The average NSW resident is already $20,000 a year worse off because of historical climate change, and economic modelling suggests future global warming will further squeeze household budgets through a double whammy of lost wages and higher grocery bills.
The analysis from the NSW Net Zero Commission seeks to quantify the economic impact of both an increase in extreme weather and natural disasters and also longer-term changes in weather systems, such as temperature and rainfall patterns.
Professor Australian National University Professor Frank Jotzo, one of Australia’s top climate economists and a commissioner with the NSW statutory body, said climate change was a drag on productivity.
“It looks specifically at future expected reductions in productivity that come from climate change simply because the systems as they’ve been built have been built for the existing climate,” Jotzo said.
“They won’t be fit for purpose for a changed climate and so the productivity or how much we get out of an economic system for any amount of effort that we put in will be lower because the circumstances will have changed.”
For example, outdoor industries such as agriculture or mining would lose productivity because of needing more heat mitigation to ensure safe working conditions. If land can no longer be irrigated or less water is available for crops, that would result in lower yields or prompt a switch to a lower-value agricultural activity.
The commission tasked the University of NSW’s Institute for Climate Risk and Response with the historical analysis, which found NSW income per capita was 18 per cent lower than it would have been without human-induced climate change. This equated to more than $20,000 a year per person, or an economic loss of about $180 billion in 2024 alone.
Jotzo said the historical analysis compared climate change up to 2024 with the baseline temperature and climate patterns of pre-industrial times, but most warming and climate change impacts had been over the past 40 to 50 years.
Dr Russ Wise, a climate economist at CSIRO who did not work on the Net Zero Commission report, said the world had known about the danger of global warming since at least the 1987 Brundtland Report, but had chosen to ignore the warnings.
“We’ve clearly benefited from the Industrial Revolution,” Wise said. “But we could have made a lot of very different decisions over the last 40 years … and people would definitely be better off if we had chosen a different path in terms of our emissions.”
Deloitte Access Economics, which completed the future modelling on behalf of the commission, looked at two scenarios from 2025 to 2070 – the lower climate cost pathway where the climate stabilises at well below 2 degrees of warming, in line with the goals of the Paris Agreement, and the high climate cost pathway, where there is continued warming to more than 2.6 degrees above the pre-industrial baseline.
Under the high-impact scenario, the NSW economy judged by gross state product would be $1.5 trillion smaller and have 290,000 fewer jobs by 2070, compared with the assumed growth that would occur without climate change.
The acceleration of damage would start at about 2040, at which point the economy loses 2 per cent of its gross state product compared with the baseline growth. This doubles to 4 per cent by 2050 and then 10 per cent by 2070, or $2.1 billion in that year alone.
This translates to an additional $3680 in lost annual income for an average person in NSW, while at the same time there would be a $2000 rise in annual grocery bills.
Under the low-impact scenario, the economy in 2070 would still be $700 billion smaller than it would be without climate change and there would be 75,000 fewer jobs. Each person would lose $1700 in annual income on average and pay $1250 a year more for groceries.
As a proportion of economic activity, the harshest effects of climate change would be in northern NSW, stretching from the coast to Broken Hill and up to the Queensland border. The economy of this region would be $375 billion smaller, with 20,000 fewer jobs in the high scenario and $187 billion smaller with 10,000 fewer jobs in the low scenario.
Sydney would face the largest absolute losses because of the size and complexity of its economy – a loss of $948 billion and 46,000 jobs under the high-impact scenario and $461 billion and 22,000 jobs in the lower scenario.
Part of the cost is from disasters. Bloomberg recently reported that global spending related to extreme weather had roughly doubled each decade since 2000, from $US2.4 trillion ($3.4 trillion) in 1996-2005 to $US12.2 trillion in 2016-2025.
While there would be economic activity in the clean-up and repair, and that was included in gross state product, Jotzo said the economic activity would be less than if the money had been invested in more productive activity.
Wise added that many communities never fully recovered from a disaster. “That is an ongoing drag on our economy, and it’s substantial,” he said.
The productivity losses in the Net Zero Commission report include more systemic impacts: damage to buildings, transport, utilities and other infrastructure, reduced working capacity and health impacts of the workforce, rising premiums and reduced coverage in the insurance market, shifts in agricultural yields, water availability and land use, and disruptions to supply chains.
Jotzo said the estimates for NSW were much higher than what was published in the 2021-22 NSW Intergenerational Report because the analysis included broader coverage of climate change impact and more sophisticated understanding of interactions within the economy.
The Net Zero Commission did not assess transition costs, policy responses or new economic opportunities associated with decarbonisation, nor the fact that Australia’s trading partners would also be less prosperous in a warmer world.
A spokesperson for Environment Minister Penny Sharpe said the department had received the report and would consider it.
“Action on climate change is a must-do, not a nice to have,” the spokesperson said. “That’s why the Minns Labor Government has legislated emissions reduction targets for NSW and established the independent Net Zero Commission, to protect our kids, support our industries and create the jobs of the future.”
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Caitlin Fitzsimmons is the environment and climate reporter for The Sydney Morning Herald. She was previously the social affairs reporter and the Money editor.Connect via email.