The effect of pricing instruments on CO2 emissions: Empirical evidence from Australia

This paper investigates the emission reduction effects of a mix of market-based climate policies in Australia, where a dramatic ramp-up of incentives for renewable electricity generation since 2009 was paired with a carbon tax that was introduced in 2012 and repealed in 2014. A synthetic control method is employed to estimate the joint effect of these policies, finding that the renewable energy incentives and carbon tax policies together reduced Australia’s annual per capita CO2 emissions by 7.15% on average between 2009 and 2018. The emission reduction impacts were attenuated but not reversed when the carbon price was repealed in 2014 and the renewable targets were softened in 2015. We also find that the policy mix did not reduce the production of Australian coal and may in fact have expanded its export. The findings suggest that even short-lived climate change mitigation policies can have substantial and persistent effects on emissions.