Today’s Intergenerational Report confirms the immediate and long-term economic benefits of investment in new clean energy supply and building resilience to worsening climate damages.
Australia will maintain a stronger fiscal position under an accelerated global rollout of clean energy instead of extended reliance on coal, gas, and oil, the report shows. In every pathway, however, “investment in disaster risk reduction and resilience will be critical to reduce losses, improve insurance affordability and support faster recovery”.
In what has remained a constant thread over the last two decades of Intergenerational Reports, climate change continues to present a long-term financial risk to Australian prosperity, the national budget, household wealth and economic resilience.
Australia can protect its businesses and households from higher-priced imported diesel, oil, and other fossil fuels by continuing the country’s rollout of renewable energy and widespread electrification, according to the report.
Data centres are projected to drive significant increased electricity demand, reaching 7 per cent of National Electricity Market (NEM) demand by 2030 and 10 per cent by 2050, amidst a much broader trend of electrification across the Australian economy.
Quote from Francesca Muskovic, IGCC’s Executive Director, Policy
“Governments of all colours – and ultimately all Australians – will continue to face the consequences of a failure to manage climate risks appropriately.
“This will manifest in myriad ways: increased infrastructure damage and recovery costs, higher insurance premiums, weakened productivity and reduced economic activity from a failure to adapt our existing industries and invest in growing new industries where we have a competitive advantage.
“The good news is Australia has plenty of natural advantages. Future prosperity will not be the product of dumb luck, but rather the result of considered, deliberate choices made today to reform and orient our economy to harness those advantages.
“The government needs a laser focus on making sure data centres’ growing electricity demand is aligned to and supports investment and rollout of new, firmed renewable energy.
“Runaway demand without securing a strong pipeline of additional, new clean energy supply will put immediate, acute pressure on the existing grid and could lead to increased energy prices for Australian households and businesses.”
Australia’s Moves Now Can Get Private Investment Flowing
The report’s long term outlook underlines the urgency of immediate reforms.
IGCC’s members are the custodians of the retirement funds and savings of almost 15 million Australians. Those funds are exposed to the whole of the economy and cannot divest from macro-economic climate risks. As universal owners, IGCC members are highly incentivised to contribute to a resilient and growing overall economy.
They have identified priority policies to address dynamics that are reflected in the report:
- Increased and better targeted public and private investment in adaptation will help the productivity of Australia’s businesses, reduce disaster recovery costs, and protect communities and ecosystems. The National Adaptation Plan can be strengthened with a finance strategy that includes measures to activate private sector investment in adaptation and updates to the mandates of public special investment vehicles.
- Accelerate the energy transition and implement enduring reforms that will bring forward more renewable energy capacity and storage. This includes accelerated and streamlined approval processes and electricity market reforms in line with the NEM review’s recommendations.
- Support rapid uptake of energy efficiency and electrification as cross-cutting technologies across buildings, industry and transport sectors.
- Use the current review of the Safeguard Mechanism to future-proof Australia’s industrial base, reducing the risk of stranded assets and businesses, and incentivising on-site emission reductions instead of over-reliance on carbon credits.
- Adjust tax and regulatory settings to position Australia competitively to attract investment in energy transition, manufacturing and export-focused projects from domestic and global investors. This includes removing fossil fuel subsidies that distort investment signals and delay decarbonisation.
- Deliver international leadership to turn Australia’s competitive advantages in renewable energy and critical minerals into new export industries and revenues as global demand for fossil fuels declines. Treasury’s Renewables Upside scenario finds Australian exports could be worth $68 billion more each year than under the Baseline.
An Important New Evidence Base for Investors and Industry
The report has a wealth of information for investors and business decision-makers considering the trajectory of energy, electrification, industry, trade, economic adaptation and resilience.
The report quantifies the impact of four particular areas of climate damage: sea level rise, heat causing lower worker productivity, lower crop yields and lower tourism. It shows that by 2066, Australia’s real GDP could be 1 percentage point higher under the Paris-aligned scenario compared to the Exceeding 3°C scenario. It also cites a more comprehensive assessment by the Network for Greening the Financial System which shows global GPD could be 5 to 44 per cent lower by 2100 under a Exceeding 3°C scenario.
IGCC’s next member briefing on 14 October will focus on the findings of the intergenerational report, and their implications for investors.
Themes in the report include;
- Disaster recovery costs
- Insurance affordability and access
- Heat stress on crop yields
- Economic costs of sea level rise
- Household electrification savings
- Heat and worker productivity
- Climate tipping points
- Green iron, critical minerals and hydrogen
- Data centre electricity demand
The IGCC Summit, November 24-25, will also cover many of these topics. Tickets are available now.