The world’s powerhouse economies have turned their backs on coal, with economists warning Australia is setting itself up for misery if the federal government keeps investing in fossil fuels.

On Friday, the influential G7 group of nations hammered another nail into coal’s coffin by announcing they would stop international financing of coal projects in a bid to tackle climate change and limit the rise in global temperatures to 1.5 degrees Celsius above pre-industrial levels.

In a communique, the world’s seven largest advanced economies – the United States, Britain, Canada, France, Germany, Italy, Japan, plus the European Union – said international investments in “unabated coal must stop now”.

“(We) commit to take concrete steps towards an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021, including through Official Development Assistance, export finance, investment, and financial and trade promotion support,” the G7 nations said.

Getting Japan on board with the decision means Australia is increasingly isolated on the global stage when it comes to funding and investing in coal.

The Morrison government’s stance on climate change is not only turning Australia into a pariah internationally, but taxpayer funds are also being squandered by the government’s ongoing investment in fossil fuels, analysts warned.

Climate Council economist Nicki Hutley said Australia was being left in an “exposed” position.

“We can stick our heads in the sand for as long as we like but if we don’t do the right things and follow along, they will stop buying more than just our coal.

“Our exports are exposed, they’ve talked about a carbon border tax … coal is the second-largest commodity. We need to start transitioning now.”

Climate change has run a destructive and divisive path through Australian politics for decades, but the decisions the current government is making will set up the next generation for environmental and economic ruin, Ms Hutley said.

The government’s announcement earlier this week that it would build a $600 million gas-powered plant in the Hunter was a “complete waste of taxpayer money”, she said.

Paris agreement in jeopardy

Last week’s federal budget also put more than $58 million towards expanding the gas industry.

“Australia is vulnerable to climate change, average temperature rises have been higher here,” Ms Hutley said.

The G7 decision comes in the same week the International Energy Agency released a landmark report making it clear that if the world is going to keep the chance of meeting the Paris climate agreement targets alive then there should be no investment in coal, oil or gas.

Australia Institute climate change and energy director Richie Merzian said the G7 decision was “huge” and left Australia out in the cold.

“[Now] we can’t hide behind other countries,” Mr Merzian said.

“Everyone knows the party is going to end sometime, no one is saying coal is going to continue forever. China, Japan, Korea, they are all going to net zero.”

This week US President Joe Biden announced his nation would push itself to be the world’s leader in electric vehicle production, effectively entering an electric car race with China.

“Australia is so fixated on fossil fuels we’re missing out on huge opportunities elsewhere,” Mr Merzian said.

“We’re grasping onto the past, and missing out on those ideas of the future.”