catallaxy files

catallaxy in technical exile

ETS Porkies – Reposted

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Christopher Pearson referred to this post in his Weekend Australian column, so I thought it should be re-posted.

The government is trying to portray Tony Abbott as being economically irresponsible – he can’t be trusted with numbers. Here is what Greg Combet said today

“Yesterday, Mr Abbott suggested that the higher target of a 15 per cent cut in emissions by the year 2020 would cost around $400 billion and on that score, he was $250 billion wrong,” Mr Combet said.

“Today, he is speculating that it might be as much as $600 billion to go for a higher target and again he is hundreds of billions of dollars out.”

I actually agree with Combet, Abbott is ‘hundreds of billions of dollars out’.

But Mr Combet said the modelling was released last year.

“The fact of the matter is that over a year ago, the Government released the Treasury model containing the cost estimations of various scenarios including cost estimations of the CPRS under different levels of targeted reductions in emissions,” he said.

“Mr Abbott, what he is doing each day is demonstrating that he doesn’t do any homework. He doesn’t know the facts, he shoots from the hip, he is not a reliable commentator even on these issues, let alone a responsible political leader.”

So let’s have a look at the modelling released last year. The Treasury document does not actually provide an estimate for how much their policy scenarios cost. The Treasury does, however, indicate that there are various ways of expressing the cost of global warming mitigation. They set out six statements that they claim report exactly the same result. They also indicate that this is a hypothetical example – yet nowhere in the report do they set out the same results for the four policy proposals they model. The hypothetical example has an economy grow from $1,000 billion in 2000 to nearly $4,500 billion in 2050.

GDP growth is 0.1 per cent per year lower over 50 years.
GDP is $208 billion lower at 2050.
GDP is 4.7 per cent lower at 2050.
The cumulative GDP loss is $3,485 billion over 50 years.
The cumulative GDP loss is 3 per cent of total GDP over 50 years.
GDP is 4.4 times higher than 2000 levels in 2052 instead of in 2050, a delay of two years.

The common way of expressing such a cost would be to say that it would cost $3,485 billion over 50 years, or nearly three and a half times the current GDP (assuming this calculation would have been done in 2000).

Concept Economics calculated the cost of the policy choices for two of the four scenarios Treasury evaluates – including the 15 percent reduction that caused all the excitement. The data are collected from the Treasury document itself – yet Treasury did not perform any such calculation. Using a variety of discount rates ranging from zero percent to five percent, Concept Economics reported that the cost in present value terms varies from 200 percent of current GDP to 42 percent of current GDP over forty years.

ETS cost

Abbott is hundreds of billions of dollars out in his statement. Using the government’s own discount rate and their own Treasury report, the cost of a 15 percent reduction to 2050 is $1.6 trillion in net present value terms. This calculation is over the period to 2050, so $400 billion to 2020 is ballpark but probably too low.

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Written by Sinclair Davidson

December 20, 2009 at 10:12 pm

Posted in Uncategorized

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