According to a report commissioned by The Climate Institute to compare the incentives for clean energy in Australia, China, Japan, South Korea, the United Kingdom and the United States, Australia is lagging behind its major trading partners in measures to reduce carbon pollution.

The study converted direct policies, such as emissions trading, and indirect pricing policies, such as regulations, subsidies and incentives, into a price tag on pollution, measured in dollars per tonne of carbon pollution.

The UK came out in first place, with an equivalent price tag around 17 times that of Australia’s. In second place was China, where the implied carbon price tag was eight times that of Australia’s.

Austrlalia came second last, ahead of South Korea.

According to the report a market-based approach such as a cap-and-trade system is the cheapest and most efficient option for limiting carbon pollution.

The report pointed out that a lack of a carbon price not only hampers investment but also makes the country vulnerable to potential tariffs imposed on polluting industries. It concluded that Australia is not on track to meet its low 2020 pollution targets and "is also ill prepared to compete in the low pollution economy".