Updating the NEO to account for climate change is part of a co-ordinated transition
Please see our short insights paper on the proposed changes to the National Energy Objective to account for greenhouse gas emissions.
KEY CONSIDERATIONS
It is unclear whether ministers intend to consult on these amendments to the National Electricity Objective (NEO) and National Gas Objective (NGO), and the extent to which the change will impact energy market body decisions. For example:
•The Australian Energy Market Commission already explicitly considers whether its decisions are robust to the impacts of climate change.
•The Australian Energy Market Operator appears to account for emissions abatement in transmission planning – whereby major strategic investments are assessed and selected with reference to decarbonisation objectives (e.g. AEMO Net Zero emission ISP scenario).
•In making its decisions, the Australian Energy Regulator must facilitate and take into account all relevant stakeholder views – including those relating to affordability, equity and fairness.
The second reading speech for the Bill containing the NEO states: “The market objective is an economic concept and should be interpreted as such”.
•Will the NEO no longer be strictly about economic efficiency?
•If so, how will the energy market bodies manage multiple and potentially conflicting objectives that may rely on subjective value judgements of what is affordable?
•If decisions are guided by affordability, does that mean the market bodies will favour consumer surplus – even if efficiency is at stake? So it is not the size of the ‘economic pie’ that counts most?
•What are the expectations for regulated market participants, whose regulatory proposals should promote the NEO? For example, are the distribution network businesses expected to facilitate, deliver or drive net zero?
•Do energy ministers intend for the energy market bodies to set emissions reduction targets in some way?
•Will an emissions objective lead the market bodies to put greater weight on the interests of future consumers?
Engevity recommends that energy ministers establish a collaborative forum for the market bodies, industry and consumers to co-design and refine the national energy objectives – addressing the above questions among others. Building trust in the sector is key to long-term success. This requires further discussion, openness and transparency.
Please reach out if you would like to discuss further
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Author: Craig Chambers