A CGE Analysis of Distributional and Welfare Effects of Australia's Carbon Emissions Reduction Strategies

Abstract

At the Copenhagen conference on climate change in 2009, the Australian Government committed to reduce carbon emissions by at least five per cent below 2000 levels by 2020. To achieve this target, the Labor Government introduced a carbon pricing mechanism comprising two periods: a three year fixed carbon price from July 2012; and a floating carbon price from July 2015. This thesis simulates the impact of an Emissions Trading Scheme (ETS) on the Australian economy. The scheme investigated is a government-imposed cap on emissions from all industries, in which the emissions reductions in the electricity-black coal and electricity-brown coal industries account for 80 percent of the total emissions reduction target, and all other sectors related to the ETS must reduce the remaining 20 percent of the total emissions reduction target. The polluting industries will be required to pay for their generation of emissions at the emissions permit price as determined by the market. The government accrues the revenue from auctions, then uses half of the revenue to compensate households through various revenue recycling options.