Study finds carbon pricing works

25 February 2021

Carbon pricing has a long, conflicted history in Australia.

Yet for Associate Professor Paul Burke, this does not detract from its credibility.

“For economists, carbon pricing is seen as a key tool in the kit for reducing emissions.”

Paul, alongside colleagues Professor Frank Jotzo and Dr Rohan Best, recently published the largest ever study into the effect of carbon pricing on the growth rate of carbon dioxide emissions from the energy sector.

“In this paper, we wanted to look across the international experience to evaluate the effect of carbon pricing on emissions. The key challenge was controlling for the various other differences between countries, which we sought to do.”

The results pointed to the efficacy of carbon pricing.

“We found evidence that in otherwise similar countries, if one has a carbon price and one doesn’t, then the emissions growth rate tends to be lower in the one with the carbon price.”

“We found the difference in the emissions growth rate between countries with and without carbon pricing is about 2 percentage points, after taking various other factors into account, including the use of other policies. So, for example, instead of emissions growing by 1% per annum, if you implement a carbon price, you would expect a decline of about 1% per annum.”

“Another key finding was that a higher carbon price has more effect than a lower carbon price, as you’d expect.”

While the results point towards carbon pricing being effective, it alone is no magic bullet in the fight against climate change.

“If we want to be reducing emissions very quickly, then a carbon price is not likely to be enough on its own, unless set at a high level.”

Paul and his colleagues’ interest in carbon pricing stemmed from an interest in measuring the true effect size of carbon pricing.

“Reducing emissions is an important public policy issue. Around the world, carbon pricing is one of the main policy tools for doing that. So we were interested in evaluating the policy’s effectiveness.”

“Before we started, we didn’t know what we would find.”

Whilst this is not the first study to examine the effects of carbon pricing, it is the largest.

“There have been some previous studies evaluating individual carbon prices, but ours is the first to look at the issue from a very bird’s-eye view, across as many countries as possible.”

As for the possibility of re-introducing a carbon price here in Australia, Paul thinks the option deserves serious consideration.

“Australia’s two-year experiment with a broad carbon pricing scheme ended in mid-2014. The current policy framework means that most emissions face no effective price.”

“There are other ways to reduce emissions – one doesn’t have to go for a carbon price. However carbon pricing does have a lot of advantages and the evidence suggests that it is an effective tool.”

“A robust carbon pricing scheme is still a relevant idea for Australia. Most developed economies do have a carbon price of some type.”


You can read the paper ‘Carbon Pricing Efficacy: Cross-Country Evidence’ by Dr Rohan Best, Assoc Prof Paul Burke, and Prof Frank Jotzo here on the Springer Link website.