Price tags on pollution are here but not all created equal Opinion Article

Oct 29, 2010 - 8:00am

By Erwin Jackson, Deputy CEO, The Climate Institute and Dr Simon Baptist and Dr Cameron Hepburn of Vivid Economics

Sometimes it might not be obvious but, whether they admit it or not, countries are already driving clean energy investment by putting direct and indirect price tags on pollution. This is the focus of world first research undertaken internationally recognised Vivid Economics and released recently by The Climate Institute.

An unprecedented range of policies across the globe, such as incentives, regulations and other policies, are being introduced to limit pollution, avoid impacts on people’s health, increase energy security, and, of course, meet the climate change targets that now cover over 80 percent of the world’s emissions.

Our research converted the policy actions in six major economies – the US, China, UK Japan, South Korea and Australia - into an equivalent carbon price and revealed that Australia is putting a much lower price tag on pollution than most of our major trading partners.

The forced closure of small and inefficient power stations in China, our biggest trading partner, is part of a set of policies equivalent to a US$14 carbon price. China is now positioned as one of the world’s largest hubs of clean energy investment positioning to lead the global clean energy race. In 2009, clean energy investment in China reached US$35 billion compared with US$18 billion in the USA and less than US$1 billion in Australia.

The UK is reaping the benefits of its policies to price pollution, in addition to its participation in the European Emissions Trading Scheme, and has an equivalent price tag around 17 times that of Australia’s. Despite having a population only three times that of Australia, investment in clean energy in the UK reached around US$ 11 billion in 2009 and captured around 17 per cent of the market in the countries studied.

The UK’s low pollution economy now compares to its healthcare and construction sectors. Over 900,000 people are now employed in the UK in low pollution businesses and jobs in these sectors have been growing strongly despite its economic downturn.

Japan and the US, our 2nd and 3rd biggest trading partners, have policies equivalent to a price of between US$3 and US$5. Far from ‘going it alone’, Australia is behind with a price of less than US$2. 

The notion that Australia risks “leading” climate action can be safely put to rest. As Heather Ridout, CEO of the AIG Group says: "I think it really does attack that idea that Australia was going to go it alone, that was a straw man and its been shown to be one."

Of the six countries studied Australia ranks second last, behind only South Korea in terms of pricing pollution. Previous research we have undertaken shows that out of the world’s major economies, Australia is among the most ill prepared to compete in the low pollution economy.

While Australia does have an operational emission trading system in NSW and the ACT, state and federal governments have implemented many other policies aimed at driving clean energy investment. For example, households installing solar panels in Victoria, SA, Queensland and the ACT all receive a guaranteed high price for any power sold. These policies may be justified on other grounds such as industry development, but they aren’t the most cost effective at reducing carbon pollution.

As the report Putting a price tag on pollution shows, the subsidies given to solar power are equivalent to a price of hundreds of dollars a tonne. This means that we are paying households in the ACT nearly US$400 to save a tonne of pollution, while potentially giving up the chance to reduce a tonne through the NSW emissions trading system at a cost of US$6.

To use another example, China’s policy to forcibly close power stations is an effective price tag on pollution of over US$300/tonne. While the Chinese are implementing this policy for a range of reasons, it is, nonetheless, an expensive way to limit carbon pollution.

Does Australia want to go down a similar regulatory path? Alternatively, we could meet our targets with policies such as an emissions trading system that has been shown to be the most cost effective way to reduce the economy’s dependence on pollution.

Australia’s competitiveness in the international marketplace will be eroded if we do not recognise that other countries are already moving to reduce their economies dependence on pollution, and make sure that we get carbon pricing right.

Australia does not risk leading; Australia risks being left behind. Countries who are ready early to compete for the clean energy dollar are going to come out ahead. A simple, comprehensive price tag to make emitters responsible for the pollution that they cause is the essential way to join this race, and to join it as cheaply as possible.


Erwin Jackson

Erwin is Deputy CEO of The Climate Institute. With nearly 20 years practical experience in climate change policy and research, Erwin has developed and led many national and international programs aimed at reducing greenhouse pollution. This work has been undertaken in Australia, Europe, North and South America, the Pacific and Antarctica. He has represented non-governmental groups and advised government and business in national, regional and international fora, including being a non-governmental expert reviewer of the reports of the UN’s Intergovernmental Panel on Climate Change. Erwin has written, researched and produced many publications on climate change and energy policy including a number of review papers in scientific journals such as the Medical Journal of Australia.
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