Friday's meeting of Federal, state and territory energy ministers resulted in an agreement to include emissions reduction goals in the National Electricity Objective (NEO).
This decision represents a significant step forward for Australia's clean energy transition.
The clean energy industry has been calling for this reform for more than 15 years and encourages ministers to move quickly to implement this critical directive.
What is the NEO?
Within the National Electricity Law, the NEO sets out some guiding principles for the National Electricity Market (NEM) rules. The NEO promotes "efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity with respect to: 1. price, quality, safety, reliability, and security of supply of electricity; and 2. the reliability, safety and security of the national electricity system."
Why does it matter?
The inclusion of guidance around how to achieve emissions reduction goals through the NEO would make it easier to create policies that accelerate effective NEM decarbonisation at the lowest cost. It would also help deliver an orderly transition to clean, low-cost electricity and provide increased investment certainty.
Combined with a legislated emission reduction target, requiring consideration of environmental impacts through the NEO would increase clarity around the treatment of carbon and flow through into better decision-making across the board. It could be done in several different ways, each increasing the degree of discretion for decision-makers.
What's next?
Australia’s energy regulators – the Australian Energy Market Operator, Australian Energy Regulator, Australian Energy Market Commission and Energy Security Board – need to know what to do and be allowed to get on with the job of decarbonising our electricity. The best way of doing this is a statement of policy intent that sits above the NEO as a bridge between the 43 per cent emissions reduction target and delivering the decarbonisation of Australia's electricity system at the lowest cost.