An assessment of a proposed ETS in Australia by using the MONASH-Green model

Significance 

Climate change mitigation and carbon emission reduction policies have been taking center stage in Australia in the last decade. Australians are broadly in favor of developing clean sources of energy but there’s a political divide about how to approach climate change. To prove its commitment and determination in championing against global warming, the Australian government committed to reduce emissions by 26-28% on 2005 levels by 2030. However, the achievability of such stringent target with the current subsidized emissions abatement policy has been put into question. Regardless, the Emissions Trading Scheme has been demonstrated as a good policy for Australia owing to its small unfavorable effects on the economy.

Dr. Duy Nong at Colorado State University with Dr. Sam Meng and Professor Mahinda Siriwardana at University of New England in Australia evaluated the effects of the proposed Emissions Trading Schemes on the Australian economy as well as the emissions level using MONASH-Green model, and a database containing detailed energy sectors. In their study they applied the stylized BOTE macro model developed by Adams and Parmenter (2013) in order to inform the macroeconomic results generated by the full model. Their work is now published in the research journal, Energy Policy.

The researchers commenced by replacing the output production function in MONASH Green with the ORANI-G model production system as their study did not contain composite commodity outputs. They then altered the input demand structure in MONASH-Green. The team then collected and compiled database from a variety of sources. After policy design, they developed a simulation where they considered microeconomic effects, effects on households, emissions trading among sectors and effects on sectoral outputs and employment.

From the simulation results, the authors demonstrated that the costs of the proposed emissions trading scheme were as low as of those of related studies conducted earlier by Adams et al. For example, it was seen that the permit price would have to increase from A$4.1 in 2015 through A$13.1 in 2020 to A$41.3 in 2030 in order to enable Australia to achieve the 2020 and 2030 emissions targets. More so, the operation of the proposed Emissions Trading Scheme in Australia would cause the economy to contract progressively over the lifetime of the Emissions Trading Scheme. This is due to the fact that the energy sectors will tend to substitute high emission-intensive energy commodities such as brown coal with black coal. Additionally, employment at sectoral level will fluctuate in line with variations in their outputs.

Thus the MONASH-Green model has been successfully used in their study to assess the effects of a proposed Emissions Trading Schemes on the Australian economy, particularly on the energy sectors and multi household groups. The simulation results indicate that the current price of carbon permits cannot suffice to meet the set carbon reduction targets by 2030 without prior adjustments and reviews. These results lend strong support towards the transition to renewable energy. This policy study is therefore likely to be of continuing relevance to Australia and could form future climate policy.

About the author

Mahinda Siriwardana 

Professor of Economics
UNE Business School, University of New England
Email: [email protected]

Mahinda Siriwardana is Professor of Economics at the University of New England, Australia. He received his PhD from La Trobe University in Melbourne.  Mahinda has taught economics at the University of Colombo, University of Manitoba, La Trobe University, and held a fulltime research position at the Australian National University before he joined UNE. His main research interest includes CGE modelling, trade policy analysis and climate change policy modelling. He has published nine books and numerous journal articles on these subjects. He is also a recipient of several Australian Research Council (ARC) grants.

About the author

Dr. Sam Meng

Affiliation: University of New England
Postal Address: Business School, UNE, Armidale, NSW, 2351.
Telephone: 2 6773 5142,  Fax: 2 6773 3596
Email: [email protected]

Dr. Sam Meng is a senior researcher fellow at University of New England, Australia. He is currently working for an Australian Research Council (ARC) Linkage project: “Adaptation to Carbon-Tax-Induced Changes in Energy Demand in Rural and Regional Australia”, and formerly on the ARC Discovery project. He is experienced in large database handling, general computable equilibrium (CGE) modeling, time series modelling, and panel data analysis. His papers were published in high quality academic journals, such as Tourism Management, Energy Economics, Energy Policy, Agricultural economics; The Environmental and Resources Economics, Economic Modelling, Applied Economics, Journal of Travel and Tourism Marketing; and Journal of Asian Economics.

About the author

Dr. Duy Nong

Department of Agricultural and Resource Economics
Colorado State University
Fort Collins, CO, 80523
Email: [email protected]

Dr. Duy Nong has conducted climate change, energy, and environmental research for several years. In particular, he is interested in studying the impacts of climate change issues, environmental policies and energy policies on economy and the environment. He mainly employs computable general equilibrium (CGE) modelling technique for his research and is proficient in developing and extending CGE models for particular tasks. He is currently a member of the American National Science Foundation Project, focusing on the impacts of climate change on species invasion and energy exploitation.

Reference

Duy Nonga, Sam Meng, Mahinda Siriwardana. An assessment of a proposed ETS in Australia by using the MONASH-Green model. Energy Policy 108 (2017) 281–291

 

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