The following summary report gives a comparison of Australia’s per capita carbon emissions against other countries. It also discusses the economic theory behind carbon emission reduction policies which are in place. An example of these policies is the current solar PV panel subsidy, which is further examined.
Australia’s per capita carbon (CO2) emissions are amongst the highest in the world. Figure 1 illustrates when compared to other high income OECD countries, Australia’s CO2 emissions are higher than Germany, United States and United Kingdom, and are second to only Luxemburg.

Figure 1
World Development Indicators & Global Development Finance (2008) Figure 1 also illustrates that over twenty out of thirty of these countries are below 10 metric tons of CO2 per capita compared to the dramatically high 18.5 tons from Australia. Additionally to this, according to the ABC (Clarke, 2009) Australia’s CO2 emissions are set to keep rising.

Rising CO2 emissions are the result of increasing economic output of the Australian economy. These CO2 emissions have risen to a level which is not socially efficient, and is damaging to Australia’s economy; they have risen to a level resulting in global warming. The negative externality of the markets inability to produce efficient CO2 outputs and a lack of property rights for atmospheric pollution is described by Helm (2010, p. 183) as “one of the biggest market failures”. The emitter of these Greenhouse Gasses (GHG) will face little or no economic incentive to reduce emissions themselves (Stern, 2007). Intervention of Government policy is therefore intended to rectify this market failure, resulting in both Pigouvian taxes and subsidies. The Garnaut (2011) review highlighted the point that a carbon price is the central element of a set of policies; resulting in large reductions to Australia’s emissions, at the lowest cost to the Australian economy.
The Garnaut (2011) review also highlighted that solar photovoltaic (PV) panels are another method of combatting Australia’s CO2 emissions. Government subsidies since have increased the equity for obtaining these panels as “solar panels still cannot compete with fossil fuel when it comes to generating electricity cheaply” (Halper, 2010). The problem with subsidising solar PV panels is the “danger of distorting markets, credit flows, encouraging rent seeking and other anti-competitive practices” (Ghosh, 2011); this is indeed what has, and continues to happen. Subsidies essentially “prop up” inefficient industries, preventing markets from reaching normal equilibrium price and demand, they attract new firms and workers to the industry, who normally would not operate (Pincus, 2012). These new firms and workers who enter the market are in essence what are defined as artificial rent seekers; they are only in the industry because Government subsidies make it viable. The problem with these rent seekers is “that pumping money into unsustainable industries only set people up to fail when the subsidy was withdrawn” (Maher, 2012). This is often resulting of Government failure, as the situation can frequently become worse than when the market failed. Subsidies however are proven to increase output from the industry, which can be the required outcome for a number of reasons, the global financial crisis for example. The Home Insulation Program is an example of a Government subsidy which was put in place to increase economic output and improve CO2 emissions. This policy is perhaps one of the best examples of Government subsidies resulting in rent seeking, over production of goods and even deaths; ultimately Government failure (Lewis, 2010). There are a number of reasons why this policy led to Government failure, a frequent reasoning is that the “effectiveness [is] significantly diminished owing to the insufficient attention to good public policy recommendations that would have enhanced the Home Insulation Program’s potential success” (Lewis, 2010) Currently Australian manufactures are struggling with a high currency, imported solar products and gas alternatives for solar hot water heating (Kirk, 2012). These struggling industry problems are further backed by reports from TIME (Halper, 2010) The Economist (Thou orb aloft full-dazzling, 2011) and the Financial Times (Crooks, 2011), for countries like Germany and USA, this is not just happening throughout Australia. Providing subsidies for industries such as these will again “only set people up to fail when the subsidy [is] withdrawn” (Maher, 2012), this is not an efficient outcome for the market or for use of Government resources. Given these issues, on the 28th February 2012, months before it was due, the Government ended a major part of its solar subsidy program (Department of Climate Change and Energy Efficiency, 2012). Explanations for this have been given; “the Gillard Government believes subsidy schemes are not just inefficient ways to reduce emissions, but inequitable because they are paid for by increased power costs” (Arup & Coorey, 2011). Solar PV panel subsidy payments also fail to assist the needy, renters and apartment dwellers in the installation of this technology; leaving them disadvantaged (Arup & Coorey, 2011). It is frequently this group of people who are in most need of the cheaper electricity provided by solar PV panels.
Given this information however, there is a place for these subsidies, as pointed out in The Economist (Thou orb aloft full-dazzling, 2011). Solar panels with battery backup for off-grid applications, or in particularly remote or sunny places where it is cheaper and more efficient to source electricity from solar panels than from distant power plants is a better use for Government subsidies. Although in these applications subsidies can prove helpful; by and large they are an inefficient means to reduce CO2 emissions from Australian households. “Governments are interested not only in the collective good of cleaner, low-carbon energy, but also in the industrial economic competitiveness” (Ghosh, 2011) of Australia. It is this trade-off of equity and efficiency which Government policy needs to get right.

This summary report highlights Australia’s high CO2 emissions compared to many other countries. It also draws attention to the underlying economic theory of Government policy towards reducing these CO2 levels. This summary report indicates that Government subsidies have many negatives aspects, however on occasion they can bring benefit to society. These benefits need to be strongly considered and weighed up before implementation.