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Carbon pass-through rates on spot electricity prices in Australia

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  • Nazifi, Fatemeh
  • Trück, Stefan
  • Zhu, Liangxu

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.

Suggested Citation

  • Nazifi, Fatemeh & Trück, Stefan & Zhu, Liangxu, 2021. "Carbon pass-through rates on spot electricity prices in Australia," Energy Economics, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:eneeco:v:96:y:2021:i:c:s0140988321000839
    DOI: 10.1016/j.eneco.2021.105178
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    Cited by:

    1. Ming, Wei & Nazifi, Fatemeh & Trück, Stefan, 2024. "Emission intensities in the Australian National Electricity Market – An econometric analysis," Energy Economics, Elsevier, vol. 129(C).
    2. Jiang, Kai & Yan, Xiaohe & Liu, Nian & Wang, Peng, 2022. "Energy trade-offs in coupled ICM and electricity market under dynamic carbon emission intensity," Energy, Elsevier, vol. 260(C).
    3. Apergis, Nicholas & Pan, Wei-Fong & Reade, James & Wang, Shixuan, 2023. "Modelling Australian electricity prices using indicator saturation," Energy Economics, Elsevier, vol. 120(C).
    4. Chen, Zhe & Chen, Yan-ling & Su, Yue & Wang, Xue-ying & Wu, You, 2023. "The CO2 cost pass-through in nonlinear emission trading schemes," Journal of Commodity Markets, Elsevier, vol. 30(C).
    5. Gonçalves, Ricardo & Menezes, Flávio, 2024. "The carbon tax and the crisis in Australia’s National Electricity Market," Energy Economics, Elsevier, vol. 133(C).
    6. Rangarajan, Arvind & Foley, Sean & Trück, Stefan, 2023. "Assessing the impact of battery storage on Australian electricity markets," Energy Economics, Elsevier, vol. 120(C).
    7. Sun, Xiaocong & Bao, Minglei & Ding, Yi & Hui, Hengyu & Song, Yonghua & Zheng, Chenghang & Gao, Xiang, 2024. "Modeling and evaluation of probabilistic carbon emission flow for power systems considering load and renewable energy uncertainties," Energy, Elsevier, vol. 296(C).
    8. Ding Ding, 2022. "The impacts of carbon pricing on the electricity market in Japan," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-8, December.
    9. Tan, Xiujie & Wang, Banban & Wei, Jie & Taghizadeh-Hesary, Farhad, 2023. "The role of carbon pricing in achieving energy transition in the Post-COP26 era: Evidence from China's industrial energy conservation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 182(C).
    10. Nicola Comincioli & Mattia Guerini & Sergio Vergalli, 2024. "Carbon Taxation and Electricity Price Dynamics: Empirical Evidence from the Australian Market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(12), pages 3131-3161, December.
    11. Wang, Hao-ran & Feng, Tian-tian & Zhong, Cheng, 2023. "Effectiveness of CO2 cost pass-through to electricity prices under “electricity-carbon” market coupling in China," Energy, Elsevier, vol. 266(C).

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    More about this item

    Keywords

    Electricity prices; Carbon tax; Carbon pass-through rates; Climate policy;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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