The economic impacts of the Clean Energy Future on Queensland 22 August 2011 Impact of a carbon price on the Queensland economy Contents Acronyms ................................................................................................................................... i Executive summary .................................................................................................................... i 1 Background ..................................................................................................................... 1 1.1 Limitations of the analysis ................................................................................................. 2 2 Underlying assumptions .................................................................................................. 4 2.1 Macroeconomic assumptions ............................................................................................ 4 2.2 Electricity generation ........................................................................................................ 5 2.3 Intermediate input productivity ........................................................................................ 6 2.4 Energy efficiency ............................................................................................................... 7 2.5 Policy scenarios ................................................................................................................. 7 2.6 Framework of the analysis .............................................................................................. 10 3 CGE modelling results ................................................................................................... 15 3.1 Medium price scenarios .................................................................................................. 15 4 Comparison with previous Commonwealth Treasury modelling .................................... 21 4.1 Key differences in the modelling approach ...................................................................... 21 4.2 Key differences in results ................................................................................................ 22 5 Other scenarios ............................................................................................................. 25 5.2 Delayed global action scenarios....................................................................................... 27 5.3 Reduced commodity price scenario ................................................................................. 28 6 Queensland coal sector ................................................................................................. 29 6.1 Industry snapshot ........................................................................................................... 29 6.2 Cost structure ................................................................................................................. 30 6.3 Price forecast .................................................................................................................. 34 6.4 Demand side analysis ...................................................................................................... 35 7 The LNG sector .............................................................................................................. 45 7.1 Industry snapshot ........................................................................................................... 45 7.2 Industry pressures........................................................................................................... 47 7.3 Costs and emissions ........................................................................................................ 48 7.4 Price forecast .................................................................................................................. 49 7.5 Carbon price risk ............................................................................................................. 50 8 Heavy transport ............................................................................................................ 53 8.1 Industry snapshot ........................................................................................................... 53 8.2 Industry pressures........................................................................................................... 55 8.3 Carbon price risks............................................................................................................ 58 9 Agriculture .................................................................................................................... 63 9.2 Carbon price issues ......................................................................................................... 64 10 Other Tier 2 industries .................................................................................................. 66 Liability limited by a scheme approved under Professional Standards Legislation. 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Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. © 2011 Deloitte Access Economics Pty Ltd Impact of a carbon price on the Queensland economy 10.1 Tourism .......................................................................................................................... 66 10.2 Cement ........................................................................................................................... 68 10.3 Steel ............................................................................................................................... 68 Limitation of our work ............................................................................................................... 70 Charts Chart 3.1 : Carbon prices in Australia, real $A, 2010 prices ...................................................... 17 Chart 3.2 : Queensland GSP, billion $A, real 2010 prices .......................................................... 19 Chart 6.1 : Coal cost by mine location (USD/t 2008) ................................................................ 31 Chart 6.2 : Average metallurgical FOB cost component (2008 USD/t) ...................................... 32 Chart 6.3 : Metallurgical FOB Mine Cost (2008 USD/t) ............................................................. 34 Chart 6.4 : Thermal FOB Mine Cost (2008 USD/t) .................................................................... 34 Chart 6.5 : Export coal price forecasts ($A/t real, 2010-11) ...................................................... 35 Chart 6.6 : Australian coal export forecast (PJ) ........................................................................ 37 Chart 6.7 Australian forecast of thermal coal electricity generation (GWh) ............................. 37 Chart 6.8 : Metallurgical FOB mine cost — emissions intensity of 0.3 CO2-e/t .......................... 41 Chart 6.9 : Metallurgical FOB cine cost — emissions intensity of 0.1 CO2-e/t ........................... 42 Chart 6.10 : Metallurgical FOB mine cost — emissions intensity of 0.5 CO2-e/t ........................ 42 Chart 6.11 : Thermal FOB mine cost — emissions intensity of 0.3 CO2-e/t ............................... 43 Chart 6.12 : Thermal FOB mine cost — emissions intensity of 0.1 CO2-e/t ............................... 43 Chart 6.13 : Thermal FOB mine cost — emissions intensity of 0.5 CO2-e/t ............................... 44 Chart 7.1 : New global liquefaction projects ............................................................................ 45 Chart 7.2 : LNG netback price (AUD/GJ)................................................................................... 50 Chart 7.3 : Cost vs price estimate — High cost case scenario ................................................... 51 Chart 8.1 : Total employment and share of gross value added ................................................. 53 Chart 8.2 : Breakdown of business size in Queensland ............................................................ 54 Chart 8.3 : Indicative cost structure across transport subdivisions ........................................... 56 Chart 8.4 : Indicative income structure across transport subdivisions ...................................... 57 Chart 8.5 : Brisbane wholesale diesel prices ............................................................................ 60 Chart 8.6 : Average fuel price movement and carbon price impact .......................................... 60 Tables Table 2.1 : Australian macroeconomic assumptions (%) annual average growth ........................ 4 Deloitte Access Economics Impact of a carbon price on the Queensland economy Table 2.2 : State macroeconomic assumptions (%) annual average growth ............................... 5 Table 2.3 : Macroeconomic assumptions, international regions, annual average growth ........... 5 Table 2.4 : Electricity generation technology shares (%) ............................................................ 6 Table 2.5 : Improvements in intermediate input efficiency ........................................................ 6 Table 2.6 : Assumed carbon prices, core policy scenario ............................................................ 9 Table 2.7 : Industry assistance for trade exposed