Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme

Abstract

The objective of a greenhouse gas (GHG) emissions trading scheme (ETS) is to reduce emissions by transitioning the economy away from the production and consumption of goods and services that are GHG intensive. A GHG ETS has been a public policy issue in Australia for over a decade. The latest policy initiative on an ETS is the proposed Carbon Pollution Reduction Scheme (CPRS). A substantial share of Australia's total GHG reduction under the CPRS is expected to come from the electricity generation sector. This paper surveys the literature on investment behaviour under an ETS. It specifically focuses on the relationship between the design of an ETS and a generator's decisions to invest in low emissions plant and retire high emissions plant. The proposed CPRS provides the context for presenting key findings along with the implications for the electricity generation sector's transition to lower emissions plant. The literature shows that design features such as the method of allocating permits, the stringency of the emissions cap along with permit price uncertainty, provisions for banking, borrowing and internationally trading permits, and the credibility of emissions caps and policy uncertainty may all significantly impact on the investment and retirement behaviour of generators.

Do Green Finance Policies Foster Environmental, Social, and Governance Performance of Corporate?

“…Environmental regulation can improve the total factor productivity of enterprises in the long run [ 19 ]. The credibility of the mechanism’s implementation scheme and the policy’s accuracy would affect the realization of low-emission technologies [ 20 ]. Under environmental regulation, enterprises will increase their environmental protection investment [ 21 ].…”

Antipodean agricultural and resource economics at 60: climate change policy and energy transition

“…In his survey of the possible impacts of an emissions trading scheme on the electricity generating sector, Lambie () pointed to the many design factors likely to have an important influence on behaviour. They included how emissions permits are initially allocated, the credibility of the targets, and whether participants can bank and/or borrow permits.…”

Impact of Carbon Prices on Wholesale Electricity Prices and Carbon Pass-Through Rates in the Australian National Electricity Market

“…If the carbon pass-through rate is less than a generator's emissions intensity factor, the generator will face a loss of market share and asset value relative to BAU. Their profitability will be eroded because growth in revenue attributable to increases in wholesale elec tricity prices will be less than carbon cost increases (Sijm et al 2006, Freebairn 2008, Simshauser 2008, Simshauser and Doan 2009, Lambie 2010, Nelson et al 2010. This reasoning has under pinned debate about the need, role and potential scope of grandfathering.…”