Collaborative energy analysis that led to carbon pricing
In 2010, policy uncertainty around climate change was proving to be a dead-weight on the economy. The Climate Institute and Australia's largest energy company, AGL, enlisted the rest of the Institute's corporate partners to deliver analysis that began the conversation around what eventually became Australia's carbon price mechanism.
In 2010, one of Australia’s biggest energy companies and The Climate Institute found that policy uncertainty around climate change was proving to be a deadweight on the economy.
Then in July of that year, The Climate Institute along with its climate partners Westpac, KPMG, Pacific Hydro, OgilvyEarth, AGL, and GE, released a report which spelt out how uncertainty around whether the government would place a price tag on pollution would cost the economy and consumers $2 billion a year in higher electricity prices.
AGL’s own internal modelling had found that the uncertainty was creating a deadweight loss on the economy and that was not only being born by the electricity sector but it had knock on effects to higher electricity prices and the broader economy at a multi-billion dollar cost.
Beyond the front page media coverage and political attention that the report attracted, it also prompted, and set the standard for, a whole new tranche of analysis from research institutions including key economic modeling groups who did their own analysis to test the proposition. They came to the same conclusion. The government also commissioned its own analysis.
“The result was that this work had incredibly significant buy in. The work was widely quoted by many including Prime Ministers and Treasurers for the following 18 months or so. It got a lot of traction.”
Tim Nelson, AGL’s Head of Economic Policy and Sustainability.
The comprehensive conclusion was that not just that there was a cost from policy uncertainty but that these costs were mounting over time.
“This analysis was a key input into the development of the carbon pricing mechanism.”
Erwin Jackson Deputy CEO, The Climate Institute.
AGL was becoming one of the more vocal in the energy industry in calling for action, because like every other company they were looking to make investments and simply couldn’t because of the uncertainty.
“You’re talking about assets with really long lifespans - if you build a wind farm or a gas turbine today it’s going to need to be operating in 20-30 years time to generate the sufficient amount of revenue to justify the very expensive initial upfront capital investment,” said Nelson.
We had a common interest in putting the evidence to government, as well as to the broader community of what the costs were of not addressing climate change.
Now five years on from that report release, of all the energy companies AGL’s carbon policy is one of the best in the business community in Australia. The company recognises the need to avoid 2°C of global warming as well as the need to regulate to phase out existing coal-fired generators.
“A lot of the language that you now hear - that is commonplace around policy certainty and that it costs money when you don’t have policy certainty - came out of that very significant paper,” concluded Nelson.
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