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Call to arms: how can Australia avoid a slow and painful decline?

Australia is at a crossroads. Drift towards a future of slow decline economically and socially or, if action is taken now to address our most important challenges, create a future of greater prosperity for all, globally competitive industries and a sustainable environment.

That is the conclusion of a major report bringing together the thinking of more than 50 leaders in business, academia, NGOs and the community sector, working with the CSIRO to model alternative futures for Australia. The report is described as a “clarion call” for the nation.

The Australian National Outlook 2019, two years in the making, aims to “help kickstart a national conversation about where Australia is heading”, says its co-chair, Dr Ken Henry, the chairman of the National Australia Bank and former secretary of the Treasury department.

Participants met as a group with the nation’s leading science agency, the CSIRO, to identify the most critical long-term challenges facing Australia and what needed to change. They included senior leaders from Shell Australia, the Red Cross, McKinsey & Company, Australia Post, PwC, the Cochlear company, the Australian Bureau of Agricultural and Resource Economics and Sciences, the Grattan Institute, major universities, the Wentworth Group of Concerned Scientists and UnitingCare Australia.

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Individuals included the former New South Wales premier Nick Greiner, former chairman of the Australian competition and consumer commission Allan Fels and co-chair of the report, the CSIRO’s chairman, David Thodey.

The report concludes that while Australia has enjoyed almost three decades of economic growth, with enviable social cohesion and strong institutions, it risks “drifting into the future” if it fails to respond to challenges in a fast-changing world. Those identified are the rise of Asia, rapid technological change, climate change and the environment, changing demographics, declining trust in institutions and business and strains on social cohesion.

Summary of report

To deal with them and reach its potential by 2060, Australia must make “key shifts” in five areas: an industrial shift, an urban shift, an energy shift, a land shift and a culture shift.

The director of CSIRO Futures, James Deverell, led the project and said the sense of urgency came from the participants, who gathered for eight workshops, beginning with around 100 priorities for Australia before identifying the most crucial.

“There was this strong sense that we need to take action now,” Deverell said. “The group sees this as a clarion call, a call to arms for action.

Ken Henry

Dr Ken Henry says the Australian National Outlook report aims to ‘help kickstart a national conversation about where Australia is heading’. Photograph: Lukas Coch/AAP

“When you look at the shifts, there’s a couple of things in common. One is the need to focus on the long term, that these shifts are going to play out over a generation or more, but that doesn’t mean we can kick the can down the road and ignore them. The other one is the need for strong leadership, for bold action.”

The report references the 1980s, when strong productivity growth was driven by a consensus on economic reform supported by both major parties, big business and unions.

The report does not give specific policy recommendations but suggests the “levers” the country needs to pull to get the best outcomes. One of its strongest conclusions is that there is no tradeoff between strong economic growth and transitioning to zero-emission renewable energy, an argument that has crippled political debate in Australia for more than a decade.

national outlook emissions chart

In both scenarios modelled by the CSIRO – slow decline or what the report calls outlook vision – almost all electricity is generated by renewables by 2060 due to drops in the cost of renewables and the decline in the demand for fossil fuels. The global disruption in the energy market is underway, so whether the Australian government encourages new coal-fired power stations or not, renewables will be cheaper and replace them.

In Australia, most of the transition will happen between 2020 and 2040 as ageing coal-fired power plants are retired and replaced with renewables.

“We’ve seen costs come down so much in solar and wind they are now the low-cost solution,” Deverell said. “Once you hit a certain level of renewables on the grid you need to add storage to the cost, but that’s factored into our modelling and we see the cost of storage coming down over time.”

Deverell said even if Australia continued its policy uncertainty around energy and environment policy, we would still get to almost 100% renewable energy by 2060 purely because of the market. But the warning to politicians and policy makers is that “the transition happens more slowly and ultimately it makes electricity prices higher”.

National GDP

Thodey argues in the report that if Australia pulls the right levers, “it is possible to achieve higher GDP per capita (as much as 36%) while ensuring growth is inclusive and environmentally sustainable”.

“In a global context, strong cooperation on climate change and trade can deliver a better outcome for Australia without significantly impacting our economic growth, where before it may have been thought impossible.”

Domestically, the report says that whatever happens in the rest of the world, Australia can make big strides to reduce our emissions through improving energy productivity, which means using less energy for the same outcome.

A climate change protester

The report suggests the biggest benefits will come to Australia if the world takes concerted action on climate change to limit global warming to a maximum 2C by 2100. Photograph: Michael Masters/Getty Images

Australia was weak compared with best practice internationally because it was not using the best technology available. It had the potential to become one of the most productive users of energy in the world through energy efficiency and electrification. Electric vehicles, for instance, are expected to be the cheapest form of transport after 2025 and would dominate sales by 2040.

Australia needs to prepare to adapt to global conditions whatever they are, but the biggest benefits will come if the world takes concerted action on climate change to limit global warming to a maximum 2C by 2100 rather than the catastrophic 4C rise if little action is taken.

If there is cooperative global action on climate change, Australia stands to be a big winner, the report finds. The CSIRO modelling indicates that “lower emissions from energy and greater sequestration on the land could enable Australia to achieve ‘net zero’ emissions by 2050 under the outlook vision”. Australia could capitalise on low-carbon exports such as hydrogen produced by renewable energy, countering the decline in global demand for our fossil fuels exports.

“Although other countries are also pursuing energy productivity and renewables, modelling suggests that Australia’s vast natural resources for renewable generation should lead to lower cost electricity in 2060,” the report says.

Graphic 3 Power costs

With reliable, low-carbon electricity and investor confidence in long-term policy, along with rising wages and improved energy efficiency, “by 2060 Australians are spending between 58% and 64% less on electricity as a proportion of income than they are today”.

Even if the world balks at strong action on climate change, Australia does better economically if it if embraces energy efficiency to reduce emissions.

The report’s proposed land shift would see a “stretch goal” of increasing agricultural productivity to 3% per year, meaning intensifying agriculture on the best land, using emerging technologies and boosting research and development. For instance, increasing productivity could result in revenue for crops such as winter cereals doubling by 2060.

The report suggests increasing agricultural productivity could result in revenue for crops such as winter cereals doubling by 2060

The report suggests increasing agricultural productivity could result in revenue for crops such as winter cereals doubling by 2060. Photograph: Michele Mossop/Getty Images

Agriculture in Australia had not yet fully embraced the “digital revolution” and doing so would be a boon.

Strong global action on global warming would present opportunities for land owners to sequester carbon through carbon and environmental planting, a “significant land use shift” that would protect prime agricultural land for food. As much as half of the least productive agricultural land could be profitably switched to carbon plantings, which would offset Australia’s own greenhouse gas emissions. Additional emissions abatement could be sold as carbon credits to other countries.

“Australia has one of world’s best and largest solar resources and we can capture that and export low emissions energy to countries that don’t have that resource, to places like Japan, Korea and potentially even China,” Deverell said.

Overall, the report says that “Australia is not well prepared and that action is required to avoid the slow decline scenario”. That scenario is not a disaster, but is far less positive than it could be. CSIRO modelling found GDP growth would be 2.1% annually, real wage growth would be 40% higher in 2060 than it is now and there would be only a modest increase in energy productivity. Major cities would continue to sprawl, adding to stressful commutes and long distances to education and services.

With bold action, the modelling found a far more prosperous and dynamic Australia, with GDP growth of 2.76% to 2.8% annually, real wages 90% higher, average density of major cities increasing 60% to 88%, only a 6% to 28% increase in total energy use, a more than doubling of energy productivity, and net zero emissions by 2050 with global cooperation.

“This decoupling of emissions from GDP demonstrate that stronger action on environmental measures need not come at the expense of economic outcomes.”

Deverell said the report wasn’t intended as a list of policy recommendations or predictions for the future, but a chance to “get together a group of senior leaders, public sector, private sector, NGOs, (to) have an informed consensus on where we need to go”.

While trust and social cohesion were difficult to model, they were crucial for Australia’s future, he said. Trust in governments and CEOs was low, which meant Australians had little faith that decisions were made in the long-term interest of all. Without that trust, bold decisions were more difficult.

There was no “silver bullet” to restore trust, but efforts were needed to address policy over-promising, the perceived unrepresentative nature of politicians who came from narrow backgrounds and the perception that politicians favour vested interests over the public interest.

The report also emphasised equity. “We didn’t just want this to come through as a ‘here’s what we need to do to grow our economy’, but ‘here’s what we need to do to grow our economy and increase living standards for all Australians’.”

In the industry shift, the report says productivity can be boosted with increased adoption of technology, greater investment in education and skills to ensure a globally competitive workforce, and reversing the decline in education in key areas such as maths and science.

In both the slow decline and outlook vision scenarios, the report accepts official estimates that Australia’s population will reach 41 million by 2060, with Sydney and Melbourne home to between 8 million and 9 million people, and Brisbane and Perth between 4 million and 5 million. The slow decline model shows millions more living in the outer suburbs, making it harder to travel to jobs, education and services. Housing affordability remains a major problem, and social cohesion is strained.

The urban shift requires a big change in the way planning and policy supports our cities, with a growth in medium and high density living, and a focus on multiple “centres” of growth apart from the CBD, a policy that Sydney and Melbourne are already embracing.

Well-designed apartments, semi-detached homes and townhouses make up just over half of the housing stock, with a mix of reasonably priced accommodation so that essential workers can afford homes. People live closer to jobs, to education and to services and recreation.

Electric vehicles are expected to be the cheapest form of transport after 2025 and would dominate sales by 2040

Electric vehicles are expected to be the cheapest form of transport after 2025 and would dominate sales by 2040. Photograph: Dan Peled/AAP

Car use is down, mass transit is up and electric vehicles make up over 80% of new vehicle sales in 2060. An alternative model outlined is one in which satellites cities such as Geelong and Newcastle grow quickly, and 5 million more people choose to live outside the capital cities, easing the density in the capitals.

It is the second Outlook report, following a 2015 release that focused more narrowly on water, energy and food. The 2019 report is more ambitious and brings in outside leaders to identify Australia’s key challenges and opportunities.

Deverell said it was aimed first at senior decision makers in the public and private sector, as well as NGOs and community groups. But it was “a message to all Australians that we can take control of the kind of future we want for the country”.

“By using those two scenarios we were trying to illustrate just how different the future is depending on the path that we take. We’re saying that Australians need to get together and these are the things we need to be focusing on. This is what’s really important.”

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