Global Warming Could Cost Australia Up to $423 Billion, Says Labor’s Intergenerational Report

The Australia Flag flies under red skies during the Black Summer bushfires in East Gippsland, Australia, on Jan. 4, 2020. (Darrian Traynor/Getty Images)

A 3 to 4 degrees Celsius increase in global temperatures could cost the Australian economy up to $423 billion (US$274 billion) over the next four decades, according to the latest Intergenerational Report.

This is one of several projections by the Treasury on how Australia will look over the next 40 years, which also includes challenges with productivity, economy, and demographics.

The nearly 300-page report notes that the United Nation’s Intergovernmental Panel on Climate Change (IPCC) has predicted that the average increase in global temperatures will likely exceed 1.5 degrees Celsius before 2100, and may exceed more than 3 degrees without a significant shift in global policy.

The lower end of the cost estimates due to reduced economic output from climate change stand at $135 billion in today’s dollars, according to the Treasury’s report.

Australian Treasurer Jim Chalmers said the report’s increased focus on climate change and its forecasted impact on the budget was deliberate.

“We want to think about the pressures which are impacting our budget as well as the pressures that are impacting our economy and our society, and climate change is among the most obvious of those, and so we have tried to lean into that a bit more in this report,” he told the National Press Club on Aug. 24.

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Mr. Chalmers said that if Australia didn’t take the risks of climate change challenge seriously, there could be costs and consequences.

“Climate could ravage our economy. We might not build the workforce that we need. We might miss this kind of new productivity frontier,” he said.

Australia's treasurer Jim Chalmers speaks with a television channel before attending the G20 meeting in Gandhinagar, India, on July 18, 2023. (Punit Paranjpe/AFP via Getty Images)

An increase in average global temperatures of over 3 degrees Celsius will impact productivity, particularly for occupations that are physically intense and/or are done outdoors, such as agriculture, construction, and manufacturing, the report forecasts.

Part of this reduced economic output of between $135 billion and $423 billion would be due to crop yields falling up to 4 percent and a fall in tourism to Australia’s large number of natural attractions that always stand at risk of environmental degradation.

“Many of Australia’s top attractions are also in regions likely to be increasingly susceptible to natural disasters, risking travel disruption and reputational harm,” the report said.

“For example, in the immediate aftermath of the 2019–20 bushfires, an estimated 80,000 tourists cancelled or postponed activities.”

A previous forecast by consultancy giant Deloitte estimated that natural disasters would cost the Australian economy $38 billion a year, rising to $73 billion a year in 2060 (pdf).

Mr. Chalmers said the report was about understanding big trends and transitions and acting on them, like a blueprint for the future.

“We’re turning pressures into prescriptions, options into opportunities, and turning our geological, geographical, and meteorological advantages into technical and geopolitical advances,” he wrote in an op-ed.

But Shadow Treasurer Angus Taylor criticised the report for focusing too much on long-term forecasts of challenges and not enough on issues immediately facing Australians.

“Forty years couldn’t be further from the minds of Australians suffering under Labor’s cost of living crisis,” he said. “Australians are worried about what their lives are going to be like in 40 days, not in 40 years.”

Meanwhile, the Greens have used the report findings to call on the prime minister to introduce six new taxes aimed at high-income households and large businesses, including two new super profit taxes and ending the promised stage three tax cuts.

“If Labor was serious about improving the lives of future generations, they’ve got almost a trillion dollars to make it happen. Labor just needs to find the courage to take on rich people and big corporations,” Greens Senator Nick McKim said.

Renewable Project Costs Increasing

The federal Labor government has said it is fully committed to mandating that the Australian public meet a target of cutting carbon emissions by 43 percent by 2030 and reaching the U.N.’s net-zero goal by 2050—with no limit specified on how much it will allow taxpayers to subsidise to achieve such a transition, which has proven challenging for countries further along the path of transition.

Labor has been supporting the rollout of renewables with subsidies of up to $8 billion a year to the sector until 2030, while promising that it would provide cheaper electricity prices for Australians.

However, renewable projects are currently suffering from significant increases in costs due to inflation, which is expected to remain until the end of the decade.

A report released by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Australian Energy Market Operator (AEMO) analysed the latest change in costs for electricity generation technology and found an increase across all technologies.

Capital costs for onshore wind jumped 35 percent, while gas open cycle and black coal increased by 24 percent. Storage costs also increased up 13 percent for the construction and installation of one-hour batteries and up to 28 percent for eight-hour batteries.

But CSIRO still maintains that renewables are the cheapest electricity option for Australia, an outlook that is also echoed in the intergenerational report.

The lifetime costs of solar panels in 2022 was around $48 to $81 per megawatt hour while onshore wind varied between $58 and $96 per megawatt hour.

By contrast, offshore wind projects were much more expensive to build, ranging from $149 to $194 per megawatt hour, which was comparable to power from traditional fossil fuel-run plants.

Notably, the report did not include the cost of small modular nuclear reactors despite their ability to ensure stable generation capacity for the grid.

“Nuclear SMR current costs are not reported since there is no prospect of a plant being deployed in Australia before 2030,” the report stated.

The Albanese government recently said it was against Australia building its own nuclear power capacity despite more countries turning back toward nuclear power.

“However, some improved data on nuclear SMR may be available in future reports, and projected capital costs for SMR have been included from 2030 onward,” the report said.

The Nuclear Option

The Opposition has backed a policy position that includes nuclear energy to fill baseload electricity generation to ensure Australia’s smoother transition to net-zero.

Ted O’Brien, shadow minister for climate change and energy, previously said Australia would not be able to reach net-zero without nuclear.

“We have a race to the exit by coal-fired power stations by 2035. By 2035, 80 percent of Australia’s baseload power will exit the grid without any guarantee of a replacement,” he said.

“We need everything on the table and all-of-the-above approach. We need to be considering everything—and that includes zero-emissions nuclear energy.”

Former deputy prime minister Barnaby Joyce criticised the current renewable transition approach, noting that net-zero by 2050 would cost Australia about $7 trillion to $9 trillion.

“The price of power has gone through the roof, the reliability has gone through the floor, and the money has gone overseas,” he said.

Alfred Bui contributed to this report.