy options to achieve Australia’s 2030 Paris commitment and to achieve near zero emissions by 2050. Policy options include:

  • Carbon price
  • Emissions intensity scheme
  • Extended renewable energy target
  • Low emissions target (with wider eligibility than the renewable energy target)
  • Renewable energy feed in tariffs with contracts for difference (reverse auctions for renewable energy similar to the Australian Capital Territory’s approach for reaching its 100% target)
  • Regulated coal closures, and
  • Absolute emissions baselines.

This modelling found that reverse auctions for renewable energy, which drive investment in new renewable energy, result in the lowest costs for all electricity consumers. This is also the second cheapest model overall (following a carbon price) for meeting Australia’s emissions reduction commitments.

The modelling results reflect that new renewable energy power sources, such as wind and solar, are now cheaper than new gas or coal. Importantly, these power sources avoid the investment risks inherent in new fossil fuelled generation.

The good news is that a range of renewable energy and storage technologies can provide power on demand to complement variable renewables at times of low wind or sunshine. These include hydro, pumped storage, solar thermal, large and small scale battery storage, smart grids and demand management. One thing’s for sure - we’re not short of options!

Australia’s energy security affects us all. Check out our factsheet on “clean coal” to clear up some myths about other proposed energy security “solutions”.



Photo Credit: Flickr user Leard State Forest

Recommended

Comments