Australian Resources Sector under a Low Carbon Policy

Abstract

The resources sector has been the engine of Australian economic growth in recent years, but there is a great fear that the carbon tax policy introduced in July 2012 will kill this resources boom. By employing a computable general equilibrium (CGE) model and an environmentally extended Social Accounting Matrix (SAM), this chapter demonstrates the effects of the Australian carbon tax on the resources sector. The modelling results show that, in a flexible exchange regime, all resources sectors will be affected negatively, but to different degrees. The brown coal sector will be hit most with 25.74% decrease in output, 52.94% decrease in employment and 89.37% decrease in profitability. However, the other resources sectors are only mildly affected. Under the carbon tax, the resources sector contributes significantly to the total emission reductions in Australia, especially in terms of activity emissions. Given the fact that brown coal accounts for only a small portion of the output of natural resources and is primarily used by domestic firms in Australia, it is reasonable to suggest that a carbon tax will not significantly affect the overall performance of the resources sector.