In The Australian yesterday there was an open letter by a whole lot of Australia’s leading economists advocating a price on carbon as an essential reform for the national economy with an emissions trading scheme the preferred option.
The group of high-profile economists includes Grattan Institute director Saul Eslake St George chief economist Besa Deda Citigroup Global Markets’ Paul Brennan and Westpac chief economist Bill Evans.
“We are all of the view that the introduction of an emissions trading scheme is a necessary and desirable structural reform of the Australian economy designed to change relative prices in a way that provides an effective incentive to consumers and producers to shift over time to more low carbon energy efficient patterns of consumption and production” the open letter published today said.
“As such it should be broadly-based in its application and highly transparent in its implementation.”
The economists said there should be five elements in designing a mechanism to price carbon.
The method had to apply across as many high carbon-producing sectors of the economy as possible and the market should set the price of a carbon permit with any price cap high and non-binding.
Revenue from the scheme should compensate low income households for higher costs of living and provide transitional aid for emissions-intensive industries hit by a carbon price.
A well designed pricing scheme would encourage the development of new technologies which would eventually lower the cost to the community of reducing emission levels.
Lastly an independent authority should administer the pricing scheme similar to the Reserve Bank of Australia setting the overnight cash rate.
Macquarie Bank chief economist Richard Gibbs said consumers and businesses need a price on carbon to shift economic behaviour towards lower carbon and more energy efficient options.
Adding his voice to the letter former federal Liberal Party leader John Hewson said it was important to have the economics right for the carbon price.
“Australia needs to take substantive urgent and apolitical action on carbon pricing for the sake of our economy and our environment” Dr Hewson said. “The failure of our generation to act will cost future generations dearly.”