Australia has been urged to transition away from fossil fuels immediately to protect its economy from a huge shock.
Australia is being urged to transition its export market away from a reliance on fossil fuels as new modelling reveals its economy is critically exposed to a looming net zero commitment among trading partners.
World leaders will gather in Glasgow this week for the COP26 climate summit and assess progress on a global aim to reduce carbon emissions and keep rising global temperatures down to 1.5C to 2C above pre-industrial levels.
But a recent UN report revealed the globe had already warmed by 1.1C and the summit will face increasing pressure to enact tougher clean energy targets.
Scott Morrison will be in attendance after unveiling his government’s plan to adopt a net zero target by 2050 but it is the policies of Australia’s trading partners which will be most critical, major consultancy firm Ernst and Young (EY) warns, given 64 per cent of its GDP is exposed.
Australia’s economy is heavily reliant on exporting fossil fuel sources of energy and products.
With 82 per cent of goods destined for countries with a net zero target, tougher targets will be devastating for its economy, EY warned.
“What our trading partners commit to, and how they plan to get there, is going to be critically important for the transition the Australian economy needs to make,” EY chief economist Jo Masters told NCA NewsWire.
“It’s not just about the path that we choose.”
The debate about climate change has been polarising, particularly in Australia’s political context, but Ms Masters said recent events and commitments proved the world’s “direction is very clear”.
“By mid century, our economy will need to look different from how it looks today,” the leading economist said.
“And economics tells us the sooner you start to transition, the better the outcome typically is.
“It’s very encouraging that we’re seeing corporate Australia move, including in some of those sectors that are very exposed, to try to transition and to think about the future and we need government policy to provide the guardrails and to provide investment where the private sector can’t do it.”
The consultancy firm is hopeful, however, that a wide-reaching commitment to reducing carbon emissions would be able to increase technology investments and give Australia an advantage when it comes to clean new energy sources.
That needs all the stakeholders, government and private sector to be rowing in the same direction,” Ms Masters said.
“We need policies that foster the environment for the necessary private sector investment.
“You need those guardrails, you need as much certainty as you can, and you need investment in those aspects that are too big for the private sector to get off the ground.”
The Prime Minister was widely mocked for his government’s announcement to plan on reducing carbon emissions, with rivals critical the policy lacks a tangible commitment to transitioning away from fossil fuels.
But Mr Morrison, who has been vocal in the past of supporting the coal sector and refusing to address climate change, has acknowledged the economic risks of not following the world.
“This change is happening with or without us,” the Prime Minister said earlier this month, according to the Australian Financial Review.
“It is not just an environmental challenge we are managing, it is actually how you deal with significant economic challenges as the world moves towards a net zero economy.
“Our task is to have an economic plan to ensure Australia, and particularly our regions and rural areas, can succeed in this new global shift.”