Treasury modeling and your business
Not an economic disaster
The long-awaited treasury modeling on the economic impacts of the proposed emissions trading scheme have been released. While some people are concerned about the implications of the global financial crisis, the broad consensus is that the scheme won’t cripple the economy or household budgets.
As an aside, I was interested to see the Australian newspaper responding positively that the scheme would only cost households $1 per day. The West Australian newspaper on the other was very concerned that it would cost households $365 per year.
Uncertainty over Australia’s trajectory
Treasury modeled the trajectories proposed by Garnaut and the Greenpaper. As we’ve mentioned before, the proposals by both Garnaut and the Greenpaper are for relatively conservative cuts for 2020 of between 5% to 25%.
However, as we know, stabilising concentrations of greenhouse gasses in the atmosphere to “acceptable” levels will require more substantial cuts in the future. These will come from further economic adaption, increasing carbon prices, new technology developments, and significant behavioral changes to reduce energy use.
While we do know the general range of possible cuts Australia will adopt, we won’t know what specific trajectory Australia will follow until after the Climate Change Conference in Copenhagen in late 2009.
New technology to the rescue
Technology developments are particularly important to reducing the economic impacts of proposed cuts. For example, the government is placing a lot of importance on the successful development of carbon capture and storage technology (CCS). The treasury modeling suggests that Australia’s costs will be 25% higher in 2050 if this technology isn’t viable.
However as we’ve discussed before, even without CCS Australia should be a country of relatively low energy costs. Interestingly, while the treasury modeling does make reference to our renewable resources it doesn’t make reference to nuclear power.
What it means for your business
While the modeling shows that the proposed cuts are affordable, some industries will be affected more than others and it is important to consider the impacts for your industry sector and your business.
If your business may be subject to caps under the Carbon Pollution Reduction Scheme it is very important that you are now doing your own modeling of your internal abatement costs versus the likely cost of carbon emissions under the trading scheme.
The treasury modeling has given us a very good indication of the likely initial price of carbon, which is $23 per tonne (CO2e). This will allow you to begin to properly analyse the value of your abatement projects and to develop offsetting and trading strategies.
Greensense can help you plan, analyse and prioritise your abatement project portfolio; develop market scenarios and model alternative internal reduction trajectories; and optimise your investments between internal reduction options and offsetting and trading.
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