The Conversation

A plethora of economic studies on the costs of climate action share a common message: action on climate change is cheap, and delaying it will be costly.

This has implications for Australia’s post-2020 emissions targets, to be decided by government the in coming weeks or months. We’ve reviewed the evidence.

The results are published in two short reports for WWF Australia. Our first brief highlighted that there is a general consensus amongst economists on the costs of mitigating climate change. That consensus is invisible to most, but it is clear across all major reports and studies: the cost of reducing emissions for Australia, and the world, is low.

Our second brief, released today, shows another points of emerging consensus: that the costs of delaying action on climate change outweigh the benefits.

The cost of taking action is low

All major studies find that the costs of achieving deep reductions in carbon emissions are a small fraction of future economic growth. And that is before extra benefits such as reduced air pollution and more stable energy prices are taken into account. These are significant benefits that most models ignore. The co-benefits of the US Clean Air Act have been estimated to be 30 times greater than the costs of compliance.

Australia’s economy will keep growing comparatively rapidly, to perhaps two and a half times its current size by 2050, while emissions are cut – and cut deeply if strong effort is made.

With each successive study, the estimated cost of cutting emissions to a given level has dropped, or the emissions reductions achievable at a given cost increased. More is possible at lower cost than we thought just a few years ago.

This is for several reasons.

First, the technological progress with many low-emissions technologies consistently outpaces projections, LED lighting and electric cars being among the examples.

Second, the costs of technologies are falling much faster than expected. Solar panels are the prime example. Astonishingly, large-scale solar panel power
stations are already only half the cost that the Treasury’s 2008 and 2011 modelling studies estimated they would be in the year 2030.

Third, the underlying drivers of emissions growth are not as strong now than many thought they would be, including because of the end of the mining boom.

Fourth, analysts and businesses are becoming aware of ever more ways in which emissions can be reduced.

The falling modelled estimates of macroeconomic costs of achieving a 25% emissions reduction (2020 target relative to 2000).
Author provided

The costs of delay

Given the plummeting costs of renewable energy it is reasonable to ask why doesn’t Australia wait until costs are even lower and then make the transition?

Unfortunately despite the falling price of renewable energy technology, delaying mitigation has a range of significant costs. It reviews the literature on delay, showing that the costs of delay outweigh any potential benefits.

The longer that emissions increase or plateau, the steeper reductions in the future must be, because greenhouse gas emissions accumulate in the atmosphere. The longer we wait, the greater the risk that global climate goals get out of reach. Delaying global action by 15 years effectively pushes the globally agreed 2C target out of reach.

Delaying action also means relying upon currently commercially unavailable technologies. Such technologies include the large-scale use of bio-energy combined with carbon capture and storage (BECCS). The IPCC finds that large-scale deployment of such “BECCS” technology could be necessary to keep warming to 2C under a scenario of delayed action.

Taking it easy at first and going for stronger action later would likely come at a high economic cost. A range of models have found that delaying global mitigation by 15 years could double or triple the cost of keeping to an overall carbon budget.

A key factor is that delay leads to the “lock-in” of emissions intensive infrastructure which becomes obsolete when action is taken to cut emissions. And rather than changing economic structures gradually, delayed action requires sudden adjustment that could cause economic and social disruption.

This is not just a question of economic efficiency but also an issue of intergenerational equity. Future generations are likely to bear the stronger impacts of climate change, and if we delay they will also face much higher costs in reducing emissions.

Avoiding a fossilised economy

The risk of carbon lock-in and high adjustment costs from delay are particularly strong for Australia given our emissions intensive economy, exports and resources.

Global coal demand will fall under strong global climate action; already China’s coal demand is tailing off despite the Chinese economy continuing to grow rapidly. Some of Australia’s mining and coal transport infrastructure may be left stranded. Indeed, over-investment in the coal industry during the mining boom means that some infrastructure may already need to be prematurely retired. This poses particular risks for low-grade, high-cost coal.

There is significant financial risk in continued fossil fuel investment.

The extent of unburnable oil, gas and coal reserves under a 2C carbon budget for OECD Asia Pacific countries, share of total reserves (based on data from McGlade and Ekins, 2015)

The reality is that a large share of global fossil fuel resources cannot be used if the world is to limit global warming to 2C. The lion’s share of coal resources in Australia will be “unburnable”. For developed countries in the Asia Pacific -principally Australia- this share of “unburnable” coal could be above 90%.

Strong global climate change action is in Australia’s interest, as acknowledged in the government’s issues paper on the post-2020 emissions target. What also needs to be understood is that strong and early domestic emissions reductions are also in Australia’s short and long-term national interest. Dragging our feet is not a smart, or fair, idea.

Luke Kemp is PhD Candidate in International Relations and Environmental Policy at Australian National University.
Frank Jotzo is Director, Centre for Climate Economics and Policy at Australian National University.

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