The Productivity Commissions has provided evidence that supports the Government’s ambition of setting a price on carbon, concluding in its research report that a price-based approach is relatively the most cost-effective, and that the abatement achieved from existing policies “could have been achieved at a fraction of  the cost.”

 

The Productivity Commission was was commissioned by the Australian Government and the Multi-Party Climate Change Committee, to assess the extent to which key economies are taking action to address climate change.

 

The study undertook a stocktake of the many policy measures in the electricity generation and road transport sectors of the countries studied, providing estimates of the cost burdens and the abatement achieved in each case.  The key economies studied were the UK, the USA, Germany, New Zealand, China, India, Japan and South Korea.

 

Providing a snapshot of the cost and performance of  major emissions-reduction policies, the study concluded that:

 

  • The resources committed by different countries to emissions-reduction policies in electricity generation are estimated to vary as a proportion of GDP, with Germany being well in front of all other countries, followed by the United Kingdom, with Australia, China and the United States ‘mid-range’. The cost effectiveness of these actions in achieving abatement has also varied widely, both across programs within each country and in aggregate across countries.
  • There is also wide variation in outlays and cost effectiveness of biofuel policies. The United States spent proportionately more on biofuel policies than any other country, but did not achieve commensurately more abatement. For China, the estimates suggest its policies might have increased emissions rather than reduced them.
  • Price-based instruments (such as the European Union ETS) appear to be relatively cost effective — at least where they are not crowded out by other policies. Policies that have encouraged small-scale renewable generation and biofuels generally have been much less cost effective and have led to relatively little abatement.
  • The overlapping of policies in many countries makes it difficult to apportion abatement to particular policies. In some cases, a multiplicity of policies appears simply to be driving up costs and rewarding producers for virtually no additional abatement.

The report concluded that its estimates could "not be used to determine the appropriate starting price of a broadly-based carbon pricing scheme in Australia. Similarly, the estimates provide only a small subset of the data required to make assessments of what assistance would be needed to avoid undue levels of carbon leakage, and competitive disadvantage. Additional countries and relevant industries would also need to be assessed."

 

The research report, Carbon Emission Policies in Key Economies, is available here.