CoPS/IMPACT Working Paper Number G-324

Title: Zero Greenhouse Gas Emissions by 2050: What it means for the Australian Economy, Industries and Regions

Author: Philip Adams


This paper focuses on modelling with the Victoria University Regional Model (VURM) of the impacts on the Australian economy and its industries and regions, of achieving net zero greenhouse emissions by 2050. This is timely, being published at the time of the Glasgow Climate Change Conference, at which Australia has committed to achieving net-zero by 2050, albeit with little detail yet about how it is to be achieved and what its impacts will be on different industries and regions.
At the national level we find that despite the requirement for deep cuts in emissions, the Australian economy continues to grow strongly in terms of production (real GDP) and employment. The loss of real GDP in 2050 due to decarbonisation is projected to be around 1 per cent, or close to $30 billion (in 2021 prices). Our previous assessment in 2014 estimated a loss of 3.8 per cent, or nearly $150 billion (2021 prices). This time the negative GDP result is much smaller because the abatement task is easier due, in part, to lower than previously expected renewable generation costs and faster than previously expected penetration of electric vehicles for both light and heavy transport.
For industries, decarbonisation provides an impetus to some, especially industries producing electricity from renewable generation and industries directly and indirectly associated with forestry and wood production. But, there are some industries for which zero-emissions restrains output and employment. Examples include coal-based electricity generation and coal mining.
The pattern of decarbonisation effects across states and territories reflects the pattern of industry effects. Overall, real Gross State Product (GSP) is projected to fall relative to Base Case values in all states except Tasmania and South Australia. The state projected to experience the largest decline is Queensland because of an over-representation of coal mining, broadacre agriculture and coal generated electricity in its economy.
For Australia as a whole, vulnerable industries noted above account for less than 4 per cent of aggregate employment. However, some sub-state regions are much more heavily dependent on the vulnerable industries. We identify 9 out of 88 sub-state (SA4) regions as vulnerable in terms of potential loss of employment. These include coal-dependent regions such as Hunter in NSW, Fitzroy in QLD and Gippsland in VIC.

JEL classification: C68, Q52, Q58, R11

Keywords: CGE, Climate policy, Industries, Regions, Employment

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