Carbon price helped curb emissions, ANU study finds

As something of a coincidence with Australia's repeal of the carbon tax, a study has come out claiming that the tax did have the effect intended.  A report of the study plus the journal abstract is given below.  There is no intrinsic problem with that conclusion.  Taxing something does generally reduce demand for it.  I nonetheless think that the report is pure guesswork.  I cannot see how they can separate out the effect of the tax from other  factors bearing down on electricity generation.

For most of the period surveyed the Labor government was in power, energetically pressing a variety of policies designed to have the same effect as the tax.  The winding back of brown coal powered generation in Victoria is the most obvious example of that.  Shutting down the cheapest power generators in the country took some time but it did eventually happen to some extent in the latter phase of ALP rule.

And if you read the abstract, it is clear that estimates (guesses) were involved.  Their admission:  "There are fundamental difficulties in attributing observed changes in demand and supply to specific causes" is very much to the point

Australia cut carbon dioxide emissions from its electricity sector by as much as 17 million tonnes because of the carbon price and would have curbed more had industry expected the price to be permanent, according to an Australian National University study.

The report, due to be submitted for peer-reviewed publication, found the two years of the carbon price had a discernible impact on emissions even assuming conservative responses by consumers and businesses.

“We see the carbon price doing what it was meant to do, and what it was expected to do, namely dampen demand and shift the supply from dirtier to cleaner sources of electricity,” said Associate Professor Frank Jotzo, director of the Centre for Climate Economics and Policy, and a co-author of the report with the centre’s Marianna O’Gorman.

The paper comes as the Senate voted on Thursday to bring almost five years of Coalition campaigning against a price on carbon to an end by repealing the tax. Labor and the Greens say they will continue to push for a price on emissions.

The ANU report, which used official market data to the end of June, found the drop in power demand attributed to the carbon price was between 2.5 and 4.2 terawatt-hours per year, or about 1.3 to 2.3 per cent of the National Electricity Market serving about 80 per cent of Australia’s population.

Emissions-intensive brown and black coal-fired power generators cut output, with about 4 gigawatts of capacity taken offline. The emissions intensity of NEM supply dropped between 16 and 28 kilograms of carbon dioxide per megawatt-hour of supply, underscoring the role of carbon pricing rather than slumping demand in curbing pollution, the paper said.

However, investors’ doubts that the carbon tax would last – fostered in part by then opposition leader Tony Abbott’s “blood oath” to repeal it if the Coalition took office - meant high-emissions generators were mothballed rather than permanently closed.

“We’d expect the impact of the carbon price would have been larger, perhaps far larger, if there had been an expectation that the carbon price would have continued,” Professor Jotzo said.

Falling demand

Environment Minister Greg Hunt has said repeatedly that the carbon tax was ineffective, stating Australia’s total emissions fell 0.1 per cent in the first year.

More recent figures, though, show the emissions drop accelerated, with 2013’s 0.8 per cent economy-wide fall the largest annual reduction in the 24 years of monitoring. In the power sector, the industry most directly covered by the carbon price, emissions fell 5 per cent.

“As confirmed by Origin Energy managing director Grant King, there are other factors resulting in lower emissions in the electricity sector – including lower demand, the impact of the [Renewable Energy Target], flooding at the Yallourn power station and increased hydro output,” a spokesman for Mr Hunt said.

However, the ANU paper takes those factors into account in estimating the carbon price impact, Professor Jotzo said.

Rather, the impact of the carbon price is probably understated. The highly politicised debate preceded its implementation by about a year, prompting energy consumers to focus more on electricity costs – and presumably to begin making savings – well before the tax began.

“We would expect politically motivated talk ... may well have had a large impact on people’s power usage patterns,” Professor Jotzo said....

“The only thing that went wrong in Australia was the politics of climate change policy,” Professor Jotzo said. “There was nothing inherently wrong with scheme.”


Impact of the carbon price on Australia’s electricity demand, supply and emissions

Marianna O'Gorman, Frank Jotzo


Australia’s carbon price has been in operation for two years. The electricity sector accounts for the majority of emissions covered under the scheme. This paper examines the impact of the carbon price on the electricity sector between 1 July 2012 and 30 June 2014, focusing on the National Electricity Market (NEM). Over this period, electricity demand in the NEM declined by 3.8 per cent, the emissions intensity of electricity supply by 4.6 per cent, and overall emissions by 8.2 per cent, compared to the two-year period before the carbon price. We detail observable changes in power demand and supply mix, and estimate the quantitative effect of the effect of the carbon price. We estimate that the carbon price led to an average 10 per cent increase in nominal retail household electricity prices, an average 15 per cent increase in industrial electricity prices and a 59 per cent increase in wholesale (spot) electricity prices. It is likely that in response, households, businesses and the industrial sector reduced their electricity use. We estimate the demand reduction attributable to the carbon price at 2.5 to 4.2 TWh per year, about 1.3 to 2.3 per cent of total electricity demand in the NEM. The carbon price markedly changed relative costs between different types of power plants. Emissions-intensive brown coal and black coal generators reduced output and 4GW of emissions-intensive generation capacity was taken offline. We estimate that these shifts in the supply mix resulted in a 16 to 28kg CO2/MWh reduction in the emissions intensity of power supply in the NEM, a reduction between 1.8 and 3.3 per cent. The combined impact attributable to the carbon price is estimated as a reduction of between 5 and 8 million tonnes of CO2 emissions (3.2 to 5 per cent) in 2012/13 and between 6 and 9 million tonnes (3.5 to 5.6 per cent) in 2013/14, and between 11 and 17 million tonnes cumulatively. There are fundamental difficulties in attributing observed changes in demand and supply to specific causes, especially over the short term, and in this light we use conservative parameters in the estimation of the effect of the carbon price. We conclude that the carbon price has worked as expected in terms of its short-term impacts. However, its effect on investment in power generation assets has probably been limited, because of policy uncertainty about the continuation of the carbon pricing mechanism. For emissions pricing to have its full effect, a stable, long-term policy framework is needed.


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