treasury modelling

Today the Treasury released the results of its long-awaited modelling of the economic effects of introducing emissions trading in Australia.

The modelling results show the net marginal cost of mitigating climate change (including emissions trading) is equivalent to 0.1% to 0.2% of GDP p.a.
That is, the difference between the base case scenario (Australia without emission trading) and the emissions trading scenario is only 0.1 to 0.2% of real GDP per capita per year.

Treasury's key findings are copied for you below.

The full report can be downloaded from:
http://www.treasury.gov.au/lowpollutionfuture/


Key points
The Treasury’s modelling demonstrates that:
- early global action is less expensive than later action;
- that a market-based approach allows robust economic growth into the future even as emissions fall; and
- that many of Australia’s industries will maintain or improve their competitiveness under an international agreement to combat climate change.

Australia and the world continue to prosper while making the emission cuts required to reduce the risks of dangerous climate change. Even ambitious goals have limited impact on national and global economic growth.

Real household income continues to grow, although households face increased prices for emission-intensive products, such as electricity and gas.

Strong coordinated global action reduces the economic cost of achieving environmental objectives, reduces distortions in trade-exposed sectors, and provides insurance against climate change uncertainty.

There are advantages to Australia acting early if emission pricing expands gradually across the world: economies that defer action face higher long-term costs, as global investment is redirected to early movers.

Australia’s comparative advantage will change in a low-emission world. With coordinated global action, many of Australia’s emission-intensive sectors are likely to maintain or improve their international competitiveness.

Australia’s aggregate economic costs of mitigation are small, although the costs to sectors and regions vary. Growth in emission-intensive sectors slows and growth in low- and negative-emission sectors accelerates.

Allocation of some free permits to emission-intensive trade-exposed sectors, as the Government proposes, eases their transition to a low-emission economy in the initial years.

Accurately predicting which mitigation opportunities will prove most cost effective is impossible. Instead, broadly-based market-oriented policies, such as emissions trading, allow the market to respond as new information becomes available.