Thursday, April 03, 2008

Greenhouse cuts to cost $430billion

Brian Robins
April 4, 2008

MAKING the cuts to greenhouse emissions recommended by the nation's economic adviser on climate change would cost hundreds of billions of dollars and slash the size of Australia's economy by 4 per cent, modelling by the NSW Treasury shows.

The NSW Treasurer, Michael Costa, said it would cost $430 billion to reduce greenhouse gas emissions by up to 80 per cent as outlined by Ross Garnaut, and the sharp reductions proposed would impose a substantial cost on the economy. The Rudd Government has consistently said its target for 2050 is 60 per cent. The 80 per cent figure was predicated on other nations making similar cuts.

In a hard-hitting speech to a business audience last night, Mr Costa said that based on NSW Treasury modelling, the proposed sharp reduction in greenhouse gas emissions would wipe 4 per cent off the size of the Australian economy over the next 20 years.

This is significantly larger than the 1 per cent economic impact signalled by earlier reviews such as that by the British economist Sir Nicholas Stern.

Mr Costa did not say what the Treasury calculations were based upon - for example, what its estimate was for a carbon price.

He said it was essential the electricity industry be given carbon credits as part of any emission trading scheme, because of the economic impact of complying with cuts.

Canberra's response to the Garnaut report would not affect the NSW Government's electricity privatisation program, he said.

Mr Costa's response is the first by a state government to Professor Garnaut's paper a fortnight ago. It raises questions about the economy's ability to make the changes, as well as the fallout from overseas investors if Australia moved unilaterally to change policy without compensation.

The Federal Government will release its own modelling of the economic impact midyear. Mr Costa said that if Canberra accepts Professor Garnaut's recommendation not to compensate those affected adversely by carbon trading, it would damage the perception among global investors that Australia is a sovereign risk-free place to invest.

The Federal Government should be realistic in responding to the issue, Mr Costa said, adding that international investors would be looking at how it treats property rights of asset owners.
Mr Costa outlined two scenarios based on the modelling for the impact of Professor Garnaut's recommendations in cutting greenhouse gas emissions.

If the 80 per cent cut to greenhouse gas emissions signalled by Professor Garnaut by 2050 was to be achieved, it would cost the economy $430 billion by 2030. Australia has a $1.3 trillion economy at present. If they were to be cut 60 per cent, it would cost $280 billion.

The State Government is believed to have received advice that the power industry be reorganised into three units, two to be sold to private sector bidders, and the third sold to residents through a public share issue.

Its advice points to three strong bidders for the assets: TruEnergy, Origin Energy and AGL. Smaller groups such as Babcock & Brown might also bid.

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