The implicit price of carbon in the electricity sector of six major economies

Economics Climate change Power resources Industries Australia

Australia’s major trading partners have higher direct and indirect carbon pricing in their electricity sectors in order to drive cleaner energy investments.

This report considers policies to promote low-carbon electricity generation in six major economies: Australia, China, Japan, South Korea, the UK and the US. These six countries accounted for just under half (46 per cent) of global emissions (excluding LULUCF) in 2008 (CAIT, 2010). In all six countries, including those without emissions trading schemes or carbon taxes, domestic policies are creating some financial incentive to produce low-carbon electricity and, consequently, an implicit price on carbon.

The aim of this report is to capture the extent to which policy in a country increases the incentive for low-carbon electricity generation; either through increasing the price received, or reducing the costs incurred, by low-carbon generators. Figure 1 and Table 1 show the estimate of the implicit carbon price in the electricity generation sector for each country analysed.

Under this definition, the UK is taking, by some distance, the strongest action out of the six countries considered, with an implicit carbon price estimated at US$28. South Korea has the lowest estimated implicit carbon price, US$0.50. Policies in China result in a financial incentive to pursue lowcarbon generation of US$8 per tonne1 of CO2, while the US has an incentive of US$5. Policies in Japan and Australia result in lower estimates of under US$5.


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