ALERT: ACCUs in the NEG – A carbon price by any other name?

NEG to establish ‘de facto’ carbon price and abatement pathway for power sector

Assuming the effective design and implementation of a final policy framework, the government’s announced National Energy Guarantee (NEG) provides an alternate approach to maintain reliability in the NEM, and contribute to Australia’s emissions reduction commitment under the Paris Agreement.

Below we outline our initial analyst response and implications for energy and carbon market dynamics.

A carbon price by another name?

• While it may be more efficient to establish a market mechanism with certificate prices for emissions reductions that could be traded transparently, the attributes of the NEG will in effect establish a de facto price on greenhouse gas emissions from the power sector, and provide a robust source of demand for Australian Carbon Credit Units (ACCUs).
• A 26 per cent cut in electricity sector emissions (on 2005 levels) would not equate to Australia meeting its Paris commitment. Modelling indicates that such a cut would reduce national emissions by around 40 Mt of CO2e in 2030, an 8 per cent cut on 2005 emissions levels. This would leave a shortfall of 119 Mt to meet Australia’s 2030 target. The cumulative reduction from the electricity sector