Understanding Structural Change from Transitioning to a Low-Carbon Economy: An Integrated Multi-Model Approach for Australia

Continued climate change raises concerns on climate-related physical and transition risks. This study focuses on transition risk or the structural change related to decarbonisation. Specifically, we model the structural change associated with net zero emissions (NZE) for Australia along with global action to limit warming to 1.5°C by the end of the century.  This scenario is implemented using a two-stage integrated approach that links two computable general equilibrium (CGE) models – one representing the world economy at a broad level and the other representing the Australian economy in greater detail. Results indicate that achieving NZE would contract the global and Australian economy. Global GDP is projected to fall by 5% and Australian GDP by 3.95%. Both globally and in Australia the capital and labour use falls. The NZE pathway is transformative for the energy sector but disruptive to other industries. Electricity generation increases by 1.45% per year as the Australian economy shifts from fossil-fuel-based energy to renewable energy. Economic activity of the non-energy sector contracts due to higher production costs related to the cost of abatement. Sensitivity analysis indicates that the GDP effects are rather sensitive to the speed with which NZE is reached.