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PREEM Talk – The Pass-Through Cost of Carbon in Australian Electricity Markets

This free talk is offered by the Program for Research in Energy and Emissions Markets (PREEM) at the University of Technology, Sydney.

The talk will be presented by Stefan Trück, Department of Applied Finance and Actuarial Studies, Macquarie University, Sydney

Details are as follows:

Title:                           The Pass-Through Cost of Carbon in Australian Electricity Markets

Time:                          11:00am – 12:00pm, Thursday 3rd May

Location:                    Access Grid Room 01.16.11. Room 11, Level 16, UTS Tower Building, 15 Broadway, Sydney

Registration:               This is a free talk – all are welcome.

Presentation:             Stefan Trück - The Pass-Through Cost of Carbon in Australian Electricity Markets (456KB)


The aim of the Australian Carbon Tax Policy Mechanism is to encourage the reduction of greenhouse gas emissions by rewarding the production of power through green sources and penalising power produced by higher emitting sources. We investigate the impacts of the recently passed carbon tax on Australian electricity prices. Since the carbon tax only comes into effect on July 1, 2012, we consider electricity futures prices in order to investigate the pass-through costs of the tax on electricity prices. Using a regime-switching model for electricity spot prices and historical risk premiums for futures contracts we derive an additional ‘carbon premium’ from observed futures quotes.  We find that after controlling for risk premiums in electricity futures markets, there is still a significant anticipated increase in prices, indicating that market participants have already included the additional costs of the carbon tax in their pricing mechanism. However, estimated pass-through costs of carbon are generally lower than what could be expected based on emission intensities for the considered regional electricity markets.

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