The Australian debate on carbon pricing has been dominated by concerns that Australia might lose industry and jobs offshore if it has a carbon price when competitor countries do not. If Australian production moves to countries with higher emissions, this would defeat the purpose of carbon pricing. To protect industry from such an event, government plans to provide some industries with free carbon permits.
The Report uses Australian industry’s own data on industry economics, carbon emissions and international competitiveness. It finds that much of the protection proposed for the major emissions-intensive industries is unnecessary or counter-productive, and would delay the structural adjustment required to move to a lower carbon economy.
Fears that carbon pricing will lead to large-scale job losses or cost increases are not supported by the evidence, and have led to irrational and costly policy. The adjustments emissions-intensive industries need to make are manageable and inevitable if we are ultimately to constrain carbon emissions. Compared to other economic reforms, such as reduction in tariff protection over the 1980s and 1990s, a carbon price requires relatively little structural adjustment.
Industry assistance should be more targeted to prevent a few cases of truly perverse outcomes. Assistance should also be provided directly to affected communities. Other assistance should be minimised to encourage the Australian economy to adapt to be internationally competitive in a carbon-constrained world.