Transcript Selecting climate change policy instruments for Australia

Evaluating and selecting climate
change policy options for
Australia
Evgeny Guglyuvatyy
PhD candidate at the Australian School of Taxation (Atax),
Faculty of Law, UNSW
Supervisors
Associate Professor Binh Tran-Nam
Professor Natalie Stoianoff
Introduction
Presently, most developed nations acknowledge the need to deal with climate
change.
The question is how to accomplish this task best.
 A range of policy options have been considered by various countries around the
world to mitigate greenhouse gas (GHG) emissions.
Some of the most important include:
 regulatory standards,
 voluntary actions,
 subsidies
 taxing emissions,
 emissions trading schemes (ETS).
 Emissions trading and carbon taxes have emerged as most promising instrument
to reduce GHG emissions. For example, ETS was introduced in the European
Union, while some other countries such as Australia, the US, Canada and New
Zealand are considering its implementation. Also, several European Union member
countries, particularly Scandinavian nations, have implemented carbon taxes to
control GHG emissions.
Introduction
There is a debate on which instrument is better suited to address the climate change
issue: carbon tax or emissions trading.
 Policy-makers often prefer an ETS
 Economists argue that carbon tax is a better approach to climate change mitigation
 The Australian Government has opted to propose an ETS rather than a carbon tax.
 There is an argument that the Australian Government must consider a tax as a more
even-handed and more rational option for GHG reduction.
 This study is concerned with determining the most appropriate policy for dealing with
climate change problem in Australia.
 Particularly, this study investigates which policy instrument (an emission trading,
carbon tax or mix of these tools) is the most appropriate option for reducing GHG
emissions in Australia.
Strategy
In order to address the primary research question the following broad strategy is
proposed:
 Investigate what policy approaches could be applied to the climate change mitigation
problem and identify the criteria needed for the selection of climate change mitigation
instruments;
 Identify a methodological concept appropriate for the evaluation of climate change
policy options on a multi-criteria basis.
 Evaluate policy options considering all the imperative criteria and thus identify which
of the options would be the most appropriate climate change mitigation policy for
Australia.
Multi criteria analysis
 A climate change policy evaluation procedure needs to consider many environmental,
economic and equity related criteria. An efficient and effective policy might still be
defective if, for instance, it dangerously compromises equity.
 MCA methods - enable policy options to be assessed against a range of evaluation
criteria.
 Unlike Cost Benefit Analysis (CBA) approach, MCA is able to overcome the
complexities in monetising intrinsically non-monetary elements.
 The MCA method, is capable of incorporating a range of criteria including monetary
and non-monetary criteria.
 MCA could serve as an analytical method that considers multiple political, economic,
environmental and social dimensions, reduces conflicts, and integrates these realities
into an optimised policy framework.
 MCA would not provide plain results as in CBA, but present a set of individual
rankings of policy options.
 The main challenge is to identify evaluation criteria and weigh relative importance of
those criteria
The Delphi method
 The Delphi method is utilised in this study with the aim to assess the list of criteria
produced in the course of the MCA process.
 The Delphi method is a structured process for accumulating knowledge from a preselected group of experts via a series of questionnaires combined with controlled
opinion feedback.
 The major characteristic of Delphi are anonymity, controlled feedback, and statistical
response.
 This study adopts the Delphi technique in order to update the list of criteria required
for the MCA evaluation procedure and to obtain reliable weights attributed to those
criteria.
 The individuals selected for this study are experts in the fields related to climate
change policy. The participants are chosen on the basis of their perceived ability to
make a significant contribution.
 Different types of panellists would provide unique perspectives of interdisciplinary
specialised opinions.
 The Delphi study provides an opportunity to reach a consensus on a set of evaluation
criteria and weights attributed to these criteria
Evaluation criteria
 This study preselects critical criteria for climate policy evaluations on the basis of the
previous evaluations and contemporary literature. Sixteen criteria were identified and
adopted for this study as necessary for climate change policy evaluation.
 The Delphi study commenced on October 22, 2009 and closed on January 31, 2010.
Nominations for the Delphi experts were acquired through a search of key
publications in the fields of environmental and climate change policy issues.
 The results of the Delphi demonstrate that the environmental effectiveness is a
principal criterion for a climate change policy. This is followed by transparency and
minimise rent-seeking criteria that is unforeseen finding of this study. These areas
emphasise the non-economic aspects of a climate change policy.
 The identified criteria represent the key climate change policy evaluation criteria as
judged by the experts in the Australian context. The findings in the Delphi study
provide a foundation for the MCA decision-making process aimed to evaluate climate
change policy options for Australia.
Established evaluation criteria
Average weight
Environmental effectiveness
4.63
Transparency
4.27
Minimise rent-seeking
4.09
Correct price signal
4.00
Flexibility of the policy
3.90
Minimise GHG emissions leakage
3.81
Public acceptability
3.54
Political acceptability/ feasibility
3.45
Predictability/regulatory certainty
3.45
Polluter pays principle
3.45
Effect on technology development
3.36
Cost-effectiveness
3.27
Distribution of benefits and costs across generations
3.27
Compliance costs
3.09
Distribution of benefits and costs across income groups 3.00
Competitiveness issues
2.45
Administrative costs
2.45
International harmonisation
2.36
Importance value in per cent
92.6
85.4
81.8
80
78
76.2
70.8
69
69
69
67.2
65.4
65.4
61.8
60
49
49
47.2
Frameworks of carbon tax and ETS
 Carbon tax and emissions trading are selected as alternative policies to reduce GHG
emissions in Australia. However, an abstract tax and ETS as GHG reduction
instruments are very problematic to assess and evaluate in real terms of performance
against exact criteria. Therefore, both of these instruments must first of all be
discussed in terms of core design characteristics.
 This study builded its own policy analysis on the basis of existing studies and the
results of the Delphi analysis. The designed carbon tax and ETS models represent
the policy options developed for addressing climate change in Australia.
 The framed policy models are aimed to address GHG emissions externalities along
with embracing other key considerations. These models do not represent a novel
policies; rather, they reflect major principals of an effective GHG reduction policy.
 The reduction target of 25 per cent below 1990 levels by 2020 is adopted for the
purpose of this study. Australia should commit to reduce net GHG emissions to at
least 25 per cent below 1990 levels by 2020.
Ranking performance of the carbon tax and ETS models
 Since the alternatives and criteria have been defined, a qualitative analysis of the
impact of each alternative, in terms of evaluation criteria, needs to be produced.
Thus, this study ranks the policy options based on the dominance relationships of
each of the criterion. In other words, the policy options are qualitatively analysed and
compared with respect to each criterion.
 In order to rationalise ranking of the arguable criteria, this study identifies the principal
factors for these criteria. Once these factors are identified, the policy options are
assessed based on dominance relationships on each of these factors in order to
arrive at the conclusion on the policy ranks.
 The assessment of each policy option against each criterion resulted in identification
of the numerical values expressing qualitative ranks. This assessment provides the
ranking of potential performance of the carbon tax and ETS frameworks which is
considered to be adequate for systematic and robust evaluation analysis.
MCA results
 The concluding stage of the MCA methodology involved incorporating two inputs –
established criteria and its importance weights along with the numerical performance
ranks of policies regarding each criterion – into one decision-making matrix providing
final scoring of the alternatives.
 The final matrix, obtained from the application of the MCA method demonstrates that
the carbon tax outscores ETS on seven criteria while an ETS is better only on four.
The difference between total scores of tax and ETS – 0.1117 or 11 per cent. Thus,
carbon tax is identified as an optimal option.
 Total Scores:
Carbon tax - 0.8187
ETS
- 0.7070
MCA results
 The evaluation of the alternative policy options in terms of their potential performance
and criteria weights involves value judgements which unavoidably bring about the
element of uncertainty. To deal with this type of uncertainty, the sensitivity of result for
possible variations in criteria weights and/or performance ranks was tested.
 This study analysed performance ranks of the policies with reference to the criteria often
prioritised by decision makers in the practice of climate change policy-making. These are:
Minimise GHG emissions leakage, Political acceptability/ feasibility, Cost-effectiveness,
Distribution of benefits and costs across income groups, Competitiveness issues and
International harmonisation.
 This sensitivity analysis demonstrated the stability of the carbon tax as the optimal
option under the condition of ranks and criteria deviations. The sensitivity analysis
strongly confirms the initial conclusion derived: the designed carbon tax is the optimal policy
option for GHG reduction in Australia.
Conclusion
 There is a lot of general guidance on how to select among GHG reduction
instruments but these guidelines are neither uniform nor concrete. The conceptual
and empirical challenges are exacerbated by the absence of well-defined criteria and
an objective procedure for attributing weights to the competing criteria.
 This study offers a synthesis of the decision process for choosing among different
policy instruments. The proposed methodology of evaluating and selecting GHG
reduction policies using the MCA, the Delphi and qualitative ranking approaches
serves as a foundation to create information support for the problem of multi-criteria
choice.
 Overall, this study found that the designed carbon tax model is stable and a practical
solution that is optimal for GHG reduction in Australia. This finding contradicts the
conclusions of the Australian Government on climate change policy that have
introduced an ETS rather than carbon tax.
 The conclusion of this study is considered to be robustly rational and justified. It is
hoped that the findings will alert and inform policy makers about different approaches
and solutions which can be more coherent and significantly more appropriate for the
climate change problem.
The End
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Thank you for your attention!
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Questions?