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Discussion paper

There is a surge of international action around green trade, climate diplomacy, and low-carbon investment. New industries based around renewable energy and green tech are dominating other countries’ long-term trade plans, and global green finance is accelerating as asset managers and investors claim a slice of this economic activity. There are huge opportunities on offer, but without a recalibration, there’s every chance Australia ends up with a weaker trade position, stuck behind the pack in the global economy.

National discussions about trade and decarbonisation often focus on the agency of Australians: what can our people, businesses and governments do. But in some sense, many of these global forces are out of Australia’s control; exogenous developments that must be factored in to strategic decision-making.

Australia’s global competitiveness is largely tied to commodity exports like coal or iron ore. These industries are at risk of decreased demand as most of Australia’s top export destinations aim for net zero, and these industries have only limited overlap with the skills and technologies that Australia needs to establish new industries. As demand moves to less carbon-intensive goods, Australia may be left saddled with stranded investments and unwanted industries.

This paper begins with a brief sketch of Australia’s current trade position. The next part considers broad trends in green trade, climate diplomacy, and low-carbon investment. The discussion is rounded out with global developments that are independent of the climate agenda – COVID-19, the incoming Biden administration, and current free-trade negotiations – before concluding with consideration of Australia’s long-term economic position.

Key points:

  • Most of Australia’s main trade partners have made commitments to reach net zero, making its carbon-intensive export profile vulnerable;
  • With the rise in climate-centric diplomacy, Australia’s domestic climate policy is putting the country firmly outside the global diplomatic club.
  • COVID-19 will likely lead to a sustained multi-year drop in global demand for key industries (such as oil and tourism), but will also bring new opportunities as global value chains are restructured;
  • Countries are looking to preferentially favour trade in green goods, providing an opportunity for Australia to build new export industries.
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