Subsidies To Achieve Emission Reductions

An alternative to taxes to change behavior is subsidization of the introduction of low emission technology. Australia is an example of a country that paid heavy subsidies to industry to achieve its Kyoto target of an 8 percent increase in emissions. (While Australia had refused to ratify the Protocol until 2007, it nevertheless still maintained a national goal of meeting its target.) Even though Australia invested some A$2 billion in subsidies, its total emissions from power generation, industry and transport rose well above target. Fortuitously, the states of New South Wales and Queensland banned clearing of native vegetation in 2004 and it is this, rather than its national greenhouse policies per se, that has enabled Australia to come close to meeting its target (Hunt, 2004).

The choices for countries boil down to either 'price' or 'quantity' instruments. The price instrument, as we have seen, gives some certainty as to cost but does not fix the quantity of emissions. A system that fixes the quantity of emissions and allows the trading price per tonne to vary is commonly known as 'cap and trade'. In the next section cap and trade as a global system for tackling climate change is reviewed.

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