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Efficient integration of climate and energy policy in Australia’s National Electricity Market

Tim Nelson (), Owen Pascoe, Prabpreet Calais, Lily Mitchell and Judith McNeill

Economic Analysis and Policy, 2019, vol. 64, issue C, 178-193

Abstract: Australian climate change policy has been applied haphazardly to Australia’s electricity markets for almost two decades. Federal and state level emissions trading frameworks have been introduced and subsequently repealed. Several studies have pointed to the significant costs imposed by such policy discontinuity. This article demonstrates that the use of production subsidies has also resulted in a ‘disorderly’ transition and has broken the link between the financial incentives for decarbonisation activities and the physical needs of the electricity system. We evaluate the various options for correcting this by introducing a stable, long-term climate change policy that integrates efficiently with electricity policy objectives. By applying a broad assessment framework, we are able to establish that a market mechanism aimed at pricing the externality implied by an independently set carbon budget is the most efficient policy response.

Keywords: Carbon pricing; Renewable energy; Electricity markets (search for similar items in EconPapers)
JEL-codes: D04 D47 Q40 Q41 Q48 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:64:y:2019:i:c:p:178-193

DOI: 10.1016/j.eap.2019.08.001

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