Targets & Taxes: Differences in OECD & Japan

In the effort to tackle climate change, many nations have set greenhouse gases emissions reduction targets, and the most cost-effective way to achieve their targets is through carbon taxes and emissions trading systems, according to a study done by the Organisation for Economic Co-operation and Development.  However, it seems that some nations face greater difficulty in meeting their targets compared to others. Japan recently drastically revised its emissions target downwards, as it deemed the previous target “unrealistic”. Given Japan’s status as a major economy and greenhouse gas emitter, this could put a severe setback on the effort to craft a new climate agreement in 2015. Read more

Carbon pricing most cost-effective way to reduce carbon emissions, says OECD

Study finds cost of alternatives such as feed-in tariffs, industry regulation and subsidies can be ‘substantially higher’

By Oliver Milman in The Guardian (5 November 2013):

Carbon taxes and emissions trading systems are the most cost-effective way to reduce emissions and should be “at the centre of government efforts to tackle climate change”, according to the Organisation for Economic Co-operation and Development.

An OECD study, called Effective Carbon Prices, found that other policies, such as feed-in tariffs, industry regulation and subsidies, are far less economically preferable than carbon pricing.

The findings are the latest evidence-based blow to the Coalition government’s climate policy, which involves dismantling carbon pricing and replacing it with its Direct Action system of financial handouts to businesses that want to reduce their emissions.

Previous analysis has shown that Direct Action will fail to meet Australia’s bipartisan goal of a 5% emissions cut by 2020 based on 2000 levels. Earlier this week, former treasury secretary Ken Henry ridiculed the Coalition policy as “bizarre”.

The OECD’s ringing endorsement of carbon pricing follows the International Monetary Fund and the World Bank, which have both recently backed the system as the best way to slash emissions.

The OECD study looked at climate change policies in 15 countries, including Australia, China and Germany, and their impact on areas including electricity generation, household energy use, road transport and cement manufacturing.

It found that countries would achieve deeper emissions cuts with “smarter, market-based policy instruments” such as carbon taxes and emissions trading systems.

The cost of alternatives to carbon pricing can prove “substantially higher”, according to the OECD, an organisation of 34 of the world’s leading economies. For example, the average cost of reducing a tonne of emissions in the road transport industry is up to eight times more expensive when utilising any method other than fuel taxes.

In the electricity sector, abating a tonne of CO2 cost an average €10, the OECD said, compared to €176 for capital subsidies and €169 for feed-in tariffs.

In a specific analysis of Australia, the OECD found that the average estimated abatement cost in electricity generation is in the “mid-range” of the countries studied and “much less than the high effective carbon prices associated with policy instruments used in some other countries”.

It does point out, however, that feed-in tariffs have not contributed to any additional abatement in Australia, beyond that provided by renewable energy certificates.

The cost of Australia’s carbon price is about 0.04% to 0.05% of GDP, the report found.

“Countries are pricing carbon in a multitude of ways, not always the most effective,” said the OECD secretary-general, Angel Gurría.

“There has been a huge amount of taxing and regulating around carbon, with prices established too high or too low, and the outcome has been far from optimal. This is a chaotic landscape that sends no clear signal, and must be addressed.”

John Connor, CEO of the Climate Institute, told Guardian Australia the OECD analysis was a “pretty emphatic statement” that carbon pricing was the most cost-effective way to reduce emissions.

“When you look worldwide, there’s no risk of Australia showing leadership in putting direct or indirect pricing on carbon,” he said. “It does come back to the question of whether we are serious about keeping to our commitment of preventing 2C or more in warming.”

Connor said he hoped the government’s determination to repeal the carbon price may alter once the “realities of international action start to sink in”.

“One day the majority of the Coalition will wake up and again realise that this is good conservative economic policy that deals with risks in a cost-effective manner,” he said. “It took us five years from ‘never ever’ to the GST being locked in stone, so there is the possibility of a change in this case.”



By Monika Scislowska for Associated Press (15 November 2013):

WARSAW, Poland (AP) — Japan’s decision to drastically scale back its target for reducing greenhouse gas emissions could hurt efforts to craft a global deal to fight climate change, delegates at U.N. talks said Friday.

The new target approved by the Japanese Cabinet calls for reducing emissions by 3.8 percent from their 2005 level by 2020.

The revision was necessary because the earlier goal of a 25 percent reduction from the 1990 level was unrealistic, the chief government spokesman, Yoshihide Suga, told reporters in Tokyo.

The new target represents a 3 percent increase over 1990 emissions.

Given Japan’s status as the world’s third largest economy and fifth largest source of greenhouse gas emissions, the decision to back away from the more ambitious target could be a significant setback for efforts to reach a new global climate agreement in 2015.

The European Union’s delegates at the climate talks in Warsaw ‘‘expressed disappointment,’’ while U.N. climate chief Christiana Figueres summed up the mood by saying there’s ‘‘regret’’ over Japan’s decision.

However, she praised Japan’s advances in increasing energy efficiency and in solar energy investments, and predicted that the Japanese ‘‘will soon see that the current target is actually conservative.’’

‘‘I don’t have any words to describe my dismay,’’ China’s official Xinhua News Agency cited Su Wei, deputy chief of the Chinese delegation to the climate talks, as telling reporters in Warsaw.

Japanese delegate Hiroshi Minami acknowledged that ‘‘most of the developing countries are very disappointed’’ with the move.

Under the 1997 Kyoto Protocol, Japan pledged to cut greenhouse gas emissions by 6 percent to 1.186 billion tons a year on average over the five years to March 2013.

It has since opted out of the agreement, though came close to meeting that goal before the 2011 accident at the Fukushima Dai-Ichi nuclear power plant prompted shut-downs of all nuclear plants for safety checks.

The resulting shift back toward reliance on coal, oil and gas for power, and use of diesel generators, has hindered further progress.

Emissions in the fiscal year that ended in March were up 2.8 percent from the year before, and at 1.207 billion tons, the second highest after a record 1.218 billion tons in fiscal 2007.

Climate activists following the talks in Warsaw named Japan ‘‘fossil of the day,’’ a dubious honor meant to tag a country blocking progress on combating climate change. Dressed up in dark suits to look like Cabinet ministers, the activists ate sushi over colleagues pretending to be victims of the typhoon that has killed thousands of people in the Philippines.

Wael Hmaidan, director of Climate Action Network, called Japan’s move ‘‘outrageous,’’ saying in Warsaw that it will have a ‘‘serious and negative impact on the negotiations.’’

Oxfam spokeswoman Kelly Dent said Japan’s ‘‘dramatic U-turn’’ is a ‘‘slap in the face for poor countries’’ struggling with climate change.

The new goal announced Friday doesn’t take into account possible emissions reductions if Japan restarts some of its nuclear plants, as the government is hoping to do. So it will be revised before the next climate pact is due to be set two years from now, said Masami Tamura, director of the Foreign Ministry’s Climate Change Division.

Tokyo also is planning to provide $16 billion in aid for emissions reductions in developing countries and to commit $110 billion to research on energy and the environment.

Before the Fukushima disaster, Japan’s carbon emissions were on a par with European industrial nations such as France, Germany and Britain.

They will hit 1.227 billion tons this year, the government-affiliated Institute of Energy Economics Japan estimates, up nearly 16 percent from 1990.


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