Carbon Pricing, Forward Risk Premiums and Pass-Through Rates in Australian Electricity Futures Markets

29 Pages Posted: 27 Dec 2016

See all articles by Paweł Maryniak

Paweł Maryniak

Wroclaw University of Technology; Uniwersytet Ekonomiczny we Wrocławiu

Stefan Trück

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR); Macquarie University, Macquarie Business School

Rafal Weron

Wroclaw University of Science and Technology, Department of Operations Research

Date Written: October 31, 2016

Abstract

We investigate the impacts of the carbon tax (effective July 2012 to July 2014) on wholesale electricity prices in the Australian National Electricity Market (NEM). Analyzing spot and futures contracts in four major regional markets, we first compute ex-ante forward risk premiums in the pre-tax period, then use them to derive market-implied carbon premiums and pass-through rates in the carbon tax and post-tax periods. We find that carbon premiums and pass-through rates became increasingly higher, once the Clean Energy Bill had been introduced and subsequently passed in 2011. We also find strong evidence for a quick reaction of the extracted carbon premiums to changes in opinion polls for the Australian federal election in 2013 and the decision to repeal the tax. On the other hand, during periods where market participants could be relatively certain that the tax would be eff ective, we find expected carbon pass-through rates between 65% and 140%, which seem to be inversely related to emission intensities.

Keywords: Carbon Tax, Carbon Pass-Through Rate, Forward Risk Premium, Electricity Market, Spot and Futures Prices

JEL Classification: C51, C53, G13, Q41, Q58

Suggested Citation

Maryniak, Paweł and Trueck, Stefan and Weron, Rafal, Carbon Pricing, Forward Risk Premiums and Pass-Through Rates in Australian Electricity Futures Markets (October 31, 2016). Available at SSRN: https://ssrn.com/abstract=2889892 or http://dx.doi.org/10.2139/ssrn.2889892

Paweł Maryniak

Wroclaw University of Technology ( email )

ul. Smoluchowskiego 25
Wroclaw, 50-372
Poland

Uniwersytet Ekonomiczny we Wrocławiu ( email )

Komandorska 118/120
Wrocław, 53-345
Poland

Stefan Trueck (Contact Author)

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia
61298508483 (Phone)
61298508483 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Rafal Weron

Wroclaw University of Science and Technology, Department of Operations Research ( email )

Wyspianskiego 27
Wroclaw, 50-370
Poland

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