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Economic Perspectives from the Fight Against Climate Change

While the cost of losing the fight against global warming would be immense, the fight itself is hampered by the fact that some countries will have to sacrifice more and make more changes in order to complete the transition to a greener economy. The campaign to halt climate change is difficult because countries needing to alter many aspects of their economy and that at least partially benefit from the status quo are often more reluctant to do so, such as Australia. Currently, Australia benefits from the production of more environmentally harmful goods, such as coal and beef. While it also faces the consequence of climate change through more extreme droughts and bushfires, this does not appear to have a great effect on its willingness to act on climate change. This is in stark contrast to the Pacific Island nations in the broader Australasian region, which stand to lose a lot from environmental damage and rising sea levels, but also campaign more heavily to combat it.

Just last week, the Australian Prime Minister, Scott Morrison, attended the COP26 world leaders’ conference in Glasgow, where the production of coal was one of the big topics on the table. In fact, Australia ranks number 58 out of 64 surveyed countries on the Climate Change Performance Index 2022, highlighting its abysmal action on a global level. Other poorly performing highly developed countries are the United States and Canada, largely due to their reliance on oil. Perhaps unsurprisingly, Australia was not one of the countries that signed an agreement to cease investment in coal and reduce the reliance on coal-fuelled energy. According to the Australian Government, the country currently ranks number 5 in the world in terms of coal production and number 2 in the context of coal exports. Additionally, petroleum gas and coal briquettes formed more than 30% of Australian exports in 2019. The Australian economy’s reliance on coal, among other goods and services that are considered to be less environmentally friendly, such as beef, may hint at one of the reasons the Government is so reluctant to do more about climate change. Interestingly, Australia ranks far below other developed countries in Economic Complexity Rankings, mostly due to its reliance on primary goods. However, the Australian Government’s reluctance to act on climate change is also surprising in the light of the Lowy Institute’s Climate Poll 2021, which indicates that 3 in 4 Australians believe that “the benefits of taking further action on climate change will outweigh the costs”.

The effects of climate change have already been widely felt in Australia, especially in regard to the long periods of drought and the devastating bushfire season of 2019-2020. According to the Commonwealth Scientific and Industrial Research Organisation (CSIRO), climate change will imply rising sea levels, even hotter hot days, increases in ocean acidity and more extreme rainfall, among other things. Consequently, the disjoint between Australia’s climate policy and the future impact of climate change cannot be attributed to the country not feeling the consequences of climate change.

However, it is not necessary for Australia to suffer economically in order to contribute to the fight against climate change. Instead, a well thought-out and rapidly implemented economic strategy could actually allow Australia to benefit from the transition to a greener economy. Additionally, this could also help improve Australia’s international reputation, which has taken a few hits recently due to aspects such as the AUKUS pact. In fact, Australia has a highly educated and highly skilled population, and is fortunate to have a wide variety and depth of natural resources apart from coal. For instance, the demand for many minerals such as copper, aluminium and nickel is likely to increase due its uses in environmentally friendly technology such as electric vehicles or solar panels. As Australia has an 11% share of the copper resources in the world – less only than Chile – the country may be able to make greater use of this untapped natural resource than it currently does. Perhaps even more impressively, Australia has a huge amount of gold reserves that could be utilised to a greater extent in order to support the transition to a green economy. Here, Australia has in excess of 20% of the world’s gold reserves, more than any other country.

“Drone over quarry in Barossa Valley, SA, Australia” Source: Dion Beetson (Unsplash)

If the political will was there, it should not be too difficult to change the incentive structure to discourage further fossil fuel investment due to the presence of environmental externalities. Consequently, this energy and finances could then be utilised to encourage investment in relatively more sustainable sectors such as the mining of alternative minerals or the creation of renewable energy sources. Currently, the Australian Government invests a lot of money in subsidies for fossil fuels, a type of economic policy that may be seen as pertaining more to the 20th century than to the 21st. According to the Australia Institute, fossil fuel subsidies amounted to $10.3 billion in the 2020-2021 financial year. This number needs to be seen in comparison to Australia’s Gross Domestic Product (GDP), which was estimated to be just over US$1.3 trillion in 2020. Globally, oil, gas and coal production were subsidised at $5.9 trillion in 2020 as estimated by the International Monetary Fund (IMF), but estimates differ greatly depending on which measures of a subsidy are included in the statistics. For instance, the number produced by the IMF includes not only explicit subsidies and tax breaks, but also environmental consequences. Additionally, lobbying in Australia appears to be quite persistent – large corporations in the natural resource sector perhaps unsurprisingly seem to be actively lobbying in contradiction to the goals of the COP26 conference. The combination of large corporations with mighty economic sway as well as a conservative government might explain, but not justify, why the Australian Government hasn’t engaged in more ambitious climate policy, despite the fact that such policies would have popular support. Nonetheless, it will be interesting to see whether Australian voters’ views on climate policy and sustainability will be reflected in the national election that is due to take place early next year. The suspense is perhaps increased due to the fact that this is the first national election since both the devastating bushfire season and the COVID-19 pandemic.

While the general narrative appears to be one of Australia’s economy taking a hit as a result of the transition to a greener economy, pre-emptive action and innovative thinking could allow the country to turn this around. With carefully selected and targeted investment, this change should also not be too difficult to achieve due to the fact that the copper industry is already established in Australia. Utilising resources previously allocated to the (coal) mining industry to assist in growing the copper industry should hence not be impossible. Furthermore, it is not like Australia necessarily has to rely on fossil fuels for its energy production – its ample outback space would provide a lot of space for solar energy farms. In fact, the highest level of solar radiation per square metre can be found in Australia, suggesting that there is a promising future for solar energy. Although it is of course not as easy to export solar energy as it is to export energy to be won from fossil fuels, it may at least assist with domestic energy production.

Overall, the Australian situation may be seen as an example of the way public narrative portrays the transition to a greener economy and the fight to reduce global warming as something that will harm the overall economic situation of a country. However, with thoughtful but rapid action, it could definitely be possible for countries such as Australia to benefit economically from the transition to green energy. In fact, changing the rhetoric to reflect this, instead of a period of sacrifice, may help to sway public opinion sufficiently to hopefully have more of an impact on the actions of politicians. After all, perhaps the greatest challenge of the environmental movement is that many people agree in theory with concepts such as saving the planet, but dislike taking action or actually abnegating anything. Of course, simply focussing on the heaviest polluting industries wouldn’t fix all problems – some forms of personal and societal sacrifice will without doubt be necessary to save the planet. Nonetheless, changing people’s perceptions could assist in forming a broader and more persistent societal movement, enhancing action on climate change in the next decade.


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