Estimating the effect of an EU-ETS type scheme in Australia using a synthetic treatment approach

Experts commonly believe that Australia needs to intensify efforts to meet its 2030 emission target (OECD, 2019). A carbon policy that has been considered and was briefly implemented and repealed by the Australian government is a European Union style Emission Trading Scheme (EU-ETS). We estimate the hypothetical impact of Australia adopting an emissions trading policy in 2005, which corresponds with the establishment of the EU-ETS. We develop a synthetic treatment approach that constructs a counterfactual measure of Australian carbon emissions that makes use of the time series properties of pre-2005 and post-2005 emissions in European countries. While we find that this policy would have led to a statistically significant decrease in the Australian per-capita carbon emissions, the magnitude of this reduction would have been small and environmentally insignificant. We conclude that a more effective carbon policy rather than an EU-ETS type policy is needed to meet Australia's emission target.