Australian industry has mostly rejected an emissions tax as unprofitable, unlike a trading scheme, which they argue could create saleable carbon credits.

However in a submission to the Prime Minister's Task Force on Emissions Trading, the Productivity Commission said the government should not rule out a carbon tax.

Commission chairman Gary Banks said regardless of how Australia chooses to reduce emissions, it must be compatible with international efforts and achieved at the least cost.

“Given the comparatively high cost of achieving abatement in Australia and our minor contribution to the global problem, any national policy initiative needs to be calibrated to the prospect and nature of an international response,” he said.

The commission continued that while an international emission-trading scheme is likely, Australia could introduce an emissions tax now while researching and developing a trading scheme that coincides with other nations.

“A national approach should be based on greenhouse gas pricing – through an emissions tax or emissions trading scheme. Due to its administrative simplicity, a tax has some merit as a transitional tool,” the submission stated.

While the submission showed no preference to either a trading scheme or tax, the commission said it would take at least three years to implement a successful trading scheme, but a tax could be in place within weeks.

The commission highlighted the importance of making industry accountable for its emissions but pointed out the risk of fixing a national emission quantity, which could pass increased abatement costs to the economy.

“In the case of climate change, it is not important to strictly limit emissions in the short run, since the effects of current (Australian) emissions on greenhouse gas concentration and climate change are small,” the submission said.

“Thus many economists argue that it is more important to control the costs of mitigation through the use of emission taxes.”

The submission also raised the possibility of implementing a national tax while simultaneously involved in an international trading scheme.

The commission noted the need for other polices to address market failures, such as support for technological development and deployment, addressing barriers to energy efficiency and carbon capture and storage and research into adoption strategies.