The logic of collective action and Australia’s Climate Policy

The Australian Government's Carbon Pollution Reduction Scheme (CPRS), March 2009, set a target of 5 to 15 per cent emission cuts during 2000 and 2020. The proposed target is weak and is likely to increase mitigation costs in Australia in the long run. This research report analyses the target’s efficiency as well as provisions for preventing carbon leakage. The research also looks at the nature of changes to the CPRS made during 2008 as well as the likely cause of these changes. The free allocation of output-linked, tradable permits to Emissions-Intensive, Trade-Exposed (EITE) sectors was much higher than previously proposed and greater than what is needed to prevent carbon leakage. This means EITE emissions could rise by 13 per cent during 2010 and 2020. To meet the proposed national targets, non-EITE sectors must also cut emissions by 34 to 51 per cent (or make equivalent permit imports). This is far from a cost-effective outcome. The weak targets and over-generous EITE assistance illustrate how collective action by the ‘carbon lobby’ can damage economic efficiency. To resist this, new national or international institutions to assess lobby claims impartially are needed. More government publicity about the true economic importance of carbon-intensive sectors is also required. Over-concern that voluntary emission cuts will be nullified by the CPRS is another, different, demonstration of lobby power.