Initial analysis of Frontier Economics climate policy modelling Media Release

Aug 10, 2009 - 5:30pm

"Australia’s national interest is tied to a strong, global response to climate change and effective domestic action to drive investments in clean energy job creating industries," said Erwin Jackson Director of Policy and Research.

"An initial assessment of the modeling shows that it is an incomplete analysis that does not address the key issue of how the system would work under a global agreement to reduce emissions."

"The Institute will undertake further analysis of the report but our initial concern is that the policies would result in a 'Claytons emission cap', provide further unconditional shielding to the big polluters, and put tax payers at risk by opening up the government to having to buy large numbers of international emission reduction permits."

"Regardless of the policy put in place, the Institute notes that under all scenarios of the CPRS or other approaches, the economy and employment continues to grow."

Initial questions that need to be explored in Frontier Economic's assessment include:

  • Is the unconditional 10 percent target modeled irrelevant? Most of Australia's trading partners and allies are moving to implement policies to reduce emissions and some form of agreement to reduce global emissions is likely to be agreed over the coming year. Frontier have not modeled the impact their approach would have under a system where Australia needed to reduce emissions by 15 or 25 per cent by 2020. It appears that the shift from the 5 to 10 per cent target in the model is largely achieved by the purchase of international permits with the associated impacts on GNP and terms of trade. They have not assessed the impact of their intensity based approach for the likely scenario where Australia would be required to reduce emissions more than 10 per cent, and it is therefore an incomplete analysis and not one from which firm policy conclusions can be drawn.
  • Does it just delay the inevitable? While the Climate Institute is open to the use of international markets for countries to contribute to global emission reductions, the more domestic polluting industries are subsidized and the more electricity prices are suppressed, the more we slow the transition to a low carbon economy. This increases economic risks in the future as we fail to restructure economy away from one that it highly polluting and highly inefficient to one that is low emission and highly efficient.

* Note under all scenarios, including the CPRS ones, the macro economic impacts described are very small - smaller in fact that Treasury's which showed that taking action on climate change is affordable. Also as the report the costs are largely presented as changes below a reference case and not absolute declines in economic activity or employment.

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