Why the Nationals’ retreat on net zero would be bad economics
- Written by: Frank Jotzo, Professor, Crawford School of Public Policy and Director, Centre for Climate and Energy Policy, Australian National University
Australia’s National Party has ended[1] its commitment to reaching net zero by 2050.
In its anti-net zero plan[2], the party calls for emissions targets and climate policies to be watered down. The plan draws on a new report[3].
This would be economically damaging. Walking away from net zero would undermine investment confidence, raise power prices, drive up taxes, undermine green export potential, harm Australia’s international reputation and run against our intrinsic interest in strong global climate policy as a nation highly exposed[4] to climate damage.
The announcement by the Nationals shouldn’t be interpreted as the policy of a future government, given the rural party is the junior partner in the Coalition, the Liberal party is struggling to respond, and there’ll be more political positioning to come. But it will have influence. The spectre of policy reversal spooks businesses and investors.
The cost of a messy transition
It’s not plausible Australia would give up on net zero in the long term. There’s strong public support[5] for climate action, and we know how net zero can be achieved[6].
Australia’s long-term economic and broader national interest is aligned with strong climate action. This fundamental interest will very likely prevail above the political skirmishes and cycles. Yet Australia’s climate wars could flare up again, with uncertainty, detours, delays and inefficiencies.
The recent Treasury net zero modelling report[7] examines the question of a messy transition.
In a “disorderly transition” scenario, the report estimates wages in 2050 would be 2.5% lower and per capita GDP 1.6% lower compared with the steady trajectory of progress implied by the government’s 2035 emissions target of a 62–70% cut below 2005 levels. These aren’t trivial numbers – they represent a palpable loss to Australian households and quality of life.
A disorderly transition means delayed action and stranded assets. It’s more expensive in part because of uncertainty driving up financing costs for the necessary investments.
Is Australia cutting emissions faster than than the OECD?
National party leaders claim Australia has been cutting emissions faster than other rich countries. In their announcement[8], they made a very specific claim:
OECD countries have been cutting their emissions by 1% per year. Australia has been cutting its emissions by about 2% per year – double the OECD rate. Our emissions cuts will be capped and calibrated, which is common sense.
The maths of the claim is simple, but the substance of it is misrepresented. Australia has cut overall national emissions around 29% below 2005 levels[9], while other rich countries in the OECD have cut emissions 15% on average[10].
There are two fallacies here. First, Australia is unique among developed countries in that land-use change and forestry emissions played a large role in the national emissions profile until the 2000s. Falls in emissions have mainly come from these sectors.
In every other sector bar electricity, Australia’s emissions have increased or flatlined since 2005. When land use and forestry is excluded, emissions have only fallen 5%[11]. So in the metric that matters for the OECD comparison and for the actual low-emissions transition, Australia is below average, not in front.
Second, Australia is wealthier and has higher emissions on a per capita basis than the OECD average. There’s greater opportunity to cut emissions faster, and a higher expectation that Australia do so. Emissions can be cut deeply while maintaining activity not just in electricity but in industry, transport and agriculture.
Power-sector paralysis
The Nationals suggest propping up ageing coal plants with government intervention.
Left alone, the energy market will phase out coal in favour of wind and solar power. That’s because old coal plants are expensive to run and are less and less[12] reliable. Renewables and storage are cheaper options[13].
Keeping coal power on life support would cost Australians more, through higher power prices or higher taxes to pay for subsidies.
It would sap investor confidence, drive up investment finance costs and slow down the needed modernisation of the power sector. Investors would be looking elsewhere[14].
Industrial modernisation delayed
Another suggestion by the Nationals is to scrap or weaken incentives for heavy industries to cut emissions under the Safeguard Mechanism, which allows emissions credit trading. This would delay modernisation of industrial facilities and worsen investment conditions because of policy uncertainty.
Under the Nationals plan, Australia’s land-based carbon credit scheme[15] would revert back to a government “emissions reductions fund”, with government buying the credits, rather than have industry buy credits as currently.
This would mean fewer carbon projects on the land, lower credit prices, and less money for diversified income streams to landholders, farming and forestry businesses.
Squandering green opportunities
Shelving climate ambition and policy would also pull the rug out from under Australia’s ample green commodity opportunities. Australia has the chance to become a large exporter[16] of commodities such as green iron and ammonia and to move into sustainable, high-value and low-emissions[17] agriculture for export.
This relies to a fair extent on reputation. Other countries are poised to capture these emerging markets. And international demand for coal and gas will decline anyway.
Choosing prosperity
After years as a climate laggard[18], Australia’s international reputation on climate policy has improved. This will be on display at the COP30 climate conference in Brazil over the next two weeks. Pacific neighbours, trading partners and investment funds have taken note.
Parts of the political spectrum might see an advantage in playing to the Trump administration on climate change[19]. But that would come at a cost to relationships and economic opportunities with other countries, including China, the clean energy investment[20] leader.
The world’s energy and industrial system will shift to low-carbon options. The question is whether Australia embraces that transformation to our advantage, or locks into declining industries while economic opportunities pass by. Walking away from net-zero offers no pathway to future prosperity.
Australia’s previous economic successes have stemmed from embracing new opportunities, such as riding the China-led resources boom. The conservative side of politics knows this. Choosing prosperity over politics would have it on the side of sensible climate policy.
References
- ^ has ended (www.nswnationals.org.au)
- ^ anti-net zero plan (powering.au)
- ^ report (www.page.org.au)
- ^ highly exposed (www.abc.net.au)
- ^ strong public support (poll.lowyinstitute.org)
- ^ how net zero can be achieved (www.climatechangeauthority.gov.au)
- ^ net zero modelling report (treasury.gov.au)
- ^ announcement (www.nswnationals.org.au)
- ^ 29% below 2005 levels (www.dcceew.gov.au)
- ^ 15% on average (data-explorer.oecd.org)
- ^ only fallen 5% (www.dcceew.gov.au)
- ^ less and less (reneweconomy.com.au)
- ^ cheaper options (www.csiro.au)
- ^ looking elsewhere (www.afr.com)
- ^ carbon credit scheme (www.dcceew.gov.au)
- ^ large exporter (www.theguardian.com)
- ^ sustainable, high-value and low-emissions (newsite.zneagcrc.com.au)
- ^ climate laggard (www.abc.net.au)
- ^ on climate change (theconversation.com)
- ^ clean energy investment (www.iea.org)
