Work

Carbon Taxation and Electricity Price Dynamics: Empirical Evidence from the Australian Market

Year: 2024

Type: article

Abstract: In this paper, we study the change of Australian electricity price dynamics that was observed before, during and after the two-year period in which a Carbon Pricing Mechanism was in force. We fit a two-states Markov Switching Model, representing a high- and a low-volatility state of the world. To avoid the interference due to periodic patterns, a deseasonalization process accounting for short- and long-term seasonality is carried out prior to the study of volatility. Estimation results highlight that, during the period when the carbon tax applies, the volatility level is lower for both the states of the world. Furthermore, the persistence in the low-volatility state is increased in the presence of the carbon tax. This conclusion is particularly relevant for macroeconomic and investment considerations because the increased uncertainty in electricity prices can significantly influence firms’ investment decisions and shape inflation expectations.

Source: Environmental and Resource Economics

DOI: 10.1007/s10640-024-00908-4

Authors: Nicola Comincioli, Mattia Guerini, Sergio Vergalli

Institutions: Fondazione Eni Enrico Mattei, University of Brescia

Language: English

Topic: Market Dynamics and Volatility

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Climate action, Affordable and clean energy

Open Access status: hybrid

Estimated APC paid: $3,190