Econometric analysis of Australian emissions markets and electricity prices

Deborah Cotton*, Lurion De Mello

*Corresponding author for this work

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

Emissions trading schemes aim to reduce the emissions in certain pollutants using a market based scheme where participants can buy and sell permits for these emissions. This paper analyses the efficiency of the two largest schemes in Australia, the NSW Greenhouse Gas Abatement Scheme and the Mandatory Renewable Energy Trading Scheme, through their effect on the electricity prices from 2004 to 2010. We use a long run structural modelling technique for thefirst time on this market. It provides a practical long-run approach to structural relationships which enable the determination of the effectiveness of the theoretical expectations of these schemes. The generalised forecast error variance decomposition analysisfinds that both schemes' emissions prices have little effect on electricity prices. Generalised impulse response function analysis support thisfinding indicating that when shocks are applied to electricity by the two schemes it returns to equilibrium very quickly. This indicates that these schemes are not having the effect anticipated in their legislation.

Original languageEnglish
Pages (from-to)475-485
Number of pages11
JournalEnergy Policy
Volume74
DOIs
Publication statusPublished - 2014

Fingerprint Dive into the research topics of 'Econometric analysis of Australian emissions markets and electricity prices'. Together they form a unique fingerprint.

  • Cite this