The Economic Impact of Reducing Greenhouse Gas Emissions in WA

This study analyses the general-equilibrium impacts of a number of possible allocation schemes for greenhouse gas emission permits on the Western Australian economy. It finds that emissions would fall by up to 11 percent from the base level in Western Australia. However, such environmental benefits emanate at some costs to the state economy; in terms of foregone gross state product, the costs are up to 3 percent of the base level. Indeed, the actual costs and benefits depend on the precise design of the permit allocation scheme as well as on the policies within which it operates. For example, when emission quota permits are sold to industries and no tradeable carbon credits (i.e. credits for the carbon sequestrated in Kyoto forecasts) are granted, emissions decline by about 8 percent and GSP falls by about 3 percent of the base levels. If carbon credits are tradeable, however, the environmental benefits could be increased and the GSP-cost could be reduced substantially. Also, the reduced economic activity caused by emission abatement results in a modest fall in net government revenue, despite the additional revenue from permit sales in some cases. Accordingly, government's fiscal package surrounding the emission permits would influence the emission abatement impacts on the economy. With regard to the effects on the structure of the state economy, the Oil and gas industry suffers only a slight contraction but the energy-supplying sector as a whole contracts substantially. It is therefore not surprising that the impacts on the WA economy of curbing emissions by energy and transport industries alone are quite significant when compared tot hose resulting from all industries' compliance with the abatement scheme.