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Brown coal exit: a market mechanism for regulated closure of highly emissions intensive power stations

Author

Listed:
  • Frank Jotzo

    () (Crawford School of Public Policy, The Australian National University)

  • Salim Mazouz

    () (EcoPerspectives Pty Ltd)

Abstract

In this paper we propose a market mechanism for regulated exit of highly emissions intensive power stations from the electricity grid. The starting point is that there is surplus capacity in coal fired power generation in Australia. In the absence of a carbon price signal, black coal generation capacity may leave the market instead of high emitting brown coal power stations. We lay out options for a mechanism of regulated power station closure using a market mechanism. Plants bid competitively over the payment they require for closure, the regulator chooses the most cost effective bid, and payment for closure is made by the remaining power stations in proportion to their carbon dioxide emissions. This could overcome adverse incentive effects for plants to stay in operation in anticipation of payment for closure and solve the political difficulties and problems of information asymmetry that plague government payments for closure and direct regulation for exit. We explore the issues theoretically and provide empirical illustrations. These suggest that closure of a brown coal fired power station in Australia could yield emissions savings at costs that are lower than the social benefits. The analysis in this paper is applicable to other countries.

Suggested Citation

  • Frank Jotzo & Salim Mazouz, 2015. "Brown coal exit: a market mechanism for regulated closure of highly emissions intensive power stations," CCEP Working Papers 1510, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:ccepwp:1510
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    File URL: https://ccep.crawford.anu.edu.au/sites/default/files/publication/ccep_crawford_anu_edu_au/2016-02/ccep1510.pdf
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:renene:v:121:y:2018:i:c:p:730-744 is not listed on IDEAS
    2. Simshauser, P, 2018. "Missing money, missing policy and Resource Adequacy in Australia’s National Electricity Market," Cambridge Working Papers in Economics 1840, Faculty of Economics, University of Cambridge.
    3. repec:bla:econpa:v:36:y:2017:i:2:p:104-120 is not listed on IDEAS
    4. repec:eee:ecanpo:v:55:y:2017:i:c:p:147-157 is not listed on IDEAS

    More about this item

    Keywords

    greenhouse gas emissions; electricity; brown coal; early retirement; regulation; market mechanism; contract for closure;

    JEL classification:

    • 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

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