To reach Australia’s 2030 emissions target, and potentially more ambitious targets in the future, the suite of policies in place to meet the government’s current target of reducing emissions by five per cent below 2000 levels by 2020 will need a substantial overhaul.
While an economy-wide carbon pricing scheme is the most effective and efficient means to reduce Australia’s emissions, the adoption of such market-based schemes has been inconsistent and politically fraught, both in Australia and overseas. If these obstacles cannot be overcome, policymakers in Australia will need to look at alternatives. Debate needs to move on from the current impasse towards a credible, low cost set of policies that will substantially reduce emissions.
Six criteria should guide the design of policies to reduce emissions: credibility, political viability, flexibility, adaptability, public acceptability and low cost.
The most plausible alternative policies for reducing emissions are cap and trade emissions trading; carbon taxation; intensity baseline emissions trading; emissions purchasing; regulation; and tradeable green certificates.
None of the policies fulfils all of the criteria. The challenge for policymakers is to find solutions to the limitations of an individual policy, or to combine policies into a stable policy framework that can meet Australia’s promises to reduce emissions.
This working paper will be followed in early 2016 by a report that recommends a coherent set of emissions reduction policies that will both credibly reduce emissions, and that has a real chance of bipartisan support.