EY urges economic shift in face of international climate action
Professional services firm EY has warned that close to two thirds of the Australian GDP is at risk from international net-zero actions, urging the government to transition sooner rather than later.
This time two years ago, the Australian Prime Minister Scott Morrison was facing the heat from the country’s catastrophic bushfire season – with many authorities pointing to the impacts of climate change – and for taking an overseas holiday to Hawaii at the height of the crisis. Now he is abroad again, reluctantly, at the UN Climate Change Conference in Glasgow – and facing the heat from the international community on Australia’s efforts to reduce carbon emissions.
Meanwhile back at home, professional services firm Ernst & Young has laid out the business case for a speedier transition of the economy, noting that what other countries do on their way to net-zero is as critically important as the path Australia takes, with the nation highly reliant on carbon-intensive exports.
According to the firm’s modelling, almost two thirds of Australia’s GDP is exposed to risk from the reduction strategies of international trading partners.
“The direction of travel towards global decarbonisation is clear, and this will impact Australia’s export base, whether we like it or not,” EY’s Chief Economist Jo Masters commented. “The associated risks to Australia’s economy are largely due to the actions taken by other countries on the journey to net zero, while our response is entirely within our control. And economics tells us the sooner you start to transition, the better the outcome typically is.”
Exports contribute to more than 20 percent of the Australian economy, according to the EY analysis, or 15 percent for non-rural exports including metals, minerals, fuels, ores and coal, such that around 85 percent of the dollar value of Australian exports are in the top 25 percent for emissions intensity in their production, a massive jump from the 55 percent figure from the late 1980s prior to the country’s resources and mining boom in the following decades.
More than four fifths of these exports currently go to countries adopting net zero targets, some already enshrined in law, with the expectation that the COP26 summit will see further and more stringent reduction commitments ratified. EY notes that Australia’s top three goods export partners and biggest consumers of carbon intensive exports, China, Japan and South Korea, have all already announced targets to substantially reduce emissions over the coming decades.
And these are policy decisions that Australia will have little influence over while bearing a share of the consequences, says EY. On the flip-side, the country is still in a position to capitalise on the opportunity presented by the global shift to carbon neutrality, with the firm reiterating that the ‘first-mover’ benefits of any economic change are significant. “The earlier we prepare for this change, the better placed we will be as and when these shifts arrive,” the report concludes.
