The Australian Government asked the Productivity Commission to undertake a research study into effective carbon prices that result from emissions-reduction policies in Australia and other key economies.
Key findings include:
1. More than 1000 carbon policy measures were identified in the nine countries studied, ranging from (limited) emissions trading schemes to policies that support particular types of abatement technology. ◦As policies have been particularly targeted at electricity generation and road transport emissions, the Commission analysed major measures in these sectors.
2. While these disparate measures cannot be expressed as an equivalent single price on greenhouse gas emissions, all policies impose costs that someone must pay. The Commission has interpreted ‘effective’ carbon prices broadly to mean the cost of reducing greenhouse gas emissions – the ‘price’ of abatement achieved by particular policies.
3. The Commission’s estimates essentially provide a snapshot of the current cost and cost effectiveness of major carbon policies. ◦The subsidy equivalent, abatement achieved and implicit abatement subsidy have been calculated for policies and aggregated by sector in each country.
4. As a proportion of GDP, Germany was found to have allocated more resources than other countries to abatement policies in the electricity generation sector, followed by the UK, with Australia, China and the US mid-range.
5. Estimates of abatement relative to counterfactual emissions in the electricity generation sector followed a similar ordering, with Germany significantly ahead, followed by the UK, then Australia, the US and China.
6. The estimated cost per unit of abatement achieved varied widely, both across programs within each country and in aggregate across countries. ◦Emissions trading schemes were found to be relatively cost effective, while policies encouraging small-scale renewable generation and biofuels have generated little abatement for substantially higher cost.
7. The relative cost effectiveness of price-based approaches is illustrated for Australia by stylised modelling that suggests that the abatement from existing policies for electricity could have been achieved at a fraction of the cost. ◦However, the estimates cannot be used to determine the appropriate starting price of a broadly-based carbon pricing scheme.
8. The estimated price effects of supply-side policies have generally been modest, other than for electricity in Germany and the UK. ◦Such price uplifts are of some relevance to assessing carbon leakage and competitiveness impacts, but are very preliminary and substantially more information would be required.