Published by the National Times.

The silver bullet view of carbon pricing is a common theme in Australian climate change policy debates. It is argued that by establishing domestic carbon price signals the nation will reduce its greenhouse gas emissions and address the challenge of climate change. International examples of carbon pricing initiatives are often cited in these debates. Unfortunately, incomplete accounts of them hide important lessons for policymakers at home. A recent opinion piece by Dr Peter Wood and Paul Burke of the Australian National University is no exception.

Wood and Burke present several international cases where carbon pricing is now operating, or is on the cards, to make the case that Australia is behind many nations in adopting such measures. While this contention is correct, Wood and Burke do not consider whether the carbon pricing measures adopted abroad have been effective. They do not consider the initiatives that preceded carbon pricing proposals or the fact that carbon taxes are often used to generate revenue rather than creating a price signal for the private sector.

Wood and Burke’s partial analysis includes the European emissions trading scheme, which the authors spruik as “the world’s most comprehensive carbon pricing scheme”. Comprehensiveness is good, but policy should be judged on its effectiveness, not just its breadth. A recent study by the UK-based NGO Sandbag questions the efficacy of the EU scheme. The Cap or Trap? report showed that the scheme is on track to deliver a “miniscule” 32 million tonnes of reduced carbon emissions in its second phase. Adding insult to injury, the report author Damien Morris says: “Regulating a single power station over the same period could have had a greater impact.”

According to Sandbag’s Morris, the scheme’s flawed design has the potential to trap Europe into a continued high carbon economy. Firms covered by the scheme are permitted to carry unused permits from earlier phases into the 2013-20 phase. This means that cheap permits bought during the economic downturn can be traded to allow for future carbon increases. Then there’s the additional problem of cheap offsets that “could allow Europe’s domestic emissions to grow a staggering 34 per cent from current levels by 2016″.

Europe provides a test case for poorly designed emissions trading schemes. Its flaws should not be glossed over by those who support emissions trading in Australia.

In their article, Wood and Burke also point to carbon pricing efforts in Asia and the subcontinent. It’s true that South Korea is investigating a carbon tax, however, this is on the back of a massive “green new deal” investment package aimed at increasing the nation’s clean technology competitiveness. Korea’s green stimulus will invest about $A85 billion over five years (2 per cent of GDP per year) in renewable energy, LEDs, hybrid vehicles, and new smart grid infrastructure. To put this into context, Korea’s clean technology investments are double the Labor government’s planned investment in the National Broadband Network.

A similar pattern can be observed in China. Although China’s 12th five-year plan is rumoured to establish carbon pricing for the energy sector, this is only after massive government investments helped China emerge as the world-leading clean technology powerhouse. China has rapidly built their domestic manufacturing capacity over the past several years. China-based companies are on track to make 39 per cent of the wind turbines and 43 per cent of solar panels sold worldwide in 2010. As a result of this concerted effort, Ernst & Young now rank China as the most attractive destination for private investment in renewable energy. On top of all this, the nation has pledged to invest A$743 billion over the next decade to meet ambitious renewable energy deployment targets.

South Korea and China demonstrate the benefits of staged policy implementation. Both nations preceded carbon pricing with large-scale public investments and industry development to create economies that benefit from reducing emissions. This approach is economically sensible and politically strategic, yet the Australian government has not undertaken comparable measures to lay the foundation for a low-carbon economy.

Lastly, Wood and Burke note that India has already introduced a levy on domestic and imported coal. Importantly, this is measure is not for the purpose of establishing a price signals, but rather for deploying clean technology. The $633 million generated by the levy per year is earmarked for India’s National Clean Energy Fund. The pool of money will help India achieve its goal of leading the world in deployed solar technology as set out in the government’s National Solar Mission.

The underlying logic of India’s approach is to tax fossil fuels for the explicit purpose of investing in clean energy infrastructure. Sadly this is not on the agenda in Australia. Carbon pricing advocates are happy to leave decarbonisation to the invisible hand of the market regardless of its ability to deliver the reductions needed to avoid dangerous climate change.

Australia can learn valuable lessons by taking a closer look at the climate and energy policies of the EU, Korea, China and India. We can only benefit from paying greater attention to the tried and tested approaches of others. My hope is that as climate debates continue commentators like Wood and Burke draw on real life examples of what works.