Carbon price comparisons

15 Dec 2010 report

This report considers some broad methodological issues involved in comparing carbon prices between countries. A key point to emerge is that price comparisons must have a very clear and well defined purpose or objective. Empirical measures without a clear underlying objective have the potential to be misleading.

There are two broad reasons for comparing carbon prices. Firstly, to contribute to policy dialogues regarding comparable effort, and related to this, issues around the efficiency of different policies and second, to contribute to an understanding of the trade competitiveness effects faced by Australian producers. These different objectives have related but distinct comparative prices associated with them. This report makes a distinction between a ‘shadow’ or implicit carbon price (the price equivalent a range of policy measures, whether or not they are explicitly price based), and an effective price of carbon (the net carbon price faced by industries in purchasing inputs, undertaking activities and selling outputs.

While it is possible to calculate carbon prices for a range of policies, policies cannot be compared on their implicit price alone, and the comparative price does not contain all the information of interest when comparing policies between countries. It is crucial that carbon price comparisons account for the very different properties of different types of greenhouse mitigation policy. Carbon price comparisons should be viewed as a long term activity. There are strong analogies between the need to compare carbon policies between countries and the long standing exercise of comparing protection between countries. The later has important implications for the former. For further information, contact David Pearce.

View report online [pdf, 667KB]