 There's somewhat of a surprise to receive an invitation to this meeting. I looked at the title it had in the words developing, I thought Australia, where does that fit in? And also policy. I'm not really an expert in policy, let me make that clear. I am an economic modeler with some expertise in CG modelling. So my presentation I think will reflect that. I want to tell you something about Australia. I want to tell you something about its emissions profile, what the federal government currently plans in terms of its principal policy, what we've projected to be some of the effects of that policy, although I will not dwell on those. And then I will indulge myself with some observations about modelling how it has been conducted in Australia and some of the lessons that we've learnt from our modelling in Australia. I do so somewhat without apology because much to my surprise most of the presentations at this conference have involved modelling. Indeed there have been whole pages of PowerPoint slides with equations on. Now this is worn by heart. Channing you should have told me before now and I would have presented something a little different. Right, Australia, it's big. It's somewhat empty and of course it has some beautiful parts, somewhat like myself. Well that one's over, right, let's get to the facts. And now this is our estimate, 2011. There are numbers formally out for 2010, but this is for 2011, for CO2 equivalent gases in Australia. The profile suggests that around half of our emissions are from stationary energy. About a third comes from electricity generation, about 20% from transport and about 20% from agriculture. In Australia if you want to go to the next city you have to travel a thousand kilometres. Very very few people walk that distance, so transport is an important source of emissions. If we want to produce some electricity naturally we go to the cheapest form of that production and in Australia that is certainly coal. We have massive deposits of coal which we like to use as much as possible or we like to sell elsewhere. Unfortunately in a climate change sense a lot of that coal is brown coal lignite, in other words it's wet and it has an emission coefficient somewhat higher than standard black coals. You'll see our world standing is very high in emissions per person. Based on these estimates, this is somewhat speculative, but I put our emissions per person, tonnes per person at around 28, which is twice the OECD average and around four times that for the globe as a whole. This is my position here in emission intensive economies. Where is Australia heading in terms of total emissions? Well in the first stop point here is our own projection on where Australia is going without action and by without action I mean without any commitment to the Kyoto target, without any of the many regional and national policies designed currently to encourage renewable generation and to encourage energy efficiencies. Without action between 2020 emissions we expect will grow by 25%. Without action as best as we can estimate the emission growth will be approximately 16%. Without action between the year 2000 and the year 2050 we expect emission growth to be around about 65%. In other words in terms of our modelling when you think of a base case path going from 2000 to 2050 you'll have more or less growth of around about 55% to 60% when you take into account just the current policies which are in place. Australia ended up ratifying the Kyoto Accord in 2007 which allowed it to increase its emissions relative to 1990 levels by about 8% across the Accord average. Recently as part of its Copenhagen commitment it has committed itself to reducing emissions by 5% relative to 2000 levels by the year 2020 and perhaps by a bit more if other countries start to cut their emissions more aggressively than currently anticipated. By 2050 the government has a plan, well the government wants, intends to reduce emissions relative to year 2000 levels by 85%. In other words the plan is basically for Australia to be decarbonised by the year 2050. The national policy designed to bring this into place is known as the clean energy future not the carbon tax, not an emissions trading scheme but a politically correct clean energy future. It's all about imposing a price on CO2 equivalent emissions. The idea is between now and the year 2015 a price is put in place of around about 23 Australian dollars, one Australian dollar is worth roughly one US dollar currently. From 2015 to 2020 put in place at least locally a trading scheme, a market for permits issued locally but which can take on board or take in emission permits released globally such as CDMs. And then finally from 2020 the plan is to be integrated into a somewhat mythical global emission scheme. The carbon price is to cover around 60% of total emissions in Australia, notably electricity generation. It will not apply to agriculture or to motor vehicles. It will be as I say fixed at a certain level, the 23 dollars is largely redundant now given prices say in the EU it will be much lower than the 23 dollars. And thereafter as I say from 2015 there will be linking to global markets with the anticipated full integration by the year 2050. Naturally a key element to all this is what will happen to the revenue and the government has made great and stirring remarks about how the revenue will go back firstly to households most disadvantaged by the fuel price increases and then to various funds to encourage green investments in renewable generation and so forth. The next few slides show our modelling actually conducted for the Australian Treasury showing the broad macroeconomic impacts of the pricing scheme. Keep in mind we're going out to 2050 we're integrating with the global scheme from 2020 and we're trying to achieve basically emission reductions of nearly 100% relative to the base case and strictly roughly 80% relative to the year 2000. This shows what happens to real GDP on the vertical axis is percentage changes away from base case values. You can see that relative to base case real GDP by the year 2050 falls by about 1.5%. When you think in terms of average annual growth etc you can see that that's a relatively mild outcome. I heard for the South Africa case earlier today or yesterday a 5% reduction in real GDP in the year 2050 or thereabouts. Real income will fall by more than real GDP. This is a subtle point that the federal government has forgotten to mention in most of its discussion of this. It turns out that by the year 2050 Australia does achieve its abatement target but most of that abatement indeed 60% of that abatement is through the purchase of emission permits from overseas. Only or less than half of the inverted commas abatement is achieved by true abatement in Australia. Having to buy permits from overseas means all else unchanged less income available to Australians. I'll skip over this slide for reasons of time. As with all these schemes it has plus and minus effects for industries and certainly our projections are consistent with that. The projections at an industry level have to do with obviously what happens locally but also what is projected to happen globally as part of this global emission trading scheme. There will be changes in competitiveness, changes in exchange rates and so forth. There will be shifts to low emission technologies particularly in steel, chemistry, chemicals and non-ferrous metals production. Some industries will be favoured by less than others due to different emission intensities and of course ultimately changes in domestic demand will lead to changes in industrial structures. This slide shows if you can see it and probably not some of those industries that will be most adversely affected. I won't go through each of those lines I'll just list them they are cement, iron and steel, aluminium, refining and coal production. All mining falls by about 25% relative to its base case value by the year 2050. It falls it would have fallen by much more if it were not for increased exports of coal to the rest of the world. Just like in South Africa our story is that coal is relatively cheap or cleanly mined in Australia. I don't think we can have both countries doing the same. Anyway that's our story and there will be a very much a reshaped mix of electricity generation. The, can only think of one word, the poo coloured segment there that's increasing is obviously renewable generation. The dark blue is coal generation from conventional sources. The light blue is coal generation for carbon, capture and storage. Keep the carbon and capture and storage picture in your mind. What about transport delivery? Well Australia like the US, like the European nations love internal combustion motors and that will continue despite the emission reductions and the price of CO2. Of course how we drive those internal combustion motors may well change. We're projecting a rather sharp change towards blended fuels. If I continued this picture out to 2100, which is ultimately where we modelled to, you would see a very different picture in the second half of the period. There you'll find electricity motors gradually taking over the transport load. Indeed by 2080 we had nearly all of the transport being delivered by electric rather than internal combustion. Conclusions. Now if you'd been to James's presentation you would have thought I've copied his list. I haven't but it is very similar. Taking action on Greenhouse, perhaps James copied my list. Taking action on Greenhouse does have an economic cost. That cost depends on the amount of abatement required and consequently on the level of the permit price. The cost depends on the efficiency with which low cost cleaner technologies can be employed but the economy will grow strongly even with more stringent targets than even being considered in this paper. Some industries lose, some industries gain and just as there is a mixed story for industries so there is a mixed story for regions. Now for five minutes of indulgence on modelling. Do I have five minutes Channing? Please tell me Channing. Well you have two and a half. Right, thanks Channing. That was not what I was asking for. I've delivered these results over the years to many fora in Australia and sometimes to elsewhere and constantly I'm having to tell the story that there will be a cost that the cost will be small and naturally the question comes back well why? Why go through the cost at all? What's the point of all this? Obviously the problem that is being revealed in the economic modelling here is that we're not portraying at the same time the potential benefits from taking action. Presumably if we did we would be showing that the net effects of the emission trading scheme are positive rather than negative and I can assure you at least in Australia that would have massive ramifications on the political debate but we don't. We should be and that's where integrated assessment modelling will come to play. But in Australia at least the potential gains from not having climate change have a very rich regional and structural flavour. This is my only pretty picture. It's copied and I like it because it comes from an official Australian production, official Australian government publication and it shows that we've taken over New Zealand. Not a point often made when mentioning this picture, not one that we're quite proud of. So what the picture shows is that the effects of climate change even if you can't read the words differ widely across regions. They differ widely across industries. So any integrated assessment modelling must in my opinion at least for Australia embody a rich regional and industrial dimension. Further modelling concerns. We seldom say much about the short run adjustment costs. We wave our hands even at, well you don't know where the Latrobe Valley is, that's where most of the coal is produced in Australia. I could go down and say look there will be some job losses here but most of you will find a job elsewhere. Not such a big problem. But naturally the people there will be upset, they'll be concerned about where these jobs will be. They'll be concerned about moving, they'll be concerned about re-skilling, they'll be concerned or the government will be concerned about the infrastructure implications. The retraining implications. Each of those things have a very real and quite significant cost in the short run. They'll be greater than the costs that are being picked up by the standard economic modelling. And then finally there's the uncertainty of technological aspects. CCS, when we first did this modelling for Australia we were told that CCS would cost $30 per tonne or become economic $30 a tonne. Two years ago we were told no $69 a tonne. When we did this modelling last we were told $84 a tonne. When the Treasury did its modelling or when we did it for the Treasury it was $45 a tonne. There are a whole host of no regrets options as an economist highly skeptical. But are there such options out there? And I'll finish on this Channing, forgive me. What are the keys to good modelling according to our experience? Well the first is the inclusion of policy relevant detail. Now it turns out in the end that significant levels of detail may not be necessary to give you ballpark outcomes for the major macroeconomic indicators. But for microeconomic results and for credibility it is absolutely vital. And linking is the key. In the economic modelling reported here we linked to very detailed electricity supply models. We linked to land change models. We linked to land and air transport modelling and we linked to water use modelling or specialised modelling. That improved the level of detail highly significantly in our modelling and improved accordingly the credibility of our results. Document. Explain. What do we mean by explain? Well I was taken back in the plenary session when one of the speakers spoke yet again about a black box. CG models of black boxes only because people have not explained their results at a level of detail and in a way that people not familiar necessarily with the model and the data can understand. Explanation if I was to rank these keys to good modelling would be ranked number one. Finally it has to be relevant. Real GDP is not necessarily relevant. Total jobs in the economy is not necessarily relevant. The results have to be in my opinion delivered with a regional dimension. They have to be delivered with a relevant time scale. Yes 2050, 2100 if necessary but the political animal is only caring about the next few years. It has to be delivered with much industrial detail. Agriculture is not sufficient. Cropping is barely but is better. We have to talk and this is in reference to someone who made the comment about humanising the modelling. We have to talk about human related issues and we can. We can talk about income distribution. We can talk about the implications for poverty. We can talk about skills and training needs etc. And we should be. Thank you Channy. Please Subscribe. X Q B B B B B B B B B B B B