Econometric analysis of Australian emissions markets and electricity prices

Deborah Cotton, Lurion De Mello

Research output: Contribution to journalArticleResearchpeer-review

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.

LanguageEnglish
Pages475-485
Number of pages11
JournalEnergy Policy
Volume74
DOIs
Publication statusPublished - 2014

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econometrics
electricity
Electricity
market
emissions trading
Impulse response
Greenhouse gases
legislation
greenhouse gas
decomposition
Decomposition
pollutant
modeling
energy
effect
analysis
price

Cite this

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Econometric analysis of Australian emissions markets and electricity prices. / Cotton, Deborah; De Mello, Lurion.

In: Energy Policy, Vol. 74, 2014, p. 475-485.

Research output: Contribution to journalArticleResearchpeer-review

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