Another carbon report has been released, this time from the Productivity Commission, rating Australia’s relative carbon performance.

Looking back

In late September 2010, the Federal Labor Government convened the Multi-Party Climate Change Committee (MPCCC).  Representing the key members of the Government’s slim majority, the MPCCC includes members from Labor, the Greens and two independents. The goal of the MPCCC is to reach agreement on a carbon pricing mechanism.

In February 2011 the MPCCC announced a framework, including a fixed price mechanism (effectively, a carbon tax) beginning 1 July 2012, with an emissions trading scheme to follow three to five years later.  The announcement phrased the framework’s details as possibilities rather than commitments, and both independent members only agreed to its release for ‘discussion purposes only’.  Since then, the MPCCC has met regularly and is now said to be reaching its final stages of negotiation before another, more detailed, announcement in July 2011. 

In recent months a number of reports and studies have been published on a carbon price mechanism.  Two of the most significant reports for the MPCCC deliberations will be:

  • he Garnaut Review 2011 - Professor Ross Garnaut was asked to update his 2008 Climate Change Review.  Revisiting a broad range of issues - from land sector abatement to developments in climate change science - we commented on its release here; and
  • The Productivity Commission’s Carbon Research Report - the Commission was asked to consider carbon pricing internationally.  This review was commissioned to evaluate the level of action that is being taken by our trading partners. 

The Productivity Commission’s report

In essence, the Commission’s report was designed to determine where Australia is placed amongst key world economies regarding carbon policy.  To this end, the Commission assessed the "subsidy equivalents" in Australia and in key competitor economies.  By reviewing carbon policies in place in a number of jurisdictions, the Commission then estimated a subsidy equivalent, considering explicit carbon prices (e.g. under an emissions trading scheme) and implicit carbon prices (e.g. generated by R&D subsidies or other regulated measures).  The key economies were the US, UK, Germany, New Zealand, South Korea, China, India and Japan.

The Commission identified more than 230 relevant policies in Australia alone and was forced to narrow its focus to key impacts on power generation and road transport.  Even prior to the release of the report, the Commission indicated the immense challenge in developing a consistent measurement that could be used across a broad range of taxes, quotas and subsidies all pursuing abatement.  As a result of this complexity, the report itself concedes that it provides “little guidance… as to what the appropriate starting price for an ETS should be”.  Similarly, the Commission report does not reach any conclusion on an appropriate level of assistance for industry.

Australia is placed mid-way amongst the eight economies surveyed, based on the current cost of cutting carbon.  The UK and Germany achieve much higher abatement than Australia, but also spend more in relative terms.  The Commission’s review shows substantial differences between the level of cost efficiency achieved across the surveyed economies, a point that emphasizes the need for good policy decisions.

The report endorses emissions trading schemes, considering price-based systems as more effective in driving low cost abatement than more limited, less direct measures.  The Commission found that in the UK the emissions trading scheme has led to switching from coal to gas-fired power generation, “yielding substantial abatement”.  In the alternative, the report warns that other measures such as direct subsidies supporting small-scale solar technology (such as feed-in-tariffs) or biofuels may provide some abatement, but at a very high costs.

Looking ahead

Together with the Garnaut Review 2011 and updated Treasury modelling, the Productivity Commission’s report forms a key piece of information for the MPCCC.  The support of the Commission and Garnaut for an emissions trading scheme also suggests that the initial framework proposed is very likely to form the basis of the Government’s scheme.