Isra-Mart srl: Productivity Commission report backs price on carbon, says we're mid-pack on climate action

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THE Productivity Commission has slammed the effectiveness of solar power and biofuel subsidies, finding switching to gas-powered electricity is the most cost-effective way of cutting carbon emissions in the short term.

In its long-awaited report on climate action across nine major economies, the commission puts Australia in the middle of the global pack in cutting carbon emissions.

The independent economic advisory agency confirmed pricing carbon as the most efficient way of cutting greenhouse emissions - a finding welcomed by the Gillard government.

But for the global leaders - Germany and the United Kingdom - cutting carbon emissions has come at a high price for consumers, raising the cost of electricity by 12-17 per cent and 3-19 per cent respectively.

The UK was able to achieve the “substantial abatement” by encouraging the use of gas-fired power, but emissions cuts were far more expensive in Germany which had little surplus gas-fired generation capacity.

The study found subsidies for solar power systems were “very costly” when compared to other technologies, slugging taxpayers up to $137 to prevent just one tonne of carbon pollution.

It also found “most biofuels policies are high-cost means of achieving abatement”, with United States taxpayers paying up to $672 a tonne to prevent carbon pollution through biofuels subsidies.

The long-awaited report says direct pricing of carbon “generally will deliver any given amount of abatement at least cost”.

But it failed to come up with an “effective” carbon price in each of the economies studied, saying the task was too difficult.

The commission found the efficiency of carbon abatement strategies varied dramatically across the more than 1000 measures studied.

“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,” it says.

The government seized on the report as a vindication of its climate change policies.

“The research highlights that far from striking out on its own, Australia risks falling behind the rest of the world if we fail to put a price on pollution,” Treasurer Wayne Swan said.

He said the report exposed Tony Abbott's direct action plan to fight carbon emissions as ineffective and expensive.

The report found Australia was currently spending between $44 and $99 per tonne on carbon abatement in the electricity generation sector.

Germany is spending $137-$175, the United Kingdom $75-$198, the US $43-$50 and China $35-57.

“As a proportion of GDP (gross domestic product), Germany was found to have allocated more resources than other countries to abatement policies in the electricity generation sector, followed by the United Kingdom, with Australia, China and the US mid-range,” the commission's report states.

In most countries examined, carbon abatement measures had led to relatively small reductions in electricity consumption.

The key exceptions were Germany and the United Kingdom, where emissions-reduction policies had boosted electricity prices by 12 and 17 per cent and reduced emissions by 3 and 19 per cent respectively.

The report found about half of Australia's emissions came from electricity generation and transport.

The most common emissions-reduction measures in the countries examined were mandatory renewable energy targets, usually with tradeable permits, feed-in tariffs and capital subsidies.

The European Union's trading scheme had driven relatively low-cost abatement where it had led to switches from coal to gas-fired electricity generation.

And the estimated impact of a range of emissions reductions policies on electricity prices and consumption costs varied from country.

The commission notes 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.

“Japan and South Korea have announced they will introduce ETSs ... although in both cases implementation has been delayed,” the report states.

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

California in the US “is committed to implementing an emission trading scheme by 2012”.

The federal government is looking to put a price on carbon from mid-2012. It's expected it will be about $20 a tonne.

The report concludes that “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 examined the climate change policies of Australia, China, Germany, India, Japan, New Zealand, South Korea, the United Kingdom and the United States.

It was prepared in response to a request from independent MP Tony Windsor, a member of the government's multi-party climate change committee, whose vote will be crucual in deciding whether a carbon tax becomes law.