This report is a collaborative effort between leading climate change economists and the Australian Treasury.
This report examines the economic costs of reducing greenhouse gas emissions, not the economic impacts of climate change itself. It should be evaluated in the broader context of all the costs and benefits of climate change mitigation.
The Australian Government has identified climate change as one of its highest policy priorities. The Government’s climate change policy is built on three pillars:
- reducing Australia’s greenhouse gas emissions;
- adapting to climate change that we cannot avoid; and
- helping to shape a global solution.
The Government has adopted a long-term greenhouse gas emission reduction target of 60 per cent below 2000 levels by 2050, and is considering the scale and timing of the emission reductions Australia should pursue towards this goal.
As a party to the Kyoto Protocol, Australia is obliged to limit its national greenhouse gas emissions to no more than 108 per cent of 1990 levels during the Kyoto commitment period (2008 to 2012). Post-2012 targets for developed countries are being negotiated internationally, with negotiations scheduled to conclude in Copenhagen in 2009.
The Government will introduce a Carbon Pollution Reduction Scheme as the primary mechanism to achieve its emission reduction goals in a responsible and flexible manner and at the lowest possible cost to the economy (DCC, 2008a). As part of the design features of the scheme, the Government will announce a national emissions target range for 2020 by the end of 2008.
The Treasury established a climate change modelling unit in mid-2007, drawing on resources from across government, to strengthen its capacity to provide high quality analysis and advice to the Government, and support critical decisions regarding the timing and scale of emission reductions. The unit’s first task has been to assess macroeconomic, sectoral and distributional impacts on the Australian economy of possible greenhouse gas emission reduction targets and trajectories.
The Treasury has worked with stakeholders, sectoral experts and leading Australian and international economic modellers of climate change in preparing this report.
This report focuses on the economic costs of reducing (mitigating) Australia’s greenhouse gas emissions. A suite of global, national, sectoral and distributional models provide a detailed picture of the potential transformation to a low-emission economy. This report does not assess the economic costs of climate change, and the benefits of avoided climate change are not included in the economic models used. Treasury’s analysis should be evaluated in the broader context of all the costs and benefits of climate change mitigation.
Global action to reduce greenhouse gas emissions could allow the concentration of greenhouse gases in the atmosphere to stabilise. Stabilisation at low concentrations could significantly reduce the risks of dangerous climate change and the costs of adapting to climate change. In addition, establishing clear long-term mitigation policies will reduce climate policy uncertainty. Reducing uncertainty tends to reduce risks and costs for investors in long-lived assets such as electricity generation infrastructure.
Other reports provide a detailed analysis of the economic benefits of climate change mitigation (Garnaut, 2008a; and Stern, 2007). Most importantly, the report of the Garnaut Climate Change Review includes its independent modelling of some of the economic impacts of climate change on Australia. The Review’s modelling uses three of the scenarios in this report (the reference scenario, Garnaut −10 and Garnaut −25), and applies climate change impacts to them. In addition, the Treasury commissioned a scientific report of climate change risks to Australia under alternative emission futures, which provides an overview of the environmental benefits of climate change mitigation (Pearman, 2008).
This is a summary of Australia’s Low Pollution Future: The Economics of Climate Change Mitigation. It presents the principal findings of the Treasury’s analysis.
Chapter 2 describes the analytical framework, including the economic models used and the scenarios examined.
Chapter 3 summarises the likely impacts of reducing greenhouse gas emissions on the Australian economy, including macroeconomic impacts, effects on industries, and implications for households. It compares Australia’s costs with impacts on other regions, and discusses the effect of different international policy approaches.
Chapter 4 summarises the key findings and identifies priorities for further analysis.