Emission price caps could threaten power supply

Tom Arup

The Age, August 3, 2009

http://www.theage.com.au/environment/emission-price-caps-could-threaten-power-supply-20090802-e5vr.html

AUSTRALIA'S chief scientific body, the CSIRO, says the design of Australia's emissions trading scheme could stifle investment in renewable technologies and threaten power supplies.

The Federal Government has proposed price caps of $10 a tonne of greenhouse gas emissions for the first year, followed by $40 a tonne for the following four years.

In a submission to the Government's energy review, CSIRO researchers warn that such price caps could cause Australia to increase its reliance on high-emissions energy, such as coal, as demand for electricity increases.

''If legislative arrangements place a cap on the price signals sent by electricity and carbon markets then it is possible that investment will be impacted, reducing the supply of new electricity generation capacity below what is required to reliably deliver power to customers or delivering less risky but most likely higher-emission technologies,'' the CSIRO submission says.

Dr Jim Smitham, leader of the CSIRO Energy Transformed Flagship, told The Age the organisation did not have an exact policy position on how much the Government's proposed price caps could affect investment in clean energy.

But Dr Smitham said all the ''purely economic'' modelling done by the CSIRO showed that less interference in the carbon market would make it more likely investment would go to renewable energy and ''clean coal'' technologies.

''If you have set the strategic direction and you want lower emissions but the financial incentive is fairly small because of price caps, people will hold off investing in new (low-emissions technology) plants because the incentive is not big enough at the moment,'' Dr Smitham said.

''Or you could reach the point where you can't build the plants fast enough and the lights will start to go out.''

Climate Change Minister Penny Wong did not comment on the CSIRO submission.

The Government's emissions trading scheme looks set to be defeated in a Senate vote on August 13, with the Opposition still demanding major changes.

Meanwhile, a Greens-commissioned Galaxy survey of 1100 Australians found that 75 per cent agreed that high-emissions industries should face tougher conditions.