TheCIE.com.au Empirical uncertainties in climate policy implementation

Transcription

1 TheCIE.com.au Empirical uncertainties in climate policy implementation International Climate Policy for the Long Term CCEP and CAMA Workshop ANU 14 March 2012 David Pearce

2 Empirical Uncertainties in Climate Policy Implementation The Australian Economic Review Vol 45, no. 1 March 2012

3 In the long term.. And on average Policies are more successful when they have a very clear articulation of costs and benefits Policies falter particularly where benefits are not well articulated or costs are unanticipated Therefore worth exploring empirical uncertainties and their resolution

4 Research agenda using a suite of models provides a natural hedge against the inherent uncertainty of economic modelling (Treasury, Australia s Low Pollution Future 2008) Analysing a wide range of scenarios provides a means of stress testing a policy proposition How can models help (hinder) with institutional development?

5 Empirical issues Understanding marginal cost of abatement Model sensitivity Supply side sensitivity Demand side sensitivity Understanding adjustment mechanisms Non-price policies, policy interaction and optimal timing Understanding other country policies

6 Understanding Australia s MCA Carbon price (A$/t CO2-e) Reduction in emissions relative to business as usual (per cent)

7 Model sensitivity Different models produce different results because they focus on different mechanisms Gross national income % change (relative to BAU) 0.0 Treasury analysis G-Cubed results Year ending 30 June Real wage 0.0 % change (relative to BAU) Treasury analysis G-Cubed results Year ending 30 June

8 Investment as the major adjustment mechanism Ratio: investment reduction to GDP reduction Treasury G-Cubed GDP loss (relative to baseline)

9 Price effect Fixed price set by legislation G-Cubed price estimate Treasury price estimate $ per tonne CO2-e (in 2010 dollars) Sensitivity effect Mining output fall Hhold energy price increase GDP loss CPI increase Real wage reduction Durable manufacturing output fall Services output fall % change relative to core simulation Supply side sensitivity What happens if not as many low cost permits are available on the international market? Magnitude of sensitivity worth thinking about

10 Demand side sensitivity What happens if world price remains lower than Australian administered prices? Magnitude of foregone income worth thinking about Percentage change relative to BAU % change relative to BAU $ billion change relative to BAU No price restrictions Administered fixed and minimum prices in place Year ending 30 June Dollar change relative to BAU Administered fixed and minimum prices in place No price restrictions Year ending 30 June

11 Adjustment and compensation Focus on effect of price increases on household budget. What about real wages effect? CGE versus I-O pricing model GE price effects smaller, but wage effects bigger. Which matters most?

12 R&D and investment measures Clean Energy Finance Corporation Renewable General $m per year How will these change optimal timing of abatement? Successful investment will lower future MCA and lower optimal starting price Australian Renewable Energy Agency Small business asset write off Information grants Clean Technology Program Competitive grant funding for R,D,D and C Business and community groups Investment grants to low emission capital equipment Metal forging % reduction in global MCA lowers optimal starting price by 30% Clean Energy Skills Program Food processing R&D in renewable and low emission technology

13 The cart before the horse? Complementary measures already in place before we know the effect of the carbon price Energy efficiency regulation 22 Government procurement Information provision Other subsidy 15 R&D support 14 Government investment 11 Capital subsidy 9 Feed in tariff Other regulation 6 6 Tax rebate Electricity supply regulation 3 3 Number of measures in place

14 Understanding other countries World price most sensitive to the cost of abatement of the lowest-cost-abating country Australian outcomes may be more sensitive to costs in China, India and SEA than they are to the Australia cost of abatement Obvious where to focus empirical effort

15 Getting to the empirics There is a substantive empirical task ahead for the agencies in charge of implementation and review Enormous scope for useful data collection in the next few years Crucial that empirics is taken seriously

16 Thank you