Will Australian Carbon Tax Affect the Resources Boom? Results from a CGE Model

Abstract

The resources sectors have been the engine of Australian economic growth in recent years, but there is a tremendous fear currently that the carbon tax policy introduced in July 2012 will kill this resources boom. By employing a computable general equilibrium model and an environmentally extended social accounting matrix, this article simulates the effects of Australian carbon tax on the resources sectors. The modelling results show that all resources sectors will be affected negatively but to different degrees. The brown coal sector will be hit dramatically with 25.36% decrease in output, 52.79% decrease in employment and 89.12% decrease in profitability. However, the other resources sectors are only mildly affected. Under the carbon tax, the resources sectors contribute significantly to the total emission reductions in Australia, especially in terms of activity emissions. Given the fact that brown coal accounts only for a small portion of the output of natural resources and is not export-oriented, it is reasonable to suggest that a carbon tax will not significantly affect the overall performance of the resources sectors.