This article finds that the introduction of a carbon tax increased short-run carbon emissions in an imperfectly competitive wholesale electricity market. The unique feature of the Western Australian setting is that the same carbon tax was introduced and later repealed, but the market structure differed at each event. At the repeal event, the dominant firm had less incentive to exercise unilateral market power. Then, the opposite result is observed — emissions were lower with the tax. I show how the short-run impact of pollution taxation in imperfect markets depends on production technologies, market structure and the size of the tax.
- Electric utilities
- Energy and environmental policy
- Environmental taxes and subsidies
- Firm organization and market structure
- Oligopoly and other imperfect markets