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Media Release Federal Minister for the Environment and Heritage The Hon Dr David Kemp, MP

13 September 2002 K149

Greenhouse Economic Modeling Released

The Australian Greenhouse Office is today releasing modeling on the economic impacts to Australia of the Kyoto Protocol.

The release makes publicly available information that helped inform the Government's decision on its forward strategy on climate change.

The modeling addresses a limited set of the issues relating to the potential economic impacts of the Kyoto Protocol.

It is the long-term impacts beyond 2012 that are important to the overall assessment of the Kyoto Protocol and which have been particularly relevant to the Government's decision not to ratify the Kyoto Protocol.

The Government's strategy on climate change looks forward beyond the Kyoto Protocol (2008-12) to cover a twenty to thirty year time horizon.

Current arrangements under the Protocol do not provide a pathway for major developing countries to take on quantified emission limitation targets, and the United States has also indicated it will not ratify the Protocol. In addition, the nature of future targets is at this stage unknown.

Australia does not want to give future investors in Australia who make decisions under long time frames, the message that we're prepared to impose legal obligations on them which they wouldn't face if they invested in many of our competitor countries. We don't want to drive jobs overseas or industries overseas.

The Kyoto Protocol will make only a modest contribution - around 1% - to reducing the growth of global greenhouse emissions.

It remains in Australia's interest to have an effective international response to climate change and Australia will continue to work in international forums and cooperate with major strategic and trade partners to address climate change.

The current Government-business dialogue on climate change and ongoing consultations with States and Territories and community organisations will help to position Australia to meet these longer term challenges.

An outline of modeling undertaken accompanies this release. The working papers on economic modeling by ABARE and McKibbin are available at Australian Greenhouse Office web site: www.greenhouse.gov.au

Media Contact: Catherine Job 02 6277 7640 or 0408 648 400

Greenhouse Economic Modeling The Commonwealth in early 2002 undertook analysis of the economic impacts to Australia of ratifying the Kyoto Protocol and meeting Australia's target of 108% of 1990 emissions over the period 2008-12. This analysis was undertaken for a limited range of future scenarios (Phase 1). Some analysis of the sensitivity of the Phase 1 results to changes in key assumptions was also undertaken (Phase 2).

Two economic models were utilised, ABARE's GTEM model and the McKibbin Software Group's (MSG) G-Cubed model. The modelers' reports are available from www.greenhouse.gov.au

ABARE GTEM Phase 1 report ● MSG G-Cubed Phase 1 report ● ABARE GTEM Phase 2 report ● MSG G-Cubed Phase 2 report ●

The economic analysis addressed a limited set of issues relating to the economic impacts of the Kyoto Protocol on Australia.

The analysis suggests that the economic impacts on Australia under the situations modeled are most sensitive to the following decisions, which affect post-2012 arrangements:

the stringency of future targets (more stringent targets increase costs); ● the extent of commitments by major emitters. ●

Care should be taken when interpreting modeling results. The modeling results can only give a partial picture on the costs and benefits of climate change policy through to 2012, and are not useful for informing the longer term picture beyond 2012.

Key assumptions driving the results relate to:

the nature of international action on climate change post-2012 (currently there is no internationally agreed plan); ●

which countries might take on targets post-2012, and what these targets might be. ●

A single scenario for post-2012 outcomes was modelled (although a range of alternate scenarios could be plausible). Sensitivity analysis was undertaken to help assess the influence of key assumptions. It was technically necessary to model beyond 2012, but the assumptions for the longer term, and the post-2012 estimates, are inherently speculative.

However, it is the long-term impacts beyond 2012 that are important to the overall assessment of the Kyoto Protocol. It is this longer term perspective that has been important in the Government's decision not to ratify the Kyoto Protocol because at present it is not in the national interest to do so.

Current arrangements under the Protocol do not provide a pathway for major developing countries to take on quantified emission limitation targets, and the United States has also indicated it will not ratify the Protocol. In addition, the nature of future targets is at this stage unknown.

The Kyoto Protocol will make only a modest contribution - around 1% - to reducing the growth of global greenhouse emissions. It remains in Australia's interest to have an effective international response to climate change and Australia will continue to work in international forums and cooperate with major strategic and trade partners to address climate change.