The Authority considers that the electricity sector is best suited for a market mechanism in the near term, being characterised by quantifiable emissions, a small number of larger emission sources, and generally competitive markets.
The Policy Report recommends the adoption of an emissions-intensity scheme for the electricity sector, to be introduced in 2018.
Under such a scheme, the Government would set a target emissions-intensity baseline (e.g. tonnes of carbon dioxide per megawatt hour of electricity produced) for the sector and electricity producers would receive a free allocation of permits per unit of production.
The Policy Report does not set out a detailed plan, but recommends that emissions-intensity baselines decline linearly to reach zero ‘well before 2050’ and that the scheme allow facilities to purchase offsets, but only domestically-sourced, energy efficiency offsets (see ‘Energy Efficiency’ below).
The Authority notes that its modelling shows that although residential spending on electricity under such a scheme would increase by 8% on average to 2050, disposable income is projected to grow by 40% during the same period.
In both reports, the Authority considers the prospect of additional policies for the electricity sector which would encourage the entry of low-emissions generation and exit of high-emissions generation. It concludes that the risks would outweigh the benefits as additional policies may increase the costs and complexity of the regulatory environment and create uncertainty for investors. It recommends that existing schemes under the Renewable Energy Target should proceed as planned.