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Friday, January 21, 2022

The government’s net-zero modeling shows the winners, we’ve got the losers

On Friday 12 November, after a fortnight’s wait, the government released a 100-page summary of the modeling and analysis behind its claim that a net-zero emissions target by 2050 will not make the economy worse.

The report details both formal in-house modeling using large global economic models and a relatively informal but detailed assessment of employment outcomes prepared by consultancy McKinsey & Company.

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Formal modeling begins with a scenario labeled “no Australian action”, in which every developed country except Australia reduces its emissions to near-zero by 2050, and when every country except Australia is taken together, global warming Anything else needs to be done to keep up. up to 2 °C.


Department of Industry, Science, Energy and Resources

In “No Australian Action” Australia ignores major green technological advances in the rest of the world (including hydrogen) and is penalized for not targeting net-zero through measures including carbon tariffs and financiers’ reluctance to advance funding. is done. For Australian projects.

The modeling compares “no Australian action” to several alternative “action” scenarios, of which “plan” is the most preferred.

Included in the “plan” are technological developments omitted in “no Australian action” and do not include financial penalties.



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Under the “plan”, Australia’s gross emissions fall to between 25% and 35% of their 2005 levels by 2050. As yet unknown technological advances remove another 15%, and the remaining route to net zero is provided by the purchase of emissions offsets, costing (remarkably cheap) overseas A$40 per tonne.

Given technological advances and the impunity associated with planning, it is not surprising that it produces a better economic outcome.

What is surprising, given those assumptions, is that the gain in real income that the modeller came with is so small.

Six months difference after 30 years

Projected gains under the “plan” compared to “no Australian action” are 1.6% after 30 years, which is roughly six months’ worth of economic growth, meaning the economy will be as large in June 2050 as it was in December 2050. Would have been ,

The summary stated that employment results produced by McKinsey are “broadly consistent” with results produced by macroeconomic modeling.

What this means is not fully explained. It may just have turned out that way, or the government has chosen or demanded results that reflect in themselves.

Regardless, the summary released Friday has nothing to say (except in a cursory way) about the plan’s effects on sectors, on industries other than the most emissions-intensive, and on labor market adjustments and changes in skills and types. It is very little. the education that will be needed.



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As it happened, a day before the summary was released, my team at the Center of Policy Studies at the University of Victoria published their own modeling of the economic impact on Australia, with more detail about the impacts on regions with net-zero emissions. was received. and industry.

We are preparing a second report on the impact on education with the Mitchell Institute for release early next year.

We asked a slightly different question…

My team assessed the effects of net-zero on government in a slightly different way, asking what would happen to the Australian economy if the rest of the world (including Australia) went to net-zero by 2050, compared to what would happen if they did. did not do.

In our modeling Australia faced no financial penalties for not increasing its weight and no role for as yet unknown technologies and no ability for Australia to achieve net-zero by purchasing permits from overseas. This made our modeling conservative, making it less likely that net-zero produced an economic benefit.

…and got the same answer

We found that despite deep cuts in emissions, the Australian economy will continue to grow strongly in terms of output and employment. However after 30 years real GDP and income will be slightly lower without action.

We found a loss of about 1%, equivalent to four to five months of economic growth, as opposed to the government’s projected 1.6% gain after 30 years (six months of economic growth).


Real GDP, base case and net-zero scenario in 2021 prices

The government's net-zero modeling shows the winners, we've got the losers
Zero greenhouse gas emissions by 2050: what it means for the Australian economy, industry and regions.
Center for Policy Studies, 2021

Importantly, when we last did this in 2014, we estimated a huge loss of 3.8% in GDP.

Losses are now less as work has become easier, thanks to lower than previously expected renewable production costs and faster-than-expected speeds for both light and heavy electric vehicles.

On employment, we found that Australia will have the same number of jobs in any given scenario by 2050.

Industries like coal mining will suffer, though not as much as might be imagined. Coal mining will continue into 2050 due to continued international demand, with production declining by 34% and hours down 37%, which is no more than net-zero.

But more information about jobs

Decarbonization will accelerate many industries, particularly renewable electricity and forestry, to take advantage of the opportunities for bio-sequestration to nearly double as plantations promoting decarbonization.

This will lead to a significant increase in forest land and sale of logs for processing and export as forest pulp. Surprisingly, we found very little mention of forestry or timber processing and exports in the government summary.


Change in hours worked by industry under net zero scenario, 2050

The government's net-zero modeling shows the winners, we've got the losers
ANZSIC INDUSTRY DIVISION.
Center for Policy Studies, November 11, 2021

Electricity will replace all the jobs lost in coal production with additional jobs in renewable energy generation and power distribution and supply as more of the economy becomes electricity-powered.

Although vulnerable industries account for less than 4% of employment across the country, some sectors are much more dependent on them than others.



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We identify nine of Australia’s 88 Statistical Area Level 4 regions as vulnerable to loss of employment. These include coal-dependent areas such as Hunter in NSW, Fitzroy in Queensland and Gippsland in Victoria.

On the other hand, another 46 sectors have been identified as having employment potential. They are more exposed to industries that will grow.


Change in Real State Product by Industry under Net Zero Scenario, 2050

The government's net-zero modeling shows the winners, we've got the losers

Center for Policy Studies, November 11, 2021

By state, Tasmania benefits the most under net-zero compared to other states with a greater hydropower, forestry and wood products industry, as well as coal-fired generation. Its real gross state product will be 4.9% higher in 2050, and employment will be 11,600 more

Queensland has been hit hardest by coal mining, extensive agriculture, and the over-representation of coal-generated electricity in its economy. Its real gross state product will be 5.9% lower in 2050, and employment will be 97,800 less.



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The worse outcomes need to be kept in perspective. Queensland is expected to employ an additional 1.2 million people by 2050 without decarbonisation. With decarbonization it would be a little less extra people, an additional 1.1 million.

It is important that our leaders also do this work.

Whatever the government does to achieve zero emissions, there will be a clear need for an adjustment package to minimize the impact on those most affected.

Given that we will begin decarbonization to secure community-wide benefits, it would be appropriate for the community to fund those packages.

To do this we will need detailed projections for the parts of the economy (business by sectors, industries, skills) that will benefit the most from the changes and the parts that will suffer the most. Till date, the government has not told us.

This article is republished from – The Conversation – Read the – original article.

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