Blurring the distinction between carbon costs and prices

The Australian Government recently announced a Productivity Commission inquiry to consider effective carbon prices across different countries. The intention of the inquiry is to show how Australia compares against other key economies in terms of the "effort" exerted to reduce carbon emissions. However, a report prepared by Vivid Economic for the Climate Institute demonstrates the potential pitfalls in attempting to measure and compare effort using an implicit carbon price. The report inadvertently highlights the important difference between abatement costs and consumer price effects of different policies. While price effects may be relevant to consumers, this is a poorer indicator of effort than cost or abatement delivered. Most concerning is the fact that the Terms of Reference for the recently announced Productivity Commission Inquiry appears to only address price effects, not costs, so the Inquiry findings are likely to provide only a limited contribution to the debate.

assessment of climate institute - vivid economics report.pdf

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