Auction system proposed to halve electricity emissions

Emissions from coal-fired electricity generators could be drastically reduced by 2030 by introducing a Coal-Generation Phasedown Mechanism (CPM), according to a proposal from a new centre-right think tank.

The Blueprint Institute has issued a paper, Phasing down gracefully: Halving electricity emissions this decade, which outlines an orderly phase-out of coal-fired generation during this decade. By doing so, Australia could halve emissions in the electricity sector while avoiding price spikes and supply shocks that could come with unplanned coal-fired generator closures.

The paper suggests setting sectoral emissions caps under the existing Safeguard Mechanism, which could be applied to coal-fired generators down to 50% by 2030, setting the stage for participation in a CPM.

Under the Safeguard Mechanism, sectoral emissions caps can be applied to generators down to 50% by 2030 to drive participation in the CPM. Setting a firm target for decreasing coal-based electricity coal generation would "generate a clear market signal, pulling investment in renewables and firming into the grid in advance."

Blueprint Institute has outlined a case for government action, but the recommendations are designed for implementation through a variety of means, said Daniel D'Hotman, director of research and operations, Blueprint Institute.

"Our suggestion is to adjust the safeguard mechanism to create a sectoral emission gap, but you could do it thru an independent piece of legislation, and the way as you could fund it as well could be done through taxpayers or via the emitters themselves," he said.

The paper outlines for a CPM that is an auction mechanism to "give the least viable plants an incentive to set a clear exit date." Participants would submit valuations for generating quantities of emissions for each timeframe to the closure of existing plants. The auction system would allocate contracts.

The cost of the CPM could either be borne by taxpayers or generators, or a combination therein, depending on the nature of the political calculation, D'Hotman said.

"We were explicit in saying we don't' make a value judgement on who should pay," he said. "On the one hand, taxpayers could pay, on the other hand generators could pay for the right to emit, by buying the right to put emissions out through generation. Obviously the decision that who pays is a political choice."

By implementing a sectoral cap and CPM program, Australia could see emissions reduction of 390 Mt CO2-e—around 85% of Australia's total emissions in the year 2030. Based on the current spot price in the European carbon market, these emissions reductions would be worth around $20 billion, the report said.

"The broader point is that if taxpayers do end up paying for this, we think it would be a fairly cheap way to pay for this," D'Hotman said. "One of the potential scenarios suggests that the oldest plants at the moment are closing soonest. If they all came under our scheme, we get 390 MT of emissions reductions, which is worth around $2- billion in the European market. Newer plants could close as well.

"Both in terms of emissions reductions itself and also closing plants in a more orderly way, which reduces price increases, we think it's an important place for the government to step in, would be a prudent use of taxpayer funds, and certainly  more prudent than existing programmes."

To enter into the CPM, the paper recommends that generators be required to offer redeployment opportunities for workers affected by coal-fired generators, and where not possible, retraining and remuneration arrangements.

Blueprint Institute is planning further research into this area, with the next topic to address the impact on communities that have employers related to coal-fired generation, D'Hotman said.

"The next paper we have coming out would be looking at the impact of the policy on communities that rely on coal fired generation and how do we support their work as it happens," he said. "You can still continue to mine and export coal, but nonetheless there will be impact on communities - there are 10,000 workers on the coal fired industry as well as the workers in the coal mining industry."

Blueprint  Institute is a new think tank that launched this year, and is backed by

Read more: CPMBlueprint InstituteSafeguard MechanismCoal-Generation Phasedown MechanismDaniel D'Hotman
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