A Higher Emissions Target will Cost More

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Even before the National Energy Guarantee (NEG) gets signed off we are already seeing debate around whether a higher emissions target will increase the price of power or not. Some are saying that the price of power would be lower with a higher emissions target. It is difficult to see the logic in their argument.

From a basic economics perspective you shouldn’t need an emissions target at all if the more renewables you add, the more prices reduce. The renewables will be built without any incentive to do so. This may still happen if renewables continue to drop in price, but it hasn’t reached that point yet. Yes renewables are cheaper (excluding reliability issues) than new thermal power stations, but they still are not cheap enough to displace existing thermal generators.

This is why we still need an emissions target – because we want to achieve greater emission reductions than what we would get without the target. But let’s not pretend it will be for free or that it will save us money.

An analogy I use is with Electric Vehicles (EVs). Imagine if they were cheaper than conventional petrol / diesel vehicles and we could power them from renewable energy. Would we all suddenly convert from our “old” vehicle? Probably not – because many of us may have only just bought the “old” car and expect to get many years use out of it before we would upgrade to a new EV.

From a Government perspective how would they encourage us to convert? They could subsidise EVs. Or put a tax on petrol. Or ban the “old” vehicles. Whatever they did would be something that would be less than economically ideal, but would fast-track the substitution. There would be a cost that someone would have to pay for the environmental benefit we wanted to achieve. This is what they are doing with an emissions target.

So there will be a cost, but how much will it be? And what are we prepared to pay as consumers / voters?

This is where it gets tricky as I have little confidence in models that are supposed to inform us of where electricity prices are likely to go and the impact that varying the emission targets will have. Trying to pick future energy prices has only one outcome – you are going to be wrong!

So my dilemma is that as an environmentalist I am wanting to see us move as quickly as possible to reduce emissions, however as an engineer working in the energy sector I am aware that to do so will result in increased costs that are uncertain, and that, in the extreme, may result in demand destruction (business closures) and reduced energy affordability.

I don’t have faith in the electricity price modelling provided by the “experts” and therefore I don’t have confidence in clarifying the cost / benefit trade-offs of any emissions target whether it be 26% or 50% or anything in between. If I am confused how must the typical consumer with little industry knowledge feel?