The Australian Agricultural and Resources Sectors under the Carbon Tax: A CGE Perspective

Abstract

The agricultural and resources sectors are key contributors to the Australian economy, but the carbon tax policy introduced in July 2012 has triggered substantial fear in these sectors. By employing a computable general equilibrium (CGE) model and an environmentally-extended Social Accounting Matrix (SAM), this paper simulates the effects of the Australian carbon tax on the agricultural and resources sectors. The modelling results show that a carbon tax of $23 per tonne can cut carbon emission effectively by 70.3 megatonnes or 12% of the emission base. The impact on the macro economy is mild but significant. At macro level, it will cause a 0.57% decrease in real GDP, and a 0.84% decrease in employment. At sector level, all agricultural and resources sectors will be affected negatively but to different degrees. The brown coal sector will be hit most with 25.74% decrease in output, 52.94% decrease in employment and 89.37% decrease in profitability. Conversely, the other resources sectors are only mildly affected. The impact on the agricultural sector is comparable to that on the non-energy mineral sector.

JEL Classification: C68, Q11, Q38, Q58.