9 June 2011 – The Productivity Commission on Thursday released a report that reveals the extent of climate action in key economies and sectors. The results suggests it’s time for Australia to wake up, climate and green groups say.

The report, Carbon Emission Policies in Key Economies was commissioned by The Australian Government “help it, and the Multi-Party Climate Change Committee, assess the extent to which key economies are taking action to address climate change,” the report says.

Australian Greens deputy leader Christine Milne, said the “inescapable conclusion” was that “all countries had seen the need to support sunrise industries like renewable energy directly at the same time as pricing pollution, and some have achieved this more efficiently than others.

“The Commission has, however, fallen into the trap of only measuring the effectiveness of policies in terms of how much they cut pollution in the short term, ignoring the fact that many of these are very effective industry development policies designed to transform the economy over the long term.

“Germany’s decision, for example, to invest up front in a renewable energy boom has driven its pollution cuts and put it in prime position to reap the benefits of cheaper action over time.

“Germany’s world-leading renewable energy policies have had enormous benefits which aren’t measured by this report – a jobs boom, energy security and cleaner air, amongst them.”

Deputy chief executive officer of The Climate Institute Erwin Jackson said the Productivity Commission had found more than 1000 policies had been implemented in major economies to reduce pollution and drive clean energy.

“Those countries who are leading are reaping first mover economic benefits,” Mr Jackson said.

“Clean energy investments now regularly outstrip investments in traditional power generation. This has not happened by accident. It is the direct result of governments putting in place policies to reduce pollution and build new, clean energy industries. “

However, The Climate Institute pointed to the cautions against using the Productivity Commission’s estimates of implicit pollution prices in other nations to indicate the best pollution price package for Australia.

“We need an Australian made pollution price not one made in China, the USA or elsewhere,” Mr Jackson said.

“While the Productivity Commission report does not deliver us the right price to drive Australian investment in clean energy and pollution reductions, the Australian Parliament can.”

The Climate Institute said a number of critical points needed to be considered in assessing the Productivity Commission’s report:

  • Countries are implementing a broad suite of policies to meet a range of objectives. These include building low carbon competitiveness; meeting carbon pollution targets; driving industry development; increasing energy security; and reducing local air and regional pollution. Over two years (2008-09), 46 per cent of total global electricity capacity came from renewable energy sources such as wind and solar. Globally, it’s estimated that up to 3 million people are now employed in the renewable energy industry and investment in 2010 reached an unparalleled US$243 billion, a 30 per cent increase from 2009.
  • The Productivity Commission’s work is backward looking: Like the previous ground-breaking assessment undertaken for The Climate Institute by Vivid Economic, the Productivity Commission’s work does not capture the forward looking policies that countries are implementing right now to meet their Cancun Agreement obligations. China, for instance, is developing domestic laws to enable it to meet its announced targets. For example, the planned increase in wind energy capacity of 50 GW by 2015 compares to around 30 GW of coal generation in Australia today. In total these initiatives in China alone are estimated to deliver pollution reductions in 2015 of around a billon tonnes a year.
  • The Productivity Commission’s work does not capture the full range of policies being implemented: The Productivity Commission’s and previous work by Vivid Economics does not capture the full range of economy-wide measures countries are taking. For example, as Professor Garnaut highlights, some Chinese provinces now impose a surcharge equivalent to $57 per tonne of pollution on electricity used in excessively emissions-intensive plants in eight “high-polluting” industries, including aluminium, steel and cement.

Australian Conservation Foundation economic adviser Simon O’Connor said:  “This report should act as a warning to Australia – we risk missing the boat on the fastest emerging economic opportunities of coming decades.

“The biggest economic threat we face is not action on climate change, but inaction.”

The Productivity Commission report reinforces that putting a price on pollution is the cheapest and most effective way to reduce emissions and that there is a role for additional support to accelerate the deployment of renewable energy.

“While there is no chance of Australia leading the world, there is a very real risk of being left behind,” Mr O’Connor said.

Key findings in the report include:

  • More than 1000 carbon policy measures were identified in the nine countries studied, ranging from (limited) emissions trading schemes to policies that support particular types of abatement technology. – As policies have been particularly targeted at electricity generation and road transport emissions, the Commission analysed major measures in these sectors.
  • While these disparate measures cannot be expressed as an equivalent single price on greenhouse gas emissions, all policies impose costs that someone must pay. The Commission has interpreted “effective” carbon prices broadly to mean the cost of reducing greenhouse gas emissions — the “price” of abatement achieved by particular policies.
  • The Commission’s estimates essentially provide a snapshot of the current cost and cost effectiveness of major carbon policies. The subsidy equivalent, abatement achieved and implicit abatement subsidy have been calculated for policies and aggregated by sector in each country.
  • As a proportion of GDP, Germany was found to have allocated more resources than other countries to abatement policies in the electricity generation sector, followed by the UK, with Australia, China and the US mid-range.
  • Estimates of abatement relative to counterfactual emissions in the electricity generation sector followed a similar ordering, with Germany significantly ahead, followed by the UK, then Australia, the US and China.
  • The estimated cost per unit of abatement achieved varied widely, both across programs within each country and in aggregate across countries. –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.
  • The relative cost effectiveness of price-based approaches is illustrated for Australia by stylised modelling that suggests that the abatement from existing policies for electricity could have been achieved at a fraction of the cost. However, the estimates cannot be used to determine the appropriate starting price of a broadly-based carbon pricing scheme.
  • The estimated price effects of supply-side policies have generally been modest, other than for electricity in Germany and the UK. Such price uplifts are of some relevance to assessing carbon leakage and competitiveness impacts, but are very preliminary and substantially more information would be required.

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