Productivity Commission directed to ignore real emissions issues

Did its terms of reference allow the PC to answer this crucial question? To do so requires modelling of emissions pricing options under different assumptions about what our trade competitors are likely to do.

The PC is well aware of this issue. It is well placed to model different price-based approaches to emissions abatement.

These policy options could be modelled (under different assumptions about what our competitors are doing) as production or consumption-based taxes. Compared with the morass the PC had to deal with in preparing its research report, this modelling exercise would have been relatively easy. (I already have some preliminary results, but I'd rather the PC did the job.)

I'm prepared to bet that the Treasurer's recent claims that a carbon tax of about $A20/tonne will have a minor effect on Australian per capita incomes assumes our trade competitors also take action as part of a global deal. That's the assumption that underpinned the modelling for the CPRS a couple of years ago. Alternative assumptions weren't explored.

Suppose that, under Government instruction or otherwise, the Treasury modeling indeed makes this assumption. This would ignore the adverse activity, income and jobs implications of unilateral action by Australia to increase its existing average price on emissions.

Wouldn't this sort of risk management, if applied in a company, have the Board sacked?

The PC could not deal with this second question, but made the following observations related to it:

'…assessing the ultimate impact on producers' costs in Australia and abroad would also require that account be taken of any policies serving to counter the cost impacts of emissions reduction policies. It would also require comparisons with key competitor economies, which may include countries other than those the Commission was asked to look at in the present exercise.'

PC Research report, Carbon Emission Policies in Key Economies, Overview, page XL.

On policies that served to counter emissions abatement, the PC found that China was a notable offender in relation to biofuel policies.

More importantly, the PC's message concerning competitiveness effects of increased Australian emissions abatement is that more research is needed.

In Australia recently, much lip service has been paid to 'evidence-based policy' while honouring it in the breach. Absorbing the messages in the PC report, and following up where the PC indicated more work is needed, is an opportunity to put our money where our mantra is.