Climate and Energy Econometrics


The team is developing new procedures tailored to the study of variables that are shifting and have complex trends.

Their focus is on measurement of the relationship between anthropogenic greenhouse gases and climatic variables, the contribution of electricity generation to greenhouse gas emissions, and the economic effects of diversifying energy sources.

Standard techniques are not very suitable for prescriptive analysis of the electricity market, and their new procedures will provide more confidence in the likely outcomes of policy interventions in this market.

The shifting environment created by increasing adoption of new technologies such as solar water heaters and smart devices, plus the establishment of new solar and wind farms and advances in electricity storage technology, require tailor‐made inferential techniques.

Determining the likely outcome of an intervention in the electricity market requires the team to be able to predict how such an intervention will affect trends.

More importantly, since the identification of a complex trend from a short history is imprecise, this needs to be taken into account when providing a measure of confidence in a policy’s predicted outcomes.

Existing methods are likely to lead to over‐confidence in various policy recommendations.

The team will also use other countries’ data to improve Australian policy development.

A policy’s effectiveness is usually judged by the extent to which an intervention changes an outcome. For example, the success of a carbon tax might be gauged by the change in the trend of using coal as an energy source.

The team plan to use historical similarities in such variables’ trends to construct similar scenarios for Australia and use these to predict outcomes for Australia, should we adopt the policies this group of countries have adopted.

Finally, they are using recent advances in financial econometrics to understand the dynamics of electricity prices. Electricity prices are similar in many ways to asset prices. They are highly persistent, have time-varying volatility and occasional jumps. Using an appropriate model, they are investigating the effects of varying observable market characteristics on each of these features, using data from several countries.

This analysis has a particular focus on volatility, because understanding this will facilitate the measurement and hedging of risks associated with different types of electricity generation, especially the risk coming from renewable resources.

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