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Legislation encouraging investment in renewable energy

In December last year, a climate change response measure of the Australian government, expected to reduce Australia's greenhouse gas emissions by millions of tonnes, received formal legislative recognition. The Renewable Energy (Electricity) Act 2000 (Cth), which comes into effect on April 1 2001, requires large buyers of electricity to source a greater percentage of it from renewable sources. Renewable energy sources include wind, wave and solar energy. The Act also recognizes biomass (burning wood products for energy, including those from native forests) as a renewable energy source.

Referred to as the 2% Renewables Legislation, the Act aims to require an additional 2% of electricity purchases (translated in the Act into a fixed amount of 9500 GWh) from renewable energy sources by 2010. Renewable energy use at the moment is approximately 10.7%. The measure will take the total level of usage to approximately 12.7%.

Liable parties (electricity retailers and in some instances generators) will need to surrender renewable energy certificates (RECs) to discharge their liability under the Act. Each REC represents a megawatt hour of electricity generated from a new eligible renewable energy source. A market for RECs, separate to a market for physical energy, will arise and any accredited person can act as a broker.

Australia relies heavily on its black and brown coal reserves. It is expected that the measure will encourage substantial new investment into renewable energies and contribute to the development of the growing worldwide sustainable energy industry. Europe has the largest potential for renewable energy markets in the developed world. In line with the European Commission's target to double to 12% the contribution of renewables to Europe's energy needs, the European market is expected to grow considerably.

The Electricity Supply Association of Australia estimates that the 2% or 9500 GWh renewable requirement will necessitate A$3 billion ($1.6 billion) in capital outlays, and will add A$300 million per year (plus goods and services taxes) to electricity charges. These costs will be passed on to consumers. New renewable energy generation capacity will also be required. However, it is anticipated that costs for renewable energy will decline, relative to the scale of investment in these supply sources.

As the Act provides for an independent review of the regime to be undertaken as soon as possible after April 1 2003, the level of the overall 2% target and the interim targets, which will be used to phase in the additional 2% requirement, may change.

The Act, however, is an important indication of the Australian government's commitment to addressing the climate change issue.

Paula Teague

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