There was a very interesting report of an OECD working paper dealing with incomplete implementation of carbon prices and the economic consequences.
Here is a bit of the article. It was written by David Uren:
OECD research has backed Coalition claims that Australia’s pioneering carbon pricing is damaging its competitiveness, with energy-intensive industries shifting offshore to countries that do not tax carbon.
The study says the only way this can be stopped is if regions with carbon prices, such as the EU and Australia, start imposing tariffs on imports from countries that have not taken action, but it concedes this could fall foul of the World Trade Organisation.
The OECD study, co-written by an Australian Treasury official, Damian Mullaly, examines what happens if only a handful of advanced countries takes the minimum action pledged. In the case of Australia, that would require a 5 per cent cut in emissions from its 2000 level.
The study finds that production of goods such as alumina and steel will move to the Middle East, Indonesia and North Africa, with Australia’s exports of energy-intensive goods falling by 15.9 per cent by 2020.
While Australian living standards would not be affected if all countries around the world were pricing carbon, there would be a 1.2 per cent fall in average incomes if emerging countries remained outside the scheme.
The study found that Australia was one of the most seriously affected countries, with the impact focused on its competitive position in its main export markets.
The OECD also looked at what would happen if, as is the case with Australia’s emissions scheme, carbon pricing excluded agriculture, emissions from households and government, and other greenhouse gases besides carbon. This exercise showed that to meet Australia’s minimum target of a 5 per cent reduction would require a carbon price of $75 a tonne, or 10 times the current European price.
The study looked at what can be achieved if the places with emissions trading systems — the EU, Norway, Australia, New Zealand and Kazakhstan — link together, as was proposed under the Labor government. It found that this would not stop the “leakage” of carbon emissions.
All good, although it was a pity the study wasn’t released before the election.
But the luvvies in the OECD were not having a bit of it. Former New Zealand Labour Environment Minister and now Environment Director at the OECD (hmmm, very strange), Simon Upton, took it upon himself (was this sanctioned at a higher level? Was Australia’s OECD Ambassador consulted? [note he is former Chief of Staff to Wayne Swan]) to write a very snippy letter to The Australian:
YOU suggested an OECD report backed claims that Australia’s carbon pricing is damaging the country’s competitiveness (“Industry curbed by tax: OECD”, 16/9). We are pleased our report on competitiveness and carbon leakage effects arising from multiple carbon markets was featured, but regret that its results were taken out of context.
The OECD has consistently supported carbon pricing as a cost effective means of reducing emissions. Our report does not contradict this. None of the scenarios depict nor evaluate the actual Australian carbon pricing mechanism, which is more complex than the stylised scenarios modelled.
The OECD report does not say that imposing penalty tariffs on imports from countries without carbon taxes is “the only efficient strategy”. It highlights that there is no silver bullet to overcome the transition costs of moving to a low-carbon economy.
For that reason, the OECD has consistently supported policies that minimise economic costs while securing the best environmental outcome.
We must not forget the benefits of carbon pricing. Beyond its contribution to addressing the challenge of climate change, there are many quantifiable co-benefits, such as improved air quality and public health plus the stimulus for technical innovation in search of resource efficiency. (is he kidding?)
Simon Upton, environment director, OECD, Paris, France
Normal political bureaucratic backpedalling – taken out of context, much more complex than study, etc.
Give us a break.
Australia should seriously think about withdrawing from the OECD. With people like Upton in charge, it is of no value whatsover.