Carbon pricing most cost-effective way to reduce carbon emissions, says OECD
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Version 0 of 1. Carbon taxes and emissions trading systems are the most cost-effective way to reduce emissions and should be “at the centre of government efforts to tackle climate change”, according to the Organisation for Economic Co-operation and Development. 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 than carbon pricing. The findings are the latest evidence-based blow to the Coalition government’s climate policy, which involves dismantling carbon pricing and replacing it with its Direct Action system of financial handouts to businesses that want to reduce their emissions. Previous analysis has shown that Direct Action will fail to meet Australia’s bipartisan goal of a 5% emissions cut by 2020 based on 2000 levels. Earlier this week, former treasury secretary Ken Henry ridiculed the Coalition policy as “bizarre”. The OECD’s ringing 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 emissions trading systems. The cost of alternatives to carbon pricing can prove “substantially higher”, according to the OECD, an organisation of 34 of the world’s leading economies. For example, the average cost of reducing a tonne of emissions in the road transport industry is up to eight times more expensive when utilising any method other than fuel taxes. 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”. It does point out, however, that feed-in tariffs have not contributed to any additional abatement in Australia, beyond that provided by renewable energy certificates. The cost of Australia’s carbon price is about 0.04% to 0.05% 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.” 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 2C or more in warming.” Connor said he hoped the government’s determination to repeal the carbon price may alter once the “realities of international action start to sink in”. “One day the majority of the Coalition will wake up and again realise that this is good conservative economic policy that deals with risks in a cost-effective manner,” he said. “It took us five years from ‘never ever’ to the GST being locked in stone, so there is the possibility of a change in this case.” Our editors' picks for the day's top news and commentary delivered to your inbox each morning. |