Australia's Emissions Reduction Fund in an international context

Abstract

The paper uses the GTAP-E model to examine whether the A$2.55 billion budget of the Emissions Reduction Fund (ERF) is adequate to buy the required abatement with respect to Australia's 2020 target. The ERF is examined according to the Marginal Abatement Cost (MAC) curve theory, with a carbon tax simulated in advance, and the equivalent subsidy outlay is calculated. We also examine whether the operations of some domestic Emissions Trading Schemes (ETSs) in other economies would affect Australia's emissions levels and MAC curves. The results indicate that the ERF budget can only help Australia to buy 85% of the required abatements, subject to its 2020 target, and that the implementations of ETSs in the other economies would not greatly affect either the emissions levels or the MAC curves in Australia.