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What role for policies to supplement an Emissions Trading Scheme?

Productivity Commission submission

The Productivity Commission submission to the Garnaut Climate Change Review (external link) was released on 22 May 2008.

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  • Key points
  • Media release
  • Contents
  • Where activities are covered by an emissions trading scheme (ETS), individuals and firms factor the traded price of greenhouse gas emissions into their decision-making and adjust their production and consumption in the most cost-effective way.
    • An effective ETS therefore is most likely to achieve a given abatement target at least cost to the community.
  • With an effective ETS, much of the current patchwork of climate change policies will become redundant and there will only be a residual role for state, territory and local government initiatives.
  • Once an ETS is in place, other abatement policies generally change the mix, not the quantity, of emissions reduction. Retaining existing, or introducing new, policies to supplement the ETS would need to offer other benefits. Those with potential include:
    • addressing a lack of incentive to conduct research and development in low emissions technologies
    • addressing barriers to the take-up of cost-effective energy efficiency opportunities
    • exploiting abatement potential in sectors and activities not covered by the ETS.
  • Currently, the most significant climate change policy instrument is the Mandatory Renewable Energy Target (MRET) which is marked for significant expansion. However, with an effective ETS in place, the MRET would:
    • not achieve any additional abatement but impose additional costs
    • most likely lead to higher electricity prices
    • provide a signal that lobbying for government support for certain technologies and industries over others could be successful.
  • The extent to which land use, agriculture and forestry will be included initially in the ETS is uncertain. While it appears feasible to include forestry and some elements of agriculture, it is unclear whether this is the best option.
    • Other policies in uncovered sectors could encourage additional abatement. A key example is credit for carbon sequestration (greenhouse gas offsets). But ensuring the effectiveness of such arrangements can be difficult and costly.
    • There is little benefit in Australia pursuing emission reductions that are not recognised under international rules. This has implications for linking with other countries' emissions trading schemes.
  • All supplementary policies must be subject to rigorous evidence-based analysis to determine if their rationales are sound and, if so, whether intervention would deliver a net community benefit after consideration of the costs of action.

In a submission to the Garnaut Climate Change Review, released today, the Productivity Commission argues that with a national Emissions Trading Scheme (ETS) in prospect, a number of existing greenhouse policies will no longer be justified and could prove counterproductive.

Responding to a request from the Garnaut Review, the Commission examines different categories of greenhouse policy and whether they would complement an ETS. It also considers the scope to lower the costs of emission reductions by widening the sectoral coverage of policy action, either within the ETS or by other means.

The Commission notes that an effective ETS, by putting a price on carbon throughout the economy, will enable Australia to achieve any given emission reduction target in the most cost-effective way. It finds that policies directed at promoting R&D and overcoming barriers to the take-up of energy efficient technologies would yield further benefits if well-designed.

However, other policies now need to be reconsidered. In particular, the Commission concludes that continuation of the Mandatory Renewable Energy Target would not achieve any additional emission reduction benefit, but would increase abatement costs for the Australian community.

Background information

02 6240 3330

  • Preliminaries
    Cover, Copyright, Foreword, Contents and Abbreviations
  • Overview
  • Chapter 1 Policy framework
    1.1 Scope of the submission
    1.2 Responding to a global externality
    1.3 Framework for supplementary policy
  • Chapter 2 Technology and energy efficiency
    2.1 Introduction
    2.2 Technology policies
    2.3 Energy efficiency policies
    2.4 Other government action to facilitate mitigation
    2.5 Good practice regulatory principles
  • Chapter 3 Coverage of an Emissions Trading Scheme
    3.1 Deciding on coverage
    3.2 Land use, land use change and forestry
    3.3 Agriculture
    3.4 Other sectors
  • Appendix A Quantifying the costs and benefits of low-emissions energy targets
  • References

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