Centre for Climate & Energy Policy

Carbon pricing is the most efficient way to tackle climate change, two Crawford School experts have told a Senate enquiry.

Associate Professor Frank Jotzo, Director of the Centre for Climate Economics and Policy and the Deputy Director of the ANU Climate Change Institute, and Dr Paul Burke of the Arndt-Corden Department of Economics, provided submissions to the Senate Standing Committees on Environment and Communications on its inquiry into the Australian Government’s Direct Action Plan.

The inquiry seeks to investigate whether the Government’s Direct Action Plan has the capacity to reduce greenhouse gas emissions adequately and cost effectively as well as the environmental impact of the Government’s repeal of the Clean Energy Package. The Direct Action Plan seeks to provide financial incentives for polluters to reduce their greenhouse gas emissions.
On 28 February, both academics went before the enquiry to discuss their submissions and answer questions.

“The proposed Emissions Reductions Fund under the Direct Action Plan could be useful to support particular emissions reductions activities, but it is not a suitable instrument for long-term, broad-based climate change mitigation action,” said Jotzo in his submission.

“The effectiveness and cost-effectiveness of an Emissions Reduction Fund will be limited by fiscal costs and fiscal constraints, by private incentives to overstate emissions savings and to hold back investment unless subsidised, and by the relatively large administrative burden. It could also encourage continued lobbying by potential beneficiaries,” he said.

“The Direct Action Plan has numerous problems which make it an intractably ineffective and inefficient policy,” said Burke in his submission. Among the problems that Burke listed was the inability of the plan to accurately assess emission reductions, the administrative burden of implementing the plan, and the subsidising of firms that have been polluting our environment.

Both Jotzo and Burke agree that carbon pricing is a superior method of reducing greenhouse emissions.

“There is a strong consensus among economists that a broad pricing mechanism is the best policy approach to reducing greenhouse gas emissions,” said Burke. “A gradually increasing carbon price would see Australia transition to a low-carbon economy at low economic cost.

“Economic analysis unambiguously shows carbon pricing – in the form of emissions trading or carbon taxes – as the centrepiece of effective and cost-effective climate change mitigation policy,” said Jotzo.

“[Most] major countries have carbon pricing in place or are introducing it. If Australia were to replace carbon pricing with a subsidy approach, this would be against global trends and waste an opportunity for positive influence on international policymaking.”

You can read Frank Jotzo and Paul Burke’s submissions to the Senate Enquiry at http://ccep.anu.edu.au/research/submissions.php