A new report from a global consulting giant commissioned by powerful super investors indicates that the cost to Australia’s economy and financial markets of not lowering carbon emissions to net zero by 2050 will outweigh the cost of investing in emission-reducing activities now.
The report from EY, titled “Empowering communities: how investors can support an equitable transition to net zero”, revealed that Australia’s heavy reliance on export of fossil fuels made the nation’s economy extremely vulnerable to changes in other markets’ emissions policies under the current settings.
“Australia’s top three importers of coal and gas have already announced net zero emissions commitments, accounting for 71 per cent of total fossil fuels exports,” the report said.
“This leaves the future of Australian economy and communities heavily exposed to economic activity in other markets, climate policies, geo-political issues and other factors in these nations; forcing Australia to identify products that align to key trading partners’ vision or find new trading partners.
“Analysing this market from the demand side, global capital markets appear to be shifting away from fossil fuels which will increase financing costs and decrease liquidity for Australian-based operations.”
The report, commissioned by super funds including Aware Super and HESTA as part of the Investor Group on Climate Change, indicated that a change in government policy to aim for emissions reductions of between 40 and 60 per cent of 2010 levels was required in order to “minimise the risks associated with a disorderly transition to net zero emissions, including the significant potential impacts to the financial system and communities”.
“Clear policy signals will enable the private sector and communities to identify key opportunities in a decarbonised economy,” the report said.
These included encouraging investments in carbon dioxide removal technologies such as carbon capture and sequestration that would ensure a smooth transition to a zero-emissions economy.
“An immediate and steady emissions reduction trajectory would reach net zero emissions by early 2050, resulting in less abrupt transitional impacts on communities,” the report said.
“A delayed trajectory would result in greater transition risk impacts because of more rapid and haphazard decarbonisation, creating more severe disruption in global economies, particularly on carbon-emissions-intense industry sectors.”
Key roles identified in the report for institutional investors in bringing about a just transition to net zero included mobilising capital and investments to communities in transition from fossil fuels, focusing on investments that deliver environmental and social returns and engaging with affected companies to deliver a transition plan.
“We know the transition is underway. It is foreseeable. It should therefore be manageable,” said Rebecca Mikula-Wright, chief executive of the Investor Group on Climate Change.
“Investors and governments have an opportunity to act today to prioritise a just and orderly transition if we want Australia to emerge a winner in the global race to net zero.”
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