Economic Modelling Consultation

15 September 2023

Net Zero Australia Submission to the Economic Modelling Consultation, being undertaken by the Climate
Change Authority

The participants of the Net Zero Australia project are pleased to provide a submission to the Climate
Change Authority in response to its Consultation Paper “Economic Modelling of potential Australian
Emissions Reduction Pathways.”

The Net Zero Australia (NZAu) Project provided a briefing to the Climate Change Authority in March 2023 where the results were discussed. This submission reiterates the key points of the briefing in writing, for consideration in the Consultation Paper.

Scope of Consultation

“The authority seeks to answer two key questions with its modelling exercise:

Modelling question 1: What are the likely economic effects on Australia of different emissions
pathways to net zero relative to Australia’s current level of ambition?

To answer this question, the authority will need to consider both positive and negative economic
effects. This includes considering the opportunities and trade-offs in the Australian economy at each
stage of the transition to net zero. Modelling of Australia’s current level of ambition (its existing
targets) is needed as a reference point, along with plausible scenarios for futures where Australia
and the world pursue different emissions pathways.

Modelling question 2: What are the likely emissions pathways, outcomes, risks and opportunities
for different parts of the economy under different national emissions pathways to net zero?

To answer this question, the authority needs to consider how to break down the whole-of-economy
results to provide more granular insights. This includes developing an understanding of where and
when decarbonisation could occur in the economy in order to achieve a given whole-of-economy
emissions reduction pathway.”

The NZAU is a whole of economy report, covering both domestic and export sectors, and is particularly relevant to the authority’s request for consultation.

The NZAu participants applied a rigorous and granular, evidence driven, technology neutral and non- political approach. A transparent approach has been adopted in the project, with results being published on the NZAu website (netzeroaustralia.net.au) together with companion methodology and downscaling reports to provide a complete description of these features.

Professor Robin Batterham AO FAA, FTSE, FREng, FNAE, FSATW, FCAE, FINAE, FAusIMM, FIChemE, FISS, FAIM, FAICD, FIEAust
Emeritus Kernot Professor of Engineering
Faculty of Engineering and Information Technology
The University of Melbourne, Victoria 3010 Australia
M: +61 417 351 776 E: robin.batterham@unimelb.edu.au
Background

The NZAU Project is a partnership between The University of Melbourne, The University of Queensland,
Princeton University, and management consultancy Nous Group. NZAu used the modelling method developed by Princeton University and Evolved Energy Research for its 2020 Net-Zero America study
(Larson et al., 2021) and analysed net zero pathways that reflect the boundaries of the Australian debate.

Since the NZAu Project’s inception in early 2021, detailed summaries of the methodologies, assumptions, results and feedback received were progressively placed on the Project website netzeroaustralia.net.au.
Our gift based sponsorship, a diverse Advisory Group, wide consultation and the progressive public release of all work has supported the NZAu Project’s independence from its Sponsors, Advisory Group and many stakeholders. The NZAu Project therefore does not purport to represent Sponsors and Advisory Group member positions or imply that they have agreed to our methodologies or results

NZAu Approach

Rather than applying the 1.5°C pathway or the 2°C pathway as proposed by the authority, the NZAu Project applied straight line emissions trajectories for domestic and export sectors to achieve net zero by 2050, together with sensitivities which accelerated or delayed reaching net zero. The pathways modelled a
1.8Gt-CO2e/year GHG emissions abatement whilst providing 15exajoules of clean energy globally.

In undertaking the NZAU project, the modelling:

• imposed different, linear trajectories for greenhouse gas (GHG) emissions reduction for Australia’s
domestic and export energy systems to reach net zero,
• used a scenario-based approach,
• used the best available inputs and assumptions,
• used a least cost optimisation approach, and
• ‘downscaled’ the results to a regional and sub-regional basis.
Given the many sources of uncertainty and the contested nature of the net zero challenge, the NZAu
Project was intended to reflect the boundaries of the Australian debate by varying the following parameters significantly across our Scenarios:

• the rate of electrification,
• renewable build rates,
• limits on fossil fuel use, and
• limits on the usage of carbon capture, utilisation and storage (CCUS).

In doing so, there was no presumption that any of these Scenarios are more or less desirable or achievable.
Rather, in modelling very different pathways to net zero, it was intended that the NZAu Project illustrated:

• the scale, complexity and cost of the net zero challenge, irrespective of which specific pathway is
preferred or taken,
• the implications of key choices, and
• the potential impacts across society, the economy and the environment by making these choices.

Irrespective of the pathway taken, the results nonetheless show that achieving net zero emissions for both
Australia’s domestic and export energy systems is an immense challenge and a once-in-a-generation, globally significant and nation-building opportunity.

What Australia must do can be summarised in three points:

1. deliver an energy transformation that is unprecedented in scale and pace,
2. transform our exports as an essential contribution to global decarbonisation, and
3. invest in our people and our land to reduce impacts and share benefits.

Each requires a transformation in the thinking and actions in delivering greenhouse gas abatement whilst continuing to serve Australians and its export partners with the energy and other commodities that they need.

For example, the delivery of an energy transformation requires us to:

• grow renewables as our main domestic and export energy source such that by mid-century we
have 400-500 GW serving our domestic energy system and potentially several thousand GW
producing energy exports, compared to roughly 25 GW today,
• establish a fleet of batteries, pumped hydro energy storage and gas-fired firming that is larger in
capacity than our domestic energy system today,
• greatly increase electrification and energy efficiency across all sectors in many ways, ranging from
the uptake of electric vehicles to the displacement of gas-fired heat with electrically driven
equivalents in our homes and some businesses,
• develop a large carbon capture, utilisation and storage industry that can sequester of order 100 Mt
pa of CO2, compared to the nascent industry that exists today,
• greatly expand our energy networks, not only by electrification but also by investment in the
transmission of several new network delivered commodities, and
• attract $7-9 trillion of capital to 2060 from international and domestic sources and deploy this in
investment ready projects.

A potential role for nuclear electricity generation is only seen if its cost falls sharply and the growth of renewables is constrained.
Similarly, a transformation of our exports is an essential contribution to global decarbonisation task. This, in turn, requires Australia to transition to clean energy and clean mineral exports, justifying the potential for thousands of GW of renewable and other investments across the north of Australia and possibly also in the south. Since the onshore production of clean iron and aluminium could be of significantly lower cost than the offshore production of equivalent commodities, Australia could find that the export of clean non- energy commodities could play a major role in this transformation by aligning the global decarbonisation task, the interests of international customers and our domestic build task.

We must also invest in our people and our land to reduce the adverse impacts of the net zero transition and share in its benefits. This includes the expansion of a skilled workforce from about 100,000 today to about 700,000-850,000 by 2060, with many of these jobs in regional and remote Australia. The land sector must be moved towards net zero and potentially to net negative emissions, which requires several innovations that mean that offsets from the land cannot be assumed to be available for other sectors.
Finally, we must carefully manage these major land use changes, being particularly mindful of the
Indigenous Estate, natural ecosystems and agriculture. The physical and social changes of the transition to net zero emissions are immense and are not necessarily benign.

A link to the full report is attached for reference.

Conclusion

In our briefing to the authority, we showed that for the linear emissions reduction path and for various scenarios, the costs are quite significant, in absolute terms, $7-9 trillion to 2060 with levelised domestic total costs of order of 7-8% of GDP in 2060. While exports were responsible for over half total costs, backing out what would have been spent anyway in replacement of ageing assets and satisfying increased demand, there is still in the order ~$3 trillion of capex needed by 2050.

In our sensitivity analyses we showed how these costs increased with any faster rate of emission reduction.

In terms of the authority’s second question, as already mentioned, our modelling covered all parts of the economy and the disaggregation of this part of the modelling would be a useful part of any ongoing work.

We would be pleased to discuss the authority’s interests in such areas.

Yours sincerely

Professor Robin Batterham
Chair, Net Zero Australia