Crunching the numbers on the Minerals Council’s ETS job loss claims

Australian Conservation Foundation director of strategic ideas Charles Berger writes:

Last year, modelling by CSIRO concluded that Australia’s mining sector will continue to prosper even if Australia undertakes dramatic reductions in greenhouse emissions. The report concluded that employment in the mining sector would grow by 22,800 jobs by 2025.

This morning the Minerals Council of Australia has released a report by Concept Economics (lead author Brian Fisher) claiming “approximately 23,510 fewer people will be employed in the Australian minerals industry due to the imposition of the proposed ETS, a fall in employment of 11 per cent compared to what otherwise would have occurred”.

The crucial difference in these reports lies in how Dr Fisher has chosen to report the results of his modelling and what he has conveniently omitted to tell us.

For example, does the modelling assume any technological improvements in how the mining sector deals with emissions, or does he assume that the mining companies have no ability to operate more efficiently in response to emissions trading? Does he suppose the much-touted “clean coal technologies” will work, generating thousands of jobs and reducing emissions, or does he discount that possibility? Certainly the MCA has been a proponent of such technological change — is its optimism reflected in the modelling here?

Consider this as well: Dr Fisher describes a “fall in employment” not as a real decline in employment, but rather a hypothetical reduction in jobs from what “otherwise would have occurred”.

A great deal therefore rests upon what is assumed would “otherwise would have occurred”, or what the modellers call the “reference case”. But one will search Dr Fisher’s report in vain for any hint of what he thinks jobs in the mining sector would do in the absence of an emissions trading scheme. Throughout the report refers to ostensible “job losses”, but not once are that actual projected employment levels under the reference case and the emissions trading scenario clearly spelled out.

This is an astonishingly deceptive way of presenting the results. For example, suppose we assume that “business as usual” would involve jobs growth of 86,000 in mining over roughly that time period. (That figure isn’t mine; it comes from “The Labour Force Outlook in the Australian Minerals Sector: 2008 to 2020”, a report prepared for the MCA and available on their website.)

If that figure is in the ballpark, then a “loss” of 23,510 jobs from what “otherwise would have occurred” actually means jobs growth of more than 50,000 in the mining sector by 2025. That’s right: the mining sector, far from shedding jobs, would continue to grow strongly.

So Dr Fisher’s report gives only one side of the equation, without providing the context that would allow the notional job “losses” to be put in the perspective of a sector that as a whole will continue to grow. This has meant that the media are predictably reporting the mining sector will “shed jobs”, as The Australian put it today, when the MCA and Dr Fisher know very well this is a disingenuous conclusion.

The failure of the MCA and Concept Economics to include the reference case employment figures, and to report only on notional job “losses” rather than actual projected employment levels, casts a deep shadow over the integrity of this work.

Concept Economics must explain their methodology

Scientist Michael James writes:

Having downloaded the 57 page full report I was interested to tease apart the numbers and see their methodology. I thought I would probably have to waste part of my weekend. But no, there is essentially no meaningful methodology in this report. In Appendix A: Methodology there is very little of relevance only a few bits of gooblegook equations on “rebalancing” an input-output matrix of scaling parameters. Now, in the peer-reviewed scientific literature where I have published my 100 or so scientific papers one of the essential requirements is that the authors must provide sufficient detail of the methods in a sufficiently clear manner to enable a similarly competent scientist to reproduce the results reported in the paper.

Instead we are simply asked to accept their figures based on a “general equilibrium model called AE-RGEM from Access Economics. There is one page of references (page 42) but nothing specific on this modelling. There is not even an outline of the basic assumptions, such as what percent decline in the amount of coal mined would arise from the adoption of the (minimum) 5% emissions reduction of the CPRS.

Turning to the Access Economics website I find “Access Economics maintains a number of proprietary in-house economic models.” A dead end, unless one presumably fronts up with some serious dosh for access. One wonders if this wondrous model has been proven with real world data? But, stupid me, of course it has, but I will have to take their word for it because it is proprietary.

The good news is that I do not have to lose any of my weekend to this tedious chore. My opinion, as a researcher in the molecular sciences, of these economic modelling studies and the economists who “publish” them is unprintable (and actually their report and their conclusions are certainly unprintable in peer-reviewed journals). The best I can do is to cite Concept Economics own Disclaimer (page iii) which at least is disarmingly honest:

Concept Economics and its author(s) make no representation or warranty as to the accuracy or completeness of the material contained in this document and shall have, and accept, no liability for any statements, opinions, information or matters (expressed or implied) arising out of…

As a scientist who enjoys a good vigorous argument with my peers over matters of research findings in the literature and hypotheses etc. I find this report profoundly depressing. No doubt these scare figures will be repeated endlessly in the next 24 hours by all the news media. But in my opinion if I cannot see any kind of glimpse of how they were derived I consider them without value. But on this we are supposed to base important decisions of great impact on the future of our country.

Finally let me repeat here what I wrote in my last piece on this issue.

Even if one assumed that all coal-fired power stations closed down tomorrow it would be difficult to arrive at a 35% drop in coal mined in Australia (as told to the Senate Select Committee by the Australian Coal Association). In reality, given the average operating life of coal generators of up to 40 years, even under the greenest scenario (no new coal generators constructed in Australia) there would be a very slow reduction in the use of coal measured over decades. Garnaut shows current-technology coal-fired electricity generation to be steady up to 2033, then tapering off towards zero between 2063 and 2073. This could be true worldwide in the (unlikely) event of serious agreement at Copenhagen later this year, but it too would be a very gradual drop-off in demand.

Michael James is an Australian scientist who has co-authored over 100 papers in international science journals. These are the author’s personal opinions and do not represent the views of any organisation or institution with which he is affiliated.

Should the Minerals Council be taken seriously?

Dr Peter Wood is an applied mathematician at the Australian National University. He blogs on climate policy at www.climatedilemma.com. He writes:

Mitchell Hooke, the CEO of the Minerals Council of Australia, has claimed that the Carbon Pollution Reduction Scheme (CPRS) will lead to the loss of exactly 23,510 jobs by 2020 — a very precise figure. This is not the first time that Hooke has made an interesting claim.

On Four Corners in March 2009, Hooke claimed that a five percent emissions cut for Australia by 2020 would require an annual reduction of greenhouse gas emissions of 250 million tonnes. This figure is completely wrong, according to the Department of Climate Change’s projections, a five percent reduction by 2020 would only reduce emissions by 139 million tonnes compared to what emissions are likely to be in the absence of the CPRS. These emission reductions are less that what we are likely to get from existing measures.

Hooke’s figure is from a study commissioned by the Minerals Council of Australia, and prepared by Brian Fisher. The study criticises the modelling by Treasury for only reporting impacts at a highly aggregated level. This is in fact untrue; the Treasury modelling examines the impacts of the CPRS on 53 different sectors. On all of these sectors, the employment impact is minimal. In some sectors employment is expected to increase more under the CPRS than would otherwise be the case. These sectors include dairy cattle, forestry, food other than meat products, manufacturing other than vehicles and metal products, trade, and business services.

The Fisher study is based on general equilibrium modelling. The results of this sort of modelling depend closely on the assumptions used in the model, which are highly uncertain for the years 2020 and 2030. To report results to four decimal places is absurd. The study only considers employment in one sector, rather than employment as a whole. Australia’s total employment is the figure that matters. A fundamental problem with the study is the way that it deals with employment multipliers.

The idea of an employment multiplier is that some jobs in a particular sector will lead to other jobs through spill over effects. Because the study ignores other sectors of the economy, it ignores the employment multiplier effects of job increases in other sectors. This is important because when the mining industry booms, the Australian dollar becomes over-inflated, leading to possible job losses in other sectors like manufacturing, which has higher employment multipliers than mining.

The Minerals Council of Australia is well known for its rent-seeking when it comes to climate policy, they should no longer be taken seriously.