This paper sets out key economic concepts associated with the broad climate policy target of net zero emissions that has been adopted by many nations and all Australian jurisdictions. 

It introduces the conceptual frameworks economists use to understand the causes of and solutions to climate change. In setting out these concepts, the paper aims to provide readers with a better understanding of the language used in climate policy debates, as well as the tools and techniques that are used to analyse policy proposals. 

While economics is a long way from having all the answers to the climate challenge, it does prompt some important questions to consider when examining legislative changes or policy positions.

Key points:

• Economic analysis provides a useful guide to think about the costs and benefits of policy actions designed to achieve net zero emissions.
• Because climate change is created by global emissions, it requires a global solution in which countries each agree to reduce emissions without unintentionally increasing the emissions of other countries.
• Similarly, within Australia actions by individual states need to ensure that emission reductions within that state result in genuine net emission reductions for all of Australia.
• Emissions abatement represents a national and global coordination challenge. Actions to reduce emissions are generally costly, and if global emissions are not genuinely reduced, then there is no benefit from these actions.
• Achieving net zero has both benefits and costs. Benefits arise in the long term through the prevention of increased global temperatures and in the short term through a range of co-benefits. Costs arise through the need for a change to production and consumption patterns that lead to net zero.