Following the recent debate over a possible cut in fuel excises to relieve the cost burden on motorists, the commission has also encouraged the Government to put up fuel prices by including transport fuels in an emissions trading scheme from 2010.
The Government’s chief climate change adviser, Ross Garnaut, has already signalled concerns about Labor’s ambitious election promise to set a mandatory renewable energy target of 20 per cent of power to be generated through sources such as wind and solar energy by 2020.
In February, with the release of his first interim report, Professor Garnaut highlighted the need to phase out the MRET as quickly as possible, warning it could push up electricity prices and override the impact of a trading scheme.
The Productivity Commission was specifically invited by Professor Garnaut to comment on the policy response to climate change.
While recognising the need for a range of policy options to accelerate the development of clean energy technologies, the commission has questioned the efficiency of the proposed MRET in parallel with an emissions trading scheme.
It claims such an approach would increase renewable energy generation at the expense of gas-fired electricity, but not drive any deeper cuts in emissions.
It also expressed concern that the scheme would “provide a signal that lobbying for government support for certain technologies and industries over others could be successful”.
“An MRET operating in conjunction with an emissions trading scheme would not encourage any additional abatement, but still impose additional administration and monitoring costs,” the submission says.
The Rudd Government remains committed to the implementation ofits MRET scheme, allocating $15million in last week’s budget towards administering it over the next five years.
A spokeswoman for Climate Change Minister Penny Wong said the Government made an election commitment to its expanded MRET.
“The purpose is to drive investment in, and deployment of, renewable energy in the short and medium term,” she said.
“The Government will design the renewable energy target in a careful way to reduce Australia’s emissions at the lowest cost to the economy.”
The commission’s submission is consistent with many key points raised in recent Garnaut review discussion papers.
These involve the need to include transport fuels under emissions trading and calls for a review of emissions-increasing tax structures, such as fringe benefits tax treatment of cars, and of market rules for power transmission and pricing once a price is put on greenhouse emissions.
“There may be interventions elsewhere in the economy (for example, in the taxation and tariff systems) that inadvertently create incentives for increased (greenhouse gas) emissions,” it says.
“While there could be good public policy reasons for these interventions, the emergence of more ambitious climate change objectives provides an additional reason for reviewing their appropriateness.”
Opposition climate spokesman Greg Hunt said the MRET should be replaced with a clean energy target that included technologies such as clean coal and gas. “If you want to clean up the power stations, which supply 92per cent of Australia’s energy, and if you want to firmly tackle climate change, you have to have incentives for the take-up of clean coal and gas,” he said.
Australian Conservation Foundation climate spokesman Tony Mohr welcomed the commission’s focus on taxation review, but suggested the benefits from a mandatory target were greater than attributed. The gas industry welcomed the submission as “an important and credible addition to the debate around how Australia achieves emissions reductions most efficiently”.
The commission’s comments come as Brendan Nelson described price rises stemming from the Garnaut review as “the train heading down the track”.
“Mr Rudd has capitalised on the widespread community concern in relation to change, but he’s also capitalised on the fact that most Australians are actually ignorant about what it’s actually going to cost,” the Opposition Leader said in Melbourne.
“At the moment, most Australians who are struggling to feed, clothe and house their children … have not been able to read hundreds of pages of economic theory in relation to the implementation of climate change.
“Most Australians are generally supportive … But I still think there is a vast, widespread community ignorance in terms of what adjusting to climate change is actually going to cost us.”