OECD secretary-general Angel Gurría

5 November 2013 — A report released by the Organisation for Economic Co-operation and Development has stated that carbon taxes and emissions trading schemes are the cheapest way to reduce carbon emissions, and thus should be at the centre of government efforts to tackle climate change.

The OECD report, Effective Carbon Prices, looked at carbon abatement schemes across 15 countries, including Australia, and found that as predicted in economic textbooks, carbon taxes and emission trading systems were the cheapest means of reducing CO2 emissions in the real world.

The highest costs per tonne of CO2 were associated with capital subsidies and feed-in tariffs, the report found. However, some of the policies looked at – such as insulation for housing – had carbon emissions reduction as a secondary objective so basing performance based solely on CO2 reduction could seem “unfair”.

The report stated that the challenge facing the world in relation to curbing emissions was so great that it was unlikely to be met unless countries applied as cost-effective policies as possible, as broadly as possible.

Greens leader Christine Milne used the report to attack the Abbott Government’s Direct Action policy.

“The OECD report confirms what we already knew and what the Climate Change Authority confirmed in its draft report released last week – that the most effective, and the most affordable way to reduce our emissions is to impose a price on pollution like the one currently in place,” Senator Milne said.

“Australia is lagging behind our global counterparts who are implementing emission reduction schemes that are in keeping with what the scientists and economists recommend as the most effective way to tackle dangerous global warming.

“Prime Minister Tony Abbott wants Australians to believe that we are alone with our carbon price and acting alone on climate change. In fact, as the rest of the world surges ahead with carbon pricing Australia may indeed be left behind if Tony Abbott has his way and implements his so-called direct action plan.”

OECD secretary-general Angel Gurría called for consistency in carbon policies across the globe.

“Countries are pricing carbon in a multitude of ways, not always the most effective,” Mr Gurría said. “There has been a huge amount of taxing and regulating around carbon, with prices established too high or too low, and the outcome has been far from optimal. This is a chaotic landscape that sends no clear signal, and must be addressed.”

During a lecture hosted by the London School of Economics in October, Mr Gurría said governments needed to adopt a coherent approach to carbon pricing to meet international commitments to phase out fossil fuel emissions and limit climate change to a 2ºC temperature increase from pre-industrial levels.

“There is only one way forward: governments need to put in place the optimal policy mix to eliminate emissions from fossil fuels in the second half of the century,” Mr Gurría said. “Cherry-picking a few easy measures will not do the trick.”

Read the full report.