News ID: 237045
Published: 0857 GMT January 08, 2019

Paris Agreement costs Australia, but withdrawing costs more

Paris Agreement costs Australia, but withdrawing costs more

Australia will pay a price in economic welfare if the world implements the Paris agreement on climate change, but will not be better off if it follows US President Donald Trump's example and withdraws unilaterally, new research shows.

The finding backs Prime Minister Scott Morrison's refusal to bow to backbench pressure to pull out of the Paris agreement from climate change sceptics, led by former prime minister Tony Abbott and economics and energy committee member Craig Kelly, wrote.

The research was conducted by top Australian National University economist and former Reserve Bank board member Warwick McKibbin and colleagues at ANU and the Brookings Institution in Washington. It examined the cost to each nation's economy and welfare of implementing the Paris agreement. It then offset the environmental benefits for each country or region to derive the net policy outcomes.

The costs to Australia come overwhelmingly from other countries implementing the Paris agreement and, as a result, in effect taxing Australia's coal and gas exports. The environmental benefits of Australia cutting its own use of fossil fuel accrue almost entirely at home.

Under the researchers' economic model, all major countries and regions examined experience a reduction in gross domestic product as a consequence of the Paris Agreement. The precise amounts vary depending on which major emitting countries stay in or pull out.

But the impacts for much of the world vary from less than half of one percent for the US — and only a fraction of that if the US pulls out unilaterally —  by 2030, to about two-thirds of a percentage point for Europe, and between three-quarters and one percentage points for India and Japan.

The exceptions to this are the fossil fuel exporting regions of Australia, which suffer a loss of around two to 2.5 percent of GDP, the OPEC club of oil exporting nations, which suffer a loss of 3.25 percent to 3.5 percent, and Russia which experiences a loss of four percent to 4.5 percent of GDP.

Although these numbers sound large, Professor McKibbin and the other researchers, who include his longtime Brookings Institution collaborator Peter Wilcoxen of Syracuse University in New York state, warned that when looked at over more than a decade into the future "they are generally small — about a typical year's GDP growth or less".

They also pointed out that the estimates do not include the costs of economic retaliation against countries backing out of Paris and "may be overly optimistic about the benefits of withdrawing".

The researchers' estimates of variations in wealth follow a similar pattern, except the numbers are smaller and the changes are positive for all regions bar Australia, OPEC and Russia.

But when environmental co-benefits are included, "participating in the Paris Agreement is in the self-interest of almost all regions — that is...countries withdrawing from it make themselves worse off," the researchers said.

China enjoys net wealth (including domestic environmental) benefits of more than seven percent relative to the baseline, except if it pulls out, in which case it suffers a slight loss of wealth. Europe, Japan and the US enjoy net wealth benefits of under or around 0.25 percent. Even Russia enjoys net wealth benefits.

The exceptions are Australia and OPEC, which are down even after including domestic environmental benefits by between 0.25 percent and 0.5 percent.

"All regions except Australia and OPEC experience positive net benefits from participating in the Paris Agreement," the researchers said.

"Accounting for domestic co-benefits increases the estimated benefits of achieving the Nationally Determined Contributions (NDCs) for some regions by one to two orders of magnitude, particularly for China, India, and Russia. Also, this addition does not change the result that none of the three regions is better off if it unilaterally withdraws."


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