Cost of no climate action to hit Australian economy: Report

More than 30% of employed Australians and 30% of national income come from industries exposed to economic disruption and risk from climate change and an unplanned economic transition, according to Deloitte Access Economics.

Australia's agriculture, construction, manufacturing, tourism related industries and mining sectors are exposed to climate change and an unruly economic transition to a low-carbon world, as well as the risks of COVID, Deloitte said in the report, A new choice: Australia's climate for growth.

Deloitte is recommending that business, industry and government set sector, organisation and economy-wide strategies to reach net zero emissions by 2050. The economic cost of doing nothing is an economy which is 6% smaller, a $3.4 trillion loss in GDP in present value terms, and with 880,000 fewer jobs.

By contrast, a new growth recovery, delivering net zero by 2050 and consistent with keeping global warming to 1.5C, could add $680 billion (in present value terms) and grow the economy by 2.6% in 2070, adding more than 250,000 jobs, Deloitte calculates.

Deloitte notes that the industries that are most vulnerable to climate risk are also those that are being hard-hit by the COVID-19 pandemic.  Deloitte Access Economics' estimates that the top six industries hardest hit by COVID represent 32% of all employed people in Australia and 25% of GDP, measured in weekly payroll data.

Linking the post-COVID recovery to building long term policy to manage climate risk could set a new growth recovery, "delivering net zero by 2050 and consistent with keeping global warming to 1.5 degrees C, could add $680 billion (in present value terms) and grow the economy by 2.6% in 2070, adding more than 250,000 jobs.

"We are in an environment where we're thinking about our recovery from COVID, but we should really be thinking about what will allow us to thrive," said principal report author, and Deloitte Access Economics lead partner, Pradeep Philip. "We are going to be spending all of this money from the public purse to recover, then why wouldn't we also be thinking about how we mitigate the next big risk while also sowing the seeds to benefit from that?"

Philip noted that the impacts being felt in Australia and around the world predate the pandemic, and in Australia's case, predate the massive bushfires of late 2019 and early 2020.

"If we look at the period since WWII, after the great spurt of about 40-50 years, we saw trend rates of economic growth start to come down," Philip said. "If you think about the decade close to GFC, the trend line was lower than the ten years before that, which was lower than the ten years before that."

The challenge facing economies globally is to find new sources of productivity and economic growth, Philip said.

"Pre-COVID-19, massive shifts have been taking place," he said. "Shifts such as the rise of technology, particularly information communications tech, now feeding into new forms with AI and robotics, digitisation more generally, and we saw the big trend of climate change coming our way. Technology and climate change are massive disruptors sitting alongside economies that need to modernise."

Another trend is the growing sense of inequality and lack of trust, Philip noted.

"What COVID-19 has done has been to accelerate all of these trends," he said. "We need to take hold of the economy and create benefit, and for that we have to address all of these trends."

Deloitte said that business, industry, investors and government need to leverage capital and plan for the transition. The report notes that policies aimed at strengthening economic growth can support low-emission pathways, and actions to stimulate investment in low-emission investments can strengthen economic growth job creation.

"Businesses understand risk," Philip said. "Climate risk is something that is now seeping into the consciousness of boards and management, initially from a negative perspective, but increasingly from a positive perspective, because they're starting to see that customers are shifting and if you believe the customer is nearly always right, you want to follow that."

The Deloitte report breaks down the sources of risk, noting that 23% of the Australian workforce is exposed in emissions intensive sectors, and Australian regions are more exposed to disruption and a failure to plan. Over half of Australian regions have 'emission intensive' employment that makes up 20-60% of total regional employment, the report said.

"We owe it to people in certain industries and communities that we are up front about the changes that are underway," Philip said. "If you do that, you can think about structural change to have some control over the transition. If you leave it too late, it can become catastrophic. We model a transition not a cliff. Nobody is saying all these activities stop overnight, but if we leave it too late, you run into headwinds that make the transition more expensive and difficult, and worse, we haven't arrested the rise in temp, which means the economy overall suffers."

Read more: climate changeDeloitte Access Economicsclimate riskPradeep Philip
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