$6.8 trillion GDP hit if renewable energy transition is delayed

New economic modelling shows climate damage will deliver a 14 per cent annual hit to Australia’s Gross Domestic Product (GDP) if current global climate policies continue, wiping out $6.8 trillion from our economy between now and 2050 and cutting thousands of dollars a year out of the pockets of Australians.

Data released by the Network for Greening the Financial System (NGFS) – a group of 141 central banks and financial supervisors including Bank of England, Bank of Japan, European Central Bank, People’s Bank of China, Reserve Bank of Australia, Reserve Bank of India and US Federal Reserve – shows Australia could see GDP cut by roughly one seventh due to the broad effects of climate change, from costs associated with extreme weather and second order effects on labour, capital, land and natural productivity.

The economic damage will likely be significant for our trading partners as well, with our neighbours across Asia likely to see a 16% hit to GDP by 2050 under current policies.

Australia will also likely face a greater hit to our GDP than the global average and most comparable countries and regions.

The cost of climate inaction has already begun: Over the last decade, climate extremes have cost Australia tens of billions of dollars, disrupting communities, businesses and infrastructure and forcing governments at all levels to shell out money that could have been spent on schools, hospitals, childcare and other essential services.

Commonwealth-administered expenditure from FY19 to FY23 was $15.9 billion (around $610/person) just to support ongoing climate disaster recovery efforts across Australia (
Colvin Review, 2024
). For comparison, budget commitments over the next five years towards Strengthening Medicare are $1.2 billion, increased payments under the Pharmaceutical Benefits Scheme are $3.4 billion, and funding towards priority road and rail infrastructure projects are $2.9 billion.

While Australians are already feeling the economic blows of climate change, the worst is yet to come, with the economy taking a progressively bigger hit over the coming decades.

Under current policies, we can expect a per annum $147 billion reduction to GDP by 2030. By 2040, the hit to GDP more than doubles to $350 billion before continuing to grow to $656 billion by 2050. Living standards are also impacted, with per capita annual income falling by approximately $5,000 by 2030 then approximately $7,300 by 2050.

The Total National Income (standard of living) losses from climate damages are projected at $7.0 trillion between now and 2050.

The good news is continuing the transition to renewable energy and reducing emissions across the Australian and global economy can save the economy billions of dollars a year, rising to over $230 billion a year by 2050.

Investor Group on Climate Change CEO Rebecca Mikula-Wright said this alarming new data goes to show why Australia must stay the course on the transition to renewable energy and commit to a strong 2035 emissions reductions target.

“We know that the failure to plan and act on climate change is already resulting in more extreme weather events, causing costly disruptions for Australian farmers, businesses, local communities and the whole economy,” said Ms Mikula-Wright.

“Tens of thousands of Australians are already employed in the renewable energy transition. Australia requires a strong 2035 climate target so that investors have the certainty they need to keep investing in Australia, and keep the worst of this damage from coming to pass.”

Ms Mikula-Wright also pointed out that the shift to a clean economy is the “single biggest economic opportunity for our nation and the retirement savings of millions of Australians”.

“Australia has some of the best solar, wind and mining resources in the world. If we harness our potential, we could become a renewable energy superpower, sell clean products, like green iron, to the world and decarbonise around 10% of global emissions.”

“Australians have much to lose from climate damages but we also have much to gain from using our world leading clean energy resources. With the right policy settings, Australia can lower the cost of living and power bills, keep the lights on, and provide secure job opportunities. Climate action pays off,” Ms Mikula-Wright said.

Scenario description:

• These are global economic scenarios. The 3°C (Current Global Policies) and Net Zero results are based on a comparison between a hypothetical scenario where climate change does not exist, e.g how the economy would change if it was not ‘shocked’ by climate damages or additional emissions reductions policies.
• The 3°C (Current Global Policies) scenario assumes that currently implemented policies are preserved to 2050, leading to high physical climate change risks from 3°C global warming.
• The Net Zero scenario limits global warming to 1.5°C with limited overshoot through stringent climate policies and innovation, reaching global net zero CO2 emissions around 2050 in line with the objectives of the Paris Agreement.
• Modeled climate impacts stem from increased temperatures, a rise in sea levels and changes in rainfall, which may affect labour, capital, land and natural capital in specific areas. Other impacts include extreme weather events, which can lead to business disruption and damage to property, reduction of agricultural yields and/or labour productivity. These events can impair asset value and increase underwriting risks for insurers, leading to higher premiums and the possibility of withdrawal of insurance coverage in some regions.
• The models used probably underestimate the risks from physical impacts due to the models’ inability to account for the risk of “tipping points” and large-scale climate impacts affecting different regions of the world simultaneously. Also, climate damage estimates are based on a mid range estimate of climate damages to economies. Again, this is a conservative assumption based on our current understanding of the climate system as climate models have consistently underestimated the pace of human-induced change in the climate system.