Estimates hearings - Treasury greenhouse modelling

STANDING COMMITTEE ON ECONOMICS

Discussion 04/06/08

Senator MILNE—I wanted to ask a question regarding policy advice on greenhouse gas emission reductions. I understand Treasury has been asked to provide that advice. What emission abatement scenarios are being modelled by Treasury? Ms Quinn—The Australian Treasury has been asked to examine different scenarios around trajectories and targets, including the government’s 60 per cent target. We are working with the Garnaut review and supporting modelling of mitigation scenarios from the Garnaut review and working with the Department of Climate Change on an ongoing basis. The Garnaut review is providing us with scenarios and analysis that they would like us to examine, and a lot of that information is in the interim report that Garnaut provided to the public. The precise scenarios are still under development. It is an ongoing work program. Senator MILNE—So you cannot tell me what scenarios you are actually modelling, including whether you model reducing emissions between 25 per cent and 40 per cent by 2020, which is what was in the Bali road map as a footnote? Are you modelling that? Ms Quinn—As I said, the intention is to model a range of scenarios over time. I cannot tell you the precise implications for different points in time yet, because the modelling has not been completed. Senator MILNE—But you cannot even tell me whether you are modelling that scenario? Ms Quinn—The scenarios particular to the Garnaut review have been driven by Professor Garnaut’s view about the environmental objectives that he wishes to explore in terms of the parts per million concentration level for the world as a whole, and then his view about burden sharing across the different countries. The combination of those two pieces of information will give you different views at different points in time. They interact together. It is possible that it is in the set, but I cannot tell you a definitive answer at this stage. Senator MILNE—Can you tell me whether you can or are modelling below 550 parts per million? Ms Quinn—It is our intention. Professor Garnaut has asked us to explore 450 parts per million. Senator MILNE—No lower than 450? Ms Quinn—We have not been asked to do anything lower than 450. Senator MILNE—It was reported in the media this week that the models were struggling to be able to model 90 per cent below 1990 by 2050. Was that inaccurate reporting or is that true? Can the model model 90 per cent below? Ms Quinn—It is not an accurate reporting of the modelling that we have undertaken. These are complex models with complex exercises and take many days to solve. They are computationally very difficult for all scenarios, whether they are deep cuts or not. It is not true to say that the models have been unable to handle any of the scenarios we have currently explored, so it is not an accurate report. Senator MILNE—So you could model 90 per cent below? It is not technically impossible with your model? Ms Quinn—We have not found it to be technically impossible under the parameters that we have currently explored. It is possible that there are certain parameters and certain components that it may be difficult to explore. We are doing simulations out over 100 years and these models are based on historical relationships and views around the near term. It is possible that there are sets of parameters and sets of simulations that may encompass those degrees of cuts that it may be difficult for the models computationally to solve. But to date we have not found that to be an issue. Senator MILNE—What exactly are the parameters you have been asked to explore? Ms Quinn—We have been asked, as I said, to look at 450 parts per million, 550 parts per million and different arrangements around burden sharing on the basis of Garnaut’s analysis. We are doing hypotheticals. We have not narrowed down specifically the scenarios. It is an iterative process. To date in exploring different sensitivities we have not found that the models are unable to solve. But it is a possibility. We have found it computationally difficult. We have several different models that we are putting together, and the complexity of the exercise is quite significant. It is the case occasionally that the models hit the wall in terms of a zero divided by a zero, but that is not necessarily because of the questions that are being asked; there are mathematical issues in terms of the equation solving. It is untrue to say that it is because of the 90 per cent target. The models do fall over from time to time because of mathematical issues. Senator MILNE—In terms of the policy advice that you are giving government apart from the policy advice on the emissions-trading scenarios and the assistance to the Garnaut review, can you tell me how the government’s stated objective of reducing greenhouse gas emissions is being embedded in Treasury and how was it reflected in the budget this year? Ms Mrakovcic—Can I get a bit more clarification on the question? I am not sure I actually understand what you are driving towards. Senator MILNE—Prime Minister Rudd, as you know, has told the world that Australia wants to be a global leader in addressing climate change. He has also said that he wants to have significant reductions in greenhouse gas emissions and that there is to be a whole-of-government approach led out of the Department of Climate Change and the Department of the Prime Minister and Cabinet. How has Treasury embedded those aspirations in its work in terms of the policy advice that it gave on the budget this year? How was any policy advice reflected in any government policy in the budget in terms of what Treasury thought about reducing greenhouse gas emissions? Ms Mrakovcic—We play a general role in basically advising the Treasurer and through him the government on all issues, including greenhouse related issues. As various proposals went forward in the budget process we would have commented on those in the normal course of events. We have also been working closely with the Department of Climate Change in terms of addressing some of the design issues around the emissions-trading scheme as they go forward. Senator MILNE—I understand the design issues around the emissions-trading system. But when you said that you would comment on budget initiatives as they came forward as a matter of course, have you got a greenhouse gas emissions checklist, if you like, on all budget initiatives that come forward that you look at? Ms Mrakovcic—Again, I am not sure that I understand what the question is driving towards. Senator MILNE—I am trying to understand how Treasury gives a view. Perhaps I will give you a specific example. Ms Mrakovcic—Please. Senator MILNE—With the fringe benefits tax concession on motor vehicles, does Treasury provide advice on what difference that would make or identify it as a greenhouse gas measure that Treasury could use or not use? Ms Mrakovcic—Issues that come up essentially may have a variety of purposes or objectives to them. The measure that you have referred to is in fact a long-standing measure. It has been in place for quite a while. In that sense I do not know that there is a process that is essentially looking back historically at every single measure and trying to view it through a lens of climate change. That said, the government has in fact set up the Wilkins review, which has as its purpose to essentially look at what are complementary measures to the emissions-trading scheme. I would expect that those kinds of whole-of-government processes that are designed to look at those issues would be raised. But there will be a broad range of measures that go across all the different departments and portfolio ministers’ responsibilities, as you would expect. For every policy action there are in fact ramifications in terms of climate change through relative prices, et cetera. It would be very difficult to go through and essentially look at each individual measure in isolation from what it was actually intended to achieve. For example, there may in fact be tax related issues or revenue related issues that are pertinent to the determination of why the FBT measure was put in place. I cannot comment on that, only to note that it would not be a surprise that a lot of measures may have secondary or incidental implications for climate change. Senator MILNE—What I am trying to get from you is: what is Treasury proactively doing in terms of government advice on what financial levers, if you like, or economic policy levers could be pulled to reduce greenhouse gas emissions, apart from emissions trading? Ms Mrakovcic—The way that we would be involved is essentially, as I said, through these whole-of-government processes, working with other departments such as the Department of Climate Change and working with the Wilkins review. Those are the mechanisms by which we see ourselves being involved in the determination of the government’s climate change strategy. Senator MILNE—So you will wait for other people to ask you to comment rather than initiate anything yourselves? Ms Mrakovcic—We are an active member in those different forums, but I think that we would think it appropriate that any initiatives or determinations made by government are made from processes that they have constituted and which we have been asked to be engaged in. Senator MILNE—What is Treasury’s advice on the inclusion of transport in an emissions-trading system? Has it provided advice? Ms Mrakovcic—I think it would be inappropriate for us to comment on policy advice we have given the government. Senator MILNE—Let me put it another way. What difference to emissions trading does Treasury think it would make to include or exclude transport emissions? Ms Mrakovcic—I think we would start from the premise that the broader the coverage the lower the cost to the economy. I think that is consistent with what I understand have also been Senator Wong’s pronouncements about maximal practical coverage.