The Australian Renewable Energy Target (RET) has spurred considerable investment in renewable electricity generation, notably wind power, over the past decade. This paper considers the distributional implications of the RET for different electricity customers. Using time-series regression, we show that the increasing amount of wind energy fed into the NEM has placed a considerable downward pressure on wholesale electricity prices through the so-called merit order effect. On the other hand, costs of the RET are passed on to consumers in the form of retail electricity price premiums imposed by the retailers who are liable parties under the scheme. Potential complexities for the analysis include the many drivers of wholesale price outcomes, the mix of regulated and competitive retail tariffs on offer in Australia, and the partial RET exemptions given to energy-intensive trade-exposed industries. Nevertheless, our findings highlight likely significant redistributive transfers between different energy user classes under current RET arrangements. In particular, some energy-intensive industries are benefiting from lower wholesale electricity prices whilst being largely exempted from contributing to the costs of the scheme. By contrast, many households are paying significant RET pass-through costs whilst not necessarily benefiting from lower wholesale prices. A more equitable distribution of RET costs and benefits could be achieved by reviewing the scope and extent of industry exemptions from the RET and ensuring regulators apply methodologies to estimate wholesale price components in regulated electricity tariffs that reflect more closely actual market conditions. More generally, these findings support the growing international appreciation that policy makers need to better integrate distributional assessments into policy design and implementation. Highlights • The Australian Renewable Energy Target has complex yet important distributional impacts on different energy user classes • There are likely significant wealth transfers between residential and small business to large energy-intensive industry under the RET • The merit order effects of growing wind deployment under the RET have put downward pressure on wholesale electricity prices providing considerable benefit to energy-intensive industry • The RET is, however, increasing retail electricity costs through additional charges imposed by retailers to cover their costs of compliance • A number of energy-intensive industries have major exemptions from contributing to these costs of the RET • At the same time, many small energy users are not receiving the benefits of lower wholesale prices as pass-through depends on methods for setting regulated retail tariffs in some jurisdictions • Policy makers would benefit from better distributional impact assessments when designing and implementing clean energy policies
We quantified the volume of free allowances that different national allocation plans proposed to allocate to existing and new installations, with specific reference to the power sector. Most countries continue to allocate based on historic emissions, contrary to hopes for improved allocation methods, with allocations to installations frequently based on 2005 emission data; this may strengthen the belief in the private sector that emissions in the coming years will influence their subsequent allowance allocation. Allocations to new installations provide high and frequently fuel-differentiated subsidies, risking significant distortions to investment choices. Thus, in addition to supplying a long market in aggregate, proposed allocation plans reveal continuing diverse problems, including perverse incentives. To ensure the effectiveness of the EU ETS in the future, the private sector will need to be shown credible evidence that free allowance allocation will be drastically reduced post-2012, or that these problems will be addressed in some other way
The Australian Renewable Energy Target (RET) has spurred considerable investment in renewable electricity generation, notably wind power, over the past decade. This paper considers the distributional implications of the RET for different electricity customers. Using time-series regression, we show that the increasing amount of wind energy fed into the NEM has placed a considerable downward pressure on wholesale electricity prices through the so-called merit order effect. On the other hand, costs of the RET are passed on to consumers in the form of retail electricity price premiums i m p o s e d b y t h e r e t a i l e r s w h o a r e l i a b l e p a r t i e s u n d e r t h e s c h e m e . P o t e n t i a l complexities for the analysis include the many drivers of wholesale price outcomes, the mix of regulated and competitive retail tariffs on offer in Australia, and the partial RET exemptions given to energy-intensive trade-exposed industries. Nevertheless, our findings highlight likely significant redistributive transfers between different energy user classes under current RET arrangements. In particular, some energy-intensive industries are benefiting from lower wholesale electricity prices whilst being largely exempted from contributing to the costs of the scheme. By contrast, many households are paying significant RET pass-through costs whilst not necessarily benefiting from lower wholesale prices. A more equitable distribution of RET costs and benefits could be achieved by reviewing the scope and extent of industry exemptions from the RET and ensuring regulators apply methodologies to estimate wholesale price components in regulated electricity tariffs that reflect more closely actual market conditions. More generally, these findings support the growing international appreciation that policy makers need to better integrate distributional assessments into policy design and implementation. Highlights· The Australian Renewable Energy Target has complex yet important distributional impacts on different energy user classes · There are likely significant wealth transfers between residential and small business to large energy-intensive industry under the RET · The merit order effects of growing wind deployment under the RET have put downward pressure on wholesale electricity prices providing considerable benefit to energy-intensive industry · The RET is, however, increasing retail electricity costs through additional charges imposed by retailers to cover their costs of compliance · A number of energy-intensive industries have major exemptions from contributing to these costs of the RET · At the same time, many small energy users are not receiving the benefits of lower wholesale prices as pass-through depends on methods for setting regulated retail tariffs in some jurisdictions · Policy makers would benefit from better distributional impact assessments when designing and implementing clean energy policies Keywords: Renewable energy; Electricity market; Distributional effects Distributional Effects of the Au...
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