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Abstract
We analyse the long-term efficiency of the emissions target and of the provisions to
reduce carbon leakage in the Australian Government’s Carbon Pollution Reduction
Scheme, as proposed in March 2009, and the nature and likely cause of changes to
these features in the previous year. The target range of 5–15 per cent cuts in national
emission entitlements during 2000–2020 was weak, in that on balance it is too low to
minimise Australia’s long-term mitigation costs. The free allocation of output-linked,
tradable emissions permits to emissions-intensive, trade-exposed (EITE) sectors was
much higher than proposed earlier, or shown to be needed to deal with carbon leakage.
It plausibly means that EITE emissions can rise by 13 per cent during 2010–2020,
while non-EITE sectors must cut emissions by 34–51 per cent (or make equivalent permit
imports) to meet the national targets proposed, far from a cost-effective outcome.
The weak targets and excessive EITE assistance illustrate the efficiency-damaging
power of collective action by the ‘carbon lobby’. Resisting this requires new national
or international institutions to assess lobby claims impartially, and more government
publicity about the true economic importance of carbon-intensive sectors.