Australia Releases New Carbon Price Modelling

by Mary Swire, Tax-News.com, Hong Kong

26 September 2011

The Australian government has released updated modelling of the impact of a carbon price, which it says confirms Australia's economy will continue to grow strongly at the same time as pollution is cut, although the estimates were dismissed as "worthless" by the opposition Liberal Party.

The modelling shows the impact of a carbon price starting at AUD23 (USD22), and also includes elements of the Steel Transformation Plan and Jobs and Competitiveness Program that were not included in the initial report released in July.

As the government expected, the updated modelling shows almost no difference with the previous modelling exercise. The economy continues to grow strongly under a carbon price, with real gross national income per person growing at an average rate of 1.1% to 2050.

Jobs grow strongly under a carbon price, with national employment expected to increase by 1.6m jobs to 2020. Incomes grow strongly under a carbon price, rising by around AUD9,000 in today's terms by 2020. Australia's domestic emissions under carbon pricing will fall to nearly half of what they would be without carbon pricing by 2050.

The updated modelling shows an extra 5m tonnes in domestic abatement over the first three years because of the higher starting price. It also shows manufacturing grows slightly faster over the period to 2020 because of refinements to the Jobs and Competitiveness Program.

According to a joint statement by Wayne Swan, Treasurer, and Greg Combet, Minister for Climate Change, the modelling demonstrates that the government measure to apply an effective carbon price to fuel used by heavy road vehicles from July 1, 2014 will cut annual domestic emissions by a further 20m tonnes in 2050. It will also make it cheaper to meet Australia's pollution reduction targets, adding around 0.1% to gross national income in 2050.

The Strong Growth, Low Pollution report released in July already included detailed modelling of the impact of a AUD23 carbon price on consumer prices. Swan and Combet said that there was no need to update this part of the modelling, which showed a modest price increase of 0.7% in 2012-13 – small compared to the increase of 2.5% as a result of the introduction of the goods and services tax. The design of the household assistance package also took into account the AUD23 carbon price.

“Putting a price on carbon will drive innovation and investment in clean energy technology, moving production towards less pollution-intensive processes. The Clean Energy Future Plan ensures the transition towards cleaner energy technology is achieved at the least cost and in the most effective way,” the two Ministers stated.

The opposition Liberal Party slammed the government's calculations however, calling them "worthless" because they assume that the United States will be part of a global trading system by 2016. "Yet the chance of the United States having a cap and trade or equivalent system by 2016, is now zero," the Liberals said in response to the updated modelling.

"This assumption about the world is a fantasy. It comes at the very time that the government has conceded in its UN submission ahead of the Durban meeting, that there is little chance of a binding international agreement until 2015, six years after Copenhagen. The prospect of economy wide carbon taxes, only a year later, in the US, India and China, is utterly unrealistic," the Liberals said.

The Liberals contend that Australia's carbon emissions will still rise by 43 million tonnes between now and 2020 even with the carbon tax in place.

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