In the task at hand, there is the conduction of qualitative analysis of the appropriateness of the methodologies and assumptions used, as well as the sensitivity of the estimates and quantifications concerning the choice of discount rates, sensitive variables, alongside the assumptions. Starting with the methodologies used, they are the CGE (Computable General Equilibrium) and CBA (Cost-Benefit Analysis). The computable general equilibrium model used in the paper at hand concerns the economic model that makes use of the economic data surrounding the Carmichael project in the estimation of how the economy in Australia can react in relation to the changes in technology, various related policies, as well as some other external economic factors of significance: which in this case are being introduced by Adani mine's entry into the economy (Fahrer, 2015). In the Carmichael project at hand, it can be established that it is significant in nature, covering such projects as coal mining, railway line for the transportation of coal, Abbot point port, power generation plants in India, as well as the electricity distribution networks. Thus, the use of the computable general equilibrium model at hand also enabled the examination of the behavior of present values, costs, and benefits to be reaped from the project. Using the model, it was found that an amount of between $18.6 billion to $22.8 billion was potential to the realized from the project (Fahrer, 2015). Thus, the model was successful in the estimation of the net economic benefits of the project, that could then give confidence to the investors as well as informing their decisions on the way forward for the project, such as the number of investments to add alongside the types of modern technologies needed to raise the yields of the project.
In the paper, while taking into account the objections staring at the project such as the fact that the various adverse effects it has on the environment, the use of CGE model enabled the estimation of the economic impact the project has on the economy: such as the level of production to be incurred, alongside the output form different industries, the way the employments ae affected in the industry, the effects of the project on the incomes by individuals alongside its impact on different types of spending including investment, consumption, exports, and imports. Such analyses were conducted at both the local, regional, national, as well as global contexts, which then brought the overall picture in terms of the impacts of the project on a more extensive economic spectrum: at all levels.
Besides, the use of Cost-Benefit Analysis type of evaluation also enabled the estimation of the expected net benefits of the project: standing at between $12.3 billion to $16.6 billion. In this regard, it can be observed that such estimation could complement those of CGE, hence bringing a region of between $34.5 to $44.3 billion in total expected benefits from the project (Fahrer, 2015). Therefore, they jointly raised the level of confidence of the concerned stakeholders, where they could be observed that the value of their risks in the long run, hence the appropriateness of the methodology. It also enabled the estimation of the existing externalities, alongside quantifying their overall effects, alongside providing some corrections of the market prices which are not related to the ones that exist in competitive markets existing in Australia where the Adani mine would be located. Such prices include those of essential inputs regulated by the Australian government or that are subject to the effects of monopoly pricing (Fahrer, 2015). Thus, it can be observed that cost-benefit analysis, though analyzing the economic factors within the microenvironment, examines them broadly, while the computable general equilibrium focuses on the macro effects of the Adani project. Hence, their use in the project enabled the estimation of various factors related to the project from multiple perspectives, thus appropriate in this regard.
Regarding the assumptions made in the economic evaluation of the project as well as its impacts, it was assumed that the labor that is utilized in the progression of the project activities is obtained from other industries, except the ones drawn form some small scale labor effects. Such an assumption is appropriate, and it necessarily places a given limit on the level to which the project can be able to increase the income from its output in the economy. It was also assumed that the benefits from the project at hand could not be able to exceed the costs by any means. Such an assumption arose following the economic valuation and estimation of the potential benefits to be reaped from the project during its future operational times. (Fahrer, 2015). It was also assumed that such profits could not go below the costs even if the conditions such as the lowering of coal output and prices or the environmental costs of the project go much higher than expected. Hence, such an assumption was appropriate owing to the enormous estimates of the potential benefits of the project: obtained from both the computable general equilibrium and cost-benefit analyses: which produced complementing results, hence the validity of the assumptions made regarding the benefits to be reaped in future.
For the case of the sensitivity of the estimates and quantifications concerning the choice of sensitive variables, discount rates, and assumptions, they are entirely interdependent in that they are all affected by the prevailing economic conditions of Australia. It can be observed that the estimates of the costs of various aspects related to the project, alongside its benefits, have been selected with the discount rates whose choice was affected by its past behaviors in the different economic environments (Fahrer, 2015). Since the project at hand will be delivering a region of forty billion tons of coal annually, the chosen metrics are entirely appropriate to such magnitude of the project. Also, the sensitive variables and assumptions are well selected and represent an ideal economic environment in which they are all involved in the entire life of the project. An example can be observed in the scenario where the assumption is that there can never exist a situation where the project fails to get more benefits than costs. It results from a good estimation of the costs and benefits based on all the involved economic variables, which then shows that they are all interdependent and well-chosen, hence appropriate.
Fahrer, J. (2015). Carmichael coal and rail project: Economic assessment-Expert report by Jerome Fahrer. ACIL Allen consulting, report to Land Court of Queensland.
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