Topic 23&24: Energy

Question 1

Hotelling’s rule

Answer 1

Market equilibrium could only be maintained if market price for non-renewable was expected to rise through time at interest rate

If oil prices rise at more interest rate, oil owners will hold onto oil (gives better return than money in bank, current price of oil will rise and return will fall until owners are indifferent between holding or selling oil)

If oil price rising at less than interest rate, oil will be sold as bank gives better return, the current oil price will fall, increasing return on holding oil

Does not clearly represent price path for most non-renewable resources

Prices should increase at discount rate: r= (pt-pt-1)/pt

Question 2

Large-scale systems in Australian electricity market

Answer 2

National Electricity Market (NEM)

Western Australia Market

Northern Territory Market

Question 3

Australian Energy Market Operator

Answer 3

Responsible for operation of NEM

Schedules electricity to be dispatched from specific generation to create gross energy pool -> sent out in order to meet demand

Question 4

RET (Renewable Energy Target)

Answer 4

Works by creating market for additional renewable electricity that supports investment in new renewable generation capacity

Places legal obligation on entities that purchase wholesale electricity to surrender certain no. of certificates to Clean Energy Regulator

Operated as 2 schemes: Large-scale Renewable Energy Target (LRET) and Small-scale Renewable Energy Scheme (SRES)

Question 5

Emissions Reduction Fund (ERF) crediting and purchasing mechanism

Answer 5

Crediting and purchasing mechanism

Voluntary scheme aimed at encouraging emissions reduction activities in economy at lowest cost across all sectors

Involves businesses, community organisations, local councils and others undertaking eligible activities that reduce emissions, and receiving ‘credits’ for reductions

Question 6

Emissions Reduction Fund (ERF) safeguard mechanism

Answer 6

Regulatory measure aimed at ensuring emissions reduction purchased through ERF crediting and purchasing mechanism not offset by emissions growth beyond business as usual elsewhere in economy

Policy required large emitters to keep their net emissions below baseline level

Question 7

Australia’s best policy to meet 2 degree temp rise

Answer 7

Cap and trade with revenue from auctioned permits recycled to reduce taxes

Emission Intensity Scheme- similar performance of Cap-and-Trade —but has less effect on reducing demand

Renewable energy target (RET) more expensive (forces electricity generators to accept expensive renewables)

Question 8

Most efficient way for Au energy sector to achieve Paris Agreement emissions target:

Answer 8

Use cap and trade scheme