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Treasury modelling on Australia’s low pollution future

The Federal Government today launched a report by Treasury outlining the economic impact to the Australian economy of reducing carbon emissions under the proposed Carbon Pollution Reduction Scheme (CPRS).

The Report supports the Government’s view that it is beneficial for Australia to act now rather than waiting for international agreement to reduce carbon emissions.

The prevailing view of the Government has been that early global action is less expensive than later action and that a market-based approach allows robust economic growth into the future.  The Treasury Report lends support to the Government’s views.

As a party to the Kyoto Protocol, Australia is obliged to limit its national greenhouse gas emissions

to no more than 108 per cent of 1990 levels during the Kyoto commitment period (which is 2008 to 2012).

Post-Kyoto targets for developed nations are currently being negotiated and are scheduled to conclude in Copenhagen in late 2009.

The Government proposes introducing the CPRS as the primary mechanism to achieve its emission reduction goals for the Kyoto period and beyond.

The Report focuses on four potential reduction targets for inclusion in the CPRS – 5%, 10%, 15% or 25% reduction on 2000 levels by 2020.  

While it is not clear which of these targets the Australian Government will adopt, the highest reductions are unlikely to be politically achievable. 

Even within the Australian Parliament, there are a wide range of opinions varying from those who advocate for drastic reduction measures, those who call for a moderate pace of reform and those who fundamentally dispute the science of climate change.

The Report concludes that Australia’s mitigation costs are higher than most developed economies due to our large share of emission-intensive industries.

Given our reliance on emissions intensive industries Australia’s costs will be affected by progress in low-emission technologies.  In particular, Treasury has identified carbon capture and storage as a critical technology, as it will affect future demand for Australia’s coal resources.

Importantly, in concluding that “Australia can achieve its emission reduction objectives and maintain robust economic growth”, the Report assumes that there is global action to reduce greenhouse gas and that Australia’s action is comparable to that of other developed economies. 

Whether this is feasible in practice is not yet clear.

The Government will now consider public responses to the Treasury Report before setting a national target range for the medium term. 

Please contact Lynne Grant or Geoff Green on 03 8319 1866 or at or for further information.

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