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Insurance against Catastrophic Climate Change: How Much Will an Emissions Trading Scheme Cost Australia?

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  • Adams, Philip D.

Abstract

There is now compelling advice from the scientific community, including CSIRO, that a sharp cut in world greenhouse gas emissions would substantially reduce the risk of catastrophic climate change over the next century. Cutting greenhouse gas emissions is like buying an insurance policy: we incur a cost (a loss in GDP) to reduce a risk (catastrophic climate change). In any insurance decision, the cost matters. If a worthwhile reduction in risk costs 50 per cent of income, then living with the risk may be preferable. But if it costs 1 per cent of income, then taking the insurance policy may be the best option. The purpose of this article is to evaluate the possible cost in the context of an emissions trading scheme (ETS) for Australia. The analysis is based on simulations of the Monash Multi-Regional Forecasting (MMRF) model, with key inputs relating to the electricity sector provided by McLennan, Magasanik Associates (MMA) from modelling using their suite of energy market models.

Suggested Citation

  • Adams, Philip D., 2008. "Insurance against Catastrophic Climate Change: How Much Will an Emissions Trading Scheme Cost Australia?," Conference papers 331770, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331770
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