Costs of meeting recommended targets
Australia can achieve stronger targets while the economy and incomes continue to grow
Reducing emissions requires a shift from high-emissions activities towards low-emission activities, so the
economy moves towards a lower overall emissions intensity.
The costs of achieving targets—and their distribution across industries and households—depend heavily on the
policies used. The government is still developing the details of the Direct Action Plan to reduce Australia’s
emissions. Rather than speculate on the Plan’s design, the Authority has assessed the potential economic impacts
under the current legislation. This provides a useful benchmark for future policy development.
The Authority’s analysis shows Australia can achieve the recommended 2020 target while national income and
the economy continue to grow.
Under the current legislation, if Australia pursues a 5 per cent target, average per person income is projected to
grow by 0.80 per cent annually over the period to 2020. If Australia pursues recommended target (15 per cent
plus 4 per cent carryover), average per person income is projected to grow by 0.78 per cent annually. In dollar
terms, average per person income is projected to grow from about $62,350 in 2012 to $66,350 in 2020 with a
target of 15 per cent plus carryover—about $100 less than it would be with a 5 per cent target (all in real terms).
This shortfall in growth could be made up in three months.
Projected average per person income, 2013–2020
Source: Climate Change Authority based on Treasury and DIICCSRTE 2013
One reason why the incremental cost of moving to the recommended target is low is that the current legislation
allows a mix of domestic and international reductions to be used to meet the target. Australia could meet the
whole of the incremental emissions reduction task associated with moving from 5 per cent to the recommended
target by purchasing additional international emissions reductions and using carryover.
The level and distribution of costs will depend on the policies implemented by government. The incremental costs
of moving to a stronger target than 5 per cent would, however, be comparable to the costs presented here so
long as international emissions reductions were used to bridge that gap.
The Authority has recommended that the government establish a fund to purchase genuine international units, to
complement domestic efforts. The distribution of the associated costs through the economy would depend on
how the fund is financed.
See Chapter 10 of the Targets and Progress Review Final Report for more information on costs