Taxpayer bill unknown for 2035 target as Labor pushes forward
Treasury assumes investment in renewable energy will grow by 79-84 per cent between 2025 and 2050, but how much of that the government has to pay is unknown.
Taxpayers have been left guessing how much more the government will have to spend to drive the investment needed to hit its new emissions-reduction target, which Treasury forecasts could boost Australia’s economy by as much as $2.27 trillion by 2050.
While Jim Chalmers said “some public” investment would be needed, “overwhelmingly” the spend to achieve the target would come from the private sector.
Treasury modelling, which assumes the rest of the world is fully on board with net zero by 2050 and that Australia would be left behind if it did not ramp up investment, forecasts the economy will be $2.2 trillion bigger by 2050, or 81 per cent larger compared with current levels under a baseline scenario. Its upside scenario expects a $2.268bn bigger economy.
Critical to meeting this is Treasury’s assumption that under both scenarios investment in renewable energy will grow by 79 to 84 per cent between 2025 and 2050.
The Treasurer said Treasury thought about the costs, including “the total level of investment that we want to see – some public but overwhelmingly private … to hit these targets”. “The business council and others have numbers on the total amount of investment necessary,” Dr Chalmers noted, referring to BCA modelling that claimed a 70 per cent target would cost more than $500bn in capital expenditure.
Treasury’s modelling does not break down how much of the bill the government would have to stump up to achieve such massive increases in investment and economic growth. Anthony Albanese announced $8bn in “new” funding on Thursday to help achieve the target, with $5bn drawn from an existing allocation.
Calculations from the Institute of Public Affairs show federal government spending on climate change and net-zero policies have reached $9bn a year, up from $600m a decade earlier.
Treasury’s modelling also showed the government’s 2030 target of a 43 per cent reduction on 2005 levels would be met, despite the current level of 29 per cent.
Increasing the 43 per cent emissions reduction to a new target of as much as 70 per cent indicates that the pace of reduction is more than double.
Treasury’s report compared potential investment growth on par with the mining boom. “Australia has also historically been able to capitalise on the opportunities presented by changes in the global economy, such as the mining commodities boom during the 2000s, and improvements in technology to boost living standards and economic growth,” it said.
“Treasury’s modelling illustrates that an orderly transition to net zero will support investment in energy and new industries and enable new export opportunities to be realised.”
Former Treasury official Gene Tunny, now director of Adept Economics, said Treasury’s assumptions were unrealistic. “The modelling involves a lot of magical thinking that we’ll rapidly start decarbonising, that we can expend renewables rapidly without creating grid stability issues and higher costs, and the rest of the world will decarbonise too and we’re not placed at a competitive disadvantage,” Mr Tunny said. “It’s a nice story, but given what we’ve seen so far with rising power prices and the slowdown in emissions reductions, it strikes me as a fairy tale.”
Challenger chief economist and former Reserve Bank official Jonathan Kearns said Treasury might not have an expectation on how much government would need to spend. “It is important to reflect on how much investment will be required but that should be done relative to the amount of investment in the baseline, so focusing on extra investment,” Mr Kearns said.
“We know that because of under-investment in energy in recent years, in part because of uncertainty in energy policy, in coming years there needs to be a lot of investment to replace end-of-life energy generation capacity. That investment needs to happen whether or not there is a transition to greener electricity generation.”
Westpac has noted that the potential pipeline of utility investment projects, which includes committed and potential projects, increased to around $330bn in the March quarter 2025 – or about 12 per cent of nominal GDP.
“Of these utilities projects in the pipeline, around 170 are for renewables worth a total of $200bn in new investment,” Westpac’s senior economist Pat Bustamante said.
Treasury’s modelling said that under a disorderly transition scenario that hit the target, the economy was still projected to be up to a cumulative $2 trillion smaller by 2050, compared to the alternative scenarios. Cumulative investment would be $500 billion dollars lower than under the baseline scenario.
On Thursday opposition Treasury spokesman Ted O’Brien said taxpayers should be given some estimate as to how much government spending on the transition would be needed to achieve the new target.
“The modelling they’re doing today doesn’t tell the Australian people how much it’s going to cost,” Mr O’Brien said.
Sussan Ley said the government’s expectations were “grounded in fantasy land.”
“The modelling needs to be very carefully interrogated,” the Opposition Leader said. “I do not accept the modelling this government brings down.”
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