From Watts Up With That?

Essay by Eric Worrall

… But EV owners have a nasty surprise coming.

IntergenerationalReport 2023

Australia’s future to 2063

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[Page 3] The real economy is projected to be around two and a half times larger than today, and real incomes around 50 per cent higher, by 2062–63. However, like other countries, Australia’s economic growth is projected to be slower than in the past 40 years. This is being driven by lower projected population growth and reduced participation as the population ages, along with an assumption of slower long-run productivity growth. The economy is projected to grow by an average of 2.2 per cent per year in real terms over the next 40 years compared to 3.1 per cent over the past 40 years.

[Page 6] Population ageing

Australians are living longer, with more years in full health and more time using government-funded services. Over the next 40 years, life expectancy at birth is projected to continue to increase, from 81.3 years for men and 85.2 years for women in 2022–23, to 87.0 years for men and 89.5 years for women by 2062–63.A range of societal, cultural and economic factors have led to women delaying having children and having fewer children than previous generations. Australia’s total fertility rate, in line with most advanced economies, fell significantly during the second half of the twentieth century. It has been below the replacement rate of 2.1 babies per woman since the 1970s, and is expected to remain low in coming decades.2Australia’s population is ageing as a result of longer life expectancies and low fertility rates. The median age is expected to increase by 4.6 years between 2022–23 and 2062–63, to reach 43.1 years. In the same period, the number of people aged 65 and older will more than double. The number aged 85 and older will more than triple. Chapter 2 provides more information about the impacts of population ageing on Australia’s economy and fiscal position.

[Page 19] Box 1.5 Climate change and the labour market

The structural shifts required to decarbonise will promote the expansion of some industries, while the physical impacts of a warming climate will affect working conditions and labour supply for certain occupations.

The net zero transformation is expected to create job opportunities in some occupations and industries. According to the former National Skills Commission, almost half of industry groups are already involved in a green value chain.lxiv Renewable energy employment in Australia increased 120 per cent between 2009–10 and 2018–19, with rooftop solar PV systems comprising nearly half of 2018–19 employment.lxv

Well-designed emissions reduction and adaptation measures can support growth areas and smooth the transition of workers from emissions intensive industries. Advertised green jobs such as those in wind energy have higher remuneration compared to non-green jobs in the same occupation and location. The diffusion of innovation that is expected to accompany the deployment of new abatement technology has further potential to increase productivity and create growth over the long term.

The physical impacts of climate change present a different set of potential consequences for the labour market. Certain occupations and regions will face greater risk of heat stress and, therefore, reduced labour productivity because of rising temperatures (Chapter 5). In the absence of changes to the way people now work, this will affect hours worked and the ability of employers to recruit workers.lxvi These pressures are expected to persist over the next 40 years as national and global temperatures continue to rise. Well-targeted investment in adaptation measures will help reduce this risk to Australia’s labour markets.

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The direct impacts of higher temperatures on how we work are just one of the channels through which climate change will impact labour productivity, but one which could be significant. If global temperatures were to increase by up to 3°C or over 4°C, without adaptive changes to current ways of working, Australia’s aggregate labour productivity levels could decrease by 0.2 to 0.8 per cent by 2063.31

This is a significant economic cost, reducing economic output over this period by between $135 billion and $423 billion in today’s dollars, through the direct impacts of higher temperatures on labour productivity. If global action limits temperature increases to 2°C, Australia could benefit from up to an additional $155 billion in GDP in today’s dollars, relative to a scenario where temperatures increase up to 3°C. This is equivalent to 26 to 41 million more hours of work in 2063, underscoring the value of timely action to reduce emissions. Investing in targeted adaptation measures to limit worker heat exposure, such as strategic planting of trees or altering building designs to enhance passive cooling, can also mitigate the labour productivity impacts of higher temperatures to some degree.xv

[Page 108] Energy sector transformation will strengthen Australia’s competitive advantages

Increasing global temperatures will disrupt economic activities, requiring significant adaptation in order to mitigate potential impacts on productivity and economic growth. However, Australia’s natural competitive advantages mean it is also positioned to benefit from important aspects of the global net zero transformation.

[Page 201] Box 8.2 Electric vehicle uptake and fuel excise receipts

The net zero transformation is expected to result in a shift from internal combustion engine vehicles to electric vehicles over the coming decades. The transition to electric vehicles will have many benefits – lower emissions, improved air quality, and lower running costs for drivers. However, there will also be a fiscal impact from a loss of fuel excise receipts unless there is a change of policy.

Decreasing fuel excise collections over the rest of the century represents a challenge and an opportunity for policymakers around the globe. Jurisdictions are investigating alternatives to charging a fuel excise to stabilise public revenue and maintain road infrastructure. For example, in the United States, Oregon and Utah are trialling opt-in, pay-per-mile road user charge systems, which provide reduced registration fees.

[Page 258] Global climate scenarios

The future in relation to climate change is highly uncertain. The extent of future climate change, and the risks and opportunities emerging from it, will be affected by many unpredictable factors. These include global economic growth, population growth, urbanisation, consumption preferences, technology change and the extent of global policy cooperation. Global climate scenarios, which incorporate explicit assumptions about these factors, are a core input for modelling and analysis of how countries, sectors and regions may be impacted by climate change and the net-zero transformation.

Read more: https://treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf

The most fascinating aspect of the report is the minimal projected impact of climate change. Given that worst case climate harm projection of $423 billion is a pin prick in the context of expected economic growth, by the government’s own numbers, why is climate change still being treated as a significant issue? The report itself makes it clear that by their own numbers, the people of 2063 will all be richer and live longer than today.

If heat stress were ever to become a significant issue, the adaptive technologies of 2063 will vastly exceed our current adaptive capabilities. People working in extreme environments can already buy cool suits which contain ice blocks or electric cooling devices. Cattle and crops could be genetically engineered to improve their heat endurance. Product improvement and biotech will take care of any level of inconvenience global warming could deliver.

Despite the speculative hype about “highly uncertain” climate impacts, this report has to be considered yet another analysis which consigns global warming to its proper place in the scheme of things – at worst a minor inconvenience.

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