Report Carbon Trading Scheme Will Not Cut Cost of Clean Technologies

While a new report released on Monday acknowledges that the carbon trading scheme is needed for Australia to meet long-term targets that would reduce greenhouse gas emissions, it is not sufficient to cut the cost of clean technologies to generate sufficient electricity and replace coal.

The Graham Institute report sought the use of funding from the $10-billion Clean Energy Finance Corporation in which the government would guarantee financial returns from firms that would pursue large, but risky investments in clean energy.

The report proposed the award of 20-year power contracts at auctions in specific generation technologies to be held every six months over 10 years. This move would give the government the chance to exert more pressure on different technologies to reduce the cost, said Tony Wood, energy policy director of the Grattan Institute.

"The auction process gives companies the chance to gain practical deployment experience, and thereby to cross the bridge to commercial viability. Once they are viable, government should withdraw support, beyond a well-managed carbon price," The Australian quoted Mr Wood.

Since the amount of renewable energy is legislated to almost double by 2020 under the country's renewable energy targets, some industry leaders said by that time renewable energy costs would make a larger contribution to power bills than the carbon tax.

The recommendation to hold auctions was based on the institute's analysis of capital grant expenditures for emissions abatement projects given by the Australian government which found that the programmes suffered long delays and often did not proceed at all. Often, five years after the tender was awarded, only 3 per cent of total funding produced operational projects which climbed to only 18 per cent after 10 years.

He estimated the auctions would cost about $150 million a year. Mr Wood said the proposed scheme aims to enable the government and the market to drive down in the longer term the lowest possible cost suite of technologies to meet the country's emissions target.