Economists remain convinced carbon tax or ETS is the way forward

Years of bitter political combat over climate change policy has left the economics profession unmoved.

Despite Prime Minister Tony Abbott's plans to rid Australia of what he calls the "toxic" carbon tax, the poll by Fairfax Media shows there is near-unanimity among economists that a market-based solution, such as a carbon tax or an emissions trading scheme, is the best policy option to reduce carbon pollution. This echoes similar surveys taken in past years.

Economists are convinced that carbon pricing will yield the greatest environmental bang-for-buck at the lowest economic cost.

Justin Wolfers, an Australian professor at the University of Michigan, says: "Abbott's plan doesn't effectively harness market forces; it relies instead on the government handing out cheques.

''One problem is that we'll end up subsidising a lot of abatement that would have occurred anyway. Another is that the plan imposes extra costs because it uses scarce tax dollars . . . All told, Direct Action involves more economic disruption for less of an environmental payoff."

Melbourne University professor John Freebairn said he favoured a carbon price because it encouraged millions of businesses and households to shift their production and consumption choices to lower pollution, lower price alternatives.

Under the Direct Action plan, however, the government will have to choose just some of the millions of different possible ways to reduce pollution while households and businesses will ''receive no signals or incentives to change their decisions''.

The apparent ideological role reversals evident in Australian climate change policy also caught the attention of the economists surveyed. Some expressed surprise at the prominent role bureaucrats will have in the Direct Action plan.

''The crowd most attuned to free markets is least attuned to the free market solution. It's a rather odd contradiction,'' AMP Capital chief economist Shane Oliver said.

Professor Wolfers said there was an odd irony in Australian climate change politics.

''Historically, it was left-wing parties that were in favour of direct government intervention, while right-wing parties were suspicious that governments could pick winners, and so they preferred to rely on market forces. At least these were the old political dividing lines.

''Over time, the left has learned to harness market forces to meet their policy goals. What's happening on the right is that Abbott is confounding pro-market policies with pro-business policies. Pro-market policies are about using market pressures to enlarge our economic pie; pro-business policies are about grabbing a bigger slice of that pie for friends in the business community.''

The overwhelming support for carbon pricing among the independent economists surveyed by Fairfax Media raises an intriguing question: how many policy experts inside government still prefer carbon pricing to Abbott's alternative?

with Gareth Hutchens