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Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme
Author(s) -
Ross Lambie Neil
Publication year - 2010
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/j.1467-8489.2010.00486.x
Subject(s) - greenhouse gas , emissions trading , electricity , natural resource economics , investment (military) , context (archaeology) , business , production (economics) , consumption (sociology) , electricity generation , environmental economics , economics , engineering , microeconomics , ecology , paleontology , social science , sociology , politics , political science , law , electrical engineering , biology , power (physics) , physics , quantum mechanics
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.