The intergenerational report says climate is a ‘profound’ risk to Australia. But the full picture may be even worse


Peter Hannam
Wed, 23 August 2023 

Photograph: David Gray/Reuters

Climate change and the way the world responds to it “may be the most profound driver of change” for Australia’s economy over coming decades, according to the latest intergenerational report (IGR).

The report is easily the most comprehensive attempt to quantify risks and opportunities, with an entire chapter devoted to climate change and energy. There is a fivefold increase in references to “climate change” versus the 2021 IGR, a similar ratio for “disasters” and triple the naming of “renewable”.

And, as reported on Wednesday, Treasury sought to put a price on costs, such as a loss in productivity amounting to as much as $423bn out to 2063 and falls in crop yields and tourism. But most long-term predictions tend to be unreliable, and this IGR recognises the challenges for projecting global heating’s impacts.

Related: Last decade saw Australia’s lowest productivity growth in 60 years, intergenerational report says

“The future in relation to climate change is highly uncertain,” the report says. “The extent of future climate change, and the risks and opportunities emerging from it, will be affected by many unpredictable factors.”

Treasury notes “global policy cooperation” – read: meeting the 2015 Paris climate commitments to keep warming to “well below 2C” of pre-industrial times – is among the big unknowns.

It warns “as temperature increases approach 2C, the risk of crossing thresholds which cause nonlinear tipping points in the Earth system, with potentially abrupt and not yet well understood impacts, also increases”.

That reference underscores the difficulties in anticipating how different Australian lives will be four decades hence. The report bases its guesses on three scenarios: our planet keeps warming to sub-2C, sub-3C or more than 4C.

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Planners assume a comforting gradual uptick in life expectancy, modest changes to taxes paid and a steady value of our terms of trade. Even defence outlays are flat, once they have been adjusted higher for rising “geo-strategic competition in the Indo-Pacific” (mostly from China).

If there are climate-related national security risks, they don’t get a mention. (Efforts to extract from the Office of National Intelligence have likewise proved futile so far.)

Treasury does take a stab at costing the increasing impacts from extreme weather events via its Disaster Recovery Funding Arrangements. Assuming the world is on a 3C warming path, cumulative spending on DRFA will be $130bn in today’s dollars, or 3-3.6 times current levels.

That assessment, however, only assesses four “natural hazards” – bushfires, tropical cyclones, floods and storms – as they presently receive the bulk of spending.

Drought and heatwaves – two perils facing Australia this summer as landscapes dry out and global temperatures nudge record annual levels – are excluded.

Also omitted from any mention (and the previous IGR) is the Great Barrier Reef. Tourism may take a hit in a warming world but at 1C more warming, not many coral reefs are going to make it, with devastating effects on ecosystems and their visitor appeal.

Australia has already warmed 1.47C since 1910, the Bureau of Meteorology estimates (with a +/- 0.24C margin of error).

“Over the next 40 years, under a scenario where global temperatures increase by up to 3C by 2100, Australia’s national average temperature is projected to increase by 1.7C,” the IGR says. Within that, averages in parts of central and northern Western Australia are projected to increase 1.8C, with Tasmania warming “by just 1.3C”, the IGR says.

Regional temperature changes may be among the better understood shifts global heating will deliver. Still, climate researchers such as professor Andy Pitman, director of the Australian Research Council’s Centre of Excellence for Climate Extremes, caution against assuming models have a good handle on how changes will play out locally.

Economists (and others) tend to draw a “linear association between warming temperatures and economic impacts”, Pitman said this week. “It’s the extremes that have the big impact on the economy”.

Related: Australia’s population to grow at slowest rate since federation, intergenerational report forecasts

The report notes correctly technological advances might help minimise damage, such as making crops more drought-resilient. Stronger infrastructure and more fire-proof housing might similarly limit future rebuilding costs.

“But the killer is, where do you build the resilience?” Pitman says. Expect pots of money to be spent unnecessarily while not enough will be outlaid where it’s needed. Climate models can’t tell us that – at least, not yet.

And as for where the funding will come from, the IGR is largely coy about impacts on budgets if coal and fossil gas royalties dive. (“Carbon capture” doesn’t appear in this IGR, compared with three hopeful mentions in 2021.)

“Company tax may be affected by structural or compositional changes in the economy which are not captured by the assumed steady profit share of GDP,” it says.

Coal, oil and gas companies supplied 4% of company tax in 2019-20. “This share is likely to increase in the near term, following recent high commodity prices and decline over time as prices are assumed to return to long-run levels,” it said.

Fossil exports, in other words, are assumed to linger if not expand – unless governments get serious about climate change.