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Call for greater use of market-based instruments as a greenhouse strategy

Greenhouse response measures based only on 'no regrets' policies do not appear sufficient to enable Australia to meet its international emission abatement commitments. This highlights the long-term challenges associated with mounting an effective greenhouse response strategy. There is a need to consider market-based instruments, such as tradable permits, as part of our long term greenhouse response strategy, according to a submission released today by the Industry Commission.

The Commission's submission to the Intergovernmental Committee on Ecologically Sustainable Development (ICESD) on the national greenhouse strategy comments on the efficacy of 'no regrets' greenhouse policy actions and highlights the potential role of market-based instruments as a long term strategy.

The key components of the current greenhouse 'no regrets' policies encourage polluting firms to seek opportunities to improve the efficiency of energy use. This tends to benefit them by lowering operating costs and raising profits. One effect of these favourable impacts of potential energy efficiency gains is to increase economic activity, so that the initial energy and emission savings realised are likely to dissipate through time.

According to the Commission, the ongoing emission reductions will require measures which extend beyond current commercial opportunities for improving energy efficiency. Greater use of market-based instruments has the potential to achieve favourable economic and greenhouse outcomes in the long term at least cost.

The submission discusses a number of market-based policy options to help to achieve these outcomes, including the use of tradable emission permits. The Commission urges further research on some of these options.

For background information: Dr Don Gunasekera 03 9653 2192, Ilias Mastoris 03 9653 2124

Forming the Productivity Commission

The Industry Commission, the former Bureau of Industry Economics and the Economic Planning Advisory Commission have amalgamated on an administrative basis to prepare for the formation of the Productivity Commission. Legislation formally establishing the new Commission is before Parliament.

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