THE ECONOMICS OF RENEWABLE ENERGY POLICY WITH SPECIAL REFERENCE TO AUSTRALIA
This thesis examines some aspects of the economics of the Australian Federal Governments Mandatory Renewable Energy Target (MRET) policy with a special reference to Queensland. The objective of this policy is to increase the market share of renewable energy technologies in the Electricity Supply Industry (ESI) in Australia. The Renewable Energy Certificates (RECs) market was established to achieve the desired market share of renewable energy technologies. These certificates are issued to renewable energy generators for each megawatt hour of eligible renewable electricity produced by generators. In Australia, electricity retailers and other large consumers of electricity have to buy a certain amount of RECs and then surrender RECs to the renewable energy regulator in order to comply with the policy. If retailers and other large consumers of electricity do not have the required amount of RECs by a certain day they have to pay a specified penalty. Renewable energy technologies are less emission intensive than conventional fossil-fuel electricity generation technologies. Therefore, the increased market share of renewable energy technologies is expected to result in reduced emissions from the electricity industry and corresponding improvements in environmental quality. The problem, however, is that private costs of producing electricity from renewable energy technologies are in general more expensive than private costs of producing electricity from conventional fossil-fuel generation technologies. Further, the recent structural reforms of the Australian electricity sector and removal of legal barriers to entry in generation have contributed to the private cost advantage which fossil - fuel electricity generation has in general over renewable technologies. This thesis investigates the options available to policymakers to internalise externalities in the ESI, the cost of emissions from the ESI, and benefits of increasing the market share of renewable energy technologies. It also looks at the renewable energy policies adopted in various countries. The thesis presents simulation models examining the impact of the MRET policy as if it were a state based scheme adopted by the state of Queensland. Models also illustrate how a carbon tax can change the merit order of the Queensland ESI. It highlights the advantages and disadvantages of the MRET policy. This thesis looks at the supply side by examining main components and effects of the Australian MRET policy including, using the methodology of experimental economics, the effects of the penalty for non-compliance in the context of a specific market structure. Increasing the market share of the renewable energy technologies is also approached from the demand side. This thesis examines consumers willingness to pay (WTP) to protect the environment. Important influences on WTP higher prices in order to protect the environment were analysed on the international and Australian levels using the 1993 and 2000 International Social Survey Programme (ISSP) data and the Australian data from the 2003 Australian Survey of Social Attitudes (AuSSA). This thesis also employs a contingent valuation survey that was developed to determine the extent to which consumers are willing to pay to protect the environment, to support the MRET policy and to pay for electricity generated from renewable energy. The contingent valuation survey was administered in Queensland. The simulation results indicated that there were enough available low cost renewable energy resources (such as biomass) in Queensland if the state were to adopt the Federal Governments MRET scheme policy objectives and policy instruments (such as RECs market and a penalty for non-compliance) as a state scheme. However, it is unlikely that all these resources will be employed due to several factors (e.g., the seasonal nature of some of the biomass resources, such as waste from sugar mills). Therefore the price of RECs could be quite high and just below the penalty. It was also concluded that the presence of a penalty for non-compliance in the RECs market can lead to a high RECs price. Wrong market price signals could lead to inefficient investments in renewable energy technologies. Several important results emerged from the analysis of WTP for the protection of the environment: 1) in most countries considered, marginal willingness to pay to protect the environment was less in 2000, than in 1993; 2) respondents were more inclined to state that they were willing to pay higher prices in order to protect the environment than they were to pay higher taxes; 3) respondents were more reluctant to pay for an environmental good if the good is provided on a very large scale, such as the global environment, compared with an environmental good provided on a small scale which impacts mainly the local environment; 4) WTP to protect the environment is associated strongly with perceptions of the risk of environmental destruction; and 5) although there are many similarities among the characteristics of the consumers in different countries who are willing to pay more for environmental protection, the country specific research is required to account for local specifics. The analysis of the data obtained by the Queensland survey showed that the demand side can support some investments in low cost renewable energy technologies. Consumers indicated a strong preference for voluntary support of support renewable energy technologies compared with the mandatory support as required by the MRET policy. Policy recommendations are presented.
