Impact of carbon tax on electricity prices and behaviour

Jon Boon Wong*, Qin Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines the impact of carbon tax on wholesale electricity pricing and market behaviour. Empirical results using a natural experiment from Australia's carbon pricing mechanism (CPM) indicate that wholesale electricity costs increase between 22.1% to 68.0% across connected regions after controlling for relevant factors. The significant difference in price impacts can be attributed to the distinct fuel mix for electricity generation across states and the capacity to import renewable hydroelectricity. Market behavioural shift from coal to other energy sources during the CPM regime is reversed after the abolition of carbon tax.
Original languageEnglish
JournalFinance Research Letters
DOIs
Publication statusE-pub ahead of print - 8 May 2021

Keywords

  • Carbon tax
  • market behaviour
  • electricity prices
  • carbon pricing
  • energy finance

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