Low carbon policy and market mechanisms to enable carbon capture and storage and decarbonisation in Australia

The scale of decarbonisation required to meet global emission reduction targets necessitates every abatement technology available be adequately explored. Carbon capture and storage (CCS) allows decarbonisation for sectors that are otherwise technically difficult and expensive to transition. This analysis used a levelised cost of electricity (LCOE) approach to identify optimal market-based mechanisms that would provide necessary funding support for CCS deployment. The results of that analysis were presented to energy policy stakeholders to determine their amenability. Four mechanisms were investigated; capital subsidies, regulated requirements for increased grid services from all generators, a partial capacity and inertia market with emission constraints and a clean energy certificate scheme. As a means for encouraging CCS, subsidies were favoured by stakeholders. The financial analysis suggested this policy could assist CCS, although was not the optimal choice due to its potential market distortion. A carbon-constrained capacity and inertia market was the preferred pathway for the deployment of CCS technologies from an investment viewpoint. This market model encourages a range of other low-emission technologies, including large-scale batteries and pumped-hydro energy storage. Further modelling is required to determine the overall system and abatement costs involved in the implementation of a partial carbon-constrained capacity market.