According to government planners Australia will spiral as a result of a failure to respond to climate change.
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In an analysis paper published this month, officials said that the country s cost of capital would increase by 100 basis points in an adverse climate-change scenario without its strategy to reach a net-zero emissions target. If Australia was the only developed country without such a goal, the extra cost could jump as much as 300 basis points, they said.
The admission, buried deep in an annex of a long-term emissions reductions plan, may be the first such analysis published by a major government on the climate risk to its debt. It comes as investors are starting to amp up pressure as Australia is perceived as a laggard due to its reliance on coal, with Sweden s central bank having already dumped the bonds of two of its states.
Sean Kidney, co-founder of the Climate Bonds Initiative, said it was a recognition of what is going on in the world as investors are conscious of climate risk, and if countries don't respond their borrowing costs are going to go up. It's the first time I've seen it in print. Countries across the world are committing to reduce global emissions, including fossil fuel exporters such as Saudi Arabia and the United Arab Emirates. Australia plans to reach net-zero emissions by 2050 will only cut the amount of greenhouse gases produced by a third compared to having no plan at all. It is dependent on technological advancements emerging over the coming decades.
The Australian government's projections are based on market pricing of green bonds, which are used to fund projects that combat climate change. The report said there is no precedent for quantifying the cost of inaction for the nation's governments, firms and households.
There is evidence that green bonds generate greenium or cheaper borrowing costs, a measure of a few basis points for sovereign issuers. The report said that the dynamics driving this greenium will increase over time, leading to a larger penalty for the debt of climate laggards.
Australia's benchmark bond yield has surged nearly 100 basis points in the past three months to around 1.9%, as global policy makers prepare to reduce the extraordinary stimulus given to markets during the Pandemic.
Australia -- one of the world's top suppliers of fossil fuels - has committed to reach net-zero emissions by 2050, according to the modeling released by Prime Minister Scott Morrison s government, which shows the nation will still emit 215 million tons of emissions by that time.
Australia will default on its debt by the year 2050 if there is a disorderly transition in the planet's efforts to fight climate change, according to research by FTSE Russell.
It is good to see that Australia's Treasury is looking closely at the very serious economic risks of Australia's climate policy, said Kate Mackenzie, a fellow at Australia's Centre for Policy Development and a Bloomberg Green columnist. We have seen from the Swedish Riksbank and other comments from market participants that the source of these risks isn't limited to domestic emissions and the country's reliance on fossil fuel exports. None of the Wildfires Are Worse, and One Chemical Company Is Reaping the Benefits is Reaping the Benefits
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