Carbon pass-through rates on spot electricity prices in Australia

Fatemeh Nazifi, Stefan Trück and Liangxu Zhu
Authors registered in the RePEc Author Service: Stefan Trueck ()

Energy Economics, 2021, vol. 96, issue C

Abstract: This study assesses the impact of the Australian Carbon Pricing Mechanism (CPM) on electricity prices in the National Electricity Market (NEM). An econometric model is designed to examine the influence of short-run marginal costs, electricity demand and emission intensities on carbon pass-through to spot electricity prices. Our sample period from July 2009 to June 2016 allows us to analyse three different sub-periods in order to quantify pass-through effects: the period before the CPM, the period when the pricing mechanism was effective, as well as the period after its repeal. Therefore, our study allows a comprehensive evaluation of the effect of carbon pricing on the Australian electricity spot market. Our results demonstrate a high degree of carbon costs pass-through across the considered markets, while the increase in electricity prices typically exceeds carbon costs, in particular for the markets in New South Wales, Queensland and South Australia. Furthermore, we find a negative relationship between carbon pass-through rates and emission intensities in the regional markets: pass-through rates were relatively low for Victoria that is characterised by electricity generation from fossil fuels and high emission intensities, while they were the highest for South Australia, a market with the lowest emission intensities and a higher share of renewable energy generation. We also find that for most markets, emission intensities were only reduced by a relatively small margin during the tax period and electricity prices have never reverted back to their pre-tax levels after the repeal of the tax.

Keywords: Electricity prices; Carbon tax; Carbon pass-through rates; Climate policy (search for similar items in EconPapers)
JEL-codes: C51 D22 G18 L94 Q41 Q58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:96:y:2021:i:c:s0140988321000839

DOI: 10.1016/j.eneco.2021.105178

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