Emissions Trading, Wealth Transfers and the Wounded Bull Scenario in Power Generation
Abstract"Electricity generators accept that emissions trading is fundamental to meeting CO 2 reduction targets. But unless a percentage of permits are allocated, existing generators will face non-trivial wealth transfers. Seldom contemplated in academic works are the adverse economic consequences of an all-auction approach to emissions trading. Using Victoria to illustrate, we find that once CO 2 prices exceed $17.50/t, the marginal coal generator facing large wealth transfers will withhold generating capacity to raise prices and recoup stranded investments, thus becoming a 'wounded bull' in the market place. This has material welfare implications with modelling results indicate an intermediate-run 300 per cent increase in wholesale power prices." Copyright (c)2009 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.
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Bibliographic InfoArticle provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal Australian Economic Review.
Volume (Year): 42 (2009)
Issue (Month): 1 (03)
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Postal: The University of Melbourne, Victoria 3010
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- Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013.
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- Phil Wild & William Paul Bell & John Foster, 2012. "Impact of Carbon Prices: State Production Trends, Inter-state Trade and Carbon Emission Reduction Outcomes in the NEM over the period 2007- 2009," Energy Economics and Management Group Working Papers 6-2012, School of Economics, University of Queensland, Australia.
- John Freebairn, 2009. "Should Households and Businesses Receive Compensation for the Costs of Greenhouse Gas Emissions?," Department of Economics - Working Papers Series 1071, The University of Melbourne.
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