What the IGR didn’t say about the cost of climate change

Grattan Institute boss Danielle Wood said the 40-year projections were not realistic without including climate change, while Deloitte Access Economics Partner Chris Richardson on Wednesday said it was a “missed opportunity.”

The IGR did acknowledge long-term effects of climate change including the increased severity and frequency of extreme weather events, rising sea levels and changing rainfall patterns will hit the budget bottom line.

But the extent of the downside risk was excluded from the document, which noted only a reduction in the size of the economy associated with climate change would flow through to the budget bottom line.

“It is hard to model the effects of climate change but that doesn’t mean you shouldn’t,” Mr Richardson said. “You can’t ignore the headwinds.”

Economists pointed to modelling in the recently released NSW 2021 Intergenerational Report which showed more frequent and severe natural disasters could cost the state up to $17.2 billion per year on average by 2060-61, or about 1.3 per cent of its projected $1.3 trillion economy.

The ANU researchers modelled the physical risks of climate change such as the long-term gradual change in agricultural productivity and land stock (due to sea-level rise), as well as the cost of more severe weather events.

They found an increase to 490 parts per million (ppm) of carbon dioxide in the atmosphere by 2100 from the current level of 412 ppm would reduce the size of the economy by 0.52 per cent on average over the decade and 0.55 per cent in the decade between 2051 and 2060.

It found an increase to 650 parts per million (ppm) would reduce the size of the economy by 0.74 per cent this decade and 0.79 per cent over the decade to 2060; while an increase to 1370 ppm would would reduce the size of the economy by 0.76 per cent and 1.75 per cent over the same time periods.

The researchers also found gross domestic product would be slightly more than 2 per cent lower than it otherwise would be by 2031 as a result of the widespread global adoption of carbon pricing.

The authors noted the result was highly variable and many policy changes would have significantly different outcomes; for example investment in green infrastructure and technology packages would reduce the impact.

EY Climate Change and Sustainability Partners Adam Carrel said most major Australian industries had modelled the 30-year impact of climate change, and the outcome was “consistently and overwhelmingly clear.”

“The private sectors sees a well-telegraphed government-led ambitious climate agenda as the best economic outcome,” Mr Carrel said.

He said long-term government policy thinking needed to operate in reverse from 2050 and facilitate the structural changes we need to see to avoid the consequences of climate change.