Corrective taxation of negative externalities is not unambiguously welfare improving in imperfectly competitive markets. Gordon Leslie shows that for carbon taxation in wholesale electricity markets, introducing a small carbon tax that reduces without eliminating the cost advantage of emissions-heavy, coal based electricity generation over gas based electricity generation can increase equilibrium carbon emissions for some fixed levels of demand. Gordon Leslie provides empirical evidence that in Western Australia, a carbon tax reduced the market power of the dominant firm in that market, reducing its profit incentive to lower its coal based generation in some demand conditions. Overall, it was ambiguous whether the tax reduced short-run emissions in the electricity sector.

Gordon Leslie is a PhD candidate in economics at Stanford University and graduate researcher at Stanford’s Program on Energy and Sustainable Development. Previously, he had worked on household tax and transfer policy modelling at the Australian Treasury. His current research interests include topics in environmental policy and industrial organisation, particularly in wholesale and retail electricity markets.

This seminar is presented by Centre for Climate Economics and Policy, at Crawford School of Public Policy, The Australian National University.