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Emissions Pricing, 'Complementary Policies' and 'Direct Action' in the Australian Electricity Supply Sector: 'Lock-in' and Investment

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  • Dr Barry Naughten
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    In Australia, carbon emissions pricing is politically contentious. The current Labor government has implemented such a scheme, but the Liberal National Party (LNP) opposition has pledged to repeal the scheme should it be elected. This article accepts the well-established position of emissions pricing as the core and least-cost approach to reducing greenhouse gas emissions. Its main focus is on examining and rebutting some recent LNP arguments to the contrary, notably in regard to the electricity sector under Australian conditions. In so doing, the article considers the problem of locked-in carbon-intensive generating capacity, as highlighted by the IEA. As such, it focusses on use of price signals to reduce carbon intensity of electricity generation and also examines the role of passed-on price in encouraging end-use savings of electricity, including more energy-efficient end-use. Both of these mechanisms can be reinforced by well-designed complementary policies. These two examples of the price mechanisms effectiveness demonstrate longer run impacts of prices and price expectations on investment decisions. This emphasis is appropriate given the context of catastrophic climate change as a long run phenomenon, albeit one also requiring urgent mitigating action in the shorter run.

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    Paper provided by Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University in its series CCEP Working Papers with number 1304.

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    Date of creation: Jul 2013
    Handle: RePEc:een:ccepwp:1304
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    1. Brown, Marilyn A., 2001. "Market failures and barriers as a basis for clean energy policies," Energy Policy, Elsevier, vol. 29(14), pages 1197-1207, November.
    2. Robin Hahnel, 2012. "Left Clouds Over Climate Change Policy," Review of Radical Political Economics, Union for Radical Political Economics, vol. 44(2), pages 141-159, June.
    3. Naomi Oreskes, 2011. "Metaphors of warfare and the lessons of history: time to revisit a carbon tax?," Climatic Change, Springer, vol. 104(2), pages 223-230, January.
    4. Narayan, Paresh Kumar & Smyth, Russell, 2005. "The residential demand for electricity in Australia: an application of the bounds testing approach to cointegration," Energy Policy, Elsevier, vol. 33(4), pages 467-474, March.
    5. N Gregory Mankiw, 2009. "Smart Taxes: An Open Invitation to Join the Pigou Club," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(1), pages 14-23.
    6. Tom Wigley, 2011. "Coal to gas: the influence of methane leakage," Climatic Change, Springer, vol. 108(3), pages 601-608, October.
    7. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    8. Jones, Barry P. & Peng, Zhao-Yang & Naughten, Barry, 1994. "Reducing Australian energy sector greenhouse gas emissions," Energy Policy, Elsevier, vol. 22(4), pages 270-286, April.
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