Abstract for: The impact of Australia's carbon tax on an unshielded emissions intensive trade exposed manufacturing industry
The Australian Carbon Pricing Mechanism (CPM), implemented in July 2012 was informed by computable general equilibrium modelling (CGE) despite such modelling being criticised for its theoretical and empirical weaknesses. CGE modelling, founded on neoclassical economic theory, informed the Australian government’s policy decision to impose a non-shielded carbon tax on Australia’s value added manufacturing export industries. Many of these industries did not have the structures necessary to qualify for the emissions intensive trade exposed (EITE) protection used globally to prevent carbon leakage /loss of competitiveness. Red meat processing is a significant Australian export industry. Under the CPM, it paid a non-shielded carbon price which neither its international nor smaller domestic competitors paid. Commissioned studies to investigate the impacts of this policy on competitiveness have relied almost exclusively on CGE modelling. This thesis offers an alternative investigation based on Systems Dynamics, a methodology that can accommodate the industry’s dynamic complexity. SD modelling outcomes suggest (1) that the carbon price contributes to an uncompetitive operating environment under certain scenarios, even though the carbon tax is only .35% of total earnings and (2) that in successfully addressing criticisms levelled at CGE models, System Dynamics offers a valuable supplement to the dominant modelling paradigm.