Delayed Carbon Policy Certainty and Electricity Prices in Australia

Abstract

The power industry has been grappling with regulatory uncertainty in relation to carbon since late 2004 when Australian state governments committed to the introduction of an emissions trading scheme. This article estimates the additional cost to electricity users associated with the suboptimal introduction of new power generating capacity given regulatory delays. We find the costs to be significant; under a business-as-usual electricity demand growth scenario, prices in 2020 would be about $8.60 /MWh higher than necessary. We also find that costs to consumers are lower where complementary policies are introduced to encourage energy efficiency and renewable energy.