A fully developed Global Integrated Assessment Model (GIAM) will enable policy makers to weigh up the cost of climate change mitigation against the benefit of such an action.

“GIAM is the first model of its kind to specifically include the Australian economy,” ABARE Chief Economist Don Gunasekera told the ABARE OUTLOOK conference today.

“Integrated assessment models link climate and economic systems to enable policy decisions to be taken backed by the most comprehensive information available.

“These models can examine the impacts of climate change as well as the implications of a range of mitigation and adaptation policies. Preliminary GIAM results indicate that climate change could substantially lower domestic and global economic output,” Dr Gunasekera said.

Australian Securities Exchange General Manager Anthony Collins gave the conference an insight into Australia's emerging carbon market.

“Australia has the necessary financial market infrastructure in place to provide price discovery and risk transfer mechanisms for the carbon market. This, along with clear and certain policy, will be required to build market confidence and in turn liquidity.

“Indications are that the value of issuances in the Australian emissions trading scheme could be around $120 billion over the next 10 years, more than twice the value of the Australian Government bonds market,” Mr Collins said.

While agriculture initially will be excluded from the Australian carbon emissions trading scheme expected to be operating in 2010, the conference heard that New Zealand"s emissions trading scheme will include agricultural activities.

Tim Denne, the director of New Zealand economic consultants Covec, said an emissions trading scheme is the most cost effective way for New Zealand to reduce its greenhouse gas emissions.