Climate Change Mitigation Scenarios

Modelling report provided to the Climate Change Authority in support of its Caps and Targets Review © Commonwealth of Australia 2013

ISBN 978-0-642-74928-4

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Director Projections Team Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education GPO Box 9839 Canberra ACT 2601 CONTENTS

EXECUTIVE SUMMARY...... 1

CHAPTER 1: INTRODUCTION...... 11 1.1 Context for the report...... 11 1.2 Scenario design...... 11 1.3 Modelling framework...... 12 1.4 Model limitations and uncertainty...... 14

CHAPTER 2: GLOBAL PROJECTIONS...... 17 2.1 Baseline...... 17 2.2 Global action scenarios...... 18 2.3 Global results...... 20

CHAPTER 3: AUSTRALIAN PROJECTIONS...... 37 3.1 Description of scenarios...... 37 3.2 Economic growth in the central policy scenario...... 40 3.3 Australia’s abatement task and net emissions...... 44 3.4 Domestic emissions projections...... 46 3.5 Covered emissions...... 71 3.6 Economic effects in alternative price scenarios...... 72 3.7 Implications of alternative targets...... 84

APPENDIX A: MODELLING FRAMEWORK AND ASSUMPTIONS...... 89

APPENDIX B: CHANGES SINCE THE 2012 PROJECTIONS...... 111

APPENDIX C: CARBON FARMING INITIATIVE...... 117

REFERENCES...... 127

Page iv Abbreviations and acronyms

ABARES Australian Bureau of Agricultural and Resource Economics and Sciences

ABS Australian Bureau of Statistics

AEEI Autonomous energy efficiency improvement

AEMO Australian Energy Market Operator

ALPF Australia’s Low Pollution Future

B20 A blend of 20 per cent biodiesel with 80 per cent conventional diesel

BITRE Bureau of Infrastructure, Transport and Regional Economics

CCA Climate Change Authority

CCS Carbon capture and storage

CER Certified Emission Reductions

CFI Carbon Farming Initiative

CGE Computable general equilibrium (model/s)

CNG Compressed natural gas

CO2 Carbon dioxide

CO2-e Carbon dioxide equivalent

CoPS Centre of Policy Studies (Monash University)

CSIRO Commonwealth Scientific and Industrial Research Organisation

DIICCSRTE Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education

EMF Energy Modelling Forum

ESM Energy Sector Model

ETS Emission Trading Scheme

EU25 European Union — 25 countries

GCOMAP Generalised Comprehensive Mitigation Assessment Process

GDP Gross domestic product

GGAS Greenhouse Gas Reduction Scheme (New South Wales)

GNI Gross national income

GSP Gross state product

Gt Gigatonne

GTAP Global Trade Analysis Project

GTEM Global Trade and Environment Model

Page v Climate Change Mitigation Scenarios

GWh Gigawatt hour

GWP Gross world product

HGWP High global warming potential

IEA International Energy Agency

IMF International Monetary Fund

IPCC Intergovernmental Panel on Climate Change

Kg Kilogram

LNG Liquefied natural gas

LPG Liquefied petroleum gas

LRET Large-scale Renewable Energy Target

LULUCF Land use, land use change and forestry

MAC Marginal Abatement Cost

MAGICC Model for the Assessment of Greenhouse Gas Induced Climate Change

MMA McLennan Magasanik and Associates

MMRF Monash Multi-Regional Forecasting (model)

Mt Megatonne

MWh Megawatt hour

NEM National Electricity Market

OECD Organisation for Economic Co-operation and Development

OPEC Organization of the Petroleum Exporting Countries

PAGE Policy Analysis of the Greenhouse Effect

ppm Parts per million

PPP Purchasing power parity

PV Photovoltaic

SRES Small-scale Renewable Energy Scheme

t Tonne

TWh Terawatt hour

UNFCCC United Nations Framework Convention on Climate Change

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