Emissions reduction associated with schemes administered by the Clean Energy Regulator remains on track to deliver a conservative 57 million tonnes of carbon dioxide equivalent (CO2-e) in 2021.

The Emissions Reduction Fund (ERF) is expected to deliver ACCUs equivalent to 17.3 million tonnes of CO2-e emissions abatement in 2021, an 8% increase on 2020.

The Large-scale Renewable Energy Target (LRET) is expected to contribute 24.3 million tonnes CO2-e of emissions reduction in 2021.

The Small-scale Renewable Energy Scheme (SRES) is expected to deliver 15.5 million tonnes CO2-e of emissions reduction in 2021.

These conservative estimates calculate an implicit ‘carbon content’ for LGCs and STCs by using the annual average emissions intensity of the National Electricity Market. This convention provides an equivalence between 1 MWh of large or small-scale generation and 1 tonne of CO2-e of emissions reduction. Over time, the average emissions intensity of the grids will continue to decline and this will eventually dominate the increase in renewable generation. If a 100% renewable grid were to be achieved, the emissions reduction delivered by the next 1 MWh of large or small-scale generation would be zero, because there would be no further emissions to reduce. This approach accords most with accounting frameworks such as that used in Climate Active reporting and prospectively in CERT where scope 2 emissions are deemed according to average grid emissions intensity.

An alternative method is to assume that LRET and SRES generation ‘avoid emissions’ by displacing thermal generation. This is supported by the fact that electricity generated from thermal fuel sources has a higher marginal cost than electricity from renewables. Under this approach, emissions reduction from the LRET and SRES is proportional to the weighted average emissions intensity of thermal generation in the NEM. That is, each MWh of renewable electricity displaces 1 MWh of thermal generation, resulting in a higher emissions reduction estimate of 75.4 million tonnes of CO2-e for 2021. In other words, this estimate is based on an assumption that all renewables generation would otherwise be generated by thermal generation. It may well be that this assumption is not fully met because the low cost of renewables is likely to simulate additional demand.

Figure 6.1 compares emissions reduction estimates using the two approaches. It shows both following the same trend until 2018 when they started to diverge as a result of the renewables investment boom, causing a faster decline in the emissions intensity of the grid.

Table 6.1 shows the difference between the two estimation methods when they are applied to the 2021 forecast. By either estimation method, renewables generation is forecast to achieve record emissions reduction in 2021.

Footnotes

⁶⁴ Annual values used in this graph may differ slightly from those reported in previous Quarterly Carbon Market reports for some years due to updated generation, scheme information and minor revisions to the methodology.