Economic Analysis of Greenhouse Policy: A layperson’s guide to the perils of economic modelling

by Clive Hamilton and John Quiggin

This paper examines the role of economic models in the formulation of climate change policies in Australia. Particular emphasis is given to the MEGABARE model constructed by the Australian Bureau of Agricultural and Resource Economics. The Government has drawn heavily on the results of MEGABARE to support its argument that uniform abatement targets would be too costly for Australia and would impose an unfair burden on this country. The evidence provided in this paper shows that the model construction, its use in greenhouse policy analysis and the interpretation of the results have been biased in ways that exaggerate the economic costs of reducing emissions.

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