Vital Signs: a global carbon price could soon be a reality – Australia should prepare



John Nacion/AP

Richard Holden, UNSW

As well as restoring dignity to the Oval Office, another thing that will definitely change under a Biden presidency is US policy on the environment.

Biden’s plan for “a clean energy revolution and environmental justice” includes rejoining the Paris Agreement on climate change, investing US$1.7 trillion over the next decade in “green energy” and achieving net-zero greenhouse gas emissions by 2050.

The European Union, Japan and South Korea have already committed to net-zero emissions by 2050. China’s net-zero target is 2060.

With the US joining the fold, the implications for Australia could be huge.

A carbon border tax coming our way

The European Union has already announced it is considering a carbon border tax. This would involve a tariff on imports from nations without a price on carbon similar to the EU. The tax would be proportional to the amount of carbon in the imports, and the relative difference in carbon price between Europe and the exporting country.

This type of “border-adjustment tax” is a smart way to protect domestic industries from being undercut by imports from other countries without a price on carbon.

It would make eminent sense for the US to follow suit.

If so, things get really interesting. It would make it even harder to challenge such taxes as trade restriction before the World Trade Organisation. It would trigger similar moves by other countries serious about tackling climate change.

Joe Biden speaks about climate change and the fires affecting western US states on September 14 2020.
Patrick Semansky/AP

In fact, a border-adjustment tax is part of the US Climate Leadership Council’s proposal for a carbon tax and “carbon dividend” – returning all net proceeds from the tax to the American people on an equal basis.

The carbon dividend idea is supported by 28 Nobel laureate economists, 15 former chairs of the US Council of Economic Advisers and four former chairs of the US Federal Reserve.




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If most of our trading partners have a carbon border tax, then Australia will have a price on carbon – but only for exporters.

This will leave the Australian economy in a bad position.

With no price on carbon internally, no serious commitment to reduce emissions and a vain hope of meeting our Paris Agreement obligations through dodgy accounting tricks and future technological innovation, the rest of the world is unlikely to be sympathetic.

A carbon dividend plan

There is a better way: enact our own carbon dividend plan.

In 2018 law professor Rosalind Dixon and I proposed a plan for Australia similar to the Climate Leadership Council’s.

Cover of A Climate Dividend for Australians, UNSW, 2018.

University of NSW

Our Australian Carbon Dividend Plan involves a price on carbon, with the proceeds being distributed as a dividend, equally, to every voting-age citizen.

It also allows for a border-adjustment rebate so exporters aren’t penalised if exporting to countries without a similar price on carbon.

This would see a significant majority of Australians better off financially, and help protect exporters while we transition to cleaner energy.

It would also give the Australian government’s Technology Investment Roadmap (to accelerate the use of low-emissions technology) a chance of working. It makes no sense to bet on technology without using market price mechanisms to give suppliers and buyers the right incentives to develop and adopt the most effective technologies.




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The world is acting

The US just voted out a climate denier and is now going to take serious action on the environment. Europe is already acting. Our major trading partners are committing to net-zero targets.

We’re getting left behind. This ought to provide the impetus to put Australia’s climate wars to rest. Even if our elected politicians don’t want to do something serious about climate change for moral reasons, they now have little choice but to do so for practical reasons.

And that involves a price on carbon. Otherwise our exporters are going to be seriously disadvantaged. Using the proceeds from that price on carbon to pay it back as a dividend to Australians would be the best way forward.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Carbon pricing works: the largest-ever study puts it beyond doubt



Shutterstock/ANU

Paul Burke, Crawford School of Public Policy, Australian National University; Frank Jotzo, Australian National University, and Rohan Best, Macquarie University

Putting a price on carbon should reduce emissions, because it makes dirty production processes more expensive than clean ones, right?

That’s the economic theory. Stated baldly, it’s obvious, but there is perhaps a tiny chance that what happens in practice might be something else.

In a newly-published paper, we set out the results of the largest-ever study of what happens to emissions from fuel combustion when they attract a charge.

We analysed data for 142 countries over more than two decades, 43 of which had a carbon price of some form by the end of the study period.




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The results show that countries with carbon prices on average have annual carbon dioxide emissions growth rates that are about two percentage points lower than countries without a carbon price, after taking many other factors into account.

By way of context, the average annual emissions growth rate for the 142 countries was about 2% per year.

This size of effect adds up to very large differences over time. It is often enough to make the difference between a country having a rising or a declining emissions trajectory.

Emissions tend to fall in countries with carbon prices

A quick look at the data gives a first clue.

The figure below shows countries that had a carbon price in 2007 as a black triangle, and countries that did not as a green circle.

On average, carbon dioxide emissions fell by 2% per year over 2007–2017 in countries with a carbon price in 2007 and increased by 3% per year in the others.


Carbon dioxide emissions growth in countries with and without a carbon price in 2007

Emissions are from fuel combustion and include road-sector emissions.
Best, Burke, Jotzo 2020

The difference between an increase of 3% per year and a decrease of 2% per year is five percentage points. Our study finds that about two percentage points of that are due to the carbon price, with the remainder due to other factors.

The challenge was pinning down the extent to which the change was due to the implementation of a carbon price and the extent to which it was due to a raft of other things happening at the same time, including improving technologies, population and economic growth, economic shocks, measures to support renewables and differences in fuel tax rates.

We controlled for a long list of other factors, including the use of other policy instruments.

The higher the price, the larger the emissions reductions.

It would be reasonable to expect a higher carbon price to have bigger effects, and this is indeed what we found.

On average an extra euro per tonne of carbon dioxide price is associated with a lowering in the annual emissions growth rate in the sectors it covers of about 0.3 percentage points.

Lessons for Australia

The message to governments is that carbon pricing almost certainly works, and typically to great effect.

While a well-designed approach to reducing emissions would include other complementary policies such as regulations in some sectors and support for low-carbon research and development, carbon pricing should ideally be the centrepiece of the effort.

Unfortunately, the politics of carbon pricing have been highly poisoned in Australia, despite it being popular in a number of countries with conservative governments including Britain and Germany. Even Australia’s Labor opposition seems to have given up.

Nevertheless, it should be remembered that Australia’s two-year experiment with carbon pricing delivered emissions reductions as the economy grew. It was working as designed.




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Groups such as the Business Council of Australia that welcomed the abolition of the carbon price back in 2014 are now calling for an effective climate policy with a price signal at its heart.

Carbon pricing elsewhere

The results of our study are highly relevant to many governments, especially those in industrialising and developing countries, that are weighing up their options.

The world’s top economics organisations including the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development continue to call for expanded use of carbon pricing.

If countries are keen on a low-carbon development model, the evidence suggests that putting an appropriate price on carbon is a very effective way of achieving it.


An open-access version of this research is available here.The Conversation

Paul Burke, Associate Professor, Crawford School of Public Policy, Australian National University; Frank Jotzo, Director, Centre for Climate and Energy Policy, Australian National University, and Rohan Best, Lecturer in Economics, Macquarie University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Carbon pricing: it’s a proven way to reduce emissions but everyone’s too scared to mention it


Tony Wood, Grattan Institute

Opposition leader Anthony Albanese sought to claim the climate policy high ground last week with his commitment to a net-zero emissions target by 2050.

But figures on Australia’s emissions from the Department of the Environment and Energy help frame the political debate, and put the policies of both Labor and the Coalition in context.




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Australia’s emissions fell from 611 million tonnes of CO₂-equivalent in 2005 to 532 million tonnes in 2019 – an average annual reduction of 5.6 million tonnes.

But the government’s projections show this will slow to an average of only 2.4 million tonnes per year over the next 10 years.

Achieving Labor’s target of net-zero by 2050 would require much faster emissions reduction: about 25 million tonnes a year.

Business groups and economists agree putting a price on carbon is the best way to meet this objective in a low-cost way. But amid this climate policy hodge-podge, no one is talking about it anymore.

Scott Morrison: building technologies, not policies

The summer bushfire crisis prompted demands from business and community for climate action, triggering a repositioning by the Morrison government

There are two arms to the government’s strategy.

The first uses the falling emissions of the past 15 years to support the argument that its target of reducing greenhouse gas emissions to 26-28% below 2005 levels by 2030, is achievable. And, by implication, so will be any future targets.




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The problem with this claim is that the past success has been driven by not-to-be-repeated land use changes, the now-finished Renewable Energy Target, and coal plant closures. It has not been achieved with current policies. And even if the current target is met, it leaves a tough post-2030 challenge.

The second arm builds the case for future emissions reduction on technology and not policy, thereby avoiding the firm targets that are poison within the Coalition.

Morrison feels he must focus his narrative on a positive technology action story without quantifying the costs of these actions or of inaction. This is a high-wire act, but he has little political choice in the short-term. It may yet buy him the space he needs in the medium-term.

Anthony Albanese: needs credibility

Albanese has almost certainly made the right political call to embrace the target of net-zero emissions by 2050. He is on the right side of the broad Australian debate.

Yet, this call brings its challenges. Labor has a year or so to develop a clear and compelling narrative that uses the target as the long-term objective, builds an economy-wide pathway to its achievement, and is supported by a policy framework to follow that pathway.




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Labor has considerable experience, much of it painful, from which to learn. It must provide enough substance to be credible but avoid getting bogged down using economic modelling as a precise forecasting tool. It must also directly address the role of government in supporting structural adjustment as the new economy emerges.

The big difference this time around is Labor can harness the widespread support across many areas of industry and the community.

Albanese has already begun to build his narrative around these themes. His challenge is to sustain the momentum.

Resurrecting the carbon price

In all the strategies and tactics of this round of the climate wars, the most disturbing development must be that carbon pricing became roadkill on the way.

Emissions must be reduced across the economy at lowest cost. Business groups, including the Business Council of Australia, as well as economists, recognise a carbon price is the best way to meet this objective. And there are several models to choose from, including cap-and-trade, baseline-and-credit and emissions intensity schemes.




Read more:
One year on from the carbon price experiment, the rebound in emissions is clear


The key advantage of an economy-wide carbon price is that it provides an overall emissions constraint and leaves it to the widest possible range of businesses and economic activities to find lowest-cost solutions.

Sector-based approaches or having governments pick winners – such as the Commonwealth’s Underwriting New Generation Investment scheme – can reduce emissions. But this will always come at a higher cost than a carbon price – a cost borne by consumers and taxpayers.

The government seems captured by its own past success in killing carbon pricing mechanisms, such as Labor’s carbon price regime which ran from 2012 to 2014. This is despite the fact that two existing policies it has overseen – the Climate Solutions Fund and the Renewable Energy Target – incorporate explicit and implicit carbon prices respectively.

Labor seems captured by its past failure with carbon pricing, such that Albanese now argues it’s unnecessary. At the same time, he refers positively to the abandoned National Energy Guarantee as the sort of policy he could support, without apparently recognising it would have included a form of carbon pricing and trading.




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As we settle into the third decade of the 21st century, it seems our best hope for the near-term is a combination of sector-based, technology-driven, third-best policies that will deliver progress for a while.

Long-term environmental and economic success will depend on returning to first-best policies when we learn from the consequences.The Conversation

Tony Wood, Program Director, Energy, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Article: New Zealand and Carbon Pricing


The link below is to an article that considers New Zealand’s position on carbon pricing and reports that it will link with an Australian emissions trading scheme.

For more visit:
http://www.bloomberg.com/news/2012-07-12/new-zealand-resists-higher-carbon-price-plans-link-to-australia.html