Howard spins ABARE's report on carbon taxes

This is what Howard said in the House of Reps on Wednesday, August 16th, 2006:

According to ABARE, a 50 per cent cut in Australian emissions by 2050 would lead to a 10 per cent fall in GDP, a 20 per cent fall in real wages, a carbon price equivalent to a doubling of petrol prices, and a staggering 600 per cent rise in electricity and gas prices. These are not the calculations of my office. They are not the calculations of the federal secretariat of the Liberal Party. They are the calculations of the Bureau of Agricultural and Resource Economics, a very respected federal government body.

ref: page 44 here

In reality the ABARE report found that the impact of reducing emissions of greenhouse gases (GHGs) would be minimal. A 40 per cent reduction in GHGs would result in a 3.2 per cent fall in GDP spread over 40 years, or just 0.07% of GDP per year.

The key inaccuracies and distortions in Howard's statement are as follows:

• The ABARE report describes six scenarios. Howard only quotes the impacts of most extreme scenario (2d) where Australia takes unilateral action to reduce its CO2 emissions to 50% below 1990 levels, and imposes a carbon tax 4-8 times greater than the other scenarios ($623/t vs $77/t). This is like assuming Bob Brown becomes PM next year.


• Scenario 2d will result in a 68% reduction in greenhouse gases from ABARE's business-as-usual reference case, not a 50% reduction. I suspect Howard is confusing a 50% cut from 1990 levels with the percentage reduction from the reference case.


• The "10 per cent fall in GDP" (actually 10.7%) refers to the difference between GDP in 2050 for the reference case, and GDP in 2050 for scenario 2d. This equates to a reduction in GDP of less than 0.25% per year spread over 40-odd years.


• The "20 per cent fall in real wages" (actually 20.8%) refers to the difference between real wages in 2050 for the reference case, and real wages in 2050 for scenario 2d. This equates to a reduction in real wages of less than 0.5% per year spread over 40-odd years.


• I can find no reference in this ABARE report (or any other ABARE report) to a 600 per cent rise in electricity and gas prices. I suspect Howard confused the "overall costs per unit of abatement" for scenario 2d ($499) with a percentage value. (500+100=600???)


• Similarly, I can find no reference in any ABARE report to a doubling of petrol prices due to carbon taxes.

Rather than quote the economic impacts of the least likely scenario, Howard could have quoted the impacts of the most likely scenario, which in my opinion is 2b.

• Scenario 2b calls for a 40% reduction in GHGs consistent with reductions in other developed countries (i.e. no unilateral action)


• Scenario 2b assumes no Carbon Capture and Storage (CCS aka geosequestration) in Australia.


• Scenario 2b assumes no nuclear power in Australia


• Scenario 2b results in a 3.2% reduction in GDP by 2050 relative to the reference case. This equates to a reduction in GDP of 0.07% per year


• Scenario 2b results in a 7.5% reduction in real wages by 2050 relative to the reference case. This equates to a reduction in real wages of 0.17% per year

This is the scenario (2d) Howard has quoted. It is the most extreme example where Australia takes drastic unilateral action to reduce its CO2 emissions to 50% below 1990 levels. No-one is seriously proposing this (in the short term at least) yet Howard only quotes the impacts of this scenario.

scenario 2d – Australia is assumed to reduce its own carbon dioxide equivalent emissions to 50 per cent below its 1990 levels by 2050, while the 2050 global carbon dioxide emissions target remains at 39.4 Gt CO2. Relative to the projected reference case emissions presented in chapter 3, this implies a 71 per cent cut in Australia’s carbon dioxide emissions in 2050, while the global target is a 40 per cent cut in total carbon dioxide emissions in 2050. As for the technology options, the assumption of the global access to carbon capture and storage is maintained under scenario 2d. Also, Australia is assumed to have access to nuclear energy. As in scenario 2c, one small nuclear plant is assumed to start operating in Australia around 2020, with potential expansion taking place between 2020 and 2050. Scenario 2d is designed to examine the economic impacts of Australia unilaterally undertaking deep emissions cuts [ABARE's emphasis] while the global abatement task remains unchanged at the scenario 2 group level.

Here's a table showing assumptions for each scenario:

Here's a table showing projections of economic impacts for each scenario:

Here's a table showing detailed projections of economic impacts for scenario 2d: