Australia: Australia’s Low Pollution Future – The Economics Of Climate Change Mitigation

On 30 October 2008, the Rudd Government released the report by Treasury entitled 'Australia's Low Pollution Future: The Economics of Climate Change Mitigation' (Report).

The purpose of the Report was to analyse and model the medium to long term economic impacts of policies to reduce greenhouse gas emissions, in particular the Carbon Pollution Reduction Scheme (CPRS). The modelling did not address the economic impacts of climate change itself or assess the benefits of reducing climate change risks through mitigation.

Unsurprisingly, the Report has received a great deal of attention and criticism; in particular, in relation to its reliance on carbon capture and storage as a viable technology and because of the fact that it did not take in account the current global financial crisis (or indeed any short term economic fluctuations).

Alternative Scenarios

The modelling in the Report is based on five alternative scenarios; a business as usual scenario (Reference Scenario); two scenarios arising out of the Garnaut Climate Change Review whereby the national emission targets are based on the per capita allocation approach developed by the Review (Garnaut Scenarios); and two scenarios examining the costs associated with the CPRS (CPRS Scenarios).

The Garnaut Scenarios are based on the assumption that an emissions trading scheme covering all emissions sources commences in 2013 which allows full international trade in permits. The Garnaut Scenarios also assume unified international action from 2013. On that basis, there is no shielding of emission-intensive trade-exposed (EITE) sectors because emissions trading is assumed to commence in all countries at that time. The Garnaut Scenarios do not include any other mitigation policies (such as a renewable energy target (RET)) as these are assumed to have ceased with the commencement of the trading scheme.

In contrast, the CPRS Scenarios are broadly based on the Carbon Pollution Reduction Scheme Green Paper, which assumes:

  • an unlimited banking of permits;
  • that agriculture is not covered by the CPRS until 2015;
  • a shielding of EITE through the allocation of free permits until 2020;
  • fuel excise changes to offset the impact of the CPRS on transport fuels; and
  • contained international trading of permits until 2020.

The CPRS Scenarios also take place against the background of a multi-staged international approach to an emissions trading scheme in which developed countries set targets and participate in international emissions trading from 2010. Developing countries gradually join the scheme with full international coverage from 2025. These scenarios also assume a RET of 45,000 GWh per year by 2020.

The Garnaut and the CPRS Scenarios (together referred to in this paper as the Alternative Scenarios) are further divided in the following ways:

  • Garnaut -10 – assumes that Australia's emission reduction targets are 10% below 2000 levels by 2020 and 80% below by 2050 for stabilisation at 550 ppm;
  • Garnaut -25 – assumes that Australia's emission reduction targets are 25% below 2000 levels by 2020 and 90% below by 2050 for stabilisation at 450 ppm;
  • CPRS -5 – assumes that Australia's emission reduction targets are 5% below 2000 levels by 2020 and 60% below by 2050 for stabilisation at 550 ppm; and
  • CPRS -15 - assumes that Australia's emission reduction targets are 15% below 2000 levels by 2020 and 60% below by 2050 for stabilisation at 510 ppm.

To put these figures in context, the concentration of greenhouse gases in the atmosphere was approximately 280 ppm before the Industrial Revolution and currently sits at 430 ppm. Without mitigation policies, these levels are expected to rise to 1,560 ppm by 2100.

General economic impacts

In summary, the Report finds that there are advantages to Australia taking early mitigation action, in particular, in lower long-term costs, if emissions pricing expands gradually across the world. The Report concludes that delaying mitigation action will increase climate change risks, lock in more emission-intensive industry and infrastructure and defer cost reductions in low emissions technologies. Therefore, when carbon constraints are eventually introduced, economies that delay taking action face greater costs, because greater emission reductions are required in a shorter time to achieve the same environmental outcome and global investment is redirected to early movers.

In particular, the modelling found that:

  • From 2010 to 2050, real GNP per capita grows at an average annual rate of 1.1% in the Alternative Scenarios, compared to 1.2% in the Reference Scenario;
  • By 2020, real GNP per capita is around 9% above current levels, compared to 11% in the Reference Scenario;
  • By 2020, real GNP per capita is around 55-57% above current levels, compared to 66% in the Reference Scenario;
  • Emissions pricing produces a one-off rise in the consumer price index (CPI) of 1-1.5% for emission prices in the CPRS Scenarios, with minimal implications for ongoing inflation;
  • Stabilisation at 550 ppm requires an initial starting price of A$23/tCO2-e;
  • The starting price is 40% higher for a stabilisation at 510ppm and 110% higher for a stabilisation at 450ppm.

According to the Report, pricing emissions drives a structural shift in the economy from emission-intensive goods, technologies and processes toward low-emission ones. As a result, growth will slow for such sectors as coal, gas, iron and steel and livestock, while low and negative-emission sectors such as forestry and renewable energy accelerates.

The modelling assumes that carbon capture and storage is a viable technology and, on that basis, Australia's coal output grows relative to current levels. However, if this technology is not viable, the Report concedes that coal output will fall from current levels.

The CPRS Scenarios explore the risk of carbon leakage and cost of shielding of EITEs because of the assumption that carbon constraints will occur in Australia earlier than in other regions. The Report concludes that, even where the shielding proposed under the CPRS is removed, emissions and output from EITEs in non-participating regions do not increase. This seems to suggest that emission prices in these scenarios are not high enough to induce significant industry relocation. The Report states that noticeable impacts only occur at much higher emission prices – roughly double the price of the CPRS -5 Scenario.

All Alternative Scenarios may lead to the early retirement of some conventional fossil fuel (coal-fired) plants and stimulate the construction of substantial new generating capacity. By 2050, renewable energy sources account for at least 40% of electricity generation across all scenarios, compared to just 5% in the Reference Scenario.

The Report finds that emission pricing will have the greatest impact on emission-intensive goods, such as electricity, gas and other household fuels with an increase in electricity prices of 17-24% and in gas prices of 11-15%. The Report confirms the Government's previous commitment to assist households adjust to the CPRS by increasing benefit payments and other assistance to low- and middle-income households through the tax and payment system and to offset the impact on emission-intensive petroleum fuel products through cuts in fuel taxes.


In summary, the Report concludes that early mitigation could ensure economic development supports prospects for long-term growth and allows individuals and businesses to plan their adjustment pathways and better manage changes in skills acquisition and capital stocks.

In related news, Climate Change Minister, Penny Wong, has announced that the Rudd Government's CPRS White Paper will be released on 15 December 2008 together with the Government's medium term emissions target range. However, the much anticipated exposure draft of the legislation will now not be released until early 2009.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.