The Treasury carbon price modelling combined top-down computable general equilibrium
(CGE) models with bottom-up, sector-specific models for electricity generation, road transport,
agriculture and forestry.
The two top-down CGE models—the Global Trade and Environment Model (GTEM) and the
Monash Multi-Regional Forecasting (MMRF) model—were developed in Australia. These CGE
models are economy-wide models that capture the interactions between different sectors and among
producers and consumers. GTEM models the global economy, while MMRF models the Australian
economy, providing both state- and territory-level detail and detailed sectoral breakdowns.
Bottom-up, sector-specific models for electricity generation, road transport, agriculture and forestry
complemented the CGE models. This allowed for a detailed analysis of the supply side of those
sectors, while also ensuring that calculations of economic activity in each sector took into account
projected changes in the structure of the economy.
Two modelling frameworks developed by SKM MMA and ROAM Consulting were used to model the
electricity sector in Strong growth, low pollution. The frameworks include detailed representations
of the Australian electricity sector on a plant-by-plant basis and were combined with Treasury's
whole-of-economy CGE models to provide internally consistent views of the economy.
Further detail on the Treasury modelling framework and assumptions is on the Treasury website.
Treasury provided electricity demand projections for ROAM Consulting and SKM MMA, consistent
with the modelled growth in electricity consumption across different sectors in the economy (from
the MMRF model). The projections are broadly consistent with the Australian Energy Market
Operator's 2012 medium demand forecasts.
ROAM's assumptions are based on Electric Power Research Institute estimates, as reviewed by ACIL
Tasman in 2010.2 The estimates were adjusted to update for exchange rate differences. SKM MMA
used assumptions based on its in-house expertise.
SKM MMA and ROAM employed consistent assumptions about the fuel costs that generators face.
The path for world gas prices and oil prices was based on the International Energy Agency's World
energy outlook 2010.3 Coal prices were based on Treasury projections, consistent with 2010–11
2 ACIL Tasman, 2011, Liquid fuel vulnerability assessment, report prepared for the Department of Resources,
Energy and Tourism, Canberra.
3 International Energy Agency, 2010, World energy outlook 2010, International Energy Agency, Paris.