Evaluation of Environmental Taxation on Multiple Air Pollutants in the Electricity Generation Sector – Evidence from New South Wales, Australia

This paper investigates the effects of environmental taxes on the emissions intensity (measured as mass per TWh) of Nitrogen Oxides (NOx), Sulfur Oxides (SOx), Coarse Particulate Matter (CPM) and Fine Particulate Matter (FPM) from electricity generators in New South Wales (NSW), Australia. Electricity generators in NSW are subject to environmental taxation on air pollution through the Load Based Licensing (LBL) scheme. This paper evaluates whether this environmental policy, after ten years of operation, has led to a reduction in the emissions intensity of these air pollutants. The econometric estimation, based on a Seemingly Unrelated Regression (SUR) model with fixed effects, shows that except for SOx, there is no evidence of emissions reduction that can be attributed to the LBL in NSW. In terms of enabling low-cost abatement through specific monitoring methods, there is no evidence of reduction in NOx or SOx emission intensities due to generators implementing continuous monitoring. By contrast, generators using periodic monitoring methods have lower emission intensities of CPM and FPM. The findings suggest that environmental taxes in NSW have been too low compared with marginal abatement cost estimates and so, they have not created sufficient incentives for generators to reduce their emission intensities across air pollutants.