Economic growth

2011

4 Economic growth

Over the past century, the structure of the Australian economy (as reflected in employment by industry) changed markedly. The significance of agriculture reduced, manufacturing declined from peak levels reached in the 1950s and 1960s, and there has been a steady rise of the already dominant service sector since 1950 (Figure 2.7).

Australia’s real gross domestic product (GDP) grew by an average of 3.3% per year between 1970 and 2010, and GDP per capita grew by 1.9% between 1970 and 2010. Our national standard of living, at least in economic terms, continues to grow faster than our population; we are an increasingly affluent society. The structure of Australia’s economy has also changed over this period, with an increased share of the economy driven by the services and resources industries (Figure 2.8). Since different industries exert different pressures on the environment, future structural changes in the economy can be expected to have an impact—either positively or negatively—on the environment.

Economic growth is supported by population, productivity and participation in the economy. The 2010 IGR projections of economic growth are based in part on the population projections discussed in Section 3 (see Table 2.1). Economic growth will, to some extent, offset the economic implications of an ageing population. It is also assumed that labour productivity will continue to increase at the 30-year historical average of 1.6% per year for the next 40 years.

Under these assumptions, the base scenario for Australia’s economic outlook is an average annual growth in real GDP of 2.7% to 2050, with per capita increases of 1.5%. This scenario indicates a somewhat slower economic growth than currently, largely due to the consequences of an ageing population on participation rates. A more optimistic scenario in the 2005 IGR of Australia’s future economy is based on maintaining productivity gains of 2% per year; under these assumptions, real annual GDP growth would average 3% to 2050.

Just as an increasing population does not necessarily translate proportionately to increased environment impact, neither does a growing economy. However, there is strong historical evidence that this has been the case and thus will likely continue into the future. As the economy of Australia expands, it is likely that our consumption of resources and production of waste will also increase. In its 2008 report on Australia’s environmental performance, the OECD recommended that Australia:22

… make concerted efforts to decouple environmental pressures from economic growth, especially those pressures from the energy, transport and household sectors, including urban growth.

Historical trends can give insights into future trends in resource consumption and waste production, but do not consider significant changes in policy and the rate of technological innovation. Of course, in the real world, neither policies nor technology tend to be static, as demonstrated clearly in Box 2.1, which examines changes in the management of solid waste. From 1996 to 2009, government policy (strongly influenced by a growing community desire to recycle), together with improved technology, successfully diverted tens of millions of tonnes of solid waste from landfill into productive uses. This saved large quantities of valuable materials, and significant amounts of embodied energy and water.

Although the slowdown in the rate of increase in recovery shown in Figure A (Box 2.1) is disappointing, it is important to note the significance of the gap between the ‘total waste’ line and the ‘recovery’ line. This represents a significant environmental and economic net benefit in terms of saved resources (including energy and water). Table 2.3 shows the GHG emissions avoided, and the amount of energy and water saved by recycling a tonne of various materials.

The connections among energy use, water use, GHG emissions and waste production are complex, changeable and sometimes overstated. For example, total energy use by water utilities in Sydney, Melbourne, Perth, Brisbane, Gold Coast and Adelaide in 2006–07 was 7.1 petajoules, meeting the water supply and treatment needs of 12.5 million people. This figure is approximately 0.2% of total urban energy use and less than 15% of the energy used for residential water heating; water supply and treatment are not strongly coupled to urban energy usage. Using a more energy-intensive future metropolitan scenario at 2030 (15.8 million people), with each person using 225 litres of residential water per day and a mix of supply sources (e.g. 40% desalination, 40% reuse and 20% new freshwater sources), would double the energy usage by water utilities compared with 2006–07 levels, but still only represent 0.3% of total urban energy use.30

As shown in Box 2.2, behavioural change can be a major factor influencing the nature of the linkage between population growth and the consumption of particular resources.

Box 2.1 Solid waste

Although the reliability of data on generation and management of solid waste in Australia is highly variable (making year-to-year and state-to-state comparisons difficult), there is general agreement between public and private sector observers that the long-term national trend of increasing solid waste generation is continuing.23 Data from the Environment Protection and Heritage Council for 2008–09 indicate a national total of around 46.8 million tonnes.29 Fortunately, over the past decade and a half, a significant proportion of the total waste stream has been diverted from landfill (around 52% in 2008–09). This has been achieved through the efforts by households, industry and governments to reuse, recycle and recover valuable materials from the waste stream.

Figure A shows how, after a period of rapid growth in the rate of diversion between 1996–97 and 1999–2000, while the rate of recovery has continued to increase, that increase has been matched by the increase in waste generated (which between 2002–03 and 2008–09 grew by 40%, compared with the population, which grew by 9.8%).24-26

Table 2.3 Net benefit of recycling one tonne of waste materiala
Materials Global warming tonnes (CO2 equivalent) Energy gigajoules (low heating value) Water (kilolitres)
Aluminium 15.85 171.10 181.77
Concrete 0.02 0.28 1.28
Cardboard/paper recycling 0.06 9.32 25.41
Food and garden organics 0.25 0.18 0.44
Glass 0.56 6.07 2.30
Mixed plastics 1.53 58.24 −11.37

CO2 = carbon dioxide

a Positive values are benefits, negative values are impacts

Source: Environmental Protection and Heritage Council29

Box 2.2 Household water consumption

In the face of widespread drought, and in response to increasing water supply charges and effective public education campaigns, household water consumption declined significantly in most states and territories from 2000–01 to 2008–09. There is little doubt that domestic water supply authorities will be watching closely to see whether the reductions in per capita consumption shown in Figure A are maintained following the widespread heavy rains in 2010 and early 2011, which restored many previously depleted water storages.

It is worth noting that the 2010 IGR makes reference to the important negative implications of unmitigated climate change to our future economy. It includes information from The Garnaut Climate Change Review, which conservatively estimated that unmitigated climate change would leave the Australian GDP in 2100 approximately 8% lower than it would be in the absence of climate change, with even greater impacts on consumption and real wages. This finding was more recently substantiated.33 Unmitigated climate change involves additional significant risks and nonmarket costs not captured by such estimates.34 The IGR concluded that:

… to best manage these risks to Australia’s future productivity growth, Australia needs to contribute to an effective global response to climate change.

(2011). Drivers: Economic growth. In: Australia state of the environment 2011, Australian Government Department of the Environment and Energy, Canberra, https://soe.environment.gov.au/science/soe/2011-report/2-drivers/4-economic-growth, DOI 10.4226/94/58b659517ce65