Emissions Pricing, “Complementary Policies” and “Direct Action” in the Australian Electricity Supply Sector: Some Conditions for Cost-Effectiveness

Authors

  • Barry Naughten

    Corresponding author
    1. Departmental Visitor, Centre of Arab and Islamic Studies (CAIS), Australian National University (ANU), Canberra, ACT, Australia
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  • Discussions occurred with Professors Steve Hatfield-Dodds, Frank Jotzo, John E King, Andrew Macintosh, Hugh Saddler and Tony Wood, with Brian Dawson, Dr Onko Kingma and Dr Ian Maclaine-cross. Comments of an anonymous reviewer were useful. Glenda Naughten provided editorial advice. All are acknowledged with thanks and the usual disclaimers. The article builds on the ANU Crawford School Working Paper 1304 (Naughten 2013a).

Abstract

For Labor, the core approach to mitigating climate change is the pricing of carbon emissions. The primary purpose of this article is to defend this approach, specifically in the electricity sector and under Australian conditions. In so doing, it rebuts recent arguments to the contrary put by the Liberal National Party Coalition (LNP). The article underscores the longer run impact of emission pricing, and price expectations, when the key mechanism is about switching investment toward less emissions-intensive technologies. This core approach of emission pricing is also supported by so-called “complementary policies”. These can assist in the cost-effective reduction of emissions, for example by addressing certain “imperfect information”, “market failure” problems and institutional distortions, as well as uncertain expectations about future emission price trajectories. For the LNP, the core policy is presented as “direct action”. However, at least some “complementary policies” can also be described as “direct action”. Properly applied, selected “direct action” policies (however labelled) can contribute to achieving emission targets at least cost, providing that distortions due to rent-seeking are avoided, notably through transparent, accountable and evidence-based policy-making.

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