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Impact of carbon tax on electricity prices and behaviour

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  • Wong, Jin Boon
  • Zhang, Qin

Abstract

Internationally, there is increasing emphasis on climate change, this study contributes by examining the impact of carbon tax on wholesale electricity pricing and market behaviour. Empirical results using a natural experiment from Australia's carbon pricing mechanism (CPM) indicate that wholesale electricity costs increase between 22.1% to 68.0% across connected regions after controlling for relevant factors. The significant difference in price impacts can be attributed to the distinct fuel mix for electricity generation across states and the capacity to import renewable hydroelectricity. Market behavioural shift from coal to other energy sources during the CPM regime is reversed after the abolition of carbon tax.

Suggested Citation

  • Wong, Jin Boon & Zhang, Qin, 2022. "Impact of carbon tax on electricity prices and behaviour," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001793
    DOI: 10.1016/j.frl.2021.102098
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    References listed on IDEAS

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    Cited by:

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    5. Wang Gao & Jiajia Wei & Shixiong Yang, 2023. "The Asymmetric Effects of Extreme Climate Risk Perception on Coal Futures Return Dynamics: Evidence from Nonparametric Causality-In-Quantiles Tests," Sustainability, MDPI, vol. 15(10), pages 1-19, May.
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    7. Wong, Jin Boon & Zhang, Qin, 2024. "ESG reputation risks, cash holdings, and payout policies," Finance Research Letters, Elsevier, vol. 59(C).
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    9. Veenstra, Arjen T. & Mulder, Machiel, 2024. "Profitability of hydrogen production: Assessment of investments in electrolysers under various market circumstances," Applied Energy, Elsevier, vol. 375(C).
    10. Wong, Jin Boon & Zhang, Qin, 2023. "Managerial performance and oil price shocks," Energy Economics, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    Carbon tax; Carbon emission policy; Climate change; Market behaviour; Electricity prices; Carbon pricing;
    All these keywords.

    JEL classification:

    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G40 - Financial Economics - - Behavioral Finance - - - General

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