For Australia, the Business Roundtable found that delayed action could lead to a reduction in GDP growth of 0.3 per cent per annum until 2050. In contrast, by addressing climate change and targeting emission reductions of 60 per cent by 2050, the reduction in GDP growth is projected at around 0.1 per cent per annum. There are a sizeable range of cost predictions and we acknowledge that measuring the impact of climate change is an extremely complex process and no one source of information can necessarily be relied upon.
Whatever the outcome, the consensus is that early action is vital and will reduce the negative impact on GDP over the longer term. The impact of climate change detailed in the Stern Report in particular is severe and far reaching. However, immediate impacts on GDP include the negative impact on the tourism industry due to physical damage to attractions like the Barrier Reef; the agricultural industry which may be impacted by more severe heat stress, disease and reductions in carrying capacity; and the constraints related to insufficient water supply.
In addition to the negative effect on GDP from the physical impacts of climate change, there are the costs associated with mitigating and adapting to climate change. The potential negative impact on GDP is likely to flow through to virtually every sector in the economy. There are also a number of potentially positive outcomes from the effort to reduce emissions. This could result in opportunities for growth in sectors driving low carbon emission technologies. In this sense, it can be argued that tackling climate change is a growth strategy as society is driven to become more efficient.
Climate change and resulting policies will also certainly have an effect on inflation, or the real return superannuation investors will receive. Climate change is anticipated to drive up the cost of fuel, the cost of food and the cost of water, placing upward pressure on inflation and reducing growth in other sectors. Pressure on food commodity prices has been experienced as a result of global biofuel production but this may not continue over the longer-term given its negative impact on food prices and the environment.
Domestically, the current drought impacting most of Australia is likely due in part to climate change and has contributed to higher inflation over recent years. As previously noted, changes in climate will mean increased frequency of droughts, as much as 40 per cent more in eastern Australia by 2070 which will lead to more severe and frequent food price spikes. The higher incomes of China and India are increasing the demand for meat and in turn boosting the demand for cereals to feed animals, further inflating food prices. Prices for petrol, energy and water will also continue to face upward pressure due to both the direct impacts of climate change and the introduction of policy mechanisms designed to address climate change.