Cooperative bargaining of Australian coal plants under a regulatory threat
The energy market in Australia and particularly the state of Victoria, finds itself in a precarious, transitional state. Researchers have concluded that barriers to orderly exit are present for highly-polluting and aged incumbent brown coal generation, further preventing renewable generation from...
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| Formato: | Second cycle, A2E |
| Lenguaje: | sueco Inglés |
| Publicado: |
2017
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| Acceso en línea: | https://stud.epsilon.slu.se/12832/ |
| Sumario: | The energy market in Australia and particularly the state of Victoria, finds itself in a precarious,
transitional state. Researchers have concluded that barriers to orderly exit are present for highly-polluting
and aged incumbent brown coal generation, further preventing renewable generation from entering the
market (Riesz & Noone, 2013; AEMC, 2015a; Frontier Economics, 2015). Faced with oversupply of
generating capacity and the unwillingness of the government to adopt a first-best carbon price, a variety
of second-best measures have emerged attempting to achieve an emissions-efficient retirement and help
Australia reach its ratified emission targets (Caldecott et al., 2015; Jotzo & Mazouz, 2015; Nelson et al.,
2015). This paper aims to investigate the usefulness of a cooperative bargaining mechanism under the
threat of an emissions performance standard (EPS), for two of the most emission intensive generators in
the National Electricity Market. We estimate the expected income for the generators over their expected
lives under differing EPS stringencies from a base case scenario. Utilising Nash Bargaining, it is
determined whether an agreement can be reached for one to pay the other to retire. The power plants
choose between lowering output (‘mothballing’ capacity), or installing carbon capture and storage
facilities (CCS) in order to comply with the regulation. We finally introduce expectations of regulatory
uncertainty to examine the effect on previous outcomes.
The findings indicate that implementing a modest but credible threat of a 1.1t CO2-e/MWh could
theoretically achieve a plant exit. High decommissioning and rehabilitation costs prevent weaker and
more politically acceptable emission standards succeeding. The owners select mothballing of capacity
over the high investment costs and inefficiencies associated with CCS to adhere to the regulation when
bargaining fails. When introducing regulatory uncertainty with the outcome, the agreement is expected to
fail if plant owners expect the policy to be ineffective on profits for more than 51% of the time. |
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