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...
| Autor principal: | |
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| Formato: | Second cycle, A2E |
| Lenguaje: | sueco Inglés |
| Publicado: |
2017
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| Materias: | |
| Acceso en línea: | https://stud.epsilon.slu.se/12832/ |
| _version_ | 1855572139979046912 |
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| author | Rolli, Justin |
| author_browse | Rolli, Justin |
| author_facet | Rolli, Justin |
| author_sort | Rolli, Justin |
| collection | Epsilon Archive for Student Projects |
| description | 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. |
| format | Second cycle, A2E |
| id | RepoSLU12832 |
| institution | Swedish University of Agricultural Sciences |
| language | Swedish Inglés |
| publishDate | 2017 |
| publishDateSort | 2017 |
| record_format | eprints |
| spelling | RepoSLU128322017-11-02T08:07:38Z https://stud.epsilon.slu.se/12832/ Cooperative bargaining of Australian coal plants under a regulatory threat Rolli, Justin Economics and management 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. Energimarknaden i Australien och särskilt i staten Victoria befinner sig i en osäker övergångsperiod. Forskare har konstaterat att barriärer existerar som gör det svårt för högförorenade och åldrande brunkol att upphöra brukas, vilket motverkar den nya generationens förnybara energikällor från att inta marknaden (Riesz & Noone, 2013; AEMC, 2015a; Frontier Economics, 2015). Ett överutbud av produktionskapacitet tillsammans med regeringens ovilja att sätta ett pris på koldioxidutsläpp, medför att reglerande ingrepp är behövda för att uppnå en utsläppseffektiv stängning av den äldre generationen, vilket skulle hjälpa Australien att uppnå sitt utsläppsmål från klimatmötet i Paris 2015 (Caldecott et al., 2015; Jotzo & Mazouz, 2015; Nelson et al., 2015). Denna forskning strävar mot att förse en fallstudie för att undersöka användbarheten av kooperativa förhandlingar under hotet av EPS (Emissions Performance Standard) på två av de mest förorenade i den Australienska energimarknaden. Vi uppskattar den förväntade inkomsten för kolkraftverken under deras livslängd under olika stringenser av EPS och ett basfallscenario. Därefter utnyttjar vi Nash Bargaining för att avgöra huruvida en överenskommelse där ett kolkraftverk betalar ett annat för att lämna marknaden kan uppnås. Kolkraftverken väljer mellan att sänka produktionen (’mothballing’), eller att installera koldioxidfångning och lagring (CCS) för att följa regleringen. Slutligen undersöker vi detta med ett tillsatt inslag av osäkerhet i regeringens politik för att undersöka effekten av tidigare resultat. Resultaten indikerar att implementation av ett måttligt men trovärdigt hot av 1,1 ton CO2-e/MWh kan teoretiskt sett medföra att ett kolkraftverk försvinner från marknaden. Höga kostnader för avveckling och restaurering förhindrar svagare och mer politiskt acceptabla utsläppsstandarder från att lyckas. Ägare av kolkraftverk väljer till övervägande del ’mothballing’ av kapaciteten över de höga investeringskostnaderna associerade med CCS för att hålla sig fast vid regleringen då ett icke-avtal uppstår. Om ägarna förutsätter att policyn kommer att vara ineffektiv för vinster mer än 42% av gångerna, kommer i sin tur avtal att misslyckas, vilket bekräftar behovet av tydliga och trovärdiga policys för utsläpp från regeringen (Nelson et al., 2015). 2017-11-01 Second cycle, A2E NonPeerReviewed application/pdf sv https://stud.epsilon.slu.se/12832/1/rolli_j_171102.pdf Rolli, Justin, 2017. Cooperative bargaining of Australian coal plants under a regulatory threat. Second cycle, A2E. Uppsala: (NL, NJ) > Dept. of Economics <https://stud.epsilon.slu.se/view/divisions/OID-510.html> urn:nbn:se:slu:epsilon-s-8523 eng |
| spellingShingle | Economics and management Rolli, Justin Cooperative bargaining of Australian coal plants under a regulatory threat |
| title | Cooperative bargaining of Australian coal plants under a regulatory threat |
| title_full | Cooperative bargaining of Australian coal plants under a regulatory threat |
| title_fullStr | Cooperative bargaining of Australian coal plants under a regulatory threat |
| title_full_unstemmed | Cooperative bargaining of Australian coal plants under a regulatory threat |
| title_short | Cooperative bargaining of Australian coal plants under a regulatory threat |
| title_sort | cooperative bargaining of australian coal plants under a regulatory threat |
| topic | Economics and management |
| url | https://stud.epsilon.slu.se/12832/ https://stud.epsilon.slu.se/12832/ |