to be the first of many such schemes as countries seek to re-level the playing field on climate action . A CBAM acts address international differences in carbon price , by ensuring imports to and exports from countries with a carbon price don ’ t lose businesses or competitiveness to “ free rider ” countries . The EU scheme is set to cover iron , steel , cement , fertiliser , aluminium , and electricity in its first iteration , but will be expanded to cover coal , gas and other emissions-intensive goods down the track .
Recent modelling by the Climate Council looks at the implications of CBAMS being adopted by the EU , by the G7 and South Korea , and by China . 11 The economic impact of the EU acting alone and with only a narrow group of goods covered , is relatively small ( less than half a billion dollars in GDP ). This is largely because Australia does not export much to the EU in the way of targeted products .
However , once we look at the G7 and South Korea , and also China , the story gets more concerning , with losses of A $ 2 billion and $ 2.5 billion in GDP respectively . And a declining Terms of Trade means national income is hit harder , with falls of $ 6 billion and $ 6.7 billion respectively . Several thousand jobs are lost under both of these scenarios . These figures may not seem large , particularly in face of the billions of dollars lost to COVID-19 lockdowns , but they are still meaningful .
The greatest worry , however is for the people of NSW and Queensland , whose economies will bear the brunt of the adjustment , given their reliance on the targeted sectors , especially coal . In these two states , tens of thousands of jobs are at risk .
Australia is also at risk of a rising cost of capital as investors in both the private and public sector increase their risk assessment and required interest rates . This will result in falling public and private investment , dragging down growth and employment further .
Research shows that worsening climate change has already had an impact on the cost of capital in climate vulnerable developing economies , raising borrowing costs from 1991 to 2017 for private sector firms by 0.63 %. 12 For sovereign debt ( government borrowing ) over the past decade borrowing costs in climate vulnerable countries have increased by 1.17 percentage points on average .
TRANSITION CAN BE PLANNED OR CHAOTIC The gradual demise of our fossil fuel sectors is inevitable , but ideally would occur within Australia ’ s control with appropriate support for communities and workers directly affected . The NSW Government reached similar conclusions in its 2021 Intergenerational Report stating that a transition plan is vital for communities and workers to adjust to a new , post-carbon economy .
EMBRACING OPPORTUNITIES , ADVANCING AUSTRALIA A planned transition means that we can take a first mover advantage of the opportunities presented by living in one of world ’ s sunniest and windiest countries , with a smart , educated workforce and access to capital . For example , Sweden is already providing green steel for Volvo 13 , while the Canadian Government has announced a partnership with its cement industry to be a world leader in carbon neutral cement . 14 This is a model we should follow .
Australia could grow a new green export mix worth $ 333 billion per annum , almost triple the value of existing fossil fuel exports . 15 Modelling by Deloitte Access Economics suggests support for a low carbon economy in Australia will add $ 680 billion in economic growth and 250,000 new jobs by 2070 . 16 In the UK , the green economy has now grown to an estimated $ 400 billion , which is four times bigger than the manufacturing sector . Growth in the sector is forecast to increase by 6.7 % a year over the five years to 2025-26 . 17
Across Australian states , we are seeing the seeds of development to grow new , green industries , such as the Eyre Peninsula ’ s hydrogen and ammonia hub , and to reinvent old fossil-fuel sectors , such as Tomago ’ s aluminium . We are leading research into low-emissions cattle and soil carbon . Economic Development officers can support this transition by identifying opportunities and gaps , such as supporting infrastructure that are needed to access those opportunities .
Across the world , consumers , business and governments are demanding action on climate change . Australia can embrace this challenge and reap the rewards , supporting communities to transition as smoothly as possibly . Or we can bury our heads in the sand and face economic , social and environmental chaos .
Australia has successfully transformed itself in the past and we can do so again .
REFERENCES
1 . IPCC ( Intergovernmental Panel on Climate Change ) ( 2021 ) Climate Change 2021 : The Physical Science Basis . Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change .
2 . Canadian Institute for Climate Choices , ( 2020 ), Tip of the iceberg Navigating the known and unknown costs of climate change for Canada
3 . Climate Council ( 2021 ) Hitting home : the compounding impact of climate inaction
4 . Australian Business Roundtable ( 2021 ) Special report : Update to the economic costs of natural disasters in Australia . An Australian Business Roundtable for Disaster Resilience & Safer Communities commissioned report by Deloitte Access Economics .
6 . Coates et al . ( 2014 ), Exploring 167 years of vulnerability : An examination of extreme heat events in Australia 1844 – 2010 at www . sciencedirect . com / science / article / pii / S1462901114000999
7 . De Alwis , D . and Limaye , VS ( 2021 ), The Costs of Inaction : The Economic Burden of Fossil Fuels and Climate Change on Health in the United States , Natural Resources Defense Council
8 . Ibid 4 .
9 . Kompas , T ., Pham , V . H ., and Che , T . N . ( 2018 ) The effects of climate change on GDP by country and the global economic gains from complying with the Paris Climate Accord . Earth ’ s Future , 6 , 1153 – 1173
10 . Ibid
11 . Climate Council ( 2021 ) Markets are moving : the economic costs of Australia ’ s of climate inaction
12 . Coates et al . ( 2014 ), Exploring 167 years of vulnerability : An examination of extreme heat events in Australia 1844 – 2010 at www . sciencedirect . com / science / article / pii / S1462901114000999
13 . De Alwis , D . and Limaye , VS ( 2021 ), The Costs of Inaction : The Economic Burden of Fossil Fuels and Climate Change on Health in the United States , Natural Resources Defense Council
14 . Ibid 4 .
15 . Kompas , T ., Pham , V . H ., and Che , T . N . ( 2018 ) The effects of climate change on GDP by country and the global economic gains from complying with the Paris Climate Accord . Earth ’ s Future , 6 , 1153 – 1173
16 . Ibid
17 . Climate Council ( 2021 ) Markets are moving : the economic costs of Australia ’ s of climate inaction
ABOUT THE AUTHOR
ECONOMIC DEVELOPMENT JOURNAL VOL 14 NO 3 2021 13