The International Energy Agency 2005 review of the Australian energy market has urged the country to consider developing and emissions trading scheme to support technology based measures to combat climate change.

Energy prices in Australia are low, says the report, due to the economic efficiency of the energy sector and the presence of abundant domestic fossil fuels. Australia is also a pioneering market reformer and its electricity sector can be seen as a model for other countries and ongoing reform, especially in the area of transmission and the establishment of a national regulator, will improve the system further.

However, environmental sustainability represents Australia’s greatest energy challenge, says the IEA with carbon dioxide emissions from fuel combustion per unit of GDP at 43% above the IEA average. With emissions expected to grow by 43% from 1990 to 2010, without a substantial change in energy supply and/or demand behaviour participation in any global climate change mitigation programme would be difficult, says the report, in a reference to recent announcements that Australia would join the US and other nations in an alternative emissions scheme to Kyoto.

Australia, the report continues, is taking a largely technological approach to curbing climate change and recently opted not to introduce an emissions trading scheme. While technology will be essential in dealing with climate change, the government is encouraged to periodically review the costs and benefits of emissions trading in light of technological advancements and developments in international and domestic climate change frameworks.

IEA executive director Claude Mandil said that technological solutions to climate change had advantages, but also risks saying: “Although it carries the risk that technological solutions will not be forthcoming, it also recognises the long-term nature of this issue and the need for massive changes in energy patterns that new technologies can achieve. However, even if such technologies are found … most likely a carbon price signal will still be needed to facilitate their implementation.”