The New South Wales load based licensing scheme for NOx: Lessons learnt after a decade of operation

Load based licensing (LBL) is a form of Pigouvian taxation that has been in place over the last decade for various air and water pollutants in New South Wales, Australia. As with other taxation systems for pollution control it is not directly observable if the load based licensing has achieved its aim of reducing emissions. Its effectiveness in reducing emissions depends on the level of the effective fee rate and the responsiveness of the emitters to that rate. This paper uses the available data over the last ten years to evaluate the effects of the LBL on emissions of NOx by licensed emitters in NSW. Econometric results suggest that the variation in NOx emissions cannot be clearly attributed to the effects of the LBL scheme. This finding calls for modification of the existing scheme that could be done through implementing various changes, including substantial increase of the fee combined with recycling of the collected revenue, or moving towards a tradable permit scheme.

► The paper presents a formal ex-post assessment of LBL for NOx emissions in NSW. ► The analysis is based on data from a broad range of industries that emit NOx. ► Main finding: observed variation of emissions cannot be attributed to the LBL. ► The importance of setting emission taxes adequately is reiterated by the findings.