Australia's Clean Economy Future: Costs and Benefits

This cost-benefit analysis finds that developing clean economies, whilst tackling climate change will actually deliver economic benefits.

Clean Economy

Executive Summary

This Issues Paper offers a comparison of the costs of emission reduction in Australia relative to the potential damages from climate change under current policy settings.

Overall, the costs of emissions reduction are far less than the damages of inaction – even with modelling underestimating damages from climate change and overestimating the costs of emissions reduction.

This paper finds that transitioning to a low-carbon economy is sound economic development: even when the benefits of reduced emissions are ignored, the economic benefits of a transition to a low-carbon economy easily outweigh the costs.

The management of risk due to exposure to the increasing impacts of climate change is now a central issue for reserve banks, the financial sector and business around the world

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Key points:

The potential damages from climate change to Australia at current global emissions patterns are conservatively quantified as:

  • $584.5 billion in 2030
  • $762 billion in 2050
  • more than $5 trillion in cumulative damages from now until 2100.

Conversely, the national costs of effective emissions reduction – based on a carbon price or renewables target – are estimated at $35.5 billion from 2019 to 2030, or 0.14% of cumulative GDP; a negligible impact.

The cost benefit analysis found that best-practice options for State-wide emissions reductions would lead to a reduction in greenhouse gas emissions over a business-as-usual scenario of 627 million tonnes from 2020 – 2075. This would come at a total cost of $3.6 billion with a net benefit of $16.2 billion at a discount rate of seven per cent.

The strategic need for states and territories to transition to a low-carbon future is two-fold: it strengthens economic competitiveness and helps to avoid catastrophic climate change impacts.

Of the options available to states and territories, increasing renewable power generation and use should be a priority, as should state-based emissions management schemes for the energy sector. Sector-specific options targeting transport, agriculture and land use will also drive change and create new employment opportunities as these sectors undergo drastic change

Governments that transition to a low-carbon economy are strengthening their economic competitiveness. The global business community is less likely to invest in economies that do not address climate-related risks.

Australia cannot afford to be viewed as a high-risk investment location. Businesses and governments that understand and plan for their climate-related financial risks and disclose their efforts to address these risks (and opportunities), will have a healthier risk profile.

The Melbourne Sustainable Society Institute (MSSI) at the University of Melbourne, together with key experts from the Australian National University (ANU) and SGS Economics & Planning (SGS), have assessed the economic consequences, costs and benefits, of a future with effective climate policy.