The Australian government announced a tax of $23 per tonne of CO2 as a starting carbon price which commenced from 1 July 2012. The economic implications of this carbon price are projected using a descriptive Computable General Equilibrium model of the Australian economy titled A3E-G. With an explicit tax, the A3E-G model is capable of handling endogenous substitution among energy inputs and alternative allocations of resources among energy and capital. The A3E-G model has been calibrated using an Environmentally-extended Social Accounting Matrix (ESAM). The policy experiments reveal that high carbon emission cuts are possible at higher carbon prices. A carbon price of $23 reduces GDP by 0.6 percent and real consumption by 0.17 percent and increases the consumer price index by 0.71 percent in the short-run. This policy increases energy prices, especially electricity prices by 24 percent in the short-run and 9 percent in the long-run. Household impacts are found to have a proportional to progressive tax incidence in the short-run and a progressive tax incidence in the long-run.
Disna Sajeewani, University of Wollongong, Australia
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