Insurance against Catastrophic climate change: How much will climate change mitigation policies cost Australia?

Transcription

1 Insurance against Catastrophic climate change: How much will climate change mitigation policies cost Australia? Philip Adams Centre of Policy Studies Presentation ti 1. Centre of Policy Studies 2. The climate change problem 3. Modelling climate change mitigation policies 4. Implications for Australia 5. Conclusions 2

2 1. Centre of Policy Studies Economic research centre at Monash University Strong academic reputation and extensive consulting practice Builds and uses economic models, Conducts training courses, Supervises post-graduate students 3 1. Centre of Policy Studies 19 full-time professional academic staff 6 full professors on staff 4 organisations in 6 countries use models and software developed at CoPS Extensive presence in US, China, Brazil, South Africa and Vietnam 4

3 1. Centre of Policy Studies Heavily involved in modelling the impacts of climate change mitigation i i policies i Australian Treasury, Garnaut Review, National Emissions Trading Taskforce, Climate Institute, etc. Modelling results reported later come from the Treasury s report released in October 8, Australia s low pollution future: The economics of climate change mitigation Climate Change Problem: A global l one Examples of current vulnerabilities i of freshwater resources and their management; in the background, a water stress map 6

4 2. Climate Change Problem: Australia Annual linflow to Perth thwater Supply System from 1911 to 5. Horizontal lines show averages Climate Change Problem: Australia Key hotspots for Australia 8

5 2. Climate Change Problem 1. Global surface temperature is rising 2. Increased concentration ti of CO2-e gases is a key factor 3. Much of the increase is human-induced 4. Without global action temperatures will keep rising 5. Significantly higher temperatures will lead to catastrophic economic effects for many regions, including Australia Modelling Task 1: Using MMRF, establish for Australia a no-action reference case to 25 Business-as-usual assumptions for macro economy Extrapolation of medium-term trends in technologies Known abatement policies and measures No implications of climate change Task 2: Compare with four alternative scenarios in which mitigation policies are in place. 1

6 3. Modelling In alternative scenarios, the economy shifts away from reference-case trends in response to imposed changes: Electricity generation (from MMA) Mix of motor vehicle fuels (from CSIRO and BITRE) Forestry land use and sequestration (ABARE) Global trading conditions (GTEM modelling) Mitigation policies i (Treasury and Garnaut) Modelling Monash Multi-Regional Forecasting Model Applied real world focus Regional regional economies treated as economies in their own-right General large and covering all aspects of the economy Equilibrium conventional economics Model imperfect representation of reality. 12

7 3. Modelling Limitations Does not include the economic effects of climate change and so underestimates benefits of mitigating policies Relies on external estimates t to account for new technologies Integrated Gasification Combined Cycle (IGCC) and Carbon Caption and Storage (CCS) in coal generation Fuel cell technologies for transport, etc Modelling Strengths All-of economy approach Consistency Flexibility Range of energy-related substitution possibilities Credibility in Australia and overseas 14

8 4. Implications the five scenarios Reference case No global l action CPRS -5, CPRS -15 Global action, multi-stage from 21 with all countries in by 225 Domestic action in line with Green Paper Garnaut -1, Garnaut -25 Unified global action from 213, Emissions i per capita equalised by 25 Australia a full participant from 213 onwards Implications the five scenarios Reference CPRS -5 CPRS -15 Garnaut -1 Garnaut -25 World Atmospheric stabilisation goal, CO2-e(ppm) Temperature change in stabilisation > 8 C 3 C 2.6 C 3 C 2 C Emissions in 25, Gt of CO2-e Australia Emission allocation, change from, %

9 Global l carbon price $5/tCO 2 -e $5/tCO 2 -e CPRS -5 CPRS -15 Garnaut -1 Garnaut Australia s emissions/trade i 1, Mt CO2-e Mt CO2-e 1, 1, 1, Reference 18

10 Australia s emissions/trade i 1, Mt CO2-e Mt CO2-e 1, 1, 1, Reference Emissions trajectory 19 Australia s emissions/trade i 1, Mt CO2-e Mt CO2-e 1, 1, 1, Reference Emissions trajectory Actual emissions Permits imported 2

11 Australia s emissions/trade i (Mt CO2-e) Allocation Emissions Trade 22 CPRS CPRS Garnaut Garnaut CPRS CPRS Garnaut Garnaut Key themes 1. Action reduces the size of the economy (real GDP) By assumption negligible long-run employment change Increased real cost of capital means less capital Abatement technologies costly % changes from reference CPRS -5 CPRS -1 Garnaut -1 Garnaut Real GDP Real GNP 25 Real GDP Real GNP 22

12 Key themes 2. Real income (real GNP) falls by more than real GDP Permits purchased from overseas Terms of trade fall For CPRS, early government-funded shielding % changes from reference CPRS -5 CPRS -1 Garnaut -1 Garnaut Real GDP Real GNP Real GDP Real GNP Key themes Does the GDP effect make sense (CPRS -5)? Stylised model suggests real GDP decline should be around.6 times the burden of action (permit price times reference case emissions) as a share of GDP Actual GDP reduction is 3.7% Stylised model suggests (for 25) = 2.9% Currently, electricity sector contributes 36 per cent of emissions, but only 3 per cent of GDP Action reduces electricity sector in size by about 12% and re-shapes Relatively cheap abatement costs in agriculture and availability of fforestry sequestration ti 24

13 Key themes 3. Action reduces production in some industries, increases production in others. Global demand Exchange rates and competitiveness Shifts to low-emission technologies Relative emission intensity Domestic demand 25 Examples of industries i affected significantly 2 Per cent Per cent 4 3 Index (8=1) Index (8=1) Iron & steel (RHS) Rubber & plastic (RHS) Trade (RHS) Aluminium (LHS) Coal-fired electricity (LHS) 26

14 Mix of electricity it generation 4 TWh TWh Black coal Brow n coal Coal CCS Gas Gas CCS Oil Renew ables 27 Impacts on Coal Production (Gross output (LHS), Share of global trade (RHS)) Index (8 = 1) Index (8 = 1) 35 Per cent Per cent Reference Garnaut No CCS 28

15 Land used in Forestry (New( land under forestry, cumulated) ' hectares ' hectares 4, 4, 3, 3, 2, 2, 1, 1, Reference CPRS -5 CPRS -15 Garnaut -1 Garnaut Impacts on Road transport t fuel mix PJ PJ 1,4 14 1,4 1, 1, , 1, Petrol Ethanol Diesel (oil based) B2 Biodiesel LPG Compressed natural gas Hd Hydrogen Gas to liquids Coal to liquids Electricity 3

16 Findings key themes 4. Action produces a mixed story for regions Energy-oriented -4 states lose GDP -6 share TAS and SA gain Per cent Per cent share NSW VIC QLD SA WA TAS 31 Findings key themes 5. Action increases electricity prices to final customers (retail electricity price, % change from reference case) CPRS -5 CPRS -1 Garnaut -1 Garnaut

17 5. Conclusions Taking action on greenhouse has an economic cost. Size of cost depends on: Amount of abatement and level of permit price Efficiency of policy designed to achieve abatement Especially its ability to encourage the cheapest lowemissions technologies Economy will grow strongly even with stringent targets requiring a permit price of over $ Conclusions Some industries lose output, others gain Output down for conventional coal generators > Mitigated by introduction of new clean coal technologies Compensation for energy-intensive exporters minimises losses Output gains for renewable generation > Especially large for geothermal, wind, and biomass Output gains for forestry industries > Production is subsidised Mixed story for industries implies a mixed story for states and sub-state regions 34

18 O yes, one more thing! Analysis is long-run in focus. No effort made to evaluate short-run adjustment t costs Retraining and Relocation of labour Downtime during installation of abatement technologies Plant closures, etc. 35