Who will pay for our Net-Zero: Are we, yet again, being unfair to our children and grandchildren?

Australians have been voicing that they want meaningful action on climate change, and are willing to pay for it.
This is because we are already suffering from the effects of changing climate, like more frequent and more severe bushfires, droughts, floods and coastal storms. Over the best part of the last decade the government has been hesitant on policies to reduce emissions, and Australia is seen both domestically and internationally as a laggard on action to combat climate change.
Under pressure from public opinion at home and from international partners Scott Morison has finally made a commitment for Australia to achieve net-zero emissions by 2050. In doing so, he stressed that the plan is to meet net-zero by “technology, not taxes”. A lot has already been said about the pathway towards net-zero, and a lot of questions have been raised, especially since the government has not yet shown the modelling on which the plan is based. There was a mention of some $120 billion of government funding for programs and technologies to take us to net-zero by 2050. The big question is how are we paying for this? And who is paying?
By steadfastly sticking to the “technology, not taxes” mantra, the Morison government is effectively passing on the burden of paying for current emission reduction to the future generations. In order to fund the ‘technology’ part of the mantra, the government will inevitably have to plunge in further debt. This is because the federal budget is already in deep deficit, which has worsened over the last couple of years due to massive COVID-19 spending. Given this deficit, there is no other conceivable way to raise the funds needed for the programs and technologies towards net-zero (the $120 billion) but to resort to further government debt. Incurring government debt is by definition borrowing from the future. This effectively means that government’s approach to net-zero will be burdening future generations to pay for the present action on climate change. Future generations are already likely to be burdened with greater social costs due to the even more pronounced effects from climate change they will experience irrespective of the current commitments to net-zero. Scientific modelling is unambiguous that there will be damaging effects from climate change even if we achieved net-zero today. So, our children, grandchildren and grand-grandchildren will be terribly strained to repay our debts and to face the high costs of living with climate change. This outcome does not align with the universally accepted definition of sustainable development set by the Bruntland Commission Report way back in 1987: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” We have already burdened future generations with the costs of changing climate. It is a big burden. Burdening them further with the cost of having to repay the debts that we incur to pay for the efforts to mitigate some of those large costs that we impose on them is downright unfair.
The key reason for the government adopting this intergenerationally unfair approach to net-zero is to avoid ‘taxing’ or even ‘pricing’ carbon emissions by the current generation. This is purely due to self-centered political motives. Rather than plunging into further debt and burdening the future generations to pay for it, it is much fairer to impose a ‘price’ on carbon and to require current emitters to pay that price and use the proceeds to fund low emission technologies. There are various possibilities to design and implement a carbon price that are economically sound, equitable, and politically palatable. They include emissions trading schemes, emission fees, combinations/hybrids of those two, as well as carbon fees with revenue recycling, such as the concept of carbon dividend. Indeed, carbon pricing of some form is used widely throughout the world, from the EU to Canada, New Zealand, parts of the US, and now China. There is no reason why some of those would not work for Australia. Yes, Australia is unique in so many ways, like being the home of koalas, and of the Great Barrier Reef, but there is not really a ‘uniquely Australian way’ that should prevent us from using carbon pricing when the whole world around us uses it. It is both ethically fairer and economically sounder to make current emitters and current generations carry the burden of paying for reducing emissions, rather than passing the buck to the future!

Author: Tiho Ancev

Tiho Ancev is a Professor of Agricultural and Resource Economics in the School of Economics, University of Sydney. His main research areas are agricultural, environmental, natural resource and energy economics. Tiho’s main contributions have been in water economics and policy, economics of energy, economics of air pollution and climate change policies, and economics of precision agriculture and agricultural input use. He has published widely on these topics in top international peer reviewed journals. Tiho has led and contributed to national and international research projects in these research areas. He is currently the Managing Editor-in-Chief of the Australian Journal of Agricultural and Resource Economics.