How did carbon pricing affect the energy market?

Carbon pricing brought down demand and emissions 171 76924 0 14100828 300

The announcement that carbon pricing has been scrapped was met with mixed reactions, but what many people might not realise is how much of an impact it had on the energy sector.

A report from Australia's National University (ANU) shows just how widespread the outcome has been, as well as some of the issues electricity suppliers could face now it's been repealed.

Decreased demand for electricity

One of the most notable impacts of carbon pricing has been its effect on energy consumption and emissions.

ANU looked at demand and supply in the National Electricity Market (NEM) between 1 July 2012 and 30 June 2014 to find consumption declined 3.8 per cent. Meanwhile, the emissions intensity of the electricity supply fell 4.6 per cent and overall emissions were down 8.2 per cent.

This is compared to the two-year period before the carbon price was brought into force.

So what was it that triggered these declines? Increasing electricity prices meant people thought twice before using too much electricity, which had a positive knock-on effect for emissions.

Across the NEM, household electricity prices increased by an average of 10 per cent, while industrial costs were up by around 15 per cent. This was spurred on by the carbon price.

Estimates from ANU suggest that in response to the carbon price, households decreased their electricity usage by around 2.5 terawatt hours (TWh) per year. For businesses, this stood at 4.2 TWh. This equates to around 1.3 per cent or 2.3 per cent of total electricity demand across the NEM.

Carbon emissions start to fall

Researchers found that in light of the carbon pricing scheme, between 5 and 8 million tonnes of CO2 emissions were prevented from entering the atmosphere in 2012-13. This increased to 6 to 9 million tonnes during the following financial year.

There was also a rise in the number of high-emissions plants removed from operation. Instead, there is likely to have been increased interest in sustainable energy technology and other sources of generating electricity.

However, ANU researchers explained how many investors will have been reluctant to put money into low-carbon power generation assets, especially if they thought carbon pricing was on its way out.

A main area of concern when it comes to carbon emissions is the power sector, which the report established is the largest source of emissions. Researchers argue any policy directed at lowering greenhouse gas emissions needs to be targeted at industry - as indeed was the carbon price.

It was only given two years to prove its worth - and this was achieved - as the carbon price managed to lower emissions from the power sector both from a supply and demand perspective.

Looking to the future 

Authors of the ANU report explained how the carbon price has worked as well as many people had expected and has led to many positive short-term impacts.

However, in order for it to meet its full potential, the scheme would need to be given a much longer timeframe - something parliament has since decided against.

Researchers explained how carbon pricing is important for effectively and cost-effectively preventing the impact of climate change, especially in relation to the electricity sector. Alternative methods for ensuring this is the case now need to be discovered if this is to continue.

What's next for the sector is up for debate. Whether a similar scheme will be put into place is yet to be seen, but it's evident that policies do make a difference when it comes to improving Australia's environmental credentials.

Posted by Liam Tunney