As Henry points out below the Treasury carbon tax modelling makes several assumptions. Nothing wrong with that – all modelling makes assumptions. What is important, however, is the sensitivity of the modelling to variations in the assumptions.
This is the important bit from the table.
Mechanism: from 2013 to 2015 uncoordinated global action, no trade in permits, differentiated carbon prices. From 2016 onwards, countries trade, either bilaterally or through a central market.
The Treasury modelling report also states quite clearly (in chapter 3 – pages are unnumbered but it is in section 3.1.4).
By 2016, a more coordinated international policy regime allows countries to trade either bilaterally or through a common central market. As a result, a harmonised world carbon price emerges in 2016.
Compare that with what Lenore Taylor suggests the government really means
Treasury’s separate macro-economic modelling came under fire later in the week from a respected economist, Henry Ergas, who claimed that because it assumes a harmonised $29 carbon price for developed economies after 2016, it must be making the entirely unrealistic assumption that they all have an emissions trading scheme or a carbon price by then. The government says it is not assuming countries such as the US actually have an emissions trading scheme, but rather that they would try to reach their emission reduction targets at a cost no higher than the international price.
Is Australia going to be buying permits from countries that don’t have similar carbon taxes? Really? The government should have to nominate potential trading partners. As the recent Productivity Commission report indicated
However, no country currently imposes an economy-wide tax on greenhouse gas emissions or has in place an economy-wide ETS. Of the study countries, the United Kingdom, Germany, some parts of the United States and New Zealand have emissions trading schemes operating — but these apply only to particular sectors, such as electricity generation.
In the absence of the international market the government’s policy cannot and will not actually meet its target – any target. The assumption about the existence of an international permit market is a lynch pin assumption. Emissions in 2000 were 558 MtCO2-e, Treasury estimates that without an international permit market emissions in 2050 will be 545 MtCO2-e. That isn’t even the 2020 target.
What Treasury isn’t telling us is what the economic impact of an absence of an international market will be. Yesterday the Financial Review (subscription required) reported that without access to international markets the coalition policy would cost double the government’s policy. To the extent that Treasury assumes unlimited access to international permits and the government’s policy only allows 50 percent of permits to be internationally sourced the domestic cost is already higher than Treasury estimates.