An independent expert panel supported by the Department of Climate Change, Energy, the Environment and Water has run an initial consultation as part of a review of the National Electricity Market (NEM) wholesale market settings.

The rapid decarbonisation of the electricity and energy system is essential for Australia to meet its obligations under the Paris Agreement.

Electricity generation is the nation’s largest source of greenhouse gas emissions.

The adoption of renewables will reduce emissions by approximately one-third and will have powerful flow-on effects for other sectors of the economy. 

In 2021 and 2023, the Australian Energy Market Operator (AEMO) engaged CSIRO, supported by Climateworks, to conduct multi-sector modelling to quantify the dynamic influences that would shape electricity demand under different emissions reduction scenarios.

That modelling continues to inform AEMO’s planning and forecasting tools, including the 2026 Integrated System Plan (ISP). 

The recommendations in this submission draw on insights from that modelling process, and Climateworks’ decarbonisation scenarios, to demonstrate the least-cost pathways to decarbonise Australia’s energy system.

Each will enhance the operation of the energy system and ensure it delivers the rapid net zero transformation needed.

Climateworks recommends the panel:

• proposes market and governance reforms that enable a flexible, zero-emissions electricity system that supports economy-wide decarbonisation and the expansion of exports to meet the opportunities in the net zero global economy
• calls on all NEM stakeholders to co-create an electricity system that enables a flexible, zero-emissions electricity system that supports economy-wide decarbonisation and the expansion of exports to meet the opportunities in the net zero global economy
• advises on how AEMO can be enabled to set out an optimal development path, in the Integrated System Plan, so that the NEM can fully meet governments’ ambitions to expand renewable energy and exports and electrify industry and transport 
• considers the strengths of regional planning and the benefits of energy demand analysis for key industrial areas as part of its reform proposals
• calls on the ECMC to reform market rules to incentivise effective integration of demand-side energy management and improvements to performance
• reviews the governance of energy performance and recommends which body should have overall responsibility – including considering the potential benefit of a new body
• calls on the ECMC and energy market bodies to initiate planning for the orderly phase-out of gas from domestic gas use
• considers the benefits of a regular review of alignment with the Sustainable Finance Roadmap, of public and private sector energy finance, by ECMC and energy bodies
• considers how governments and energy market bodies can use the tools within the Sustainable Finance Roadmap to ensure actors within the energy system pursue transition in line with the Integrated System Plan –  even where this is beyond current mandatory requirements. 

More detail on these recommendations can be found in the submission (PDF 0.5mb).