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AGL Energy Limited 76
Sustainable generation sources
Carbon price
“AGL wants to see the bipartisan emission reduction
target achieved at the lowest cost to our customers
and all Australian families and businesses.”
– Michael Fraser, AGL CEO and MD
As discussed earlier in this chapter, on 1 July 2012, a fixed carbon
price of $23/tonne of carbon dioxide equivalent (CO
e) was
introduced in Australia. Facilities with greenhouse gas emissions
greater than 25,000 tonnes will be required to pay the fixed price
for each tonne of emissions. Following two further years of fixed
prices, it is intended that an emissions trading scheme will apply
from 2015. While the
Clean Energy Future
package of legislation
underpins this scheme design, there is significant uncertainty about
the longevity of the scheme. There is clear disagreement between
the two major political parties about the mechanism to reduce
emissions, although there is agreement in relation to the public
policy objective – a 5% reduction of emissions by 2020 relative
to 2000 levels.
Despite uncertainty regarding bipartisan political commitment for
the introduction of a price on carbon emissions, the vast majority
of industry commentators and representatives, including the Energy
Supply Association of Australia, support the introduction of a well-
designed national emissions trading scheme (ETS). AGL supports the
introduction of emissions trading. Adopting a market-based trading
approach will allow Australia to achieve its 2020 greenhouse gas
reduction target range of 5% to 25% below 2000 levels by 2020,
in a way that minimises costs for Australian families and businesses.
AGL continues to strategically prepare and measure performance
in relation to the management of greenhouse gas emissions.
AGL is well prepared to participate in emission reduction activities.
The National Greenhouse and Energy Reporting Scheme requires
AGL to disclose scope 1 and scope 2 emissions. Although a
compliance obligation, this reporting protocol directly feeds into
AGL’s investment strategy and risk management. AGL is progressing
its carbon risk assessment process beyond mitigation to look
more closely at adaptation issues, and has continued to update
vulnerability assessments of critical infrastructure, working off the
release of updated information on the impacts of climate change
on Australia’s physical climate.
Domestic emissions trading
AGL’s integrated strategy reflects the acceptance of
Intergovernmental Panel on Climate Change advice that
significant greenhouse gas emission reductions are required by
the middle of this century to stabilise the concentration of CO
in the atmosphere.
Clean Energy Future – impact on AGL
Australia’s electricity supply sector is dominated by coal fired
generation, providing some 81% of Australia’s electricity (esaa
2010). Consequently, electricity generation accounts for more than
one‑third of greenhouse gas emissions in Australia. Consistent with
the Board approved AGL Greenhouse Gas Policy, AGL has identified
that placing a cost on greenhouse gas emissions will alter the
economic incentives for electricity generation. In particular, lower
intensity generation over time will become comparatively lower
cost relative to coal fired generation, increasing its market share and
contributing to the reduction of Australia’s greenhouse gas emissions.
In terms of electricity generation and upstream gas assets directly
owned or controlled by AGL, an ETS would require AGL to pay a
carbon price (fixed for the first three years and variable beyond
2015) for each tonne of greenhouse gas emissions. It would also
require AGL to pay a carbon price for the combustion emissions
associated with small gas customers, including households. In
addition to the costs incurred in paying the carbon price directly,
AGL would also experience increased costs in electricity and gas
purchased from wholesale markets, as those producers seek
to recover their costs for paying a carbon price for their direct
emissions. Subsequently, energy consumers will face uplifts in
energy prices as the cost of emissions is introduced to the energy
supply chain. After several years of ongoing detailed analysis, AGL
has a thorough understanding of these aggregated impacts on
its business.
Mandatory markets
AGL has continued to participate in the existing climate-related
markets such as the New South Wales Greenhouse Gas Reduction
Scheme, and the Queensland 13% Gas Electricity Scheme. As a
result of the introduction of the
Clean Energy Future
package of
legislation and the application of a carbon price from 1 July 2012,
the NSW Government announced the closure of the NSW
Greenhouse Gas Reduction Scheme from 30 June 2012.
Voluntary abatement
AGL has secured significant customer contracts for renewable
energy, which effectively underwrite new renewable energy
projects. Through these contracts, AGL is meeting its goal of being
Australia’s largest retailer of new renewable energy, selling more
than 1 TWh annually.
International emissions trading
AGL does not have facilities operating outside of Australia. As such,
AGL is not engaged in international emissions trading.