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Australia's Carbon Pricing Strategies in a Global Context

Authors


  • We thank the Editor, two anonymous referees and participants at the 2011 Australian Conference of Economists for their comments. An earlier version was presented at the Australian Climate Policy Options, Australian National University, March 2011. A non-technical summary of conclusions with some game-theoretic discussions is in Clarke and Waschik (2012).

Robert Waschik, School of Economics, La Trobe University, Plenty Road, Bundoora, Victoria 3086, Australia. Email: r.waschik@latrobe.edu.au

Abstract

The sectoral impacts of Australia's carbon pricing policies are analyzed in a setting where Australia acts unilaterally to address its carbon emissions and where there is no global market for traded carbon permits. While theory and interest group advocacy suggest a case for compensating Australian producers whose outputs become less competitive because Australia unilaterally prices carbon, this case is sometimes exaggerated. For example, in the ferrous metals sector, analysis suggests that gains from such refinements are low since carbon leakages and adverse competitiveness effects are small. In other sectors – such as non-ferrous metals – the effects are more pronounced. Exaggerating the competitiveness costs of carbon pricing risks policy overreaction and unintended protectionism, thereby reducing the net benefits from Australian carbon pricing.

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