Fossil fuels account for over one-quarter of Australia’s merchandise exports, and the global shift to decarbonisation could see demand contract considerably. This study uses a Computable General Equilibrium (CGE) model of the Australian economy tailored to include fossil-fuel-producing sectors, workers and households.

The paper considers an uncompensated shock to fossil fuel demand, in line with that which could be expected based on the announced climate policies of our major trading partners.

The results show that under a wide range of plausible parameters, the shock does not impose a significant cost on the Australian economy, in line with findings elsewhere in the literature. A range of policy responses to aid those workers and households are tested with direct transfers offering the greatest potential to offset the impact on welfare at the least cost fiscally and in terms of economic distortion.