Philip D. Adams

An applied general equilibrium analysis of the economic effects of tourism in a quite small, quite open economy

A computable general equilibrium model is used to project the effects of tourism on the industrial and regional structures of the Australian economy. The most striking conclusion is that Queensland, usually thought to be the most tourism-oriented of the Australian states, would be a net loser from an economy-wide expansion of tourism. As well as having a relatively large share of its GSP accounted for by tourist-oriented activities, Queensland is also relatively heavily dependent on agriculture and mining, traditional export sectors which are crowded out by the expansion of international tourism.

Forecasts for the Australian economy using the MONASH model

This paper describes annual forecasts for the period 1990–1991 to 1996–1997 made with a new CGE model of the Australian economy called MONASH. Using MONASH, we project the implications for the structure of the economy of macroeconomic forecasts made by conventional, less formal methods. MONASH has enough dynamics to enable it to track, at the micro level, business-cycle phenomena which are assumed in the macro forecasts. The CGE model is very detailed, distinguishing 112 industries, 6 regions and up to 283 labour-force occupations. Apart from the level of detail, the strength of our MONASH forecasting system is that it produces forecasts which can be interpreted fully in terms of the models theory, data and the assumptions underlying the exogenous input.

Australia is ‘free to choose’ economic growth and falling environmental pressures

Over two centuries of economic growth have put undeniable pressure on the ecological systems that underpin human well-being. While it is agreed that these pressures are increasing, views divide on how they may be alleviated. Some suggest technological advances will automatically keep us from transgressing key environmental thresholds; others that policy reform can reconcile economic and ecological goals; while a third school argues that only a fundamental shift in societal values can keep human demands within the Earth’s ecological limits. Here we use novel integrated analysis of the energy–water–food nexus, rural land use (including biodiversity), material flows and climate change to explore whether mounting ecological pressures in Australia can be reversed, while the population grows and living standards improve. We show that, in the right circumstances, economic and environmental outcomes can be decoupled. Although economic growth is strong across all scenarios, environmental performance varies widely: pressures are projected to more than double, stabilize or fall markedly by 2050. However, we find no evidence that decoupling will occur automatically. Nor do we find that a shift in societal values is required. Rather, extensions of current policies that mobilize technology and incentivize reduced pressure account for the majority of differences in environmental performance. Our results show that Australia can make great progress towards sustainable prosperity, if it chooses to do so.

Computable General Equilibrium Modeling of Environmental Issues in Australia: Economic Impacts of an Emissions Trading Scheme

A key distinguishing characteristic of computable general equilibrium (CGE) modeling in Australia is its orientation to providing inputs to the policy-formation process. Policy makers require detail. They want to be able to identify convincingly which industries, which occupations, which regions and which households would benefit or lose from policy changes, and when the benefits or losses might be expected to flow. In this chapter, we explain how the necessary level of detail can be provided, using as an example analysis that was undertaken by Centre of Policy Studies (CoPS) and Frontier Economics of the potential economic impacts of a carbon price on the Australian economy. The Australian carbon price framework is assumed to be part of a global emissions trading scheme (ETS). Over time, the global ETS becomes the dominant greenhouse abatement policy for all countries including Australia. It sets the price for carbon permits and allocates the number of permits available to each country. A number of key findings emerge from the CGE simulations of the effects of the ETS policy. (i) Domestic abatement falls well short of targeted abatement, requiring significant amounts of permits to be imported. (ii) Despite the requirement for deep cuts in emissions, the ETS reduces Australia’s GDP by only about 1.1% relative to the base case in 2030. The negative impact on real household consumption (the preferred measure of national welfare) is somewhat greater, reflecting the need to import permits. (iii) The national macroeconomic impacts of the ETS might be described as modest in the context of the policy task. However, this does not carry through to the industry and state/territory levels where some industries and regions prove particularly vulnerable in terms of potential lost employment. The need for detail is highlighted throughout the analysis. For example, a suitably detailed treatment of electricity supply is provided by linking CoPS’ CGE model with Frontier’s detailed bottom-up model of the stationary energy sector. Similarly, necessary detail on the effects of the global ETS on Australia’s international trading conditions is provided by linking with a multicountry model.

Long-run Effects on China of APEC Trade Liberalization

Plans for APEC trade liberalisation include the elimination of all tariffs between member states. In this paper we use two computable general equilibrium models to examine the effects of these plans, focussing on China. Our modelling shows that liberalisation increases Chinas capital stock and real GDP. The implication for Chinese industries depend on the extent to which liberalisation exposes them to additional import competition. Industries strongly stimulated include Textiles and Communications Equipment. Transport Equipment is the most adversely affected. Chinese regional results follow from the industrial compositions of the regions, with Zhejiang the most favourably affected and Jilin the least.

Generating detailed commodity forecasts from a computable general equilibrium model

Abstract The largest computable general equilibrium (CGE) models currently in operation produce forecasts for about 100 commodities (goods and services). This level of detail may seem overwhelming to macroeconomists but is often inadequate for micro planning. For example, a forecast for business services (a typical commodity at the 100-level) is of marginal interest in planning educational programs for sub-categories of business services such as accountancy, advertising and architecture. As a step towards generating information for micro planning, this paper describes a tops-down method for disaggregating CGE forecasts. The method relies on detailed sales data often collected by input-output sections of statistical agencies. An application is reported in which forecasts from a 114-commodity CGE model are disaggregated into forecasts for 780 commodities. Within each of the 114 core commodities, differences in prospects are forecast for sub-commodities reflecting differences in their sales patterns and in the degree to which they face import competition.

Pathways to deep decarbonization in Australia

Executive summary This report is part of the global Deep Decarbonization Pathways Project (DDPP), which aims to understand and show how countries can transition to a very low carbon economy. The project comprises 15 countries representing more than 70% of global greenhouse gas emissions and is convened under the auspices of the Sustainable Development Solutions Network (SDSN) and the Institute for Sustainable Development and International Relations (IDDRI). The report presents an illustrative deep decarbonisation pathway for Australia – just one of many possible pathways – developed using a combination of well-established modelling tools to identify feasible and least-cost options. The frame of reference for the analysis is that all countries decarbonise by 2050, consistent with the objective of limiting the increase in global mean surface temperature to 2°C in order to avoid dangerous climate change. This work finds that Australia can achieve net zero emissions by 2050 and live within its recommended carbon budget, using technologies that exist today, while maintaining economic prosperity. Major technological transitions are needed in some industries and many activities, but no fundamental change to Australia’s economy is required. Economic activity and Australian incomes keep rising. The economy grows by 150% to 2050, while net emissions fall to zero and energy sector emissions are reduced by more than four fifths. Decarbonisation of energy systems in all countries relies on three pillars: ambitious energy efficiency; low carbon electricity; and electrification and fuel switching. For Australia there is a fourth pillar: reducing non-energy emissions in industry and agriculture. In the illustrative pathway, ambitious energy efficiency in all sectors leads to a halving of the final energy intensity of the economy between now and 2050. Low carbon electricity is supplied by renewable energy or a mix of renewable energy and either CCS or nuclear power. Electricity prices increase at moderate rates and then stabilise and are more than offset by the savings in electricity from energy efficiency, so average household electricity bills decline over time (not taking into account switching cars and heating to electricity). Emissions from transport, industry and buildings are hugely reduced through energy efficiency and switching from fossil fuels to carbon-free electricity and biofuels or gas. Remaining energy emissions are 3.0 tonnes of carbon dioxide equivalent per person at 2050, with about half of this attributable to production for export. Non-energy emissions from industry are reduced through substitution with less emissions-intensive materials, process improvements and carbon capture and storage in some applications. Agriculture emissions are reduced through best practice farming and increased carbon forestry compensates for all remaining emissions at 2050. The agriculture and forestry sector maintains a similar share of GDP as today, as do the mining and manufacturing industries, with the exception of coal, oil and petroleum. The technologies required for decarbonisation are currently available or under development. Ongoing commercialisation, enhancement and integration will improve their cost-competitiveness and performance. Experience with technological change, such as the rapid fall in costs of solar cells seen in recent years, suggests that there will be positive surprises along the way. The analysis shows that deep decarbonisation requires neither substantial lifestyle changes nor large changes in Australia’s economic structure. Australia retains its international advantage in primary industries, including mining and agriculture. While some technologies and activities decline, others expand and contribute to continued economic growth. The largest changes occur in the energy and land sectors. Australia’s rich renewable energy resources could make it an energy superpower in a world where clean energy dominates. Together with substantial potential for geological sequestration and vast land available for carbon forestry, this creates economic opportunities for Australia in a decarbonised world. Achieving deep decarbonisation in this way by mid-century as outlined in this report – within the timeframe required to limit global warming to 2°C – would be a significant transition for Australia, and such a transition needs to be well managed. The experience with previous episodes of far-reaching economic change – such as the transition from agriculture to mining as a dominant factor in exports, as well as the rise of Australia’s service industry – has shown the flexibility, adaptability and resilience of Australia’s economy.

Resources Sector and Foreign Investment

Presenting a blend of economics and law, this book provides unique insights as well as practical guidance for negotiators considering major issues on the agendas of bilateral and regional preferential trading agreements (PTAs).