The case for a carbon price has been boosted by an analysis that has found it is a much cheaper way of cleaning up the environment than governments handing out taxpayers’ money to isolated green projects.
A report by the Grattan Institute also shows that environmental targets are usually met at significantly lower cost than predicted after industries are charged for pollution.
The Melbourne think-tank examined six market schemes - carbon trading in Europe and the north-eastern US states, American sulphur trading and the Australian renewable energy target.
The report adds weight to the plans by the multi-party climate committee of Labor, Greens and independent MPs to introduce carbon price legislation in 2011.
The institute’s analysis found that technological innovation was the key to cutting greenhouse gas emissions, and markets were more likely to identify low-cost technologies than governments. Labor’s ”cash-for-clunkers” program and the Coalition’s proposal to pay for emissions reduction projects from the federal budget were likely to be far more expensive, it found.
Grattan Institute chief executive John Daley said: ”If they try to forecast what is going to deliver the most cuts at the least cost, chances are they will get it wrong.”
An example, he said, was the renewable energy target introduced by the Howard government in 2001. Forecasts suggested 50-70 per cent of Australia’s energy would come from burning sugar cane residue, but rapid breakthroughs in turbine technology made wind farms substantially cheaper and sugar cane residue became irrelevant.
The institute’s report suggests that the climate committee should set a minimum carbon price, effectively acting like the reserve price at a house auction, as part of their price plan.
By setting a floor price, pollution would continue to be cut if targets were reached quicker than predicted, the report said.
Mr Daley said an ideal scheme would be a hybrid carbon tax and trading scheme, allowing the permit price to vary but not fall below the set level.
He said the best schemes rewarded companies after emissions cuts were delivered, not in advance. But he said there was still a place for public funding to develop new technologies.
”It is worth remembering that our current energy technologies, such as coal-fired electricity and gas-fired electricity, only got to the point where they were commercially viable after governments had spent vast sums of money developing them,” he said.
Opposition and environment groups have renewed calls for the government to dump the ”cash-for-clunkers” scheme that offers a rebate to get old cars off the road after the Department of Innovation confirmed it would cost $430 per tonne of carbon dioxide emissions avoided. An emissions trading scheme was expected to initially cost about $30 a tonne.
