Discussion paper

Australia’s commitment under the Paris Climate Accord is to reduce its emissions by 26 to 28% on 2005 levels by 2030. Australia is free to achieve this emissions reduction target however it chooses. The Turnbull Government appears to favour a sector by sector approach, where each sector has a different policy for reducing emissions.

From an economic perspective, the government should target sectors that can reduce their emissions at the lowest cost. Importantly, not every sector has the same capacity to reduce emissions at the same cost. For some sectors emissions reduction is relatively cheap, while in others it is relatively difficult and expensive to curtail emission without reducing production.

In particular, the electricity sector has commercially available, mature technologies that can reduce emissions at relatively low cost. Sectors without mature technologies will find it more difficult and expensive to reduce emissions.

To reflect that it is easier for the electricity sector to reduce emissions, the government should set its reduction target higher than the overall target. This would allow other sectors to have targets lower than the overall target.

Instead, the recent announcement of the National Energy Guarantee (NEG) shows that the government is targeting a 26 per cent reduction in the electricity generation sector by 2030. The government’s actual position is still unknown since it does not have a suite of credible polices that will get Australia to its emissions reduction target.

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