Australia behind in carbon competitiveness

Kings Canyon is part of the Watarrka National Park in Northern Territory, Australia. Photo: Ueli FahrniAustralia and most other nations are short of the carbon productivity and competitiveness improvements necessary to stabilise global greenhouse gas concentrations at 450 parts per million (ppm) or lower, according to a report on low carbon competitiveness by Climate Institute.

The G20 Low Carbon Competitiveness Report, prepared by London-based economics consultancy, Vivid Economics, details three indices: the low carbon competitiveness index (how carbon competitive countries currently are), the low carbon productivity index (how quickly their carbon productivity is improving) and the low carbon gap index (whether countries are improving quickly enough to meet their share of the commitments needed to stabilise global greenhouse gas concentrations at the IPCC 450 ppm scenario.

Only Mexico and Argentina are currently improving their carbon productivity rate. Argentina is ranked 13th out of 19 countries. It has the lowest use of air freight out of any of the countries which improves its ranking in the sectoral composition category, but is consistently ranked in the bottom half across all the indicators.

India is a poor performer and is ranked 17th. It has the second lowest score in the early preparation category with carbon intensive electricity being distributed via an inefficient grid. It is a low GDP per capita country where the costs of starting a business are high. Conversely, it has a low per capita use of energy in the transport sector.

The US is ranked tenth; four places behind China and just in front of Mexico. It achieves a top five ranking in the future prosperity category, but has the highest use of energy in the transport sector and the highest use of air freight. It also performs poorly because of high car ownership and relatively low levels of investment in physical capital. Its ranking is boosted by having the highest amount of investment in sustainable energy businesses and a high share of high technology exports, along with low business start-up costs.

South Africa and Germany are close to being on target and China would also be close if it could return to the carbon productivity gains of the 1990s. Australia is 16th with only Turkey, Russia and Saudi Arabia requiring bigger turnarounds to reach this target. The top five positions in the low carbon competitiveness index are held by France, Japan, the UK, South Korea and Germany. Australia is ranked 15th, the lowest position of any industrialised nation.

While its carbon productivity is improving, Australia's low ranking stems from its carbon intensive exports, low use of clean energy and high consumption of transport fuels.

China attains a ranking of sixth, the highest ranking by a non-OECD country. High rates of reforestation and low transport sector energy consumption lead to a strong performance in the sectoral composition category, but it is a poor performer in the early preparation category due to its rapid recent emissions growth and carbon intensive electricity supply. China has the highest rate of investment in physical capital, and also the second highest share of high technology exports in total exports.

The UK's ranking in third place is driven by the fact that its exports are the least carbon intensive of any of the G20 countries. Other notable contributors are its high prices for transport fuels, high reforestation rates, low cost of business start-up procedures and high investments in sustainable energy businesses.

According to the report, Indonesia is the worst performer. It combines low GDP per capita, very high rates of deforestation, an inefficient industrial sector and cheap transport fuels. It performs better in terms of its transport sector (low use of air freight, car ownership and energy consumption in transport) and its relatively high investments in physical capital.

Saudi Arabia, ranked 18th, has a weak performance across all categories and is the bottom ranked country in a number of indicators including use of clean energy, price of transport fuels, population growth, depletion of natural capital and share of high technology exports. One exception to this is investment in human capital, the proportion of education expenditure in GNI, for which Saudi Arabia ranks first.

South Africa comes near the bottom of the index at 16th out of 19. It has low use of air freight and low transport sector energy consumption, but the most carbon intensive exports, high carbon intensity electricity and the second lowest rate of investment in physical capital.

In his preface to the report, Lord Nicholas Stern writes, "a global economic recovery will present an ideal opportunity for countries to shift towards low carbon growth. Countries who don't seize this opportunity will undermine their future competitiveness and prosperity."

"This report underscores the urgency of preventing further handouts for big polluters, for economy wide reforms with a stronger Carbon Pollution Reduction Scheme and for more decisive energy efficiency measures to improve Australia's carbon productivity."