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Climate reform and transitional industry assistance: Windfall profits for polluters?

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  • Fraser, Alastair
  • Kuok, Jonathan Chiew Sheen
  • Leslie, Gordon W.

Abstract

Introducing climate change policies such as carbon pricing can bring substantial costs for fossil-fuel-fired electricity generators, with incumbents often granted a transitional allocation of free emission permits. The free allocation of emission permits and the pass-through of carbon prices to higher electricity prices has created substantial concern that these policies allow emissions-intensive firms to reap windfall profits. We use the implementation and later repeal of Australia’s price on carbon to show that coal-fired plants which received free permits had a substantial increase in their profits. This result supports calls for any transitional climate policy assistance to be tied to projected pass-through rates in order to avoid creating wealth transfers from taxpayers to emission-intensive generator owners.

Suggested Citation

  • Fraser, Alastair & Kuok, Jonathan Chiew Sheen & Leslie, Gordon W., 2023. "Climate reform and transitional industry assistance: Windfall profits for polluters?," Energy Economics, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:eneeco:v:121:y:2023:i:c:s0140988323001275
    DOI: 10.1016/j.eneco.2023.106629
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    More about this item

    Keywords

    Environmental taxes; Cost pass-through; Policy grandfathering; Electric utilities; Energy and environmental policy;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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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