AbstractWhile at the Toronto Conference in 1988, Australia adopted a target of reducing carbon dioxide emissions by 20 per cent of 1988 levels by the year 2005, however action to reduce emissions has been negligible. Unilateral action is deemed too costly in terms of the negative effects it could have on employment, GDP growth, exports and international competitiveness.Most Australian studies have evaluated the effect on such variables of employing a specified policy instrument, such as a carbon tax, to reduce emissions. This study instead uses an input‐output method developed by Proops, Faber and Wagenhals (1993) to ascertain the minimum set of changes necessary in different sectors of the economy required to achieve the Toronto Target, where constraints on key macroeconomic variables, such as GDP growth and the level of employment, are met. The cost of reducing emissions is defined here in terms of the required structural changes, when factors like GDP growth are held positive.The results suggest that the necessary changes in various sectors under each of the scenarios are not far removed from the observed rates of change for Australia. The results are also consistent with those obtained for both Germany and the United Kingdo