Download Addressing australia`s increasing contribution to world

ADDRESSING AUSTRALIA’S
INCREASING CONTRIBUTION TO
WORLD CO2 EMISSIONS: CAN A
CARBON TAX HELP?
Associate Professor John Asafu-Adjaye
Outline of Presentation
• Introduction
• Objectives of the study
• The role of carbon in the Australian economy
• Carbon policy simulations
• Modelling approach
• Some simulation results
• Conclusions and policy implications
Introduction
• Climate change is arguably one of the greatest threats facing
the survival of the human species
• Global surface temperatures (including over land and sea)
have increased by 0.8°C over the period 1901–2010 and about
0.5°C over the period 1979–2010
• All of the 10 warmest years in the global temperature records
up to 2011 have occurred since 1997, with 2005 and 2010
being the warmest two years in more than a century of global
records
• The majority of scientists now believe that human activities,
particularly burning of fossil fuels and deforestation, are among
the prime causes of the changes observed in the 20th century
and are likely to contribute to further changes in the 21st
century (IPCC, 2013).
Introduction (cont’d)
• Unfortunately, international agreement to address this
problem has yet to be successful.
• Although a global effort towards reducing greenhouse
emissions is more preferable, in the face of limited success
in this effort, several developed countries have unilaterally
implemented some form of carbon-related policies (e.g., a
carbon tax or the emission trading scheme, ETS)
• Examples include the UK, Finland, Italy, Germany,
Denmark, Norway, Sweden, Switzerland, Ireland, New
Zealand,
• and selected states in Canada (Alberta, Quebec, and British
Columbia) and the US (Colorado, California, and Maryland).
• Australia is a small country, but it is one the largest per
capita carbon emitters in the world
CO2 emissions per capita for selected countries,
1990-2011
CO2 emissions (metric tons per capita)
20.0
18.0
16.0
14.0
1990
1995
2005
2011
12.0
10.0
8.0
6.0
4.0
2.0
0.0
USA
Australia
EU
China
India
Source: World Bank, World Development Indicators, online edition, 2015.
Introduction (cont’d)
• The Julia Gillard-led Labor government introduced an
emission reduction policy on the 1st of July 2012.
• The policy comprised a fixed carbon price in the first three
years, to followed by a flexible (market determined) price
emissions trading system (ETS) from 2015 onwards.
• Prime Minister Tony Abbott’s went into the last election
with a promise to dump what he called the “great big
carbon tax”.
• The carbon tax was repealed on July 17, 2014
Objectives of the study
• 1. To analyze the macroeconomic impacts (e.g., GDP,
inflation, employment, imports and exports of various
sectors) of the Gillard government’s carbon policy.
• 2. To re-assess the policy reassessed by incorporating
technological innovation in the renewable energy sector
as set out in the government's plans.
• 3. To analyze the impact of an alternative policy such as a
fuel tax and compare it to the carbon tax.
• We also wanted to determine which of these strategies
could help achieve Australia’s commitment, under the
Copenhagen Accord, to achieve a target of 5% reduction
of CO2-e (carbon dioxide equivalents or GHG emissions)
from 2000 levels by 2020
The role of carbon in the Australian economy
Australia's GHG emissions by emissions process
8%
6%
15%
3%
Agricultural
16%
Waste
Electricity
Stationary energy
35%
17%
Transport
Industrial processes
Fugitive emissions
Source: DCCEE, 2011a
Carbon Policy Simulations
• Scenario 1
• Based on the government's inflation-indexed emission reduction policy,
the following prices ($/t CO2-e) were imposed: A$23 in 2012, A$24.15 in
2013, and A$25.40 in 2014, with the price being determined by the ETS
from 2015 onwards.
• Scenario 2
• Technological change in renewable energy electricity generation is
modelled together with Scenario 1. Here we increase technological
change by 1% p.a. from 2013-2023.
• Scenario 3
• Fuel tax as an alternative to the ETS. We applied the following
percentage increases to the existing rates: 23.7% in 2012; 26.4% in
2013; and 29.7% in 2014; with the rates increasing by 2% per annum
from 2015 onwards.
The Modelling Approach
• We used a model which accounts for all economic agents in
the Australian economy – economy-wide model
• Consumers (one representative household)
• Producers (different industries and services in the economy)
• Government
• External sector (trade)
• Assumptions:
• Consumers choose goods and services to maximise their utility
• Producers maximise their profit (or minimise their cost)
• Government imposes taxes and collects tax revenues
• The model accounts for the interactions between the economic
agents
• The model is dynamic
• enables us to trace the effects of the policies continuously over time
Simulation Results: Impacts on GDP & Employment
Simulation Results: Winners & Losers
Simulation Results: Impacts on inflation
• The immediate effect of the ETS is an increase in the
product prices of emissions-intensive industries such as
coal-fired electricity plants and transport
• Our results indicate that prices rise fastest relative to BAU
during the fixed-price period of the tax, with the steepest
rises occurring in the key mining states of Queensland
and Western Australia.
• The price level rises by 0.3% on average relative to BAU
for the period 2012–14. Prices tend to stabilize after four
years
Simulation Results: Impacts on emissions
• The ETS lowers emissions in all states relative to BAU
• Emissions declines fastest in Tasmania
• Emissions decline in WA and QLD relatively slow
• Scenario 2 (with Tech innovation) produces more drastic
emissions reductions
• Fuel tax (Scenario 3) reduces emissions leass than
Scenarios 1 & 2
• This suggests that the ETS is more effective than the fuel tax in
reducing emissions
Conclusions and Policy Implications
• The ETS causes real GDP to decline at an average of 0.1%
per annum relative to BAU. It also has an adverse impact on
welfare proxied by real household consumption. This is due
to a loss in employment and small rises in consumer prices.
• At the industry level, the GDP growth of energy-intensive
industries such as coal, iron ore, steel and coal-powered
electricity generation is severely affected by the policies.
• The winners from the ETS are electricity generators who
use gas and renewable energy sources and the forestry
sector.
• There is a need for Govt to give incentives to firms to invest
in renewable energy sources such as wind or solar energy
which our results have shown to be important
Questions and Comments
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