Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

asked the Minister representing the Treasurer, upon notice, on 18 August 2011:

With reference to the Treasury Carbon Tax modelling, Strong growth, low pollution: Modelling a carbon price:

In Appendix B of the Treasury modelling there is a table (p. 167) with information about the assumed values, for different fuels (coal, gas, diesel, etc), of certain key parameters (  ,  ) which determine the ' extent of adjustment of emission intensity in response to a carbon price ' (p. 164) , and o n the same page, the report notes that higher values imply 'larger changes' (i.e. bigger improvements in emissions intensity for a given carbon price, relative to the starting level).

Comparing the figures assumed for each fuel in the current modelling exercise with those assumed for the previous carbon pollution reduction scheme modelling, is it correct that the following changes have been made, from among the 7 fuel categories considered:

  (1)     The assumed values for both  and  have been increased in the latest modelling for all of gasoline, diesel, LPG, air fuels and other fuels (in the case of  , by more t han a factor of 2 in each case).

  (2)     For gas, the parameters are almost unchanged (though  has been increased very slightly) and o nly for coal has the marginal cost of abatement been raised, via a modest lowering in the assumed value of  ; i f so, on wha t basis were these changes made.

  (3)     Do these parameter changes imply that Treasury is now assuming that a given carbon price will have a greater impact in terms of reducing emissions intensity, for all of gasoline, diesel, LPG, air fuels and other fuels (and even, to a small degree, for gas), while only for coal have the assumptions been changed modestly in the opposite dir ection.

  (4)     Is a further implication of these changes that:

  (a)     they reduce the economic cost of achieving a given degree of abatement, in the case of almost all fuels ; and

  (b)     to the extent that this is not so for coal, they increase the incentive for the economy to shift away from the use of coal and towards other fuels.

  (5)     How much difference do these parameter changes make to the modelling outcomes, and i n particular, what would the modelling results look like if the same parameter values had been used as in 2008.

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

The Treasurer has provided the following answer to the honourable senator's question:

The combustion marginal abatement cost (MAC) curve parameters used in the Treasury modelling for the Government's Strong growth, low pollution (SGLP) report were revised from those used in previous Treasury carbon price modelling. The revised parameters reflect updated information on the technological options available to industry to reduce their emissions arising from the use of various fuels in their production processes. It is important to note that these parameters do not apply to the use of these fuels in the electricity generation sector or from the provision of transport as these sectors are modelled through detailed sector specific modelling of technological options.

The changes in the parameters taken as a whole imply that for a given carbon price there could be a smaller reduction in emissions than under the CPRS modelling. In order for firms to access the abatement opportunities represented by the MAC curves they must incur a resource cost. As a result, the MAC curve parameter values have little impact on individual industry output growth rates. The change in parameters slightly changes the overall economic cost of achieving any given emission reduction target through changing the degree to which abatement is sourced within Australia or overseas.