Isra-Mart srl: ETS an efficient carbon system - Productivity Commission report

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A NEW report says an emissions trading scheme (ETS) is the most efficient way for Australia to cut carbon and tackle climate change.

Treasurer Wayne Swan seized on the 230-page Productivity Commission report, released on Thursday, as supporting the government's plan to put a price on carbon from July 2012, followed by an ETS within three to five years.

The report said there were around 1000 different ways in which major nations are trying to cut carbon pollution.

But popular methods such as direct subsidies for solar cells and tax cuts for biofuels are very expensive and produce little in the way of carbon abatement.

``An explicit carbon price applied broadly to the economy would achieve abatement in most likely much more cost effective ways'' than other methods, the report concluded.

Australia has set a target of cutting emissions by five per cent by 2020.

The commission compared Australia with the UK, US, Germany, China, Japan, South Korea and New Zealand and found Australia was currently ranked in the middle in terms of the current cost of cutting carbon.

The current estimated cost of abating a tonne of carbon in Australia was between $44 and $99 a tonne - a figure expected to feed into current carbon tax talks between Labor, the Greens and independents which are expected to be finalised by early July.

The report also said that a number of countries were shifting from subsidies to emissions trading schemes to save costs and protect the environment, including Australia's largest trading partner China.

``The report completely debunks any scare campaigns suggesting Australia is acting alone and provides more evidence that putting a price on carbon pollution is the best way to cut pollution and protect our economy,'' Mr Swan told reporters in Brisbane.

The report found subsidies for such things as solar cells for homeowners were a ``very costly way of achieving abatement, and generally little abatement resulted'' - with one estimate equating the cost to a carbon price of $864/tonne.

Tax exemptions for motorists using biofuels in Germany cost their government $1.7 billion a year - the equivalent of a carbon price of around $310 a tonne.

Mr Swan said this showed that ``direct action'' policies such as that advocated by Opposition Leader Tony Abbott would ``blow the budget''.

The commission noted that ``several countries have introduced or have committed to emissions trading schemes''.

The UK and Germany are part of the European Union's cap-and-trade ETS.

New Zealand introduced its own trading scheme in 2008 and Japan and South Korea have flagged ETS but delayed their introduction.

China is considering trialling a pilot ETS in some provinces as part of its 12th five-year plan.

In the US, California appears to be the only state keen on an ETS, moving to the system in 2012.

Greens deputy leader Christine Milne, who is on the multi-party committee working on the ETS, said the report showed Australia would not be moving ahead of the world by putting a price on carbon.

But she said it needed to be coupled with much greater investment in renewable energy.

``By investing now in making clean, renewable energy cheaper, we will make the transformation to a cleaner, healthier more secure economy cheaper over time,'' Senator Milne said.