Whilst there is no financial penalty to date, it is certainly a policy debated vigorously by Australian government and something industry should expect to see in some shape or form in the future.

While the Government has specifically ruled out imposing a carbon tax, other instruments, such as carbon permits and emissions trading, are under periodic consideration.

Macquarie Generation manager for fuel and environment Steve Ireland said at the NSW Minerals Exploration and Investment conference in May that economists believe other instruments besides a tax will, inevitably, have similar impacts to a tax on carbon but deliver abatement more cost-effectively.

In many regulatory circles emissions trading is seen as the ‘saving grace’ in terms of emission reduction.

In order to expand the industry’s knowledge base, the Electricity Supply Association of Australia (ESAA) commissioned a study examining how the imposition of a cost for carbon emissions will, in practise, impact on electricity demand and supply.

The study was carried out by ACIL Consulting, using market-modelling techniques.

Researchers considered the short term impacts up until financial year 2009-10 and long term impacts up until 2014-15. They also looked at two carbon emission charge levels at $10 per tonne of carbon dioxide equivalent emitted (/t CO2) and $30 /t CO2 emitted.

The study’s chief finding was the introduction of carbon regimes on electricity supply would only marginally reduce CO2 emissions at high cost to consumers and to regional economies. Coal will remain Australia’s primary fuel for electricity production.

Most new development under a carbon price regime will be gas-fired generation that would emit CO2 at lesser amounts than equivalent capacity coal-fired plant. Most emission reductions will be achieved by the displacement of coal-fired generation by gas-fired plant.

Long term, under a cost of $30/t CO2 the study estimates that electricity industry emissions will fall by 8% or 17.8 million tonnes, while costs to produce power will more than double. Any price set for carbon emissions will have a similar impact to raising the cost of fuel.

The report indicated that while electricity companies would absorb some increased costs, most will flow through to wholesale markets and on to consumers.

In the short term, the model predicts little change in the proportion of electricity generated from coal, gas and other resources, although NSW will increase black coal-generation under a $30/t CO2 regime.

This will be achieved at the cost of Victoria’s brown coal-fired generators who have higher per unit greenhouse emissions than black coal-fired generators.

The study concluded that due to the relative inelasticity of electricity demand, the costs of achieving reductions was proportionally far higher than the savings and that coal would remain Australia’s primary fuel for electricity production.