The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

30 October 2008

Joint Press Conference
with
Senator The Hon Penny Wong
Minister for Climate Change and Water

Commonwealth Offices
Brisbane

30 October 2008

SUBJECTS: Release of Australia's Low Pollution Future Report: The Economics of Climate Change Mitigation

TREASURER:

I am delighted to be here today with Penny Wong, the Climate Change Minister, to launch the Treasury modelling, Australia’s Low Pollution Future: The Economics of Climate Change Mitigation

This is a hard-headed assessment of the challenges and the opportunities proposed by climate change and its impact on our economy.  It’s a rigorous piece of work.  It is a comprehensive piece of work.  It is the product of an enormous amount of work that has been done in the Treasury, but also in consultation with, and liaison with, industry.

It’s a very important piece of work when it comes to our future economic prosperity and how we, as a country, meet the challenge of dangerous climate change, which does have the potential to have a very big impact on future prosperity unless all the action is taken to protect that prosperity.  And what we see here is the modelling from Treasury that shows the path ahead.

Now, what this modelling absolutely shows is that there is a way ahead which is both pro-growth and pro-jobs.  We can pursue that economic strategy through a Carbon Pollution Reduction Scheme that ensures our prosperity is protected. 

Now, there are three key conclusions.  The Australian economy will continue strong growth while reducing emissions; the earlier Australia acts, the cheaper the cost of action; and many of Australia’s industries will become more, not less, competitive.

Average annual GNP growth will be a whiskerless as a result of action.  Just one tenth of one per cent less than otherwise would be the case.  So, the message here is very clear: Australia can reduce emissions at the same time as the economy and incomes continue to grow.

We can tackle climate change in a way that's affordable for families and pensioners and still promote growth and competitiveness into the future.

Now, the modelling does look at the economic impact of policies to reduce carbon pollution, or carbon emissions, through a trading scheme. It does not measure the impacts of climate change itself.  But as we know from other modelling, failure to act on climate change is much more costly that the cost of acting on climate change. 

As I said before, it is very complex modelling.  It’s rigorous.  Never before in our history has modelling of this nature been done, and it’s been done by the Treasury.

The report uses economic models to represent how our economy will respond to a price on emissions.  And what has happened here is that four scenarios have been modelled, and the conclusions that I’ve spoken of before are the conclusions that the modelling reaches.  The first one is that the Australian economy grows strongly under each scenario.  Why is that the case?  Because a market-mechanism will reduce emissions at the lowest cost and break the link between Australia’s economic growth and the growth in emissions.

Incomes will rise while emissions fall because the market stimulates vast reductions in emission intensity of economic activity.

As I indicated, between 2010 and 2050, average annual GNP growth will only be one tenth of one per cent less than it otherwise would be.

Of course, the other significant conclusion is that early action is the way to go.  The modelling proves that the earlier Australia acts to implement a Carbon Pollution Reduction Scheme, the lower the cost of action.

If emission pricing is introduced gradually across the world, long-term costs are lower for early movers and higher for economies that delay.

By 2050, GDP costs for the early movers are 15 per cent lower than if everyone moves together.

Economies that defer emission pricing become relatively more emission-intensive so that when a global emission price is eventually introduced, they face even higher costs.  So, by contrast, economies that act early will attract global investment.

And of course, the other conclusion is that pricing emissions will bring significant economic opportunities.  This is very good news.  By 2050 the alternative energy sector will grow by 3000 per cent.  That means it will be 30 times bigger than it is today.  This is because low emission technologies and production processes will become more competitive and low emission goods will become more attractive to consumers.

Now, the other good news is this: that with a global carbon constraint, some emission-intensive trade-exposed sectors, such as coal, livestock, and iron and steel are likely to maintain or improve their competitiveness.  This is a very significant finding.  They’re likely to maintain or improve their competitiveness and their share of global trade.  Why is that the case?  Because these sectors pollute less than comparable sectors in other countries. 

Of course, the research also shows that there are benefits in shielding those emissions-intensive trade-exposed industries such as we have proposed in our Carbon Pollution Reduction Scheme.  Therefore, it reaches the conclusion that the carbon price will not impact significantly on businesses and force them to move offshore.  That’s a very encouraging conclusion.

Also, it concludes that real household incomes are projected to grow strongly under each scenario that is modelled.  Real disposable income per capita grows at an annual average rate of around one per cent in the policies modelled between 2010 and 2050, compared to 1.2 per cent in the reference scenario.

Now of course, households will face some increase in the price level of around one to one and a half per cent.  But the impact on ongoing inflation is minimal.  The increase for emission-intensive products is, of course, more.  The increase corresponds to an average of $4 to $6 extra per week in terms of electricity and $1 per week on gas and other household fuels.

So, as outlined in the Green Paper, the Government is, of course, committed to helping households adjust to the scheme by compensating them for the impact.

So, to wrap up, this is very comprehensive research.  It will be very important in forming the Government’s approach as we go through to prepare the White Paper. 

What I did want to do was to thank all of the Treasury officers, all of the officers from the Department of Climate Change that have worked so hard in producing this comprehensive piece of research and modelling.

As I said before, never has something on this scale been attempted before in Australia.  And there are three key conclusions I want to leave you with before I turn over to Penny.

The Australian economy will continue with strong growth while we reduce emissions.  The earlier Australia acts, the cheaper the cost of action, and also, that many of Australia’s industries will become more, not less, competitive, and most importantly, that we can tackle dangerous climate change in a way that's affordable for families and pensioners and will still promote economic growth and competitiveness.

Over to Penny.

WONG:

Thanks very much, Treasurer.  I’m delighted to be here with the Treasurer to release the Treasury’s modelling of the Carbon Pollution Reduction Scheme, the Treasury’s modelling of the impact on Australia of tackling climate change.  And there is one very clear message that comes out of this comprehensive and rigorous economic modelling, and that is this: that Australia can reduce its emissions while continuing to grow our economy and our incomes.  So, we can tackle climate change while we continue to grow our economy and our incomes. 

As the Government has been saying, it is in Australia’s economic interests to act on climate change.  We know that this will require fundamental economic reform.  We know that this has to be done in a measured and sensible fashion.  That is why, through the Treasury, we have undertaken this comprehensive and rigorous modelling to assess various scenarios so Government can be very aware of various issues as we determine our position on the Carbon Pollution Reduction Scheme.

A number of key points.  As I said first, the modelling confirms very clearly it is in Australia’s economic interests to take action on climate change.  It confirms that Australia can reduce our emissions and tackle climate change while continuing to grow our economy and to grow our incomes, and it is clear that this is a necessary economic reform. 

Tackling climate change, a Carbon Pollution Reduction Scheme is a necessary economic reform that will allow Australia to capitalise on opportunities, to build our competitive advantages and that this is a responsible course of action. 

Can I also say, not only do I wish to thank the Treasury officials and officials from across not only my Department but others who are involved, we’re also grateful to the consultation with Australian industry who were consulted on a great range of the assumptions that had been used in this very comprehensive modelling and, in fact, some of the detail of some of the assumptions did require that kind of detailed input from industry.  This is a very important contribution to government and community consideration of these climate change issues.  It demonstrates very clearly, yet again, that acting on climate change is the economically responsible thing to do.  We can reduce emissions.  We can tackle climate change while continuing to grow our economy and continuing to grow our income.

TREASURER:

Thanks Penny.  Over to you.

JOURNALIST:

You say the sooner you act the better (inaudible).  Can you say how soon you will act?

TREASURER:

Well, it’s our intention to commence a scheme in 2010.

WONG:

Can I, just on that, we’ve made that very clear, and I do want to just emphasise again, that Australian peak business groups have made it very clear to the Government that one of the things that is needed through this process is certainty.  People are seeking policy certainty.  The Government has made clear that it is our intention to commence in 2010 and we are very mindful of peak business groups who have made it clear to us that certainty is important.

JOURNALIST:

Will it be the start of 2010?

WONG:

The commitment is to commence in 2010.

TREASURER:

We’ve got a White Paper process to go through.

JOURNALIST:

Is the White Paper still due for release in December?  Is it still (inaudible) release the White Paper?

WONG:

We have made it clear we will release the White Paper in December.  We’ve not indicated the precise date.

JOURNALIST:

Is there a risk here that the economy is not that strong, the economy is not growing as strongly as you would like.  Why not postpone this until economic…

TREASURER:

Sure, it’s an entirely legitimate question, but let’s be very clear about what we have here.  This is long-term modelling.  What we are dealing with here is a long-term challenge to the nation’s prosperity.  That’s what we’re dealing with, and tackling these long-term challenges goes to the very core of our standard of living into the future.  Now, it is the case at the moment, there are substantial challenges out there in the short-term.  What we’re on about here is the long-term health, wealth, prosperity and sustainability of the Australian nation.  As a Government, that is why we have been so serious about a Green Paper process and a White Paper process.  That’s why we’ve commissioned this modelling.  What this shows is that responsible, measured action will enhance our prosperity into the future and improve the sustainability of this country.  The Government won’t be deterred from that central mission, which is to look after the national interests of this country, both economic and environmental.  That’s why we’ve produced the modelling and this modelling looks out 20, 30, 40 years.  That’s what we’re dealing with here.  This is a scheme, which we’ve said it’s our intention to start in 2010, that is our intention.

JOURNALIST:

Does it take into account, though, the crisis of the last two months?

TREASURER:

The crisis of climate change has developed over centuries and most particularly has impacted dramatically on the globe and this country in recent years.  To deal with that needs a long-term perspective, a long-term perspective which this modelling shows brings considerable benefits to this nation if we approach it in a measured and considered way over time, and that’s what we’re going to do.

JOURNALIST:

What’s your response to claims that the Treasury modelling is too optimistic?

TREASURER:

Do you want to say something, Penny, and I’ll come to that in a second.

WONG:

Yes, can I just, on the point that was raised previously, just make this point.  Of course, the Government will take an economically responsible approach to designing this scheme.  That’s what we’ve said all along.  That’s why we’ve got a Green Paper process as the Treasurer’s outlined, that’s why we’ve commissioned this extensive and rigorous modelling.  Of course, current financial, current economic circumstances, as well as short-term economic circumstances, will be taken into account when the Government makes its decisions.  But the point the Treasurer made is extremely important.  What we are looking at is a long-term economic transition.  What this modelling shows us, what Professor Garnaut showed us, what Lord Stern’s report showed us, is that deferral, delay is simply going to not only defer costs, but in fact increase costs.  So, the economically responsible thing to do is to proceed as we are proceeding on the basis of all the current economic and future economic evidence and to make the economically responsible decisions.

TREASURER:

Now, to follow on from the question about the assumptions that people are questioning here.  Look, this is Treasury modelling.  It is first-class.  This modelling was prepared by the people who have prepared the two previous intergenerational reports for the previous government.  This modelling has been the product of extensive consultations with industry and does include, in many of its assumptions, propositions which have been put to us and to our modellers in coming to the conclusions that they have in preparing this report.  So, there has been extensive consultation.  But be under no illusion, the people who have prepared this report are held in very high regard in this country and internationally and for the previous government, prepared first-class reports such as the intergenerational reports.  They commenced work, actually, in this area before the change of government.  They were deemed to be worthy to do this before the change of government and they are first-class people who have worked objectively to prepare this report.  Any suggestion that somehow this modelling may be not as impartial or might be a reflection of this or that is simply not sustainable.  There will always be a debate about assumptions in modelling but the people that have prepared this report are some of the most experienced and qualified people, not only in the country, but I think internationally.

JOURNALIST:

So, you don’t think it’s too optimistic?

TREASURER:

What I think is that we have given a task to some first-class modellers of high international regard who have produced these results and all involved in the debate should be looking very closely at this work.  The Government is interested in having a constructive dialogue about the outcomes that are in the Report and how they were prepared.  But I just don’t want people to fall into the trap of making one or two vested interests out there seeking to reflect on the modelling for their own particular reasons.  We’re here to look after the national interest and we have independent public servants working with us to do that and they’re the people that have prepared this report.

WONG:

Can I just say on that, I do want to make one point.  In fact, I think that many would say that the assumptions are not only entirely reasonable, but in parts quite conservative.  Can I reiterate a point the Treasurer made in his opening.  This modelling does not model the costs of not acting.  So, we are not modelling in this the costs of not acting and we know from Professor Garnaut that the costs of inaction on climate change for Australia are particularly high.  His advice, very clearly to the Government, is that Australia is one of the most vulnerable developed countries to climate change.  We are a hot and dry country.  A couple of degrees difference makes a very substantial difference to our economy, to our agricultural industries, to our way of life.  So, this is economic modelling which is done on very reasonable, very sensible propositions to enable the Government to take a very, as the Treasurer said, hard-headed analysis of the way forward.

TREASURER:

(inaudible) forecasts of not giving free permits?

WONG:

I’m sorry?

JOURNALIST:

Is there any modelling done on the basis of not giving free permits?

WONG:

You’ll see from the detail that a range of scenarios are modelled.  In terms of…I’m sorry?

JOURNALIST:

Was that one of them?  No (inaudible) permits?

WONG:

There are scenarios which include shielding and not shielding of the emissions- intensive trade-exposed industries and the impact of different carbon prices.

TREASURER:

But the modelling concludes, in the case of shielding which we’ve included in the Carbon Pollution Reduction Scheme, that that provides very significant protection for trade- exposed industry.

JOURNALIST:

How certain can the forecast for the global impact on the economy be if you don’t have a price for carbon, if you are unsure exactly what the price and cap is going to be?

WONG:

The modelling does assume different price scenarios, as you will know, under a cap and trade scheme, under a market-based mechanism which we are proposing because is a more efficient way of making this transition.  The price is determined by the market, but obviously substantially determined by what your trajectory is and a range of other design decisions.  So, the Green Paper set out a range of proposals there.  The modelling does look at different assumptions around different carbon prices.

JOURNALIST:

Does the modelling assume that the drought is over and that the dams are full?

WONG:

Look, there are hundreds of assumptions…

JOURNALIST:

Is that one of them?

WONG:

There are hundreds of assumptions in the modelling and I just would urge that we be clear about what the modelling tells us.  This is economic modelling that looks out to 2050.  It looks at international, national, sectoral and household impacts.  It is, by its very nature, wide in scope with a great range of assumptions and it is important to understand the scale and the detail of what is included in it.  It does enable the Government and the community to get a sense of the various options that are open to Government.

TREASURER:

Thanks very much.