Carbon Tax and Renewable Energy

Anne Kallies
Melbourne Law School
The discussion in Australia
All about the price?
 ALP – $20-30 per tonne
 Greens – more than $40 per tonne
 Business council of Australia - $ 10 per
 (Liberals – no carbon price)
Why is Renewable Energy important
for Australia’ mitigation effort?
Australia’s Policy commitments
60% emissions cuts by 2050
5% emissions cuts by 2020
Garnaut Quote
With a carbon price in place, current
climate change mitigation policies
would not be a cost-effective way to
reduce emissions. Most, including
the Renewable Energy Target and
feed-in tariffs, should be phased out.
(Ross Garnaut, Climate Change Review Update (2011))
German quote
Support for Renewable
Energy and Emissions
Trading: We need both!
(Deutsche Institut für Wirtschaftsforschung (DIW Berlin), Wochenbericht 11/2009)
The Theory: cost-effectiveness
carbon price alone to drive optimal
deployment of low-carbon technologies/
specific renewable policies would raise
mitigation costs, by displacing low cost
ETS reduction with more expensive RE
The Theory – Green serves the
Green serves the dirtiest? Addresses the
interaction between RE support policies
and emissions reduction policies
“while overall fuel production falls as a
result of combined ETS and TGC quotas,
the dirtiest producers actually increase
output to keep total CO2 Emissions at the
binding ETS ceiling”
(Sinn, Das Gruene Paradox (2008), see also Boehringer and Rosendahl, Green serves the dirtiest
Targeted Renewable Energy
Regulation - Objectives
Climate change mitigation
 Energy security
 Protection from price volatility of fossil
 Reduction of other pollutants and health
risks of fossil fuel use
 Building green industry for the future
 Supporting diverse portfolio of diverse
renewable sources
Carbon Price - Objectives
Lowering emissions by correcting
market failure (at least cost?)
Electricity transformation under a
carbon price?
Garnaut scenario:
 Lowering demand (3% short term/7% long term)
 High uptake of gas (in the short to medium term)
 carbon price rises - costs of newer technologies fall
with r&d and experience, less emissions-intensive
forms of generation will become competitive
Problems with this scenario
Is there such a thing as short term
changes in electricity markets? The
lock-in question.
Renewables need market deployment to
become viable
Other barriers for renewables cannot be
Electricity investment and long-term
Electricity generation and transmission
infrastructure is a long-term investment
New generation patterns are locked-in
for a long time
Danger of locking-in a gas and wind
Market deployment
Renewable energy needs market
(Zero Carbon, Renewable Energy Technology Cost Review)
Barriers for Renewable Energy
Institutional change needed for
renewable energy: deregulated
electricity market design supports
centralised large scale constant
generation – disadvantages distributed,
intermittent renewables
“Climate change is a long term issue. It
might be important to implement higher
cost options together with lower cost
options, if the deployment of the former
has the potential to reduce the longer
term costs of mitigation”
(Philibert, IEA, 2011)
Final Thoughts
Sustainable development and a low
carbon future - what is equitable?
Australia needs a long-term vision
instead of a carbon price discussion that
is narrowly concentrated on low cost
Thank you!
Anne Kallies
Centre for Resources, Energy and Environmental
Law, Melbourne Law School