This update revises the policy parameters of the national and sectoral economic modelling contained in the Strong growth, low pollution: modelling a carbon price (SGLP) report. It presents two additional scenarios: one that reflects the Clean Energy Future package endorsed by the MPCCC, with a starting carbon price of $23/t CO2‑e instead of the $20/t CO2‑e modelled in the SGLP report; and one that also includes additional Government policy measures.
The updated modelling confirms the Australian economy will continue to grow strongly while emissions are reduced. Macroeconomic and sectoral projections from the updated policy scenarios are very close to those of the SGLP policy scenario, as the policy scenarios feature the same emission targets, the same carbon prices after the first three years and share a majority of other policy features.
Average incomes measured by gross national income (GNI) per person increase by around $9,000 from today’s level to 2020 and by more than $30,000 to 2050. GNI per person grows by 1.1 per cent per year to 2050 with carbon pricing, compared to 1.2 per cent per year without carbon pricing. Employment continues to grow strongly, with national employment increasing by 1.6 million jobs by 2020, with or without carbon pricing. All state economies continue to grow strongly.
The impact of a $23/t CO2‑e carbon price on aggregate consumer prices (of 0.7 per cent in 2012‑13) was reported in the SGLP report; no update is needed.
The main additional results in this modelling update are:
- the higher starting price reduces domestic emissions by an additional 5 Mt CO2‑e in total over the first three years of the scheme;
- the Government measure to apply an effective carbon price to fuel used by heavy road vehicles from 1 July 2014 reduces Australia’s domestic emissions by an additional 4 Mt CO2‑e in 2020 and 20 Mt CO2‑e in 2050 and lowers the cost of meeting Australia’s emission reduction targets; and
- updated electricity sector modelling confirms the estimated 10 per cent increase in electricity prices in 2012‑13 from carbon pricing presented in the SGLP report.