The carbon tax and the crisis in Australia’s National Electricity Market

Abstract

Australia faced a severe energy crisis in 2022, which prompted the Australian Energy Market Operator to halt in National Electricity Market operations from June 15 to June 24. In this study, which examines half-hourly data from Australia’s National Electricity Market between 2010 and 2016, we aim to demonstrate the notable and intended consequences of the carbon tax, which was enacted in 2012 and repealed in 2014. Our findings show that this tax had a significant impact on wholesale prices. It also induced substitution effects in the generation mix. If these effects had persisted, the electricity generation landscape in 2022 would have been different. Specifically, the economic feasibility of coal would have decreased and that of gas would have increased. As a result, the composition of electricity generating capacity leading up to the 2022 crisis would have been altered.