The Minserals Council of Australia (MCA) has published its Economic Impact of the Carbon Pricing Scheme, which addresses perceived ‘shortcomings’ of Treasury’s current modelling.

 

The report, authored by the Centre of International Economics (CIE), describes Treasury’s modelling as ‘highly optimistic’ that assumes comprehensive global action by as early as 2016.

 

The major findings of the report are as follows:

 

  • GDP – the results show that Australia’s GDP will be 2 per cent lower relative to business as usual (BAU) by 2020, rather than by 0.3 per cent lower as suggested in the Treasury modelling
    •  In other words, Australia’s GDP will be a cumulative $180 billion lower in 2020 rather than $32 billion lower suggested by the Treasury analysis. 
  • Real investment - the results show that investment be 3.4 per cent lower than BAU by 2020, rather than by 0.4 per cent lower suggested in the Treasury modelling.
  • Impact on real wages growth (average household earnings) - the CIE modelling results show that real wages will be 1.9 per cent lower than BAU by 2020, rather than by about 1 per cent lower as suggested in the Treasury modelling.  As Treasury officials have testified, real wage growth falls because employment shifts from higher wage occupations (including mining) to lower paid sectors.  o CIE have assessed the impact of carbon pricing on ‘average household earnings’ drawing on data contained in the Household Expenditure Survey 2009-10. An average household has 1.8 employed persons. 
    • The results show that the cumulative reduction in growth in average household earnings by 2020 will be $11,360, nearly double the $5,110 hit to household earnings implied by the Treasury modelling.
  • Impact on productivity growth – the CIE results project that productivity or output per worker will fall by 1.9 per cent relative to BAU, rather than 0.4 per cent in the Treasury analysis.  As Treasury has advised, the carbon pricing scheme will reduce productivity growth because employment shifts into sectors that are less productive than higher emitting sectors (e.g. mining). 
  • Carbon price – with less international abatement available, the CIE modelling results project the carbon price will rise to $36.10 (in 2010 dollars) when the flexible price phase commences in 2016, growing to $43 by 2020. 
    • This compares with a projected carbon price under Treasury modelling of $24.60 (in 2010 dollars) rising to $29.40 by 2020. 
  • Electricity prices – under patchy international action, electricity prices are projected to rise by nearly 30 per cent by 2020, relative to BAU. 
    • This compares with initial electricity price rises of about 10 per cent under the Treasury modelling. 
  • Output in durable manufacturing – under patchy international action, durable manufacturing output is projected to fall by 2.1 per cent or $5.9 billion relative to BAU.
  • Output in the mining sector - under patchy international action, mining sector output is projected to fall by 1.9 per cent or $18.2 billion (in 2010 dollars) relative to BAU