Carbon taxes are effective at cutting emissions but are not being set high enough to benefit the environment, a recent Organisation for Economic Cooperation and Development (OECD) report has found.
The report examined specific taxes on energy use from 2012 to 2015 across 42 OECD countries and six sectors, which represented about 80 per cent of global energy use and carbon emissions. It found current taxation schemes were ineffective.
The Taxing Energy Use report said almost all carbon-focused taxes were too low from an environmental point of view, taxes on coal were close to non-existent, and while road transport energy taxes were higher than other sectors, it was not enough to cover costs.
"Energy taxes continue falling well short of their potential to improve environmental and climate outcomes," the report said.
"Taxes continue to be poorly aligned with environmental and climate costs of energy use, across all countries."
OECD Secretary-General Angel Gurría said the findings were disconcerting.
"Efforts have been made, or are under way, in several jurisdictions to apply the 'polluter-pays' principle, but on the whole progress towards the more effective use of taxes to cut harmful emissions is slow and piecemeal," Mr Gurría said.
"Governments should do more and better."
Federal Environment and Energy Minister Josh Frydenberg has previously said the proposed national energy guarantee (NEG) will help reduce emissions from the energy sector.
"The national energy guarantee, recommended by the independent and expert Energy Security Board, is designed to lower electricity prices, make the system more reliable, encourage the right investment and reduce emissions," Mr Frydenberg told Fairfax Media.
"The emissions requirement of the guarantee will contribute to our commitment to reduce emissions by 26 to 28 per cent of 2005 levels by 2030. It will do so without taxes, subsidies or trading schemes."
While the Australian government ruled out a carbon tax under the NEG, it has used modelling similar to the emissions intensity scheme it rejected. The main difference is it will be electricity retailers and not the generators who will be obligated to account for emissions, shifting the "polluter-pays" responsibility.
The government has also backed international carbon credit trading, allowing the manufacturing, smelting and energy sectors – some of the highest carbon-emitting industries in Australia – to buy carbon credits overseas to reduce their comparative emission levels without investing in higher-priced domestic carbon credits or lower-emissions technology.
The OECD’s Effective Carbon Rates report also found that emissions trading schemes were having little impact on cutting emission levels.
The Productivity Commission has previously called for a "single effective price on carbon" in Australia, stating it is the "proper vehicle" to reduce carbon emissions.
It said a clear carbon price would provide certainty for investment in new energy sources, ensuring future electricity reliability.
Last year, the nation’s greenhouse gas levels rose by 0.7 per cent in the year to June 2017 to 550 million tonnes of carbon dioxide, marking the fourth year in a row of continual emission increases.
States and the federal government are currently at loggerheads over the design of the NEG, which was this week opened up for a first round of public consultation.