THE ECONOMIC IMPACT OF THE CARBON PRICING SCHEME

Purpose of study

The MCA commissioned the Centre of International Economics to evaluate the economic costs of the proposed carbon pricing scheme in the (likely) event that action on climate change by other nations is patchy and fragmented.

The study seeks to address one of the critical shortcomings in the Treasury modelling, namely the framing of its analysis around a single, highly optimistic scenario that assumes comprehensive global action by as early as 2016. The Treasury analysis also assumed that a world price on carbon will emerge by 2016 (through some unstated means) and that major developing nations would produce more emissions cuts than necessary in order to sell abatement to developed countries.

Focus of the study

The new modelling analysis is the first to assess the cost impact of the carbon pricing scheme if global action on climate change is patchy and fragmented. This is a much more likely scenario than Treasury’s rose-coloured assumption of universal and synchronised action with unlimited cross border trading.

The study uses the G-cubed model, a well regarded economic model used by a variety of international organisations, including the Commonwealth Treasury who used the model for the 2008 analysis of the Carbon Pollution Reduction Scheme. It would have been ideal to have analysed patchy global action scenario using the same model that Treasury used – the so-called Global Trade and Environment Model. But the Government has repeatedly blocked access to that model, despite protestations of transparency.

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