Paris UN climate conference 2015: Our economic profile counts in emissions talks

This opinion piece appeared in the Australian Financial Review on 1 December 2015.

As the climate negotiations in Paris open, it is important to reflect on a distinctive aspect of Australia's place in the global economy. It shapes how we see the world and how the world sees us. But we don't talk about it very often.

It is that Australia's economic structure is remarkably different to that of any other country in the developed world. In economic terms, there is an "exceptional" element to our economic structure and our contribution to the rest of the world.

This is not a shade of grey proposition. It is black and white. Resources exports account for nearly 60 per cent of Australia's exports. The OECD average is 11.5 per cent.

Almost all of the top 50 mining exporting nations are developing or emerging economies. Canada is the only other major developed nation that is a major mining jurisdiction. But, as a share of GDP, mining is five times more important to Australia than it is to Canada. Mining is 40 times more important to the Australian economy than it is to the United States.

This is not a bad thing. As a mature, stable democracy with substantial resources endowment Australia plays an indispensable role in providing energy and resource security to some of the world's most consequential economies.

Take Japan. Coal provides about 30 per cent of Japan's electricity. And Australia provides about 60 per cent of Japan's coal needs. So one day of every week of the year Japan relies on Australia's coal for its electricity. That's a lot of trust to place in one supplier.

Take China. China relies on Australia for 60 per cent of its iron ore. That is also a lot of trust to place in one supplier. The same applies to fibre and protein. Net importers of resources, energy and protein in Asia, Europe and elsewhere depend on us for the staples of life and the essentials of economic growth.

In effect, Australia provides these nations with the resources that they cannot provide themselves.

As a result of these trade flows, Australia's emissions levels are higher, including in per capita terms. For example, the CO2 emitted in the breeding, production and processing of packaged beef is counted against Australia, not the 57 countries that import the meat. Similarly the emissions generated in the extraction and processing of copper or nickel exports are counted against Australia, not the dozens of countries that import them.

These realities cannot be simply waved away by contributors to the national debate over Australia's emissions reduction targets. Failure to take account of the realities of Australia's economic structure will result in the choice of targets that will damage the Australian economy and the living standards of average Australians.

That is not to say that Australia's economy and its structure won't evolve over time. Of course it will. But as former treasury secretary Dr Martin Parkinson said a few years ago, mining will remain a large share of our economy for a long time. The same applies to the oil and gas sector and to agriculture.

CARBON PRODUCTIVITY

We should also continue to decouple emissions and economic growth. In fact Australia has done better than most economies at improving its carbon productivity (i.e. CO2 emissions per dollar of gross domestic product) over the past 25 years. Since 1990, Australia's carbon productivity improved by 50 per cent. This compares with a 40 per cent improvement in both the EU and the US. Canada's carbon productivity improved by 15 per cent over this period while Japan's improved by 11 per cent.

The bottom line is that we should be proud, not apologetic, about the shape of our economy. Some seem to want Australia to have a post-industrial economy like Belgium. We could, but our living standards would be lower.

Australia must not simply adopt, or seek to gazump, targets by other nations (or groups of nations) in some crude form of auction, with no consideration of economic impact. Identical targets do not mean comparable sacrifice.

The European Commission has already conceded that a significant contributor to its emissions reductions in recent years was the protracted recession in most European nations.

Some others say our emissions target should be the same as Germany's. But Germany's growth outlook is very different to Australia's. According to international projections, Germany's economy will grow by 29 per cent between now and 2030. Australia's is forecast to grow by 47 per cent over the same time frame.

Over the period to 2030, Germany's population is forecast to fall by 4.7 per cent (or nearly 4 million people) while Australia's population is expected to grow by 16 per cent by 2030 (or around 4 million). Moreover, Germany is one of the largest net importers of emissions – in other words, it consumes a large share of imported goods whose emissions are counted against another country.

Australia should play a constructive contribution to the climate negotiations, just as it always has. In doing so, we should embrace, not shirk from, the exceptional role we play in the global economy.