This article is more than 11 months old

This article is more than 11 months old

Josh Frydenberg has rejected the International Monetary Fund’s warning that Australia will fail to meet its Paris agreement emissions reduction target even with a carbon price of US$75 a ton.

The IMF made the observation in a report on mitigating climate change which concluded that a carbon tax is still a more cost-effective solution than “feebate” models, which impose fees on activities with above-average emissions and subsidise those with below-average emissions.

Frydenberg, the treasurer and deputy Liberal leader, told reporters in Canberra on Friday the government is “confident we will meet and beat our targets and as you know at the election we laid out our $3.5bn climate solutions package with a range of methods”.

Angus Taylor, the minister for energy and emissions reduction, said the IMF report “does not take into account” the government’s emissions reduction fund, which pays polluters to cut greenhouse gases by 328mt by 2030. The fund has been criticised for rapidly diminishing returns and widespread exemptions to limits on emissions elsewhere in the economy.

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Despite the Morrison government claiming that Australia will meet its Paris target of 26% to 28% emissions reduction by 2030 “in a canter”, Australia’s greenhouse gas emissions have risen for five years since the Abbott government abolished the carbon price in 2014.

In a separate report the IMF warned that companies cannot afford to ignore environmental and social goals because they have a “material impact on corporate performance”, in part because of investor pressure and potential “large losses from climate change”.

The paper implicitly rejects the view expressed by senior Coalition figures that business should not speak up on social issues, interpreted as an attack on one of Australia’s biggest resources companies, BHP, for its efforts to reduce emissions.

The first IMF paper found that if G20 countries imposed uniform carbon prices of $25, $50, and $75 a ton emissions would fall by 19%, 29%, and 35% respectively for the group.

Although a $25 price would be “more than enough” for some countries – such as China, India and Russia – to meet their targets, even with a $75 a ton price Australia and Canada would fail owing to differences in the stringency of targets and the price responsiveness of emissions.

Retail energy prices in Australia would rise by 75% with a carbon price of $75 a ton owing to its heavy reliance on coal-fired power generation, it said.

The report suggests a combination of regulation and “feebate” policies in Australia would only cut emissions by two-thirds the amount a $50 carbon price would, and would add 50% to mitigation costs.

The report suggests in Australia a $50 carbon price would raise about 1% of GDP in revenue and suggests returning revenue to taxpayers. “To make carbon taxes politically feasible and economically efficient, governments need to choose how to use the new revenue,” it said.

“Options include cutting other kinds of taxes, supporting vulnerable households and communities, increasing investment in green energy, or simply returning the money to people as a dividend.”

Taylor said the “point of a carbon tax is to raise the price of energy so people consume less”. “Labor’s carbon tax did exactly that, and that’s why we abolished it.”

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The Australia Institute’s climate director, Richie Merzian, said the IMF report showed “carbon prices work” and would have little impact on the economy.

“In just two years under the Clean Energy Future carbon price, Australia reduced emissions by 2%, grew the economy by 5% and added 200,000 jobs,” he said.

“If there is one clear message for the Australian government, it is get your act together. Australia’s emissions are increasing, not falling, because there is no credible climate and energy policy.”

In its sustainable finance report, the IMF argued that integrating environmental, social and governance factors into firms’ business models will “help mitigate risks” such as financial stability risks via exposure of banks and insurers and large losses from climate change.

It identified both “physical risks” from damage to property, land and infrastructure from catastrophic weather-related events and broader climate trends, and “transition risks” from changes in the price of stranded assets and broader economic disruption because of evolving climate policy, technology, and market sentiment during the adjustment to a lower-carbon economy.

“Environmental, social, and governance issues can have a material impact on firms’ performance and on the stability of the financial system more broadly,” it said.

In September the heads of Australia’s two major airlines – Alan Joyce of Qantas and Virgin Australia’s Paul Scurrah – rejected government calls to stay out of social and environmental issues, citing the strong business case to attract employees and customers with a social conscience.