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Productivity Commission directed to ignore real emissions issues

By Geoff Carmody - posted Tuesday, 28 June 2011


The Productivity Commission's (PC's) research report Carbon Emission Policies in Key Economies has valuable, evidence-based, messages for politicians of all stripes, and some of their advisers.

There are more efficient and less efficient ways of abating emissions. Within the eight countries ultimately reviewed by the PC, both are evident. (Nine countries were covered in the PC's terms of reference, but India did not participate).

Australia can cut the cost of the emissions reduction currently being delivered – a lot. A broadly-based price on emissions (costing about $A9/tonne of emissions abatement) implies huge scope for Australia to swap better policy for the multiplicity of 'pissant' worse options in place (currently about 230 of them).

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As with tariff cuts, given the current abatement effort, unilateral action of this type is to our national benefit. This is the classic productivity enhancing finding we should expect from a PC doing its job.

However, under the Government's terms of reference and tight time constraints, the PC was unable to deal with two central questions. Securing a global climate policy deal hinges on answers to them.

First, what action is being taken to reduce emissions by Australia's trade competitors? (Australia's seven trading partners reviewed by the PC do not cover this group well). If the average answer for our trade competitors is 'zero' or 'not a lot', the PC results imply Australia is ahead of countries from which it has most to fear from 'carbon leakage' and related activity/job losses (and is ahead of the global average).

Garnaut concedes concern about loss of trade competitiveness is the most important single impediment to securing a global deal. In the light of the PC report, it would be useful for Garnaut and others to provide public, evidence-based, answers, rather than mere assertions, to questions like the following.

Do they agree with the PC's findings, and, if not, what evidence supports their disagreement?

Do they agree with the exclusion of the Chinese 'Large Substitute for Small' (LSS) energy generator modernization program from an assessment of what China is doing, and if not, why not? (The PC excluded the LSS program because the emissions abatement by-product of the LSS came at a negative cost. That is, the LSS is a 'no regrets' policy. There is a unilateral commercial benefit to China in implementing the LSS, with local pollution and greenhouse emissions benefits at no extra cost.)

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In praising the current Chinese effort on emissions abatement, does Garnaut exclude its LSS program?

Can they reconcile the PC's findings with assertions Australia is 'falling behind' on emissions abatement?

Second, accepting the PC's finding that broad, price-based policies (like an ETS) are more cost-effective than selective subsidies (such as 'direct action'), what's the most cost-effective broad price-based option?

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An edited version of this article was first published by The Australian.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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