A report commissioned by the State Government predicts the federal carbon pollution reduction scheme will cost the Illawarra almost 9000 jobs and $1 billion in commercial output a year by 2025, if Australia moves ahead on an emissions trading scheme without an international agreement on carbon trading.
But even under a system where Australia's carbon permits are part of a system of international trade, the region would still be worse off by 1600 jobs and $336 million in output per annum.
The Access Economics report shows a reduction scheme could savage some regional areas, in particular those whose economies are heavily dependent on industries including coal, electricity generation, steel, metals and coal products.
The report also finds yearly household expenditures could rise between $200 and $600 as a result of the scheme. The report is funded by all states and territories under the banner of the Council for the Australia Federation. Publication of the Illawarra model comes as the scheme is debated in the Senate this week after being passed by the House of Representatives.
The report shows that under a model with no international trading of carbon credits, the Illawarra would be the sixth worst-hit region in terms of employment and commercial output by 2025.
But because the region's industries could be more internationally competitive under a system where carbon credits were traded with other countries, the Illawarra fares better under that scenario. Still, the relative contraction in commercial output would be the ninth-worst in the country.
"Areas expected to suffer most due to the falling employment and output of the iron, steel and metals manufacturing sector include the Illawarra and Hunter, south-eastern Western Australia and the Fitzroy region of Queensland," the report read.
The report is based on a scheme beginning on July 1, 2010 with a 5 per cent targeted reduction in emissions by 2020 compared with 2000 levels.
Recent changes announced by the Federal Government, including delaying the introduction of the scheme by a year and the possibility of raising the reduction target to 25 per cent under the right international circumstances, are not considered. "In our view, the changes to the (original) scenario are not likely to be significant in the long term, although the announced changes would affect the transition in the short term," the report read.
"The prospect of a potentially higher emission abatement target would be expected to affect the analysis through potentially higher carbon prices, lower economic activity and a greater structural adjustment over the time frame considered in this report."
The modelling cannot predict subsequent growth in other industries such as green energy. The Australian Coal Association argues the scheme will have a significant impact on industries like coal, but also secondary firms that supply those industries with goods and services.
"There are now three sets of reputable modelling that demonstrate there will be a significant impact on regional jobs and investment in coalmining, particularly in areas like the Illawarra, the Hunter Valley and Queensland's Bowen Basin," an association spokesman said.
"What the industry has been offered under the scheme is not sufficient to protect jobs and investment in the Illawarra."
Climate Change Minister Penny Wong said the Government had "very clearly taken account of transitional issues".
"The Treasury modelling looks to mid-term and mid-century and the Government has put on the table a very substantial amount of transitional assistance to industries through the Emissions Intensive Trade Exposed program, assistance to the energy sector as well as the Climate Change Action Fund which contemplates assistance to regions."
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