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

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  • Nelson, Tim
  • Pascoe, Owen
  • Calais, Prabpreet
  • Mitchell, Lily
  • McNeill, Judith

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 Federal and state level emissions trading frameworks have been introduced and subsequently repealed.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.

Suggested Citation

  • Nelson, Tim & Pascoe, Owen & Calais, Prabpreet & Mitchell, Lily & McNeill, Judith, 2019. "Efficient integration of climate and energy policy in Australia’s National Electricity Market," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 178-193.
    • Handle: RePEc:eee:ecanpo:v:64:y:2019:i:c:p:178-193
    DOI: 10.1016/j.eap.2019.08.001
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    More about this item

    Keywords

    Carbon pricing; Renewable energy; Electricity markets;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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