According to a new report by the Organisation for Economic Co-operation and Development (OECD) carbon taxes and emissions trading systems (ETS) are the most cost-effective way to reduce emissions.
In something of a blow to Australia’s conservative Liberal-National government’s plans to do away with the country’s carbon price and replace it with a scheme called Direct Action the OECD says taxes or an ETS and should be “at the centre of government efforts to tackle climate change.”
An OECD study, called Effective Carbon Prices, found that other policies, such as feed-in tariffs, industry regulation and subsidies, are far less economically preferable to carbon pricing.
The findings are the latest evidence-based blow to the climate policy of the Liberal-National government of Prime Minister Tony Abbott.
Its Direct Action system relies on financial handouts to businesses that want to reduce their emissions.
It comes as power and gas firms have questioned the Abbott government’s claims that abolishing the carbon tax will spark nine per cent electricity price cuts and seven per cent gas price cuts, according to the News Limited national newspaper The Australian.
Several industry groups have made a joint submission on the government’s legislation to repeal the carbon tax, warning that “it is difficult to specify exactly how much electricity prices will fall once the carbon price is repealed”, the newspaper reported.
The submission came from the Energy Supply Association of Australia, the Energy Networks Association, the National Generators Forum, the Energy Retailers Association of Australia and the Australian Pipeline Industry Association.
The groups say any flow-on impact on prices from the repeal of the carbon tax could take months to surface, and would be expected to vary between regions,The Australian reported.
Mr Abbott has claimed the carbon tax repeal would benefit Australian households to the tune of $550 per year and that power prices would fall nine per cent and gas prices seven per cent.
Media reports say previous analysis has shown that Direct Action will fail to meet Australia’s bipartisan goal of a five per cent emissions cut by 2020 based on 2000 levels.
Earlier this week, former treasury secretary Dr Ken Henry ridiculed the Liberal-National policy as “bizarre”.
John Connor, CEO of the Climate Institute, told Guardian Australia the OECD analysis was a “pretty emphatic statement” that carbon pricing was the most cost-effective way to reduce emissions.
“When you look worldwide, there’s no risk of Australia showing leadership in putting direct or indirect pricing on carbon,” he said.
“It does come back to the question of whether we are serious about keeping to our commitment of preventing two degrees Celsius or more in warming.”
Mr Connor said he hoped the government’s determination to repeal the carbon price might alter once the “realities of international action start to sink in”.
The OECD’s strong endorsement of carbon pricing follows the International Monetary Fund and the World Bank, which have both recently backed the system as the best way to slash emissions.
The OECD study looked at climate change policies in 15 countries, including Australia, China and Germany, and their impact on areas including electricity generation, household energy use, road transport and cement manufacturing.
It found that countries would achieve deeper emissions cuts with “smarter, market-based policy instruments” such as carbon taxes and ETS.
The cost of alternatives to carbon pricing can prove “substantially higher”, according to the OECD, made up of 34 of the world’s leading economies.
In the electricity sector, abating a tonne of CO2 cost an average €10, the OECD said, compared to €176 for capital subsidies and €169 for feed-in tariffs.
In a specific analysis of Australia, the OECD found that the average estimated abatement cost in electricity generation is in the “mid-range” of the countries studied and “much less than the high effective carbon prices associated with policy instruments used in some other countries”.
The cost of Australia’s carbon price is about 0.04 per cent to 0.05 per cent of GDP, the report found.
“Countries are pricing carbon in a multitude of ways, not always the most effective,” said the OECD secretary-general, Angel Gurría.
“There has been a huge amount of taxing and regulating around carbon, with prices established too high or too low, and the outcome has been far from optimal.
“This is a chaotic landscape that sends no clear signal, and must be addressed.”
