An Assessment of the Impact of the Introduction of Carbon Price Signals on Prices, Production Trends, Carbon Emissions and Power Flows in the NEM for the period 2007-2009

There has been significant debate about the potential role that supply side and demand side policy initiatives might exert upon key participants within the National Electricity Market (NEM) in attempts to curb growth in carbon emissions. From the perspective of supply side policy initiatives, most debate and analysis has been focused upon assessing the impact that a ‘Cap-&-Trade’ carbon trading scheme, and more recently, a carbon tax scheme, might have on changing marginal cost relativities in order to promote increased dispatch and investment in less carbon emissions intensive types of generation technologies including gas-fired generation and renewable generation technologies. However, with any forthcoming move towards a carbon constrained economy, there are many uncertainties over policy settings that are required to achieve the environmental goal of reduced greenhouse gas emissions and about the resulting impact on the National Electricity Industry more generally. A complete understanding of the impacts on the electricity industry of carbon abatement policies requires that new renewable technology proposals be incorporated in a model containing many of the salient features of the national wholesale electricity market. These features include intra-regional and inter-state trade, realistic transmission network pathways, competitive dispatch of all generation technologies with price determination based upon marginal cost and branch congestion characteristics. It is only under such circumstances that the link between carbon emission reductions and generator based fuel switching can be fully explored and the consequences for carbon emission reductions and changes in wholesale and retail electricity prices can be determined.