A Multi-Sectoral, Multi-Household, General Equilibrium Model to Assess the Impact of a Carbon Price on the Australian Economy

Abstract

This paper analyses the macro-economic, sectoral and household effects of an AU$23per tonne carbon price to achieve carbon dioxide (CO2-e) emissions reduction targets in the Australian economy by employing a static computable general equilibrium (titled as A3E-G) model of the Australian Economy. The A3E-G model developed for this study is capable of handling endogenous substitution among energy inputs and alternative allocation of resources among energy and capital. The A3E-G model incorporates an explicit tax system that evaluates carbon price impact on the economy under both short-run and long-run closures. The model has been calibrated using an environmentally-extended social accounting matrix (ESAM) which is disaggregated to show a detailed picture of carbon emissions by sectors, energy sources, electricity generating sectors, household income groups and various occupations.