Re-establishing the Australian Treasury’s climate modeling capability

• The analytical frameworks have been designed to help understand transition risks and opportunities, as well as the physical impacts of climate change on the economy.
• The new capability includes sectoral, domestic, and global partial and general equilibrium modeling frameworks to form a comprehensive integrated assessment of climate impacts.
• A key part of the endeavor is understanding the potential sector transition pathways.
• The Treasury has developed a general equilibrium model—the Treasury Industry Model (TIM)—a forward-looking, multi-sector model of the Australian economy, which is being expanded to capture the details needed to analyze the net zero transition and physical climate impacts.
• In addition, the Treasury has developed two partial equilibrium models. The Model of Industrial and Resources Abatement (MIRA) is a techno-economic model of least-cost abatement for large industrial emitters. The Australian Lifecycle Energy eXpenditure (ALEX) model is a household cameo model to assess household energy costs across certain types of consumption.
• The Treasury also uses several externally developed models, including EMM (with Australia’s Department of Climate Change, Energy, Environment, and Water), GTEM, and G-Cubed.
• Models are used individually and together, and are complemented by data analysis, consultation, and qualitative assessments.

The Australian Government’s 2023 Intergenerational Report chapter on Climate and Energy Transition explored the potential long-term fiscal and economic impacts of climate change for the country and was a pivotal first step in testing the Treasury’s frameworks and modeling. Since then, the focus has been on providing advice on economywide impacts of the government’s Net Zero Plan. The work also includes integrating six sectoral decarbonization plans—for transportation, industry, resources, agriculture, energy, and electricity, and the built environment— across government agencies. Current work also includes better capturing developments in industries likely to see significant changes to production processes in the global net zero transition, to improve the representation of technology options and interlinkages with other sectors of the economy.

The primary challenge has been balancing model and capability development with meeting the immediate analytical demands of the Government’s climate agenda. Integrating bottom-up sectoral insights and ensuring the models remain adaptable to evolving policy landscapes required more time and resources than expected, but resulted in more sophisticated and robust outcomes. Inter-agency and industry collaboration and the harmonization of data sources and analytical approaches are also challenging but necessary for coherent and actionable insights. Critically, the long-term sustainability of the modeling capability depends on staff retention and development.