Impact of Climate Change on Australia's Economy

PRINCIPLE OF ECONOMICS

PRINCIPLE OF ECONOMICS
INTRODUCTION
Climate change, although gradual, has significant long term effects on individual economies
around the world as well as the global economy in general (Anthoff, et al., 2009). The impact on
economies can be evaluated from two points of view; supply of goods whose production is
weather dependent and demand of goods or services that contribute to climate change.
Australia’s economy, like other economies around the world, is not immune to the impacts of
climate change.
COAL DEMAND
The first industrial revolution was mainly fueled with coal, and has since then been an energy
source that continues to power industrialization around the world (Crafts, 2011). This is
especially true for third world and developing countries that need rapid industrialization to spur
economic growth and development. However, the carbon emission levels have also significantly
increased since the start of the first industrial revolution. Coal is a major contributor of carbon
emissions the lead to climate change (Jacobson, 2009).
Australia is the world’s leading exporter of coal, with markets mainly in developing countries in
Asia. There has been increased calls internationally for the shift from the use of coal as a source
of energy due to its contribution to environmental pollution and climate change (Oba, 2014). The
adoption of policies on green energy sources use will see a reduction in the use of coal, and
hence a decrease in the demand for coal. The prices of coal will decrease as a result and
consequently the amount of coal mined will also decrease. This can be seen in the plot in Figure
1: Demand-Supply Curves (Coal Industry) below, with both demand and supply decreasing.
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PRINCIPLE OF ECONOMICS
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Demand-Supply Curves (Coal Industry)
Demand Supply
Quantity
Price
Figure 1: Demand-Supply Curves (Coal Industry)
Being the world’s leading exporter of coal, coal hence contributes significantly to the GDP of
Australia, a decrease in the demand for coal will cause a decrease in the country’s GDP. The
export component of the GDP will be mostly affected by this decrease in demand. The decrease
in the GDP will result in increase in both inflation and unemployment. There would be an
expected “walking” inflation in the country with structural unemployment (especially in the coal
industry) resulting from the decrease in coal mining.
BEEF SUPPLY
In Australia’s agricultural industry, beef farming is the leading agricultural practice, with beef
export being the second largest in the world. Climate change will progressively expose Australia
to more frequent and severe droughts. Beef farming is heavily dependent on the availability of
cattle feeds and in turn weather, frequent and severe droughts make animal feeds scarce (Oba,
2014). This scarcity will lead to reduced herd sizes and hence decreased supply of beef. The
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