The bilateral trade between Australia and Japan has played very important roles in Australian and Japanese economies over a long period of time. In this study, we apply the bounds testing approach within an Autoregressive Distributed Lag framework (ARDL) to evaluate the major determinants of Japanese demand for Australian exports. The modelling results show that real Gross Domestic Product (GDP) is the most important factor positively affecting the Japanese real imports from Australia. The real exchange rate and foreign reserves assets affect negatively but are inelastic in both the long run and the short run. With a value of -0.74, the error correction coefficient is very significant. This indicates that only a short period of time (4 months) is needed to achieve long run equilibrium.

The paper uses the GTAP-E model to examine whether the A$2.55 billion budget of the Emissions Reduction Fund (ERF) is adequate to buy the required abatement with respect to Australia's 2020 target. The ERF is examined according to the Marginal Abatement Cost (MAC) curve theory, with a carbon tax simulated in advance, and the equivalent subsidy outlay is calculated. We also examine whether the operations of some domestic Emissions Trading Schemes (ETSs) in other economies would affect Australia's emissions levels and MAC curves. The results indicate that the ERF budget can only help Australia to buy 85% of the required abatements, subject to its 2020 target, and that the implementations of ETSs in the other economies would not greatly affect either the emissions levels or the MAC curves in Australia.