A new paper from the Centre for Policy Development finds that investments in renewables can unshackle the economy from volatile fossil fuel prices, replace ageing infrastructure and avoid major inflationary effects.
Capital for Kilowatts, authored by program director Toby Phillips and former Reserve Bank deputy governor Dr Guy Debelle, states concerns about possible inflationary effects are ill-founded, and that the energy transition is vital to reduce emissions.
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The paper highlights the fact that Australia must replace approximately 38GW of coal and gas power by 2050 as ageing plants reach retirement, as well as meet a projected 20GW increase in energy demand.
Replacing and meeting new demand with fossil fuel powered generation will cost $400 billion, and would leave the Australian economy subject to volatile global commodities markets.
Transitioning to renewables and green technology would require $625 billion over three decades, but the additional spending would support a more steady, secure supply of power to avoid the inflationary impacts of electricity supply shortages.
The additional investment required over 30 years in this scenario is small in macroeconomic terms and unlikely to significantly impact inflation, the paper argues.
Infrastructure spending will be required regardless to ensure that energy assets are reliable and can be depended on over the coming decades, and this spend must be factored into any debates around inflation.
The paper also notes that the cost of renewable technologies could see prices drop more quickly than modelling suggests, concluding that the safest bet to ensure a steady, secure power supply without shortages or price spikes is to commit to transition investments.
Debelle emphasises the need for a swift and effective green energy transition to ensure the resilience and sustainability of Australia’s energy systems, even if it costs a bit more.
“Fears of potential inflationary pressure from a green energy transition are unfounded. There may be challenges from building out hundreds of billions of dollars of energy infrastructure—but Australia needs this investment regardless of whether it is green or not.
“The difference in cost between a fast green transition and any alternative scenario is small, and unlikely to be macroeconomically significant.
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“This isn’t the first time Australia has faced a massive build-out of new infrastructure, and we can apply the lessons from previous investment cycles to this one.
“Not only will it set us up as a global leader in green technology, it will safeguard Australia’s energy future and, most importantly, reduce emissions and mitigate climate change.”
