Australia’s legislated goal of achieving ‘net zero’ emissions by 2050 will require an immensely costly restructuring of the Australian economy. The share of fossil fuels used in producing energy, around 90 per cent in 2023 according to the International Energy Agency, will have to fall to almost zero.
The costs of replacing such energy sources with wind, solar, and batteries have always been difficult to estimate because forecasting prices, economic behaviour and technological developments well into the future cannot be undertaken with much confidence. Furthermore, they fall directly on households and businesses, first through higher energy and other business input prices combined, and second via the direct and opportunity costs of regulations that require the purchase of emissions-free, non-nuclear energy. These costs don’t appear in a consolidated way in federal or state government budgets, as do most costs of government policy.
Past research had inevitably focussed on the broader costs of net zero, given the negligible reported direct public expenditures. For instance, Net Zero Australia, a collaborative effort among four universities, estimated the total cost of achieving net zero across the economy to be between $7 trillion and $9 trillion by 2060, including the phasing out of fossil fuel exports and the mass rollout of electric vehicles.1
But the quantum of federal spending commitment on net zero, and the number of programs related to it, has increased significantly in recent years. And this could in turn be dwarfed by the potentially very significant liabilities that could fall on the government because of the Capacity Investment Scheme, a program to induce a rapid increase in renewable energy generation by guaranteeing private investors minimum rates of return.
