“Emissions intensity” with baseline set at 1 tonne of CO₂ for every megawatt hour (MWh) of electricity. A brown coal generator produces electricity at 1.3 tonnes CO₂ per MWh. For every MWh the generator produces, it therefore has to purchase 0.3 permits. Alternatively, a wind farm that emits no CO₂ will create 1 permit for every MWh of electricity generated. An emissions intensity scheme increases the cost of producing electricity from high-emitting generation, while reducing the relative cost of low-emitting generation. It thus drives emissions down in the electricity sector, because the cost difference favours a switch from high- to low-emitting generators.
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