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Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme

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  • Neil Ross Lambie

Abstract

The objective of a greenhouse gas (GHG) emissions trading scheme (ETS) is to reduce emissions by transitioning the economy away from the production and consumption of goods and services that are GHG intensive. A GHG ETS has been a public policy issue in Australia for over a decade. The latest policy initiative on an ETS is the proposed Carbon Pollution Reduction Scheme (CPRS). A substantial share of Australia's total GHG reduction under the CPRS is expected to come from the electricity generation sector. This paper surveys the literature on investment behaviour under an ETS. It specifically focuses on the relationship between the design of an ETS and a generator's decisions to invest in low emissions plant and retire high emissions plant. The proposed CPRS provides the context for presenting key findings along with the implications for the electricity generation sector's transition to lower emissions plant. The literature shows that design features such as the method of allocating permits, the stringency of the emissions cap along with permit price uncertainty, provisions for banking, borrowing and internationally trading permits, and the credibility of emissions caps and policy uncertainty may all significantly impact on the investment and retirement behaviour of generators. Copyright 2010 The Author. Journal compilation 2010 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd.

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File URL: http://hdl.handle.net/10.1111/j.1467-8489.2010.00486.x
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Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 54 (2010)
Issue (Month): 2 (04)
Pages: 203-217

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Handle: RePEc:bla:ajarec:v:54:y:2010:i:2:p:203-217

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Cited by:
  1. Alexander Brauneis & Michael Loretz & Roland Mestel & Stefan Palan, 2011. "Inducing Low-Carbon Investment in the Electric Power Industry through a Price Floor for Emissions Trading," Working Papers, Fondazione Eni Enrico Mattei 2011.74, Fondazione Eni Enrico Mattei.
  2. Leo Dobes, 2010. "Notes on Applying 'Real Options' to Climate Change Adaptation Measures, with Examples from Vietnam," CCEP Working Papers, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University 0710, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  3. World Bank, 2011. "Climate Change and Fiscal Policy : A Report for APEC," World Bank Other Operational Studies 2734, The World Bank.
  4. Phil Wild & William Paul Bell & John Foster, 2012. "The Impact of Carbon Pricing on Wholesale Electricity Prices, Carbon Pass-Through Rates and Retail Electricity Tariffs in Australia," Energy Economics and Management Group Working Papers, School of Economics, University of Queensland, Australia 5-2012, School of Economics, University of Queensland, Australia.
  5. Patrick Hamshere & Liam Wagner, 2012. "Potential Impacts of Subprime Carbon on Australia’s Impending Carbon Market," Energy Economics and Management Group Working Papers, School of Economics, University of Queensland, Australia 14, School of Economics, University of Queensland, Australia.

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