While the impact on mining communities will be “significant”, the overall hit to GDP from global decarbonisation will be modest, RBA economists predict.
By Jacob Greber
The Reserve Bank of Australia says the coming collapse in coal shipments as Australia’s biggest customers pivot to net zero would impose only a relatively modest hit on economic growth, even as they warn of an “uncertain outlook” for the renewable energy exports that are meant to soften the blow.
Officials at the bank said in a research paper published on Thursday coal exports and, to some extent, gas shipments could plunge by as much as 80 per cent if China, Japan and South Korea take an aggressive approach to decarbonising their economies by mid-century.
That figure would be consistent with keeping the planet’s temperatures from heating by more than 1.5 degrees, the level at which scientists say the effects of climate change become irreversible and catastrophic.
RBA economists estimate the collapse in fossil fuel exports would take about 0.1 percentage points from annual gross domestic product after accounting for positive “opportunities in other sectors” they anticipate will emerge. These include exports such as green hydrogen and green steel, as well as rising global demand for Australian critical and rare earth minerals at the heart of electrification.
“One example is the renewable energy market, where investment has begun to support activity and employment, particularly in regional areas where large-scale renewable generators tend to be located,” the Reserve Bank economists wrote.
The report highlights both the costs and opportunities to Australia of the pledged shift away from fossil fuels by the world’s biggest emitters, as well as huge question marks about the different potential trajectories.
Using climate scenarios that have been developed by a consortium of central banks trying to improve climate risk management, the Reserve Bank’s analysis maps out four possible worlds.
The impact of a decline in fossil fuel exports would be significant for certain communities and regions, especially those in which mining accounts for a large share of employment.
— RBA analysis
They are: net zero where global warming is limited to 1.5 degrees; a world in which warming is allowed to reach 2 degrees; a scenario in which all the pledges to cut emissions by countries as of December become reality; and the current set of policies of countries around the globe.
Australian coal exports would rise by 17 per cent by 2050 under the last scenario, or business as usual. They would fall under the other three options.
The most dramatic collapse would be if the world managed to keep the rise in the average temperate of the planet below 1.5 per cent. Under that scenario, coal exports collapse by 80 per cent by mid-century. Two-thirds of that fall would be due to China, Japan and South Korea.
LNG exports would fall by 50 per cent in a net zero world, they said.
“The renewables export market is still at an early stage and the outlook is uncertain,” they wrote. “More broadly, it is difficult to estimate the extent to which activity in other sectors could eventually offset a decline in activity related to fossil fuel production.”
“Whatever happens, the impact of a decline in fossil fuel exports would be significant for certain communities and regions, especially those in which mining accounts for a large share of employment.”
In a separate research paper, the Reserve Bank warned of “significant uncertainty” for Australian banks about the risks to balance sheets from climate change.
“This is because of the uncertainty about how climate change will alter future weather patterns, how policies will change globally and how economies adapt.
“A small share of housing in regions most exposed to extreme weather could experience price falls that might subsequently result in credit losses, but the overall losses for the financial system are likely manageable.
“Banks are also exposed to transition risks from their lending to emissions-intensive industries, but their portfolios appear to be less emissions-intensive than the economy as a whole.”