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Policy interactions of an Australian ETS and expanded MRET

Wood, Justin (2008) Policy interactions of an Australian ETS and expanded MRET. Masters by Coursework thesis, Murdoch University.

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This dissertation examines the simultaneous operation of an emissions trading scheme (ETS) and the expanded Mandatory Renewable Energy Target (MRET) in Australia. Focussing on the electricity generation sector, I seek to answer the question as to whether MRET can be regarded as complementary or in conflict with an ETS. A brief overview of the expanded MRET and the likely form of an ETS is given, the latter comparing the two key climate change mitigation policy initiatives: The Garnaut Climate Change Review and the Commonwealth‘s Carbon Pollution Reduction Scheme Green Paper. The pervasive normative bias in favour of coal in both documents is highlighted.

A range of key economic interactions between the two policy instruments are evaluated. An important conclusion is that electricity prices are subject to three complex counteracting influences: MRET‘s downwards pressure on ETS permit prices while ETS permits simultaneously exert upwards pressure on fossil fuel generation costs, and MRET‘s additional cost impost on electricity retailers.

The importance of systemic interactions in technological innovation is examined, highlighting the barriers to entry for renewable energy represented by incumbent fossil fuel dominance. A crucial and perhaps surprising finding is that a carbon price signal alone is insufficient to stimulate structural change in energy technologies due to the ‗locked-in‘ nature of existing fossil fuel generation technologies and their enabling social and institutional context. Other complementary policy mechanisms are needed throughout the ‗innovation chain‘.

I further discuss the political nature of policy instruments such as the ETS and MRET, and examine the implications of a full rendering of the Precautionary Principle. A key argument is that an over-reliance on coal and the promise of geosequestration can be tempered by policies such as MRET.

On balance, I conclude that MRET is indeed necessary and is complementary to an ETS.

Item Type: Thesis (Masters by Coursework)
Murdoch Affiliation(s): School of Engineering and Energy
Supervisor(s): McHugh, Adam and Schlapfer, August
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