Market Based Environmental Regulation in the Restructured Australian Electricity Industry

www.ergo.ee.unsw.edu.au The challenge for environmental regulation in a restructured electricity industry is its need to be compatible with both the inherent complexities of power systems and competition based coordination of the industry, yet still effective in meeting environmental objectives. This paper outlines some recent developments in market-based environmental regulation of greenhouse emissions in the Australian electricity industry. In particular, we describe the objectives, design and outcomes of electricity industry restructuring, the Mandatory Renewable Energy Target, the NSW Greenhouse Benchmarks, the Queensland 13 % Gas scheme and Government accredited Green Power. Key design issues are shown to include the necessary abstractions for implementing such market schemes, the moral hazards that can arise (particularly with ‘baseline and credit ’ approaches) and the potential for measures to interact in ways that reduce their respective environmental effectiveness. The mixed performance of these Australian schemes to date illustrates the need for great care in designing such market-based approaches.