Last week the Federal Government released its long awaited economic modelling demonstrating the impact of climate policies on the Australian economy. The modelling is one of a number of inputs the Government is considering to help it set climate policies and emission reduction targets.
 
The modelling sets out four possible scenarios compared to a baseline scenario with no climate policies: all four scenarios assume a 60% reduction on emissions by 2050, but differ according to the severity of the 2020 target.
 
Although business and lobby groups have argued for a long time that this is the key piece of information to determine the impact of climate change on the economy, realistically the only insight we gained was how the Government is assuming industry will respond to carbon prices.
 
Long term modelling is generally based on trend averages which only consider if a sector is going to grow or decline, and at what rate. In this modelling the Government assumed that the carbon price will start the decline for high energy industries relative to their ability to introduce new technology or achieve energy efficiencies.
 
To that end, the Government assumed high energy industries do not want to decline and thus will make changes to prevent this. The insight is that they assumed the changes these industries will make would be driven more by technology than location change. Under this assumption the economy can continue to grow without producing carbon, and therefore its conclusion is that climate policies will have little negative impact on the economy in the long-term.
 
While others have made a judgement on the validity of the Government assumptions (ie the Minerals Council of Australia, Crikey.com, The Australian Greens ), I think there is more value in answering critical questions to determine how we should respond; interestingly, these questions haven’t changed since the last federal election.
 

• Is it cheaper to buy carbon or reduce it?
• Will this always be the case?
• What is the value of Australian-made?
• Will emissions trading become a global standard?
• If so, does that change what you do in the short- to medium-term?

 
Like climate change, these questions challenge the long-term assumptions and beliefs we hold about our businesses, our customers, the Australian and global economies, and ultimately what is important over the long-term.
 
Also, like climate change, the answers are going to vary from person to person within a company, and from company to company in an industry.
 
Despite this, the impacts of climate change policies are real. Delaying our response will only make it harder if for no other reason but that the skilled labour to make the changes is already scarce.