Ranking the CPRS: a one-model beauty contest

The Senate Select Committee on Climate Policy has released its report. Its first recommendation is that Treasury be directed to do more modelling of the effects of the CPRS (Carbon Pollution Reduction Scheme), including transition costs, allowing for the deterioration in the Australian economy, effects on jobs and the environment, and effects on regional Australia.

In addition, the Committee recommends Treasury be directed to model five policy alternatives:

1. a “baseline-and-credit” scheme;
2. an “intensity” model;
3. a carbon tax;
4. a consumption-based carbon tax; and
5. the McKibbin “hybrid” approach.

Options 1-3, and option 5, target Australia’s production of emissions, including in our exports. They don’t effect Australia’s emissions imports. Option 4 targets spending on emissions (our emissions consumption). It applies to local spending, including imports, and excludes exports. All options intend to price carbon, whether applied to production or consumption.

Without going further into their details, the Committee therefore sees at least six alternative policy models needing evaluation.

Minister Wong has asserted the CPRS is the lowest-cost option. Is it? Is it the most cost-effective option? This is crucial.

During the Committee’s hearings on April 15, a former Environment Department employee, Salim Mazouz, implied governments have chosen the best model. He said:

In addition to the one year of Garnaut’s research that underlies this we have had many reviews. As early as 2003 there was a proposal before cabinet to do emissions trading. … A lot of the ideas … have been around for many years. A decade ago when I was at the Australian Greenhouse Office I remember discussing the consumption-based approach. …

It is not the case that the Senate is facing a choice between the CPRS and an alternative proposal that might be superior. … (Excerpts from transcript, April 15.)

These comments reflect a widespread attitude at both official and political levels. Should we accept this paternalism? Mazouz’ comments suggest two possibilities. First, governments have made an assessment, but decided against releasing it, relying on the “we know best” assertion. Second, there has been no model-based assessment of options including the five alternatives above.

Neither possibility is a good look for governments supporting transparency and evidence-based policy. The Select Committee’s modelling recommendation makes sense. If it hasn’t been done, it should be. If it has been done, let’s see it.

Some home-grown hints and overseas modelling are suggestive.

On page 84 of its modelling report, Treasury said: