The federal, state and territory Energy Ministers have introduced a shadow carbon price for the national electricity market. This ‘value of emissions reduction’ (VER) sets the value of carbon abatement at $66 per tonne in 2023, rising six-fold to $420 by 2050. Costs will be passed onto consumers through electricity network projects because the regulatory investment framework will now include the interim VER as a benefit in their cost benefit analyses. This change is likely to increase the assessed benefits of projects that claim to reduce emissions, projects which might otherwise have been deemed uneconomic.

This paper estimates that including VER as a class of market benefit could enable the approval of additional projects worth up to $508 billion, should proposals to eliminate all emissions be enacted today. The maximum increase in electricity prices is 15.6 cents per kWh, meaning an $855 increase in electricity bills a year for a typical household. Electricity costs could increase even further if projects are approved in the future, when emissions reductions are more valuable.

As the method for estimating emissions reductions is yet to be finalised, CIS has used assumptions from the Australian Energy Market Operator’s (AEMO) Integrated System Plan (ISP) along with the interim VER to estimate the maximum benefit a project could claim from emissions reduction and the maximum cost that could then be passed onto consumers. This hypothetical project would result in electricity grid and motor vehicle emissions being fully abated.

The paper does not attempt to predict when sufficient projects to achieve full abatement could be found. But because this VER is a mechanism designed to fund hundreds of billions of dollars of costs through consumers’ bills, it is crucial to calculate the upper limit the mechanism could allow if exercised immediately. This is especially important because any delay in implementation further elevates the upper bound of costs that could be passed on to consumers, which we assess as being as high as $1294 per household if implemented in 2040.