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A New Choice Australia's Climate for Growth

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A New Choice Australia's Climate for Growth A new choice Australia’s climate for growth November 2020 A new choice CONTENTS Above · Double Bay, New South Wales. A new choice 1 Choosing change for Australia 42 Creating a new growth recovery 43 Creating new growth in recovery 11 Big – but not new – ideas for a new growth recovery 46 Like catching a falling knife 11 A new growth recovery in Australia 50 Economics of a warming world will hinder recovery 13 Australia feels the heat 14 Time to get on with it 52 Economic disruption risk as the world changes 18 There is a high price for Australia to pay There no such thing as green – just good 25 from doing nothing 53 Australia needs ‘good’ economics The economic climate will change 27 to recover from covid 53 Climate change is not an economic scenario, Becoming net zero is in Australia’s national interest 54 it is the baseline 28 How the economic climate changes 31 Technical Appendix 57 Today’s generation of Australians will experience the Appendix endnotes 71 worst impacts of a warming world 35 Losses compound over time as temperature rises 36 Contact us 73 ii A new choice Foreword While economic growth is sometimes about climate change turns up a large cost treated as preordained, in reality it is not. of action with scant benefits from change. Our understanding of economics has changed over time, as we have understood better the The economic baseline that we are conducting role of markets, of regulations, of finance, this debate against is fundamentally flawed. of consumer preferences and, increasingly, In its place, this report develops a baseline the environment. where unconstrained emissions are not consistent with unconstrained growth. Economic models, at their core, have assumed a system of production where unconstrained Deloitte Access Economics has constructed greenhouse gas emissions sit alongside a view of the Australian economy where the unconstrained economic growth. A virtuous physical damages to the environment cause and unconstrained model of growth has damage to the Australian economy if there is underpinned the vast bulk of economic inaction, or mis-action, in preventing climate thought and economic modelling. change. This is Australia’s economic trend without global or domestic change. This linear and unsophisticated view of the world has come up against science, which This report provides a basis for a more hopeful and tells us that the current system of economic useful debate about climate change – because production as we know it is generating physical Australia’s current debate no longer appropriately changes in the climate. In turn, these changes serves Australians, our economy or our decision are negatively affecting the environment, makers. The policy choices over the next 2-3 years putting at risk economic growth and our are the choices that will shape the next 10-20 – quality of life. this is the narrow and unforgiving window of time we all have to choose the change that will With this knowledge, the assumption of prevent a warming world, and the devastating unconstrained emissions and unconstrained economic consequences that come with it. growth is disrupted. Our Chief Economist, Chris Richardson, has a Yet, with climate change, the debate immediately, saying that “…everyone has a second job in life – and almost exclusively, turns to a question of the job of leaving the world a better place…” the costs of doing something about it. Never has that been more true or apt than in the analysis and insights of this report in What this report reveals is a fundamental flaw creating Australia’s climate for growth. in how we are viewing the debate on climate change; we are all missing the point. We view the costs of action against an economic future where the basic assumption is that the economy will keep growing with unconstrained Pradeep Philip emissions. It is no wonder, then, that any debate Partner, Head of Deloitte Access Economics iii A new choice iv Surfers Queensland. Paradise, Executive summary A new choice If climate change impacts were distinct from the health and economic crises caused by the global covid-19 pandemic, that would be easier for Australia. But both crises and their solutions are linked – and this means Australia has a new choice to make. Our world demands more from us all every day. As public and economic policy rapidly progress Our economy is geared to produce more so to create recovery from covid, the (in)consistency we can consume. We need to learn new things of our understanding of the economic impacts to get, or keep, a job. And we now balance and consequences of climate change, and the needs of our public health in the face of climate change mitigation policy, stand out. covid-19 with those of the economy in a global recession. All the while technology changes This last year has shown the consequences daily, and the world stage continues to offer a and costs of overlooking catastrophic risks. series of economic and geopolitical plot twists. Thus, as we focus on recovery, we also need to do more to understand the economic The pace and scale of change confronting us impacts and consequences of that other all in 2020 – while not equal or just – has been big risk – climate change. universal. And the global covid pandemic has demonstrated the consequences and costs Climate change is the next big risk we all face of overlooking catastrophic risks. – so how do we account for it in recovery? Deloitte Access Economics believes that a The next big risk ‘business as usual’ economic growth trajectory The risks of a warming world and a changing is innately miscalculated if it does not account climate due to our economic activity, while for the damages and impacts of climate change. more gradual, would be as great as those modelled by covid, if not worse. Not only is There is no ‘standard’ economic recovery it increasingly clear that the costs of climate from covid that Deloitte Access Economics can change are rising each year, the costs estimate that does not include the effects of associated with reducing the risks from a changing climate on Australia’s economy it are also rising with each year of delayed in the long-term. or insufficient policy action. 1 Executive summary Economic risk today looks Deloitte Access Economics estimates that a lot like the risks of tomorrow the top six industries: The economic paradox that has gripped • Hit by covid – in looking at weekly ABS payroll Australia for the past decade endures: data – represent 32% of all employed people the economic fundamentals that make Australia in Australia. strong today, are equally what expose the • Most exposed to the physical damages from economy to disruption and change in the future. climate change today, represent 46% of all employed workers. Looking ahead, this paradox only becomes • Most emissions intensive in their output more wicked. Some of the most significant risks represent 23% of all employed Australians. to Australia’s economic growth trajectory are Australia’s emissions intensive industries the physical risks associated with a changing are vulnerable to disruption as the rest of climate and the unplanned economic transition the world changes – the world may not want risk from the world’s response to this what Australia has to offer. changing climate. Taken today, on average, Deloitte Access The analysis in this report shows that the Economics estimates that over 30% of Australian industries hardest hit by the employed Australians are exposed to pandemic, are also the most vulnerable to economic disruption and risk from covid, the effects of a warming world and climate climate change and unplanned economic change. Australia’s agriculture, construction, transition as the world responds. manufacturing, tourism related industries and mining sectors all feature consistently in the While this is a significant number of jobs and top industries exposed to the risks of covid, growth at risk – enough to drive recessions – climate change and unplanned economic it is not all doom and gloom. The good news is transition as the world responds. that the remaining 70% of the workforce and Australia’s GDP is able to help create the change and a new economic trajectory for Australia in a post-covid world. 2 Executive summary in Australia’s economy from unchecked climate change 3 Executive summary to Australia’s economy from choosing a new growth pathway 4 Executive summary Over the next 50 years, unchecked climate change will reduce Australia’s economic growth. Doing nothing is a costly choice Economic damage on this scale costs In an economic future where Australia the economy 880,000 jobs by 2070. and the rest of the world does not mitigate For people in their 20s, 30s and 40s today, the worst effects of climate change, the world those losses are experienced in their has an emissions pathway that produces global lifetime. For a generation of Australians, average warming of above 3°C by 2070. their economic futures, and that of their While this is a global average, the reality is families and friends will be profoundly that in parts of Australia it will be much hotter. disrupted by the consequences of unchecked We will, truly, be the sunburnt country. climate change. But the effects of this will not be uniform across Australia. Over the next 50 years, unchecked climate change will, in average annual terms, reduce This warming world is no joke. It will affect our Australia’s economic growth by 3% per year ability to work outside – building houses and and cost around 310,000 jobs per year. infrastructure that we critically need. It affects our choices on where to live and holiday – Deloitte Access Economics estimates by 2070, as sea level rises and riverine flooding increase the economic cost of this will have doubled in intensity and impact.
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