A world-first analysis of the impact of climate change on countries’ credit worthiness shows Australia will be among the worst hit, pushing up annual interest bills.
Australia will lose its triple-A credit rating by the end of the decade, driving up the federal government’s interest bill and the cost of borrowing for major companies as climate change undermines the economy and tax base.
Researchers from the universities of Oxford, Cambridge, Yale and East Anglia looked at how credit ratings – used by investors to determine the ability of a country to repay its debt – would change if global temperatures increase by either two degrees or five degrees over the rest of this century. The researchers estimated that if the global temperature increase is kept to two degrees, the loss of its triple-A credit status would cost the government between $US240 million and $US360 million a year in higher interest repayments by the end of the century.The interest bill on corporate debt, as it is closely linked to movements in the government’s credit rating, would increase by between $US80 million and $US140 million a year.
Globally, the researchers estimate a two-degree increase in temperatures will lead to an increase in annual interest on government debt of between $US45 billion and $US67 billion. If temperatures increase by five degrees, the interest bill climbs to between $US135 billion and $US203 billion.Treasurer Jim Chalmers will this week release the latest intergenerational report, which will contain forecasts on the state of the budget, economy and population out to the 2060s.
“This is a defining decade for Australia and the energy transformation – getting our budget in better nick and investing in a more productive and resilient economy will be critical to our future prosperity.”Erwin Jackson, policy director with the Investor Group on Climate Change, said the research confirmed that the nation’s finances would be undermined by climate change unless more was done to drive down greenhouse gas emissions.
“Investors have long recognised that climate change is a systemic economic and financial risk to the Australian economy. Recent climate change fuelled impacts on insurance costs, food prices and damage to infrastructure, supply chains and communities have only made this realisation sharper.”
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