New Study Shows Net Zero Transition Will Not Cause Inflation, Contrary to Fears
In a recent report released by the Centre for Policy Development, it has been revealed that fears of potential inflation caused by a green energy transition are unfounded. The study, which focuses on Australia’s transition to a net-zero economy within the next 30 years, dismisses concerns that this shift would lead to a significant increase in prices.
The report analyzes the economic modeling behind the transition and estimates that it would cost the country $625 billion to replace 38 gigawatts of generation capacity from aging coal and gas power stations. This cost is in comparison to the projected cost of $400 billion to replace the same capacity with fossil fuel-powered generation. While there is a significant difference in cost between the two approaches, the report argues that the additional $225 billion required for the renewable transition is relatively small when spread over several decades from a macroeconomic perspective.
One of the key points made in the report is that the spending required for the renewable transition would not contribute to inflation. Instead, it would help households and businesses avoid blackouts and price hikes caused by volatile oil and gas markets. Additionally, the researchers highlight that infrastructure spending is necessary regardless of whether the transition occurs or not, as energy assets need to be reliable. Therefore, this spending should be considered in any discussions around inflation.
Guy Debelle, former central bank deputy governor and co-author of the report, emphasizes that fears of inflationary pressure are ill-founded. He notes that Australia has previously undergone massive infrastructure development and can draw from past experiences to ensure a smooth transition. Debelle also highlights the importance of the net-zero transition in positioning Australia as a global leader in green technology, reducing emissions, and mitigating climate change.
However, while the Centre for Policy Development’s report dismisses concerns of inflation, research by Net Zero Australia paints a different picture. According to their findings, achieving net-zero emissions by 2060 would require up to $9 trillion, which is four times the country’s 2021 GDP. This massive investment would be necessary for the construction of wind and solar farms, transmission infrastructure, and energy storage.
The research also highlights the need to accelerate the development of new large-scale renewable projects to meet the national renewable energy generation target of 82 percent by 2030. Frank Calabria, CEO of Origin Energy, a major energy producer and retailer in Australia, echoes this sentiment. While he acknowledges the positive aspects of a renewable energy future, he cautions that the transition will undoubtedly create upward pressure on energy bills due to the significant investment required.
Calabria emphasizes that honesty about the impact on energy bills is crucial to ensure public support for the transition. If prices increase sharply, it may cause communities to turn their backs on the net-zero agenda. Access to secure and reliable energy is a challenge faced by households and businesses worldwide, and it must be addressed throughout the transition.
In conclusion, the Centre for Policy Development’s report provides reassurance that fears of inflation caused by a net-zero transition are unfounded. The additional spending required for the renewable transition is deemed relatively small from a macroeconomic perspective and would provide long-term benefits such as avoiding blackouts and price hikes. However, it is essential to consider the significant investment needed for a full transition to net-zero emissions, as highlighted by other research. Honesty about the impact on energy bills is crucial to maintain public support and ensure a smooth and successful transition to a sustainable future.
