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Paris Agreement to shrink economy, says US’s Brookings Institution

Australia’s economy will be among the worst affected by the Paris climate change agreement, enduring slower growth, fewer jobs and a “notable” 6 per cent slump in the exchange rate, ­according to a new analysis of the global accord.

The report by the Washington-based Brookings Institut­ion also finds the treaty will fail to cut carbon emissions on 2015 levels or put the world on a path to keeping global temperature rises to 2C or less.

The co-ordinated push to save the planet from climate change will shrink the economy by about 2 per cent and sap household wealth by 0.5 per cent by 2030, even if Australia chooses to back out of the agreement, the report found.

“Because Australia relies heavily on fossil fuels for its own use and as a source of export revenue, it experiences a large fall in investment, a significant capital outflow, and the largest depreciation of the real exchange rate,” the ­report said.

“For Australia, the Paris Agreement still has a significant impact on GDP even when Australia does not participate. These losses occur because Australia’s exports of fossil fuels are still subject to the CO2 tax in other ­regions, and the revenue is ­collected outside ­Australia.”

The report estimated employment would fall 1 per cent — or 127,000 jobs based on present ­levels — by 2020, with some offsetting gains later as workers shifted to the renewable energy sector.

The analysis, which ignored the impact of climate change ­itself, found only Australia and OPEC nations came out behind overall because the benefits of less pollution, less traffic and lower mortality under the Paris Agreement did not offset the damage to economic growth, arising largely as a result of the implicit global tax on energy exports.

The Morrison government, which opted to remain in the Paris accord against the wishes of hardline conservatives, leapt on the ­report to attack Labor over its promised 45 per cent emissions cut. “Our economy is growing stronger than any G7 nation besides the US, while emissions per person are at their lowest levels in 28 years,” Acting Environment Minister Simon Birmingham said.

“The choice at the next election is between our responsible balancing of environmental and economic considerations or Labor’s reckless doubling of emissions targets, which will smash our economy and drive electricity prices even higher.”

Labor said its plan to ramp up emissions cuts was “calibrated to represent Australia’s fair share of emissions ­reductions to keep ­global warming to below 2C ”.

Opposition climate change spokesman Mark Butler said it was no surprise that current commitments by Paris signatories would fail to keep temperature rises below 2C.

“That is why the Paris Agreement includes a ratchet mechanism to increase ambition, and it is why the Morrison government are lying to Australians when they insist their already inadequate 26 per cent emissions-reduction target is sufficient and doesn’t need to be increased,” he said.

Warwick McKibbin, an ANU economics professor and one of the report’s authors, said ­Australia could not avoid ­economic pain by pulling out of the agreement.

“If we stay in, we’re better off because if we pull out, we’ll still be getting most of the economic damage — other countries won’t be buying our ­resources so much — but miss out on the benefits of curbing carbon emissions such as less pollution,” Professor McKibbin told The Australian.

“You don’t have to believe in climate change at all to support staying in Paris. That said, if you just cared about jobs or real wages but didn’t care about climate or pollution, you’d stay out.”

According to the report, Australia’s promised carbon emissions cuts equate to a 35 per cent reduction on forecast 2030 levels, compared with the US’s 25 per cent, China’s 27 per cent, Russia’s 20 per cent and Japan’s 42 per cent.

The research compared the promises to reduce carbon emissions of eight nations or groups of nations, and the costs and benefits to each if all fulfilled their undertaking using a carbon tax, which economists say is the most efficient way to curb emissions.

“Emissions are still not declining in absolute terms, let alone following a path consistent with a 2C stabilisation,” the research found, suggesting the goal of the Paris Agreement, signed in 2015, would not be reached even if all 197 participating countries lived up to their ­promises.

The Minerals Council of Australia said the report confirmed the “significant negative impact” of lowering carbon emissions, but reiterated its support for the accord.

MCA chief executive Tania Constable said using a mix of technologies and abatement methods was crucial to minimising the economic impact of emissions cuts in the treaty, and called for the removal of the ban on ­nuclear power under the Environment Protection and Bio­diversity Conservation Act. “This would be a costless way to allow zero emission dispatchable power sources available 24/7 into Australia’s energy mix,” she said.

The paper assumed a gov­ernment-introduced $5-a-tonne carbon tax from 2020 — which neither the Coalition nor Labor has foreshadowed — to cut ­Australia’s carbon emissions by a promised 26-28 per cent on 2005 levels by 2030.

In June 2017, Don­ald Trump withdrew the US from the agreement in a move many Australian conservatives, including Tony Abbott, wanted to ­emulate. But abandoning the treaty would make almost no difference to outcomes for Australia, assuming other signatories still fulfilled their promises, the study found.

Professor McKibbin said a Chinese withdrawal, however, would have a big positive effect on economic outcomes for Australia: “They’d still buy our fossil fuels but we wouldn’t lose the ­environmental ‘co-benefits’ of lower carbon emissions at home.”

The research found that ­“almost half of the reduction in global emissions comes from China’s participation”.

Liberal backbencher Craig Kelly, who has consistently called for Australia to pull out of the Paris Agreement, said the report confirmed “Paris is not pain-free … There is a lot pain in cutting emissions by 26 per cent: in lower wages and lower GDP growth, and a lower exchange rate that makes all imported goods more expensive. The pain of a 45 per cent cut would be enormous.”

Source: The Australian