Australia’s Carbon Pricing Strategies in a Global Context
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The impact of international carbon control measures – and the absence of such
measures – on Australian carbon pricing policies are analyzed both at a theoretical and
empirical level. While theory and interest group advocacy suggest a potential case for
destination accounting of carbon emissions and border tax adjustments and/or export
exemptions, this case is sometimes exaggerated. For example, in the ferrous metals
sector, empirical 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 runs the risk of policy overreaction and
unintended protectionism, dramatically increasing the costs of Australian carbon pricing
policies. Providing free and tradable emission quotas to exporters and import competing
sectors is a ‘second best’ policy but one with practicality in sectors where adverse
competitiveness effects do need to be addressed.