Environmental and Resource Economics

, Volume 54, Issue 3, pp 313-332

First online:

The Environmental and Economic Impact of the Carbon Tax in Australia

  • Sam MengAffiliated withInstitute of Rural Futures and UNE Business School, University of New England
  • , Mahinda SiriwardanaAffiliated withUNE Business School, University of New England Email author 
  • , Judith McNeillAffiliated withInstitute of Rural Futures, University of New England

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To fulfil its emission reduction target pledged in the Copenhagen accord, the Australian Government has determined to introduce a carbon tax from July 1st 2012. This paper simulates the effects on the environment and on the economy of a carbon tax of A$23 per tonne of carbon dioxide proposed by the government with, and without, a compensation policy. We employ a computable general equilibrium model with an environmentally extended Social accounting matrix. According to the simulation results, the carbon tax can cut emissions effectively, but will cause a mild economic contraction. Because the price signal is intact, the proposed compensation plan has little impact on emission cuts while significantly mitigating the negative effect of a carbon tax on the economy.


Carbon tax CGE modelling Environmental effects Macro-economy