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Tough targets demand efficiency and competitiveness

"The Federal Opposition's targets to reduce emissions by 45% by 2030 and to net zero by 2050 are very challenging and would require major changes across the economy. The policy announcement raises big questions including around electricity sector transition, electricity prices and the scale of the task should not be underestimated," Australian Industry Group Chief Executive Innes Willox said today.

"The ALP's announcement is an important contribution to the development of this policy area and in particular the recognition of the importance of access to international abatement is a major step forward. While it will not be easy to achieve, success in the controversial area of climate policy will require the support of the broader community and across the Parliament. We are still well short of this.

"The 45% target would require around 570 million tonnes of additional emissions reduction cumulatively to 2030 beyond the billion tonnes expected to be needed to meet the existing 26% target. That is equivalent to an entire year of emissions at current levels.

"The additional costs and investments involved in a deeper target depend on widely varying assumptions about abatement costs and policy design. At low carbon prices averaging $20 to 2030, the net present value of the additional cost would be $7.8 billion; at prices averaging $50, it would be $19.4 billion.

"In the context of Australia's $1.6 trillion-dollar economy and $400 billion Federal Budget, costs of this order can be significant but manageable. However, policies that are inefficient, inconstant, inequitable or fail to support the competitiveness of trade exposed industries could increase those costs to unnecessarily high levels.

"That is why economic efficiency and the pursuit of abatement at least cost should be front and centre in climate policy. 175 countries have signed the Paris Agreement to reduce emissions; taking the most efficient approaches to emissions reduction should be a source of comparative advantage for Australia. The consideration of costs should include the compliance and administration costs as well as costs associated with investment uncertainty.

"Competitiveness is also central. While the major economies are acting on climate, they are doing so in different ways, at different speeds, and with a close eye to the competitiveness of trade exposed industries. Australia needs to ensure our climate policy does not create trade distortions and does not merely shift emissions to other countries. This concern extends to all trade exposed industries and not only the most emissions intensive," Mr Willox said.

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