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This paper examines the potential role for fuel substitution in electricity production in reducing carbon dioxide emissions over a ten-year time horizon. This is achieved by adding fuel substitution to output changes resulting from demand responses arising from a tax on carbon dioxide emissions. A time profile of adjustments is developed. The tax required for Australia to meet a 20 per cent reduction in emissions from 1993 levels is calculated and effects on inequality and social welfare are examined. The paper also examines the potential effect of a subsidy towards the use of low- emission fuels, financed from the carbon tax. A subsidy produces an improvement in emissions abatement and a lower tax required to reach the emissions target. [ABSTRACT FROM AUTHOR]

The pricing of access to electricity transmission networks in Australia is currently under review. Several options have been proposed including those based on nodal pricing and the assignment of transmission rights contracts. As most of the marginal costs of transmission are recovered through wholesale electricity prices we focus on the key issue of regulation and investment incentives. We find that current options are unlikely to be adequate in terms of encouraging socially optimal levels and timing of new transmission investment. As an alternative, we propose a regulatory scheme, based on a related idea by Sappington and Sibley that can overcome this problem. Our scheme can potentially generate first best results and is readily applicable given the current institutional structure of electricity markets in Australia. [ABSTRACT FROM AUTHOR]

This article examines the impact of the elimination of x-inefficiency in the Australian electricity supply industry using a computable genera! equilibrium (CGE) model of the Australian economy. Data envelopment analysis and a stochastic production frontier model are applied to measure x-inefficiency in the electricity industry. The potential increase in total factor productivity resulting from microeconomic reform is introduced into the CGE model as a factor-augmenting technological change. The model is used to measure the macroeconomic effects of microeconomic reform of the electricity industry. The Monash model is also used to replicate the results of earlier studies by the Industry Commission (1995) and Quiggin (1997) and thereby to provide a basis for comparing the three sets of results. The results of the current study imply that the impact of microeconomic reform on economic growth could well be significant if only a small proportion of the benefits were to be reflected in terms of an increase in aggregate employment. [ABSTRACT FROM AUTHOR]

Australia has long been the beneficiary of low, stable power prices. A decade-long state of oversupply underpinned this result and while plant capital costs had been rising, the cost of capital had been declining. These offsetting effects locked the wholesale market into an average cost of $35–$40/MWh. However, from 2007, a simultaneous and sharp rise in new entrant plant capital costs and the cost of capital occurred. The combined effects crept up on the industry while it was in a state of oversupply. This ‘entry cost shock’ disrupted a 7 year long equilibrium price, with average power system cost rising to $60/MWh. [ABSTRACT FROM AUTHOR]

Australia's National Electricity Market (NEM) has been a beacon for governments around the world considering power industry reform. However, while the energy-only NEM has served Australia well since 1998, deep structural supply-side faults exist. Competitive energy-only markets do not have a stable equilibrium solution unless reliability constraints are violated, market power is exercised, or scarcity pricing operates unabated. But the political economy of electricity means none of this is likely. This research finds that by reducing the NEM price cap and introducing a ‘capacity payments pool’, a tractable and politically acceptable equilibrium can be established to facilitate timely plant entry. [ABSTRACT FROM AUTHOR]