Govt modelling shows minor costs from tougher Australian carbon targets

Published 09:29 on August 21, 2015  /  Last updated at 09:29 on August 21, 2015  /  Asia Pacific, Australia  /  No Comments

Australia could lift its 2030 emission reduction target to 45% with only limited impacts to the economy, and at no extra cost at all if it allows the use of international units, according to government-commissioned modelling released Friday.

Australia could lift its 2030 emission reduction target to 45% with only limited impacts to the economy, and at no extra cost at all if it allows the use of international units, according to government-commissioned modelling released Friday.

Prime Minister Tony Abbott last week announced that Australia would cut its greenhouse gas emissions 26-28% below 2005 levels by 2030 as its contribution to a new global climate change agreement.

At the same time the government has said taking on a target of around 45-60%, as proposed by the Climate Change Authority, would impose unmanageable costs to the Australian economy.

But government-commissioned modelling done by economist Warwick McKibbon released Friday showed only minor economic impacts between the targets.

The current 26% target would set back Australia’s 2030 GDP by up to 0.6%, the report showed. A 35% target would mean a 0.8% reduction in GDP and a 45% target would mean a 1% smaller GDP.

Average annual real GDP growth from 2020-2030 would be 2.14% with a 26% target and 2.09% with a 45% target, it said.

“The modelling shows that Australia can easily afford to make stronger pollution reduction cuts with the economic costs between taking weak action and strong action barely noticeable,” said Kellie Caught at WWF Australia.

“Our GDP would make up that small difference in growth in just a few months.”

INTERNATIONAL UNITS

The Abbott government has so far been adamant it will achieve its target domestically and not make use of international carbon credits, although it said last week it might reconsider during a 2017-2018 rethink of climate policy.

The McKibbon report said that assuming international units cost $5 in 2020, rising to $10 in 2030, and Australia decided to use those to meet 45% of its targeted emission cuts, it could nearly halve the cost.

The 2030 GDP impact from a 26% target would be slashed to 0.3%, and a 45% target to 0.6% of GDP – the same cost as meeting its current target solely through domestic efforts.

“As long as the price of the international units is less than the marginal cost of reducing an equivalent additional unit of emissions in Australia, the Australian economy will benefit from access to international units,” the report said.

But allowing foreign offsets would also mean a slower decarbonisation of the Australian economy, it said.

“It is estimated that coal output in 2030 would be between 3 and 12 percentage points higher if international units were used towards the target, depending on the target level.”

By Stian Reklev – stian@carbon-pulse.com

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