The Clean Industrial Revolution: Growing Australian Prosperity in a Greenhouse Age

Ben McNeil is a Senior Research Fellow at the Climate Change Research Centre at the University of NSW. He holds a Maste...

Author: Ben McNeil

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Ben McNeil is a Senior Research Fellow at the Climate Change Research Centre at the University of NSW. He holds a Masters of Economics in addition to his scientific training, and he is on the executive of the prestigious Federation of Australian Scientific and Technological Societies (FASTS). In 2007, he was chosen as an expert reviewer for the United Nations Inter-Governmental Panel on Climate Change fourth assessment report and was invited to present his research to the Prime Minister and Cabinet at Parliament House in Canberra. He speaks regularly at corporate and scientific events and to media.

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First published in 2009 Copyright © Ben McNeil 2009 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without prior permission in writing from the publisher. The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10 per cent of this book, whichever is the greater, to be photocopied by any educational institution for its educational purposes provided that the educational institution (or body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act. Allen & Unwin 83 Alexander Street Crows Nest NSW 2065 Australia Phone: (61 2) 8425 0100 Fax: (61 2) 9906 2218 Email: [email protected] Web: www.allenandunwin.com Cataloguing-in-publication details are available from the National Library of Australia www.librariesaustralia.nla.gov.au ISBN 978 1 74175 722 4 Index by Trevor Matthews Set in 11/14.8 pt Chaparral Pro by Bookhouse, Sydney Printed and bound in Australia by Griffin Press 10

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This book is printed on FSC-certified paper. The printer holds FSC chain of custody SGS-COC-005088. The FSC promotes environmentally responsible, socially beneficial and economically viable management of the worlds forests.

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Contents

Introduction

1

Part I The Case for a Carbon Pre-emptive Strike 1 2 3 4 5

The Blind Threat Climate Battlers Australia’s Carbon Obesity The Future Shock Beyond Polar Bears

15 27 43 52 70

Part II How Do We Cut Carbon? 6 7 8 9 10

Becoming the New Saudi Arabia How Science Must Save Us Breaking Our Coal Addiction The Crude Truth Fitting Carbon Shock-absorbers

85 103 126 142 157

Part III The New Low-carbon Economy 11 Carbon Economics 12 The Accidental Environmentalist 13 More Jobs in Clean than Dirty

177 195 209

Notes Index Acknowledgments

229 256 265

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For Henry and all those born in the new millennium, in the hope that we can leave them a cleaner and more prosperous world.

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Introduction Introduction

Y

ellowknife must be one of the most isolated capital cities on Earth. With a population of 20,000, it’s the capital of Canada’s rugged Northwest Territories. Beyond the capital another 20,000 people are spread out over an area greater than the size of New South Wales, Victoria and Tasmania combined. It’s easy to imagine how sparsely settled the Northwest Territories are when the official number of people per square kilometre is nearing zero (0.037). Cutting through the Arctic Circle, this expansive region has a spectacularly unique landscape. The thousands of lakes and ponds were formed by a massive ice sheet, which covered the region during Earth’s last glacial period. Wildlife riches include polar bears, beluga whales and the barren-ground caribou. There are other riches too: it turns out that the thousands of little islands scattered throughout this remote region are worth tens of billions of dollars. In the early 1990s, diamonds were discovered in abundance throughout this ancient landscape. Since then, a swag of resource companies have swarmed into the province—BHP, Rio Tinto and the famous Tiffany’s & Co. among them—to get their own piece of the action. Diamonds, estimated to be in the hundreds of millions of 1

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2 • The Clean Industrial Revolution

carats, lie locked away here, allowing at least a 20-year windfall for each company. There is a slight problem, however—actually physically getting to the diamondmining areas. Thousands of small lakes along the 600-kilometre stretch between Yellowknife and the mines make conventional transport access impossible. Supplies could be transported by air, but supplying hundreds of thousands of litres of diesel fuel and heavy machinery for mining operations would be prohibitively expensive. It turns out that a window of opportunity presents itself each year for the not-so-faint-hearted truck driver. In the depths of winter, temperatures plummet to –20°C and the water in the lakes starts to freeze over. If it’s cold enough for a period of just six weeks, a 1-metre thick ice bridge forms over the lakes and ponds. This is just thick enough to support 70-tonne trucks and presents a perfect opportunity for the resource companies to supply their multibillion-dollar diamond operations. Since 2001, over a short six-week period during the depths of winter, some 9000 trucks typically make the 24-hour journey over the winter ice to supply the mines with equipment and fuel for the year. Each truck driver’s life depends on a mere 1-metre slab of ice, extending hundreds of kilometres. The truckies’ livelihoods, along with the mines’ economic viability, is totally dependent on having long, cold winters. Every day that the ice bridge remains open reduces the mines’ operating costs and ensures profits. The Canadian winter of 2006 changed everything. In that year, northern Canada’s temperatures soared and the winter was the warmest on record. Instead of solid ice, after a few short winter weeks


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Introduction • 3

the ice bridge was like a 7-Eleven slurpee. The diamond companies had to close the ice bridge early, resulting in a 70 per cent decline in the usual truck supply. To make up for it, the companies had to fly in the leftover supplies at massive cost. One company, the Harry Winston Diamond Corporation, which has a minority stake in just one of the mines, was hit with an additional $20 million bill from the early closure.1 Rio Tinto and BHP, with much bigger stakes, must have had a much bigger bill. The thing is, these warm winters aren’t exactly unexpected. Climate change is raising temperatures all over the world—particularly near the Arctic which has already warmed at a rate that is double the global average.This is mainly because of a physical effect whereby ice-melting speeds up the human-induced warming. Winters could be anywhere between 8°C and 13°C warmer in the Arctic region by the end of this century without a rapid reduction in greenhouse gas emissions.2 Investing billions of dollars in these mines in the late 1990s, companies such as BHP and Rio Tinto must have had a lot of faith in the persistence of long, cold winters in the region. Ironically, the year before, in 2005, global diamond giant De Beers invested $1 billion in a new diamond mine in the territory, including the infrastructure to construct another ice bridge.3 The companies must also have had confidence in oil, the only energy resource that can power the trucks towards the diamond mines. But by 2006, the oil price had doubled in two years, reaching US$70 a barrel, and then further surging to $140 a barrel by 2008. The cost of business skyrocketed from climate and energy shocks, which must have been a rude awakening for these companies—melting away the profitability of their multibillion-dollar diamond


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assets. Ironically, oil, the fossil fuel that caused global economic hardship through surging prices, is also one of the creators of our increasingly warmer world. Continuing our dependence on finite and polluting fossil fuels will certainly invoke future climate and energy shocks that will cut into the prosperity of the entire world’s population, not just of rich mining corporations. Melting icecaps aren’t just about polar bears—and climate change is definitely not just about the environment, it’s about economics. Our modern society was built on a stable climate. If we allow a supercharged climate to occur, it will alter the economic fabric of our society. Australia is deeply climate sensitive. As Australia is the driest inhabitable continent, with 86 per cent of the population living near the coastline, any climate shifts this century pose a threat to long-term prosperity. Declining crop yields, more intense droughts and water constraints, an exacerbation of infrastructure damages from stronger storms and rising seas, and the potential destruction of national wonders like the Great Barrier Reef and Kakadu National Park are environmental crises—but just as much economic crises. You may be someone who lives far away from coastlines or ice sheets, but we all have a hippocket stake in slowing climate change: the low- to middleclass grocery shoppers who will see food price hikes; the millionaires who will see their ski lodges or coastal real estate assets vanish; the multi-generational farming family who will face uncertain climate extremes; the businesspeople who will pay more for insurance premiums; and the taxpayers who will pay to build desalination plants and replace infrastructure damaged by climate extremes. Stabilising climate is critical to ensuring Australia’s continued prosperity.


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Introduction • 5

• Whether it’s travelling to work, going to school or visiting your mother, people need to move around. Transport, along with the computer I am using to write this book, the refrigerator, or the lights guiding a surgeon’s scalpel, all need power. There’s no way around it, access to energy is deeply embedded in virtually everything we do. Even a United Nations meeting, held in an attempt to solve climate change, involves spewing out copious amounts of greenhouse gases. This is because from the time English engineer Thomas Newcomen invented the first steam engine in the 18th century our global society has generated, and continues to generate, the bulk of its energy by burning carbon: burning oil to move people around and burning coal to power our buildings, factories and appliances. The first industrial revolution was indeed a transformative period in history, boosting prosperity to a growing population. But it wasn’t just one invention that led to the enormous prosperity boom, but the molding together of different concepts which gave way to millions of new technologies that, simply put, did things better than before. But better is a subjective word; what was good for the 20th century is not necessarily good for the 21st. Access to energy is needed for growing prosperity, not carbon emissions—the unwanted by-product. Growing prosperity in the 21st century must therefore take carbon out of the equation and, with 9 billion people predicted to be on the planet by 2050, it can only occur on the scale required via a clean technological revolution. Eventually this transition will have to occur, particularly for oil given


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its dwindling supplies. But climate change has given all fossil fuels the knockout blow, forcing us to more quickly de-carbonise our entire economy. The clean industrial revolution this century is one where the fuel is free and infinite, and the materials grown or recycled. Forseeably it could be the last revolution, since the power of sun, wind, ocean and earth is virtually infinite. The technological advancements in information technology, communications, the internet, bio-technology and nano-technology will only accelerate the global transition towards this clean industrial revolution that will transform how our cars, planes and buildings are designed and fuelled, the materials we use for our homes and infrastructure, our agriculture and water practices, and the way we generate and distribute energy. Fostering clean technological innovation and a lowcarbon economy cannot be initiated from market forces alone because, for the time being, the market doesn’t account for the cost of carbon emissions or the inevitable longerterm transition beyond fossil fuels. Slashing greenhouse gas emissions by governments is needed to kick-start the revolution, since this essentially puts a price on carbon. Cutting Australian greenhouse gas emissions isn’t just a feel good exercise—it will actually transition our economy towards low-carbon production, which will in turn spur innovation and all sorts of new clean technologies, from new ways to trap emissions from power plants, to more efficient building materials and commercialising advanced non-food biofuels. One person, one lab or one country can develop a new technology that the rest of the world will embrace, which can be thought of as a ‘prosperity domino’ that spreads around the world. Hundreds of thousands


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Introduction • 7

of women worldwide will be saved by the first cervical cancer vaccine that was developed by Professor Ian Frazer of the University of Queensland. Australia’s proportion of medical research is small in comparison to other developed nations—but the quality, excellence and ability of Australian science to fundamentally change the world is not. In 2004, the then British Prime Minister, Tony Blair, said: ‘Just as science and technology has given us the evidence to measure the danger of climate change, so it can help us find safety from it. The potential for innovation, for scientific discovery, is enormous.’ In the scientific race to save our climate, Australia is well placed to take great advantage of the world’s future need for clean technologies. Australia, like many developed nations, has massive potential for low-carbon innovation and production that can’t easily be transported, traded or outsourced to other countries and no one can recreate decades of human capital in just a few years. Market economies like Australia’s need new markets to grow. The new global market in low-carbon technologies will be worth trillions of dollars and making our economy carbon trim rather than obese will not only benefit the environment, but is imperative for our longterm prosperity. • Many of our political leaders are locked into the ‘growth versus environment’ argument when responding to climate change. They still define their responses through a zero net gain logic where any cuts in greenhouse gas emissions take away from economic growth. And furthermore, moving


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towards a low-carbon economy will initially cost more, which will mean that other nations who fail to reduce greenhouse gas emissions will gain a competitive trading edge through lower energy costs. This is the single biggest reason why combating climate change has failed to progress over the past decade, particularly in Australia and the United States. In rejecting the United Nations Kyoto Protocol, the then US President, George W. Bush, stated that cutting carbon emissions would ‘wreck the economy’ while former Australian Prime Minister, John Howard, repeatedly said that Kyoto would ‘send jobs to China’.4 Even the modest carbon emission cuts imposed by the federal Labor government in 2008 induced a flurry of heated calls from commentators, businesses and politicians that this would devastate the Australian economy. The famous economist John Maynard Keynes eloquently once said ‘It’s better to be roughly right than precisely wrong’. The argument of ‘emissions versus the economy’ is precisely wrong. So won’t reducing carbon emissions hurt Australia’s economy? In the long term it’s quite the opposite, in fact. Reducing emissions will invoke structural changes within the economy, just like lowering trade tariffs did twenty years ago. But a low-carbon economy will be a positive for the overall economy, not a negative. The reason is that as the world inevitably starts to put a price on carbon pollution, conserve energy and look for non-oil transport fuels, it will be nations who make a rapid transition towards a lowcarbon economy that will prosper through booming clean technology exports and increased foreign investment. In 2008, the CEOs of the big American car-makers General Motors, Ford and Chrysler flew to Washington DC


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Introduction • 9

and begged for a massive tax-payer bailout to save them from bankruptcy. The financial crisis wasn’t the catalyst for this imminent insolvency, it was long in the making due to a history of short-sightedness by CEOs and weak American politicians. I can’t help but think how the short-sighted ‘emissions versus growth’ view espoused by many Australian commentators and politicians is eerily similar to those views from US car-makers and politicians during the 1990s that ultimately led to their economic self-destruction. In the 1990s, oil was sloshing around the global economy at historically low prices; anyone with short-term eyes would have thought oil would remain cheap and plentiful for decades. However, with high government fuel-efficiency standards in place and government support, the big Japanese car-makers Toyota and Honda invested massively in research and development into fuel-efficient vehicle technology in the 1990s, despite the record low global oil price. The American car-makers (General Motors, Ford and Chrysler) did the exact opposite during that period, rejecting every environmental measure to achieve better fuel economy and reduce greenhouse gas emissions. The American carmakers, led by General Motors, continually pushed the line that imposing better environmental standards would devastate their industry. The American car-makers banked on continuing sales growth in the polluting, inefficient vehicles of the 20th century, developing the hideously inefficient Hummer, for example. Because of the weak environmental legislation, the American car-makers had the worst fuel economy of any vehicle fleet in the world. With dwindling supplies of oil, massive price hikes and a world starting to constrain carbon emissions, the world


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has heavily shifted their purchasing habits to fuel-efficient vehicles over the last five years. Because of this, General Motors, the worlds largest car-maker, moved from one of America’s largest assets and employers to becoming America’s biggest liability, recording massive billion-dollar profit losses for a number of years, well before the global financial crisis. Today, along with the other big American car-makers, General Motors would be bankrupt if not for a government bailout. Meanwhile, Japanese car-makers, Toyota and Honda, rapidly boosted sales, market share, exports and growth given the inevitable global transition to low-carbon, highly efficient vehicles this century. As it happens, less pollution means more profit. I wonder how the executives of the American car-makers and the weak American politicians now view the ‘environment versus the economy’ debate given that their economic competitiveness was directly eroded because they didn’t have tight environmental standards? Australia is currently in a similar position to the one General Motors was in during the 1990s. We are one of the most carbon-intensive nations on earth due to our over-reliance on coal for our domestic energy supply and being by far the world’s largest coal exporter. Think about it: old coal is equivalent to the General Motors petrolguzzling Hummer and renewable energy technology is equivalent to Toyota’s ultra-efficient Prius. Aside from the environment, which product do you really think has better economic prospects this century? If Australia doesn’t pursue a strategy like the Japanese car-makers, as opposed to the American recalcitrants, our biggest export commodity could become our biggest liability.


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Introduction • 11

Prosperity doesn’t come about through what has worked in the past, it’s about logically foreseeing what lies ahead. Albert Einstein said: ‘We cannot solve our problems with the same thinking we used when we created them.’ Australia’s future prosperity won’t be determined by using the cheapest and dirtiest finite resource today, but ultimately by what the world will be craving this century: infinitely clean technologies that harness the abundant natural energy on earth. Protecting high-carbon interests in Australia is the equivalent to protecting the typewriter industry at the start of the personal computer age, or protecting VHS cassettes after the first DVD was produced, or protecting the asbestos industry at the outset of mesothelioma and asbestosis. It boggles my mind to think that some politicians and commentators can honestly think that it would be better for the Australian economy and jobs in the long term to continue our carbon obesity in a world that will move away from carbon. • For the last decade I have been a typical scientist; presenting, debating and publishing in journals, and teaching undergraduates the science of climate change. But having a scientific understanding of our likely future puts me in a unique, yet unsettling, position. Climate change really is a transformative issue for the earth and for humanity this century. But diagnosing a disease is not very helpful without finding an effective cure, and scientific resources must move from diagnosing to curing. This book has one overarching theme: that climate change and our over-reliance on fossil fuels will put


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Australia’s economic prosperity, not just the environment, at great risk. The only way to boost the prospects of stabilising our climate, and grow Australia’s economy in a world that will move away from carbon, coal and oil, is to slash carbon emissions and foster a new, clean, low-carbon industrial revolution. These new Australian products and technologies will be craved in a world short on oil and high on carbon and would position Australia as a leading cleantech hub for a growing Asia. This won’t happen spontaneously or organically. It will need bold, long-term political vision, carbon-reduction legislation and a massive upscaling of research and development to foster the building of the new, clean-energy economy, one that is critically needed for Australia and the world this century.


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Part I The Case for a Carbon Pre-emptive Strike


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1 The Blind Threat The Blind Threat

N

aucratis was a bustling seventh-century BC Greek trading colony near the mouth of the River Nile. Up until the conquest of Egypt by Alexander the Great a few centuries later, the massive river was the trading lifeblood of the ancient Greeks. In their daily travels along the river, the merchants would puzzle over something. While sailing upstream towards the equator, they could feel the temperature getting hotter and hotter. They thought this was due to the gods sloping the Earth towards the sun and dividing the world into regions, or klima (the origin of the word climate). The gods may have had an important role in setting up Earth’s climate, but the potential changes for our future climate are entirely a human creation. Picture a box 120 metres high covering the area of Australia. Now fill it full of greenhouse gases. That’s how much climate-warming gases humans have spewed into our paper-thin atmosphere since the fossil-fuel-based industrial revolution. That pure high-rise of carbon dioxide (CO2) is now growing by 3 metres each year, and it will double the atmosphere’s concentration by the middle part of this century. On current projections, that CO2 high-rise will be over 800 metres high 15


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by the end of this century. If we don’t make any changes to our future greenhouse gas emissions, the Earth could warm on average by 6°C this century.1 This magnitude of climate change is enormous. It is roughly 50 million years since the Earth was that hot. The Antarctic and Greenland icecaps didn’t exist and the sea level was up to 200 metres higher than today; the Sydney Harbour Bridge would have been completely submerged. Throughout tens of millions of years, hot and cold ages have shown to be intimately linked with the build-up of greenhouse gases in the atmosphere. Climate scientists know exactly how dramatic only slight changes in Earth’s temperature can be by simply studying the past. Twenty thousand years ago, a massive ice sheet in the northern hemisphere reached as far south as the present location of New York City and over much of northern Europe. The ice sheet was roughly two kilometres thick. This was the last really cold period on Earth, when atmospheric greenhouse gas levels were at record lows. To invoke such a massive build-up of ice you would probably assume temperatures must have plummeted to below freezing. Well actually, the average temperature was about 10°C, and this massive climate shift occurred by cooling global temperatures by only 4° to 6°C lower than today’s average.2 With the enormous amount of frozen fresh water on top of the land rather than as a liquid in the ocean, the sea level was a staggering 120 metres lower than today’s. Sea level was so low that Aborigines could wander across Cape York to Papua New Guinea or from Victoria to Tasmania.3 The question then is: if a 4° to 6°C drop in global temperatures over tens of thousands of years caused half of North America to be


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The Blind Threat • 17

under two kilometres of ice, what will a 4° to 6°C warming in 100 years cause? The scale and speed of this humaninduced climate change would be unprecedented. Dangerous levels of global warming would involve irreversible changes to rainfall patterns, ice sheet disintegration, increasingly intensive storms, rising sea levels and the destruction of current ecosystems. Slow changes over hundreds of years would be manageable, but rapid changes over decades would not. With recent evidence showing global greenhouse gas emissions, global temperatures and sea-level rise4 to be tracking close to the worst-case scenario predicted by the scientific report handed down by the Intergovernmental Panel on Climate Change,5 there are some worrying signs that we may push the climate into a new runaway state that is completely beyond our control. Albert Einstein once said, ‘The only source of knowledge is experience.’ Terrorism is real; we saw the Twin Towers collapse. Cancer is real; we see friends and family around us get sick. Toxic pollution spewing into a creek is pretty obvious. How is climate change real? Is there something that demonstrates how important CO2 is for Earth’s climate? We only have to look at our solar system. Extending from the sun, the three inner planets of our solar system are Mercury, Venus and then Earth. Of these planets, Earth is farthest from the sun, with a perfect life-forming temperature of about 15°C. As you would expect, the closer each planet is to the sun, the warmer it is. Mercury, the small planet closest to the sun, has an average temperature of about 167°C.6 Being in-between Mercury and Earth, you would probably expect Venus to have an average temperature somewhere between 15° and 167°C. Although Venus is much farther


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away from the sun, its temperature is nearly three times that of Mercury, coming in at 464°C.7 How is that possible? The Venusian atmosphere is nearly all composed of CO2, while on Mercury there is virtually none. The thick CO2 atmosphere on Venus acts like a heat trap and is a real demonstration of the runaway greenhouse effect, in which permanent hurricanes with winds of over 300 kilometres per hour engulf the entire planet. Venus illustrates our challenge on Earth. Currently, CO2 concentrations are 37 per cent higher than before industrialisation and could reach three times the natural concentration in the atmosphere by the end of this century if we continue our current trajectory. Earth’s climate has been observed to have warmed by about 0.8°C in the past century.8 All the signs of this warming have been observed, from an acceleration in Arctic sea-ice melt, widespread glacier melting, sea-level rise and ocean warming.9 Changes in the sun’s intensity, orbital wobbles of Earth’s path around the sun or volcanic activity are all important natural factors that could contribute to the recent warming on Earth. However, if left to those natural factors alone, Earth would have likely cooled over the past 50 years based on the observations of the sun’s activity and volcanism. This means that climate scientists are 90% confident that global warming over the past 50 years has been caused by human-induced increases in atmospheric greenhouse gases.10 Continually pumping tens of billions of tonnes of CO2 into Earth’s thin atmosphere has and will continue to alter the fabric of Earth’s climate. Scientific projections can never be 100 per cent certain. The nature of science involves managing a level of uncertainty. But is the small level of uncertainty a reasonable


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case for inaction on climate change? A friend’s grandmother smoked two packets of cigarettes a day since she was twenty years old and lived until she was 90. Does that mean the scientific link between smoking and cancer is wrong? Of course not, since there are other natural genetic factors that can lower the risk of lung cancer. For global warming there may indeed be some natural factors that could partially offset the well-known evidence demonstrating greenhouse gases warm the planet. There is a very small chance these factors may play out. Yet from the weight of scientific evidence and observation, we are currently smoking two packets a day, seeing the first signs of cancer, and hoping that the future planet will be healthy. It doesn’t really seem like a wise bet to make. The other problem with taking the small uncertainty as a reason not to act is that we won’t know for sure that the climate will warm by 6°C until we get there—at which point there is no turning back. As former US Central Intelligence Agency director James Woolsey points out, ‘Waiting for absolute confirmation of the threat—for a climatological September 11, 2001—may push us past a tipping point from which there is no recovery.’11 Given that climate change is informed by hard science, I thought the case for a pre-emptive strike on carbon emissions was pretty clear. How wrong I was. In 2007, I was in Canberra as a young scientist pushing the scientific case for action and learning very quickly that the government was completely blind to the gravity of potential threats to Australia beyond just the environment. At a high-level meeting in the Cabinet room, as I looked in awe around me, all I could see was a sea of grey hair and suits clustered around the biggest table I had ever seen. I


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stood at one end of the table, which was shaped like an elongated zero. The room was immaculately cleaned and had a clinical smell to it. Sitting to my right was the Prime Minster, John Howard, the Minister for Education and Science, Julie Bishop, the Environment Minister, Malcolm Turnbull, and the Minister for Industry, Ian Macfarlane. Scattered among the rest of the Cabinet were the heads of every science, research, technology and education body in Australia. Before my presentation, three of Australia’s most influential climate scientists presented an exhaustive report of recommendations on how Australia could actively respond to the emerging climate of change. As I stared down the Cabinet room I wondered why the two most senior government ministers responsible for the economy and foreign policy were not in the room. Where were the Treasurer and the Foreign Minister? It seems for many years the Australian government reflected a broad and dangerous public misconception about combating climate change: that is it has nothing to do with Australia’s longterm economic prosperity or national security.

The Myth of ‘Environment Versus the Economy’ New York City has fantastic jazz clubs and wine bars, made famous through television shows such as Sex and the City. My friends and I would frequent them after work when I was living there. The things we all hated about bars, however, were the smoke-filled rooms, red, sore eyes and our houses smelling like an ashtray the next morning. Not to mention the health impact of passively breathing a carcinogen throughout the night. We would happily exit bars that were


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too smoky, to find another. Then we got word that the city was going to ban smoking in bars and restaurants in 2003, to our delight. It was widely praised as a much-needed policy, given the health effects of second-hand smoke, particularly for bar workers who sucked in this polluted air eight hours a day. The hotel and bar industry started a fear campaign in opposition to the proposed ban, declaring that their industry would collapse if the law were passed. From the industry point of view, it was OK for the 80 per cent of nonsmokers and all workers to inhale second-hand smoke from the 20 per cent of customers who did smoke. Apparently, the smoking minority were the ones that brought in all the revenue. But smokers don’t go to bars to smoke; they go to bars to eat, drink and socialise. In the end, logic prevailed and the law came into effect in 2003. I kept thinking to myself that the law would probably increase patronage, since many nonsmokers and families avoided bars and some restaurants because of the filthy air. After one year the law was reviewed and the results tabulated. New York City tax receipts for restaurants and bars had increased by 9 per cent from the previous year (without any change in the tax rates), with employment growing by 10,600 jobs (about 6 per cent). Meanwhile, 150,000 fewer workers are exposed to second-hand smoke on the job, not to mention millions of patrons.12 Instead of using the law to their advantage, the hotel and bar industry had opposed it all the way up until its passage. Embracing the new economic opportunities of better health or environmental standards would have been far more beneficial, particularly as these new smoking laws were inevitable—even the smoky cafés of France have enacted


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a smoking ban.13 Some industry spokespeople have turned around their previous opposition to the New York smoking bans, suggesting customers are actually liking it.14 Who knows, if the industry had promoted the law to bring clean air to New York bars and restaurants, growth in their industry could have doubled. There’s an age-old myth that doing good for the environment is bad for the economy. The twin goals of cutting pollution and growing the economy are dominated by this zero-sum game, in which environmental gain must take away from the economy. In Australian cities in the decade between 1991 and 2001, average levels of nongreenhouse pollution from cars, including carbon monoxide, nitrogen dioxide and sulphur dioxide, were reduced by up to 50 per cent.15 This cut in pollution occurred despite one-quarter more cars being on the road and Australians driving 30 billion more kilometres each year.16 Meanwhile, the Australian economy expanded over 40 per cent.17 There are many examples of net economic benefits as a result of cleaning up the environment. Do you remember the debate about the ozone layer? Ozone scientists in the 1980s focused world attention on the issue by measuring a widening hole in the ozone layer. Through more diagnostic research it was found that ozonedepleting chlorofluorocarbons (CFCs) used as refrigerant were the cause. In 1987, the United Nations put forward the Montreal Protocol (that was ratified by nearly all nations),18 which phased out the use of CFCs in order to repair the damage to the ozone layer. Prior to the Montreal Protocol, no replacement was considered possible for CFCs and the processes like refrigeration and air-conditioning


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in which they were used. At the time when each country was considering ratification, influential voices injected fear into the debate. Some politicians, commentators and industry groups predicted massive job losses and economic damage because of the Montreal Protocol, claims that continued after ratification.19 Somehow, they believed, phasing out CFCs would cause massive economic damage. So what actually eventuated when the world embraced the Montreal Protocol and banned CFC production? The chemical industry quickly found an alternative compound to CFCs for use in refrigerators and air-conditioners that imposed much less damage to the ozone layer. It’s been estimated that by the year 2060, the CFC ban will result in avoiding 1.5 million melanomas, 19 million non-melanoma skin cancers and 130 million cataracts.20 Many of those lives saved from skin cancer will be Australian. Avoided ultraviolet radiation damage to agriculture, fisheries and materials is estimated to amount to US$460 billion.19 The direct cost of phasing out CFCs was US$235 billion between 1987 and 2006. So if you count just the financial costs of implementing the Montreal Protocol, it sounds like a lot. But even not allowing for the massive health and productivity benefits, there was a net $US230 billion saving to the global economy by introducing the Protocol. The cost of inaction exceeded the cost of action.

The Costs of Climate Inaction The climate change debate has fallen into territory familiar from the phasing out of smoking in New York City bars and restaurants or prior to eradicating CFCs: that cutting


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emissions to the extent the scientific community deems necessary will export jobs, lower incomes and devastate our prosperity. Since 2001, the new breed of Australian conservative leaders has sung the age-old myth that reducing greenhouse gas emissions will ‘wreck’ or have a ‘devastating impact’ on the economy.22 But what is the counter-factual to this assertion? That is: what’s the economic impact of allowing dangerous climate change? Nicholas Stern, a former World Bank chief economist, warned of the massive economic risk of failing to combat climate change in his 2006 report to the British Parliament.23 Stern concluded that failing to limit climate change could cost the world economy between 5 and 20 per cent of gross global income this century—a figure equivalent to the combined effect of the past two world wars and the Great Depression.24 Water scarcity would impact up to one billion people in Asia due to hundreds of Himalayan glaciers melting, and 200 million people could be displaced by 2050 by rising sea levels, drought and storms.25 This goes well beyond a typical environmental crisis. High-level national security reports by US and UK defence analysts warn that unleashing climate change will become a ‘threat multiplier’, amplifying the potential for nuclear conflict, mega-droughts, famine and widespread rioting in defending and securing dwindling food, water and energy resources.26 The question that is only just starting to be discussed in Australia is: what are the economic consequences for Australia if we don’t slow climate change? How important to us is it for Kakadu and the Great Barrier Reef to exist in 50 years time? What are the economic implications of running the Murray–Darling basin completely dry and


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fitting every city with billion-dollar desalination plants? What are the climate impacts for our agriculture and exports? Some of these questions can be estimated through economic models. For example, the Australian Bureau of Agricultural and Resource Economics (ABARE) has modelled the potential impact on Australian agriculture from temperature rises, rainfall changes and weather extremes associated with climate change. ABARE found that, in terms of agricultural production, Australia will be one of the worst affected regions by climate change. Australian wheat, beef, dairy and sugar production could decline by up to 20 per cent by mid-century. It also estimated that Australian agricultural exports could plummet by up to 80 per cent.27 The CSIRO predicts rapidly declining snowfall in the Alpine region,28 while the risk to the Great Barrier Reef through warming-induced coral bleaching and/or ocean acidification is very real.29 Along with a sea-level rise eating away Kakadu National Park, there is a great economic risk to the $22 billion a year Australian tourism market so dependent on these national treasures. Professor Ross Garnaut, the well-respected Australian economist, estimates that climate change could cost the Australian economy up to 5 per cent of GDP this century, with an associated cut in real wages of up to 8 per cent.30 The Garnaut Climate Change Review, commissioned by the Labor government, has finally broadened the scope of climate change and energy policy to be at the heart of Australia’s long-term economic prosperity—where it should be. Other nations have long understood the importance of environmental sustainability for economic prosperity. In 2005, the situation was captured eloquently in a speech


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by Gordon Brown, when he was Britain’s Chancellor of the Exchequer (he later became Prime Minister): Environmental issues—including climate change—have traditionally been placed in a category separate from the economy and from economic policy. But this is no longer tenable. Across a range of environmental issues—from soil erosion to the depletion of marine stocks, from water scarcity to air pollution—it is clear now not just that economic activity is their cause, but that these problems in themselves threaten future economic activity and growth.31

There is a strong moral and intergenerational imperative to combat climate change. But even the driest of economic conservatives can’t neglect the economic risks associated with climate change. After my Canberra experience I realised that compelling scientific, environmental or moral arguments aren’t strong enough to invoke the change needed to solve this problem. Without an economic awakening, the changes needed to cushion the blow to Australia’s future prosperity will never be realised.


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2 Climate Battlers Climate Battlers

M

y wife and I were excited to buy our first home in 2004. It was a modest brick semi-detached in inner Sydney. Built at the turn of the twentieth century, it blended in with the other Federation-style houses in the area. A building inspection showed the house to be in perfect structural order. One lazy morning in 2006, on my way to make a pot of coffee, I noticed some brick shavings on the floor in the hallway. I looked up and, to my amazement, saw a massive crack in the joint of the ceiling. I kept trying to convince myself that somehow it was already there when we bought the house—but it wasn’t. Over the following months the crack turned into a huge gaping wound extending the entire length of our hallway. What was happening? Why was our house splitting in two after 100 years of stability? In 2006, Australia was gripped by a devastating drought. After 18 months of only a sprinkle of rain and higher than normal temperatures, most Australian cities were turning into brown dust bowls. Regional Australia was hit the hardest, but virtually every city in Australia seemed to be on ever-tightening water restrictions, which continue today. It hadn’t rained in Sydney for many months and the 27


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foundations of our house were slipping as the soil dried up. A changing climate was literally breaking up our house. Eventually we had to pay for a band-aid solution, a patchjob. Luckily the foundations didn’t need rebuilding . . . just yet. Many in Sydney weren’t so lucky. A friend of mine had to pay tens of thousands of dollars to build new foundations. Homes all around Australia have been damaged from extreme climate events such as droughts, floods, strong winds and hailstorms. I could understand rain, wind and hail damaging houses, but I never thought drought would do such damage. It illustrated to me how blissfully unaware we are of the climate challenges of this century. Stable climate patterns have shaped human development and prosperity over thousands of years. Pre-existing climatic conditions are why some vast areas of Earth have no human civilisation (such as Antarctica or the Sahara Desert) and why large urban centres were built around what were, at the time, secure water supplies. Climate stability dictates the food we eat, the water we drink, the air we breathe and how modern society was built. In his best-selling book Guns, Germs and Steel, Jared Diamond explores human progress among different ancient societies.1 Diamond eloquently explains how geography and climate were the pre-existing factors needed for historical human progress because of the importance of agriculture and food production. Hundreds of years ago agriculture was the driver for technological progress, and much of Eurasia and the Americas were geographically at the perfect latitudes to benefit from long growing seasons, good soils and secure rainfall that promoted early agricultural development.


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Climate Battlers • 29

We are just as climate dependent today as we were at the beginning of civilisation. Australia, with its vast, dry interior and dense coastal population, is particularly vulnerable to changing climate patterns. The movement of air masses around the Earth decides whether a region is fertile for farming, a desert or a rainforest. These air masses are partly controlled by changes in temperature patterns around the world. This century, expanding or contracting climate zones may gobble up once-livable cities. Changing climate ultimately means redistributing human civilisation and prosperity. Rapid changes will shake the socio-economic fabric of the world. The greenhouse age will bring climate change to every kitchen table. All of us will become climate battlers if the Earth’s temperature is not stabilised.

Sea Level, Storms and Premiums A cyclone is a destructive weather system that only forms in summer in warm, tropical oceans. It acts like a pressurerelease valve. When there is enough pent-up energy added to the climate system, cyclones unleash their destruction. Hotter oceans in the greenhouse age are projected to fuel more powerful cyclones. Hurricane Katrina, which partly demolished New Orleans in 2005, was stoked by temperatures in the Gulf of Mexico that were 6°C warmer than usual. Many parts of the world are more vulnerable than Australia or the United States. Tens of millions of people live in the low-lying coastlines of Asia, from Pakistan to Indonesia. In November 2007, Cyclone Sidr killed up to 5000 people in Bangladesh, while in May 2008, Cyclone


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Nargis, and the resulting tsunami-like storm surge, killed upwards of 100,000 people and wiped out the livelihood of many coastal communities in Burma. The storm surge resulting from the cyclone was 4 metres high and reported to infiltrate 40 kilometres inland along the very low-lying and densely populated Irrawaddy Delta.2 Global sea levels have already risen about 20 centimetres this century due to climate change.3 Without this sea-level rise, Cyclone Nargis’s storm surge would have stopped about 2 kilometres short of where it actually penetrated, saving lives, communities and devastation in some areas. Every centimetre of sealevel rise counts when these massive storms hit low-lying coastlines. A warmer climate causes sea water to thermally expand. This ocean swelling pushes water towards the land, contributing to sea-level rise. Depending on our future greenhouse gas emissions, the CSIRO predicts world sea levels to rise up to 59 centimetres by the end of this century4—but that is assuming the Greenland ice sheet remains intact (where metres of global sea level reside). If the ocean were like a lake, this steadily rising sea level would be costly but manageable. The real threats are the more intense storm surges that occur on top of the rising sea levels, just like those that followed Cyclone Nargis. A warmer Earth fuels stronger storms and floods, along with rising seas, putting our coastal infrastructure and real estate at great risk. With 86 per cent of Australia’s population living near the coast this is a massive concern. The Insurance Council of Australia estimates that about 425,000 homes and buildings are vulnerable to sea-level rise.5 Waterfront properties are in high demand today,


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fetching tens of millions of dollars at auctions all over Australia. Insurance companies don’t cover sea-level rise and there are signs overseas that they are already refusing to insure the most risky beachfront properties because of the climate risk. What will happen if that prized beachfront property becomes worthless in twenty years? Will governments pay for expensive sea walls to try to protect coastal properties? Is it fair for the taxpayer who lives far away from the coast to pick up the bill to save these properties? These are just some of the questions governments will have to grapple with if the worst outcomes of climate change are realised. Places currently protected from climate extremes will become exposed in a hotter climate. In 2005, a hurricane formed in abnormally warm waters near Madeira, off the coast of Portugal. It was the first hurricane ever to have formed in the area, and it went on to hit Europe (Spain)— also a first.6 In the Mediterranean Sea, warming has occurred so rapidly that researchers in Spain believe hurricanes or near-hurricanes will soon form within this almost landlocked sea.7 Given the surrounding population density, damage from a hurricane in the Mediterranean would be catastrophic, since buildings and resorts haven’t been constructed to withstand such storms. Christmas Eve 1974 is etched in Australian history. Cyclone Tracy, with winds raging at more than 200 kilometres per hour, demolished Darwin, killing more than 60 and leaving over half the population homeless. Amazingly, Darwin building standards were not cycloneproof in the early 1970s. It was only after Cyclone Tracy hit that governments mandated cyclone-proof building codes.


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In Australia, the southward movement of warmer ocean currents (due to climate change) will expose areas to cyclones that have previously been unaffected. The old timber ‘Queenslanders’ in Brisbane would be particularly exposed to a southward-moving cyclone belt in a supercharged future climate. Aside from the human devastation, extreme storms, floods and droughts are hideously costly. One of the world’s biggest insurers, Munich Re, has released estimates of the damage bill if cyclones started to occur in southeast Queensland. If a ‘moderate’ Category 3 cyclone (Category 5 is the strongest) were to hit Brisbane directly, damage to infrastructure and buildings alone would total $100 to $125 billion. Even more scary, if the storm track passed through the Sunshine Coast and Gold Coast as well, damage would be over $200 billion.8 Not even including the loss from long-term business closures, that perfect storm would cost nearly 20 per cent of Australia’s gross national income based on today’s figures. The CSIRO also predicts rising temperatures to exacerbate cyclones, droughts, floods and bushfires in many regions around Australia.9 This is because the water cycle is more energised in a warmer climate. Northern Australia, which already has wet conditions, is projected to become wetter—while southern and inland Australia are expected to become drier and more vulnerable to flooding over their parched hard ground. With a hotter planet fuelling more intense weather, the US$3.2 trillion insurance industry has much to worry about.10 In 2006, Cyclone Larry, with winds up to 290 kilometres per hour, battered Innisfail in northern Queensland, causing an estimated $1.5 billion worth of damage.11 Over the past


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40 years all but one of the top twenty Australian-insured losses were climate related: cyclones, floods, hailstorms, bushfires and winds.12 The average annual global weatherrelated economic damage in the decade of the 1990s of US$60 billion was three times higher than the previous decade.13 The general insurance industry covers threequarters of households and businesses for damage and fire. Insurance damages have been increasing by about 2 per cent per year above the expected rate of population growth and economic activity.14 The New South Wales Central Coast was hit by a winter storm in mid-2007. While news crews converged on a stranded 40,000-tonne tanker, the Pasha Bulka, in Newcastle, the real story was that those storms cost insurance companies over $3 billion, because they hit population centres and high-value assets.15 Cyclones may get all the attention, but storms can cause just as much damage if they occur in population centres. Three separate storms later in 2007 swiped $380 million from Australia’s biggest insurers.16 Higher damage costs mean higher premiums. Insurance companies will raise their premiums to pay for these events. Since Hurricane Katrina in 2005, insurers in coastal American states such as South Carolina, Florida and Mississippi have raised premiums by up to 100 per cent.17 But sometimes even hiking premiums can’t adequately cover some areas. In the United States, weather-related economic losses are growing ten times faster than insurance premiums, the economy and the population.18 Some insurers in the United States are packing up and leaving exposed coastal areas because the risk of sea-level rise, flooding and


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hurricanes is too great.19 Without adequate insurance for homes and businesses, who would invest in a local economy? The other consequence is that the government (and therefore taxpayers) would have to pay for any future storm-related damages if the insurance industry is forced to leave a specific area. To have an adequate kitty, the government would have to raise revenue through taxes, levies or charges. Sounding the economic alarm bells to the government, the Insurance Council of Australia stated: ‘Increased frequency of significant natural disasters with climate change will inevitably increase pressure on the pricing of premiums, the affordability of commercial and personal risk mitigation and in due course the resilience of the whole economy.’20

Leaks, Kinks and Costs Infrastructure is the conduit to a productive and prosperous Australian economy. It provides the means for goods to travel from our agriculture belt to dense coastal populations. It also gives us the ability to access water, move from place to place and export our products to the global market. Australia has hundreds of thousands of kilometres of roads, railways, ports, footpaths, electricity lines, and water and sewerage pipes.21 Building and maintaining them is a massive cost to us all. Australia’s total infrastructure assets are valued at many trillions of dollars.22 But most of them were built in the twentieth century and are ill-equipped for rapid climate change, just like my 100-year-old house was. Increasing heat extremes, floods and droughts make building and maintaining roads, bridges, pipes, and energy and communications networks much more costly.23


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The Victorian government conducted the first infrastructure risk assessment for climate change in 2007. Among the most prominent findings for the Australian climate battler were ‘Higher water, energy and telecommunications bills to cover the growing damage to infrastructure’.24 The biggest infrastructure liability under worst-case global warming was the damage to Victorian ports due to sea-level rise coupled with more intense storms. Victoria also has some 10,000 road bridges that connect important arterial motorways. These bridges, some built decades ago, were also highlighted as highly vulnerable to the effects of higher temperatures: more heatwaves heighten structural degradation of the steel material and distorts the sealants supporting the structures. Australia’s infrastructure is not automatically thought of when thinking of climate-change impacts, but the fact is that increasing weather extremes will require higher government revenue to maintain these assets at a safe level. Railways worldwide sometimes need to suspend operations in summer when extreme heatwaves buckle the steel in railway tracks. This phenomenon, called ‘sun kink’, is potentially lethal, because it causes train derailments.25 Although new technology reduces the likelihood of this occurring, future climate change-induced heat extremes represent a huge challenge to those managing Australia’s 40,000 kilometres of railtrack.26 Australia’s water pipes have an even greater reach than the rail networks. Underground, out of sight, are tens of thousands of kilometres of pipes in complex networks supplying our most precious resource: water. Sydney alone has water mains measuring 21,000 kilometres, further than


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the distance from Sydney to London.27 Billions of litres of water are wasted in all of Australia’s urban water-pipe networks—typically 10 per cent of our water is wasted through leakage.28 Leaks mostly occur at the millions of joints connecting the water pipes, and there are high losses in extended hot periods when the surrounding soil shifts as it dries. The potential for changing weather patterns and water supply is one thing, but even maintaining the water supply will be an added challenge. Increasing exposure of water-pipe networks to climate extremes will make water less secure and more costly, with higher bills for all of us. Water pipes are only useful if there is water running through them from full catchments upstream. It seems we have taken our water supply for granted for too long. Despite being the driest inhabitable continent, we have one of the lowest water recycling rates in the world. With the threat of rising temperatures and shifting rainfall patterns, recycling water from our storm-water drains and waste water will become a necessity. Anyone from the Perth–Fremantle area of Western Australia will tell you with marked clarity of the rapid weather changes since 1980. The massive rainstorms that used to come in from the Indian Ocean have ceased to come. The storm track has shifted southwards over the past twenty years.29 Instead of the storms dumping rain in and around Perth, they dump it in the Southern Ocean. Southwest WA has seen a 60 per cent decline in natural inflows into dams since 1980 and has experienced a climate shift.30 Luckily, Perth and most Australian cities are on the coastline, so at least governments can build desalination plants in order to


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‘climate-proof’ their cities’ water supplies. Although very costly and energy intensive, desalination plants will become more of a necessity for Australian coastal cities. With population growth, the Water Services Association of Australia estimates $30 billion will be needed to climateproof our major urban water supplies over the next five years.31 What about the inland rural towns that don’t have access to sea water? Climate-proofing these towns may be prohibitively expensive. Back in the 1970s and ’80s, southeast Queensland was expanding rapidly, its warm climate attracting many families from both overseas and interstate. To cope with this growth, Brisbane built two extra dams which supplied water and provided flood irrigation for the Brisbane River. Wivenhoe dam, built in 1986, was by far the largest, having twice the capacity of Sydney Harbour. The state politicians were so sure of the dams’ long-term water supply, they built three massive water-sapping coal-fired power stations, which rely entirely on water taken directly from Brisbane’s dams for cooling purposes. These power stations suck nearly 40 billion litres of water from the city’s water supply each year.32 The prolonged drought of 2006–07, coupled with inordinate use of water by three coal-fired power stations, brought Brisbane’s water supply to a near standstill. The dams hit a critically low 15 per cent capacity. Harsh water restrictions were imposed in early 2007, cutting supplies to Swanbank and Tarong North power stations by up to 40 per cent. Energy production was suspended and wholesale electricity prices more than doubled,33 resulting in 160 job cuts at just one Rio Tinto coal mine. 34 So southeast Queenslanders got hit with higher electricity and water


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prices because of the protracted drought. The Queensland government is now spending $2.4 billion on the western corridor recycled water project to supply recycled water to these power stations. A further $9 billion has been comitted to southeast Queensland water supply projects.35 Despite this huge investment in water, water costs in Queensland are set to skyrocket. The Queensland Water Commissioner estimates that a typical household’s annual water bill will increase by up to $880 by 2012—an increase of 147 per cent.36 The lack of foresight by some Queensland politicians in the 1970s and ’80s is breathtaking. Taxpayers today are now footing the massive bill. It’s symptomatic of the timid nature of many political leaders all over the country to invest in longer-term energy and water projects. Let’s hope that our children in twenty years’ time aren’t complaining of similar costly mistakes about today’s decisions. A lack of water security is not just the fault of problematic government planners. As the Earth warms, the added heat sucks water out of the ground and catchments more quickly—so in a greenhouse age we actually need more rainfall to achieve the same result. Permanent shifts in our weather patterns, along with this heightened evaporation, could turn into a crisis. More evaporation comes with the added risk of wild bushfires in a warmer climate. Bushfires wipe out all vegetation along their destructive path and turn trees into charred stumps. Australia’s dry-land ecosystems are generally well adapted to bushfires. As soon as the fire passes through, seedlings spawn and rejuvenation begins to bring the forest back. The juvenile plants and trees require a lot more water than mature ones because of their rapid growth. In effect, in the years following a bushfire the


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land acts like a sponge, taking up a lot more water than previously. This means that our water catchments deliver less water to the dams after bushfires—as much as 20 per cent less is predicted for the next decade.37 With bushfires likely to increase in frequency and intensity in a warmer climate, there will be direct consequences for those living in risky forestland, but also indirect consequences due to the reduction of the already tight local water supply.

The Climate Food Crisis The Australian economy is deeply climate-sensitive. In 2005, agriculture and farm exports contributed $32 billion to national income and employed 366,000 people.38 The 2002–03 drought wiped nearly $6 billion off our GDP and 100,000 jobs were lost.39 This is a staggering figure considering the entire coal industry employs about 28,000 people.40 Only four years later, we had an even worse drought with similar ramifications. Higher temperatures suck the water from the ground through evaporation, exacerbating dryness. Drought severity is likely to be intensified in a hotter climate. Water availability has already hit crisis levels, with many regional areas unable to access normal allocations of water. As agriculture is affected by water shortages, so is the price and quality of our food. A drier southern Australia will make food prices rise across the board, with not even the most price-conscious Australian able to escape. Between 2002 and 2006, food prices surged. Vegetables went up by over one-third, while fruit went up by nearly two-thirds, according to the Australian Bureau of Statistics.41 The


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Consumer Price Index rose only 12 per cent, meaning that prices for fruit and vegetables rose three to five times more than other products in the economy. The Murray–Darling basin provides over 40 per cent of Australia’s food and has been without good rain for years. Australia is the world’s largest exporter of beef, livestock, wool and barley, and the second largest exporter of wheat and canola. Drought damage to Australian agriculture causes shudders around the world. The three main winter crops, wheat, barley and canola, lost 60 per cent of production in the most recent drought, pushing up prices worldwide. Australian wheat exports make up 15 per cent of global trade, but with the drought-induced cut in exports, wheat prices doubled in 2007.42 That’s good news for growers who manage to squeeze out a crop, but not so good for everyone else who eats bread, flour, pasta, biscuits or crackers. All over the world, climate patterns are realigning food production. Although prices may fluctuate, climate pressures on food prices are just a signal of things to come. It’s worrying that the cost of our Vegemite on toast will increase because of climate pressure. But there is something even more economically damaging to all of us. Food makes up nearly 16 per cent of the basket of goods used to calculate the Consumer Price Index (CPI) and is the second most important item for the CPI after housing prices.43 Any underlying knock-on effects from food to other sectors, such as wages, would accelerate inflation. As any mortgage holder would know, the Reserve Bank dampens inflation by raising interest rates. Between 2002 and early 2008, there were twelve interest rate rises. Have we seen the first climate change induced interest rate hikes? If you believe


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the rhetoric from the Australian government during the 2007 election campaign, drought-induced food inflation was an ‘unavoidable’ consequence which played its part in driving up interest rates. During the campaign, the incumbent PM John Howard said: Another cause [of inflation] is the pressure coming from the drought with its impact on food prices, which is ongoing, and that drought has been with us for a very long time and it is obviously feeding into the underlying inflation rate.44

In 2008, food riots broke out in over a dozen countries, from Haiti45 to Egypt, because of the surging price of food. Global food prices have risen by 83 per cent since 2005, with some estimates suggesting that at least 100 million people could be tipped into poverty as a result.46 From rice to wheat, world food price rises have caused much pain. In Bangladesh, over 10,000 rioted when the price of rice rose by one-third in less than a year,47 while in Mexico the government was forced to cap corn prices in an attempt to stem civil unrest. Coupled with population growth, climate change is undoubtedly set to add to food productivity and price pressures, which in turn threatens the growth and prosperity of not just Australia, but the whole world. Combating climate change is, among other things, a way to moderate future food pressures on the global economy. You may be someone who lives far away from the coast, who doesn’t work in agriculture and thinks climate change will only really impact those coastal millionaire properties vulnerable to sea-level rise. Unfortunately, climate pervades every part of our society, from food production, water


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availability and infrastructure to income tax and home insurance costs. Our society was built on a stable climate; future changes have the potential to alter society’s economic foundation. Climate change permeates our future way of life and will affect how much we pay for things and are taxed. Whether it’s higher prices for basic commodities like water, or higher taxes when Australia needs to replace multibillion-dollar public infrastructure projects, climate change will hit the hip pocket of every Australian. We are all deeply embedded in this climate battle.


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3 Australia’s Carbon Obesity Australia’s Carbon Obesity

A

ustralia’s net greenhouse gas emissions in the year 2006 were 545 million tonnes, excluding the contribution from forestry and land-use change, another 40 million tonnes.1 That’s equivalent to a box 3 metres high covering Victoria, full of pure greenhouse gas going into the atmosphere each year. The burning of fossil fuels for energy generation and transport contributes threequarters of Australia’s greenhouse gas emissions. Industrial processes and landfills, along with burping and farting cows, account for much of the remainder. Since 1990, Australia’s emissions from energy have shot up by over 50 per cent.2 The growth in fossil-fuel emissions within Australia since 1980 has been double that of the global average and five times the growth in Europe.3 With only 0.3 per cent of the world’s population, Australia contributes about 1.5 per cent of the world’s emissions.4 For a man whose height is 1.9 metres, a weight of 90 kilograms puts him in the normal body mass index range. But for a woman who is 1.6 metres tall, the same weight would indicate she was clinically obese. In the same way that weight alone can be misleading, total greenhouse emissions 43


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produced in Australia do not tell us the complete story. Solely focusing on the total level of greenhouse gas emissions produced overlooks how truly carbon obese Australia is and the type of economic exposure it has in the future. Carbon intensity is a measure of the level of carbon emissions for every unit of economic output (typically measured by Gross Domestic Product). Carbon intensity is determined in the same way that we can measure a nation’s oil dependency, debt dependency or energy intensity by comparing oil use, foreign debt and energy use as a function of gross national income. As an example, take the oil intensity of Saudi Arabia compared to that of the United Kingdom. Saudi Arabian energy generation and the economy in general are utterly dependent on oil. Funded by booming oil revenues and government subsidies, Saudis pay just 5 cents per litre for petrol, while their income is derived mostly from oil revenue. The United Kingdom, on the other hand, derives little of its economy from oil production and encourages conservation of domestic oil use through high taxes on petrol. As a result, the oil intensity of each economy is vastly different. The Saudi economy consumes 1.7 million barrels of oil each day—roughly the same amount as the United Kingdom. That information by itself is nothing too unusual. However, the UK economy is nearly ten times larger than Saudi Arabia’s. That means the Saudi Arabian economy is nearly ten times as oil dependent as the United Kingdom’s. As the world oil price rises and falls so does the Saudi economy, because it’s so dependent on oil. Carbon intensity defines how dependent an economy is on carbon use—via coal, oil and natural gas—and is an important indicator for understanding how future cuts in carbon


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Australia’s Carbon Obesity • 45

emissions will impact different economies. The higher a nation’s carbon intensity, the higher the potential financial carbon liability as the world starts to rapidly reduce greenhouse emissions.

The Most Obese Developed Nation Australia has a carbon obesity epidemic. When accounting for different levels of economic output, Australia is the most carbon obese nation in the developed world (see Figure 1). We are even more carbon obese than the United States or big emerging economies like India, Mexico and Brazil. This means that producing goods within Australia inherently produces high carbon emissions relative to other nations, irrespective of whether shoes or steel are being produced.

China Saudi Arabia Australia Canada World Average India United States Indonesia New Zealand Germany Spain Japan Mexico Iceland Italy Denmark United Kingdom Ireland Brazil France Sweden Norway Switzerland

0

Figure 1


200

400

600

800

1000

1200

Carbon intensity for the year 2005 (kilograms of carbon dioxide emitted per US$1000 of economic output).5

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Does being carbon intensive make us richer? No. Although Australia’s economy is far more carbon intensive than those of other developed nations, there are many nations richer per person than Australia.6 For example, Ireland’s economy has had the fastest growth rate of any developed economy over the past ten years. According to the International Monetary Fund, Ireland become the second richest nation in the world, averaging nearly $45,000 per person in 2006, surpassing even the United States.7 Australia, averaging $33,000 per person, is down the list and ranked eighteenth.8 At the same time, the Irish have half the greenhouse intensity of Australia. That is, for every US$1 of GDP in Ireland, only half of the CO2 emissions are generated in comparison to Australia. So Ireland has become ultra-wealthy, surpassing virtually all developed nations in wealth while having lower greenhouse intensity than the majority of other developed countries (see Figure 1). Isn’t Australia a resource- and energy-intensive economy in comparison to the world? No. Australia’s service sector (which includes finance, banking, insurance, hospitality, tourism, etc.) provides nearly three-quarters of the nation’s total income,9 while manufacturing and resources provide about 20 per cent. The proportion of manufacturing and heavy industry is no different than in other developed economies and far less than emerging economies. For example, Mexico has an economy larger than Australia’s and has been growing at a particularly fast rate since the late 1990s. Much of Mexico’s economy runs on pharmaceutical production, car manufacturing and oil exports, yet the country has lowered its carbon intensity at a rate greater than Australia with similar economic growth expansion


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over the past decade. Australia’s carbon intensity reduced by a mere 2.7 per cent between 1996 and 2004 (see Figure 2). All developed nations, and many developing nations, have reduced their carbon intensity over the past 25 years much faster than Australia.11 If the Australian economy ‘de-carbonised’ at the world average rate, for the same level of economic growth, Australia’s total emissions would have been cut by 13 per cent between 1995 and 2005.12 Hummers, those massive four-wheel drives developed for the United States army, embody the excess of American fuel consumption. It’s the type of vehicle that says ‘because we can’, rather than ‘do we really need to?’ With this type

1000

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700 Australia 600 World average United States

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Figure 2


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Carbon intensity (kilograms of carbon dioxide emitted per US$1000) for selected countries over the past 25 years.13

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of upsizing and outsizing you would think the United States had the most carbon-intensive economy in the world. Yet, as Figure 1 shows, in 2005, even with all those Hummers, US$1000 of goods produced in Australia emitted 25 per cent more carbon than US$1000 produced in the US.14 To put it another way, if the US economy was as carbon intensive as Australia’s, the United States would be emitting an additional 1 billion tonnes of CO2 into the atmosphere each year (about twice Australia’s absolute emissions). The world’s average carbon intensity is about 560 kilograms emitted per US$1000 of economic activity. Australia is way above the world average at 680 kilograms of CO2 and well above most of the emerging developing economies, including India, Mexico, Brazil and Indonesia. All developed nations have considerably lower carbon intensity than Australia. Australian factories, on average, while making the same product, produce up to three times more carbon dioxide than factories in Europe, nearly double those in Japan, 70 per cent more than New Zealand factories and 25 per cent more than US factories (see Figure 1).15 Not even accounting for coal exports, it means Australia has one of the largest carbon exposures in the world. If the structure of Australia’s economy isn’t the cause of the high carbon intensity, then what is?

It’s All King Faisal’s Fault Carbon intensity varies dramatically depending on the dominant energy supply, and historical reasons have helped make Australia one of the most carbon obese nations in the world. After the Second World War, Australia


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underwent a massive economic expansion, experiencing uninterrupted economic growth of 4 to 5 per cent for over twenty years during the 1950s and ’60s.16 Population increases and government-led investment in large infrastructure and manufacturing increased prosperity and caused unemployment to drop to historically low figures (around 2 per cent).17 This industrial economic expansion was very energy intensive. In the post-Second World War period up until more recently, the decision on the type and source of fuel for Australia’s electricity demands was made purely on the basis of direct cost. Coal (both brown and black forms) is abundant in Australia, cheap to extract and independent of foreign control. Coal is also the most carbon-intensive fuel. Every unit of power (megawatt-hour) produced using coal emits between 1 and 1.2 tonnes of carbon dioxide, a figure that’s more than double that of natural gas and about one-third more than oil. The energy choices for Australia in the past were simple, as carbon emissions were yet to be on the radar at this time. Supplying the energy needs for the postwar boom in Australia was left to two primary fuel sources: coal and oil. Growing wealthier in the postwar boom inherently meant emitting more CO2 into the atmosphere. With one swift action in 1973, Saudi Arabia’s King Faisal unknowingly sent a shock wave throughout the world’s energy economy and gave an unexpected boost to coal-based energy generation in Australia. The Yom Kippur War in October of that year between Arab states (mainly Egypt and Syria) and Israel was a catalyst for large Arab oil producers to flex their muscles on the world stage. King Faisal


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stopped oil exports to the United States and those Western countries supporting Israel in the war. This Arab government geopolitical intervention sent the oil price rocketing upwards, quadrupling in 1974 from US$10 to $40 a barrel in a matter of months. The economic reverberations of this first oil shock extended across the world, and particularly in those industrialised oil-intensive Western nations. Oil was cheap before 1973, so many Western nations used it as fuel in power stations—not just for cars, trucks and planes. With the sharp oil price rise, energy investment moved heavily away from oil, while industry and individuals were forced to take a crash course in energy efficiency to cut down on energy costs. Oil as the basis for electricity generation was about to become extinct. In replacing its oil-fired power stations, Australia moved in a different direction to most developed nations. Kwinana power station in Western Australia was a microcosm of that shift to an Australia that became carbon obese after the oil shocks. Kwinana power station near Perth was built in 1970 to supply much of southwest Western Australia’s electricity and was originally fuelled by oil.18 When oil prices jumped fourfold during 1974 and then tripled again in 1979, oil-fired power stations like Kwinana became too expensive to run. Other nations invested in gas, wind, solar, hydro and nuclear power in order to move away from oil-fired power stations. Kwinana, however, was rebuilt to run on coal, a much higher CO2 emitter than oil. This was indicative of a much wider Australian shift towards coal after King Faisal’s oil shocks. Today, nearly 30 coal-fired power stations have been built and are operating (see Figure 4 on page 135), supplying 78 per cent of Australia’s electricity


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needs. Coupled with the low-density urban sprawl that has dominated Australian town planning, Australia’s economy has become much more carbon intensive in comparison to all other developed nations. Our historical energy choices are the biggest contributors to Australia’s carbon obesity. Globally, only South Africa and Poland have higher coal dependencies than Australia. The United States, with vastly more coal than Australia, depends on coal for 50 per cent of its electricity. Just like other countries, the United States has reduced its carbon intensity by changing its fuel mix to be more dominated by natural gas, nuclear power, wind and hydropower. The Australian Bureau of Agricultural and Resource Economics (ABARE) predicts Australia, without policy changes, will still generate 67 per cent of its electricity from coal in the year 2030.19 Australia’s carbon intensity in comparison to the rest of the world isn’t just a moral or environmental problem because of climate change. Without pursuing a carbon diet, the future prospects of Australia’s trade, foreign investment and economy is in for a large shock.


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4 The Future Shock The Future Shock

A

ustralia is in a perilous economic situation. There is virtually no other developed nation on Earth that is more economically vulnerable to the emerging energy and climate change threat over the coming decades, because we are both climate sensitive and carbon intensive. I’ve already talked about the climate sensitivity of the Australian economy to future sea-level rise, rainfall changes, storms and a decrease in food production. But as the world starts to combat climate change, Australia’s high-carbon economy and high-carbon exports are set for a big shock over the coming decades without rapid structural change to the economy.

The End of Cheap Coal Coal is the least vulnerable fossil fuel to supply shocks, since there are vast untapped reserves in many countries. But supply of a resource doesn’t mean its economic outlook is secure. The global reserves of uranium are large, yet since nuclear power accidents such as Three Mile Island in the United States in 1979 and Chernobyl in Ukraine in 1986, the Western world has largely avoided nuclear power. In 52


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The Future Shock • 53

the United States and Europe, for example, not a single new nuclear power reactor has been built since the 1980s. Only recently has there been any Western interest in nuclear power. By the same token, the mineral asbestos was used in many countries in building materials and insulation in homes, but despite the large mineral reserves available, Australia has banned the mining, production and use of asbestos because it is a known carcinogen. The coal age will not end from lack of coal. As the world moves to cut carbon emissions, coal will be the first energy source ousted, given its carbon intensity. Even without a global carbon price in effect, a ‘shadow’ carbon price is already devaluing coal assets. Three of the world’s biggest investment banks in New York have sounded alarm bells over coal’s future. Citigroup, J.P. Morgan Chase and Morgan Stanley concluded in 2007 that a carbon price will be imposed within the domestic economy of the United States some time in the next few years.1 The banks now require investors seeking finance for coal-fired power plants to prove that the plants will be economically viable under future carbon prices and any new greenhouse gas reduction schemes.2 The banks don’t want to finance a 50-year investment that goes bad because of future carbon emission caps and cost blowouts through higher than expected carbon costs. These Wall Street banks are now requiring energy companies to source renewable options, cost carbon into their finance projections and assess whether nearby geology allows carbon capture and storage and prove that it would be affordable.3 Forty-five coal-fired power stations in the United States were either cancelled or put on hold during 2007 because


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of carbon concerns.4 ‘What you’re seeing is a de facto moratorium on coal power right now,’ says Robert Linden, a senior oil and gas analyst at Pace Global in New York.5 Jeffrey Holzschuh, vice-chairman of institutional securities at investment bank Morgan Stanley said, ‘We have to wake up some people who are asleep’.6 Investment is heavily shifting away from coal, and for the first time natural gas and renewables each show more power projects under development than coal in the United States.7 A large US energy company, PacifiCorp, has rejected the development of coal-fired power stations and now emphasises natural gas and wind. A spokesperson for the company suggests that because of the potential future carbon costs, ‘coal projects are no longer viable’.8 In the United States, TXU is an energy company that had eleven coal-fired power stations on the drawing board in 2007. A consortium of investors offered the biggest corporate buyout in history (US$45 billion)—although with some very important caveats.9 In order for the buyers of TXU to see the purchase as a long-term asset, they required the company to cease building eight of the eleven coal-fired power stations. An intense public backlash over the planned expansion of coal-fired power contributed to the decision to scrap the coal plans—but the banks say the main reason for cutting coal was financial.10 TXU also agreed to cut its overall greenhouse emissions to 1990 levels by 2020 and to double its investment in clean, renewable energy to sweeten the deal—all done in order to limit the future carbon liabilities that climate change legislation will impose. The market is shifting, even without a federal carbon price imposed on the economy.


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Australia will impose a carbon price via an emissions trading scheme by the year 2010—well ahead of the United States. Even more so than in the United States, financing and investing in Australian coal-fired power will be a very risky financial proposition given a power plant is typically a 50-year investment. In 1997, the New South Wales government sought to privatise its energy assets, which were predominantly coal-fired power stations in the Hunter Valley. Its fleet of coal-fired power stations was valued at $25 billion. Over the last ten years, through a public demand for clean energy, a ‘shadow carbon price’ has undoubtedly lowered the value of these assets. It hasn’t helped that none of the coal-fired power stations in the Hunter Valley have any ability to use carbon capture and storage technology, since the geology is unfavourable in the region. The concerns over the huge amounts of CO2 spewing from coal-fired power stations have helped erode the value of any existing Australian coal-fired power stations. Why on earth would financiers or investors seek to buy old coal power stations or invest in building new ones in an age of carbon constraint? You would be hard-pressed to find an advertisement from any Australian energy company promoting their use. For companies such as AGL and Origin, investment is heavily shifting towards renewables and natural gas—both lower carbon sources of energy. As an indication of this shift, there were 29 Australian energy projects worth $8 billion at the advanced planning stage by the end of 2008 and 93% of those investments were either fuelled by natural gas or renewables.11 Coal power is cheap, but it will become expensive as the world rapidly slashes carbon emissions—as it should.


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Any previous cost advantage from Australia relying on old coal will be eroded. This gives Australia some large potential financial liabilities in a world that is seeking to address climate change. As our economy is the most greenhouse intensive in the developed world, the energy status quo is not only environmentally unacceptable but will lock us into a future carbon shock. This shock will affect virtually all exports and energy-sensitive foreign investment in Australia.

It’s Not About China Imagine that Australia depended heavily on producing and exporting Blue Delicious apples to countries all over the world. Then it was found that some rare type of deadly bacteria was found in the skin of Blue Delicious apples. For the safety of its people, each country around the world imposed trade bans on the importation of these apples. Everyone still wanted to eat apples because they are a healthy snack. So instead there was a huge surge in demand for New Zealand–produced Orange Delicious apples that didn’t have the unwelcome side effects. All global commodities are subject to global shifts in demand. Coal is a global commodity that is not produced or manufactured; it is mined and it can’t grow back. There are many alternatives to using coal for generating energy around the world. The question then becomes analogous to the Blue Delicious apple example: why would the world continue to buy Australian coal? The world will be moving to buy the Orange Delicious apples, even if they are a little pricier—for the health of their people. Australia would need to either


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eradicate the deadly bacteria on Blue Delicious apples or shift into producing the Orange Delicious variety. The vast majority of the coal produced in Australia (about 80 per cent) is exported rather than used within our shores for domestic energy generation. Australia is the world’s largest exporter of coal, although the United States, China and India have far greater reserves. Coal is Australia’s most lucrative export commodity, with an annual value of $25 billion.12 Although having the world’s fifth-largest coal reserves, some 230 million tonnes get shipped off our shores each year, representing 30 per cent of Australia’s global trade.13 Despite the widely held notion that Australian coal exports are fuelled by China’s growth, only 2 per cent of Australian coal ends up being used in China. Europe (the Netherlands, France and the United Kingdom) buys more than five times the amount of Australian coal than China.14 Australia’s biggest export earner has the single biggest carbon exposure of any commodity. This fact ultimately scares many into thinking that we shouldn’t change anything; that we need to keep digging up coal, keep building coal-fired power stations and keep doing things the way they have always been done. But neglecting the future global energy shifts will do far more damage to the coal industry than any domestic carbon price ever could. Japan is Australia’s most important coal trading partner— buying nearly half of Australia’s coal exports.15 Even though the coal for Japanese power stations comes from Australia, the carbon emitted when burning it is counted under Japanese greenhouse accounts. Japan has committed to reducing greenhouse emissions by at least 50 per cent by


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2050.16 It would be impossible for Japan to continue buying Australian coal and using it in its current form if it wanted to meet these significant reduction targets. The beneficiaries of this shift in Japanese energy priorities will probably be natural gas (supplied by Russia), nuclear power and renewables, not Australian coal. Europe is the second biggest purchaser of Australia coal, importing nearly $3 billion worth in 2007.17 The European Union has set the toughest greenhouse gas reduction targets in the world, proposing cuts of between 20 and 30 per cent by 2020 and 60 and 80 per cent by 2050.18 There are many low-carbon alternatives in Europe that will be cheaper than coal in a carbon-constrained world. The goal of reducing carbon emissions has already made natural gas the ‘default option’ for power generation in Europe, since it emits half the carbon of coal-fired electricity.19 The International Energy Agency conservatively estimates that global demand for coal could be 20 per cent lower by the year 2030.20 Despite the outcries here at home, Australia’s coal industry is ultimately vulnerable to overseas decisions and shifts in energy policy. Our two most important coalpurchasers (Japan and the EU) have made it clear that reducing carbon emissions is a priority in the coming decade. Across the world, states and countries are rising to the challenge of climate change by setting ambitious targets to cut greenhouse gas emissions. At the United Nations climate change conference in Bali in December 2007, all nations agreed to a roadmap that recognised that ‘deep cuts in global emissions will be required to achieve the ultimate objective’ of the UN climate convention, namely ‘avoiding dangerous climate change’.21 This follows the G8 meetings


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where the eight major developed economies agreed to an aspirational target of at least a 50 per cent reduction by 2050.22 The new US president, Barack Obama, has also set an ambitious target of reducing US emissions by 80 per cent by the year 2050,23 equivalent to those set by California.24 There are thousands of policies being instituted around the world, whether in the hundreds of cities and towns that have set out to embark on reducing emissions,25 or in the schools and universities that are setting ambitious goals to reduce their greenhouse footprint.26 Every new emission reduction policy around the world, whether large or small, erodes the competitive advantage of Australian resources such as coal. Australia’s biggest export could become our biggest liability in a world shifting to a low-carbon economy. In the long term, Australia’s exports cannot survive solely on supplying old coal to a world that is shifting towards cleaner, low-carbon technologies and products: it must change. If we want countries like Japan and the EU nations to buy Australian coal, then it is imperative to develop the technologies to make it significantly less greenhouse intensive.

Carbon Protectionism For Australia, it’s not just coal exports that are vulnerable in a world that will cut carbon emissions. All Australian exports are vulnerable—since coal is used for the vast majority of our domestic energy needs. That means that every export product produced on a carbon-sensitive electricity grid will also be exposed to a world moving away from carbon. Sir Nicholas Stern, the former World


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Bank chief economist concluded that climate change is ‘the biggest market failure the world has ever seen’.27 By this, Stern means that our historical energy prices have not reflected the cost of greenhouse gases. As the world starts to correct this market failure, carbon-intensive economies like Australia’s are in for a potential price shock. If recent trends in the United States and Europe are anything to go by, all Australian exporters need to become very aware. The Climate Security Act 2008 was one of the many legislative bills that have made it to the United States Senate over the past decade trying to reduce the 8 billion tonnes of greenhouse gases annually produced within the world’s largest economy.28 This bill, however, was very different to previous legislation. For the first time in the world, legislation proposed carbon tariffs on products from countries that were greenhouse intensive. Each product imported into the United States would be taxed depending on how much greenhouse gas was emitted through its production. The idea of imposing carbon tariffs on global trade originated in Europe. In 2006, the then President of France, Jacques Chirac, said that ‘a carbon tax is inevitable . . . if it is European, then it means that all the countries that do not accept the minimum obligations will be obliged to pay’.29 Chirac’s successor, Nicolas Sarkozy took it further in 2007, openly floating the idea to the European Commission, where there were a number of supporters.30 California, the most populous US state, with the world’s fifth-largest economy, has also talked about imposing carbon tariffs. Republican Governor Arnold Schwarzenegger said,


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My guess is that within the next decade or so if an economy ignores the damage that it’s doing to the environment, the civilised world will impose environmental tariffs, duties, and other trade restrictions to those countries. This is a matter of fair trade. Nations cannot dump products, nations cannot dump anything, and in the future they will not be able to dump carbon or greenhouse gases either, because this is an unfair trade advantage.31

It’s more likely than not that those low-carbon nations will protect their domestic industries by imposing carbon tariffs on goods produced in carbon-intensive countries. A highcarbon economy translates into a high-economic trade exposure when the world starts to move heavily to reduce carbon emissions and impose carbon tariffs. This will have an impact on all Australian export industries, not just energy and resources. Take the Australian wine industry as an example. The United States and the United Kingdom have particularly receptive palettes for Australian wines, as do I. Nearly 800 million litres of Australian wine is exported annually, worth nearly $2.9 billion.32 Producing wine requires energy during cultivation, production and packaging. If we assume that the carbon intensity of Australian wine-makers is equal to the average of the Australian economy, $1000 of wine would produce 670 kilograms of carbon dioxide. In Italy, the same batch of wine only produces 340 kilograms of carbon emissions. With a global carbon tariff, Australian wine exporters could be hit with charges for double the carbon emissions of wine produced in Italy. The long freighting distance to Europe will add another carbon charge. This is


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a general example of how low-carbon globalisation will give a comparative advantage to low-carbon nations and producers. Not all vineyards will have these carbon exposures. For example, over 90 per cent of the Tasmanian electricity supply comes from hydro and wind power. Any vineyard in Tasmania will have low-carbon export exposure compared to those wines coming from coal-fired electricity in the Hunter Valley of New South Wales. In 2008, Grove Mill, a New Zealand vineyard, became the first wine-maker to be certified ‘carbon-neutral’.33 Just like business tax and labour costs, the ‘carbon intensity’ of domestic energy grids and the associated products will emerge as an important factor in competing in the global marketplace.

Low-Carbon Hubs In a world moving to cut carbon emissions, foreign direct investment will start to shift towards low-carbon energy grids and low-carbon economies. Low-carbon energy grids are already becoming attractive to a range of energyintensive industries. Notwithstanding their banks, Iceland is a good case in point. This nation in the Arctic Sea has been trying to lure aluminium smelters and data centres for years. Aluminium smelting is one of the most energyintensive industries in the world; energy accounts for 30 per cent of the total cost of aluminium production.34 Alcoa, one of the world’s largest producers of aluminium, is building a US$1.5 billion smelter in Iceland, in addition to the two already operating there.35 The small Nordic nation has carved out a niche by attracting energy-intensive industries that invest and build plants on their shores.


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Why would an aluminium smelter want to invest in Iceland? Because 99 per cent of the electricity supply comes from geothermal or hydro power. These clean-energy sources, with a stable supply, are not subject to the price volatility of fossil fuels. However, there is an additional benefit for locating to Iceland. By investing in a country that has a carbon-neutral energy grid, Alcoa would be eradicating any future carbon liabilities from manufacturing in Iceland. Alcoa can also promote low-carbon aluminium to an increasingly aware market that is demanding more action on climate change. Iceland is becoming the first low-carbon hub for manufacturing—now technology giants Cisco and Microsoft are thinking about relocating their energy-intensive computer data centres there.36 Iceland is benefiting from carbon neutrality by attracting foreign investment and boosting their manufacturing sector. All other factors being equal, energy-intensive industries would be mad to invest in a carbon-intensive energy grid, given potential future carbon liabilities. Production of aluminium in Queensland, for example, uses a nearby coal-fired power station for its energy supply, which makes it the most carbon-intensive aluminium in the world. Why would Alcoa or any other energy-intensive industry want to build new plants in Australia, with its high-carbon grid, vulnerable to any future carbon price shocks? In 2007–08 Japan, the European Union, the United States and New Zealand bought $75 billion worth of Australian goods, nearly three times the amount as from China.37 Of the $151 billion invested in Australia from overseas, nearly 70 per cent comes from these four places. 38 Foreign investment from China is $2.7 billion which represents


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a mere 2% of Australia’s total investment coming from overseas.39 Changes in trade and foreign investment from the European Union, the United States, Japan and New Zealand will have a significant impact on our longterm economy. All of these places have either committed to deep greenhouse gas emissions cuts—of between 60 and 80 per cent by 2050—or are in the process of doing so.40 Not only that, but Australia has an economy that is up to double the carbon intensity of our four biggest trading and investment partners. With the European Union and the United States mulling over a future carbon tariff, and Japan and New Zealand initiating a carbon emissions trading scheme, the Australian economy is not in a good place to absorb the future carbon-induced alterations to trade and foreign investment over the longer term. Continuing our dependence on coal for energy would lock Australia into a high-carbon future and economic shock when the world ultimately ends carbon emissions this century. For Australia to attract foreign investment and reduce the carbon exposure of Australian-made exports, it must forge a new low-carbon economy.

The End of Conventional Oil Australia’s oil reserves in the North West Shelf of Western Australia and Bass Strait have historically had enough oil to quench our large domestic demand. In recent years, however, dwindling domestic production has resulted in Australia buying large amounts of oil from other countries. Australia’s oil production peaked in the year 2000 at 809,000 barrels per day.41 With oil consumption at 925,000 barrels


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per day, Australia did not have to rely much on foreign oil imports. By 2007, production had fallen dramatically to 561,000 barrels per day, meaning Australia needed to import nearly 374,000 barrels per day, or 40% of oil consumption.42 Since the start of the new millennium, Australia has had a growing oil trade deficit, and increasing oil demand is making this deficit much worse. The Australian Bureau of Agricultural and Resource Economics (ABARE) predicts oil production will level out at 500,000 barrels per day over the coming decades, whereas oil demand will potentially increase to 1.2 million barrels per day by 2030.43 Without policy measures Australia will therefore need to import between 40 and 80 per cent of its oil by 2030.44 Given Australia’s foreign oil deficit was already 40% in 2007, these projections are already proving true. We are consuming oil far faster than we can find it, which means we are sending billions of oil dollars overseas, blowing out our trade deficit. The Australian Petroleum Production and Exploration Association (APPEA) stated in 2006 that ‘Without major new discoveries . . . this forecast translates into an estimated trade deficit in crude oil and condensate of around $20 billion by 2015’.45 In 2004, the federal government’s energy white paper optimistically forecast that the import bill on oil would be more than offset by the exports from coal.46 With long-term oil prices at over US$100 a barrel, Australia’s oil deficit has been heavily revised upwards to $25 billion by the year 2015.47 With our coal exports set for a shaky decline in a world moving away from carbon, Australia’s energy trade deficit is forecast to rise dramatically without policy action. Without a change of direction, instead of being a net energy


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exporter, Australia will become largely dependent on foreign sources of energy. So why should we be concerned about rising dependency on oil imports? After all, we import vast amounts of televisions, toys and food from elsewhere. Oil imports are different because oil has no current large-scale alternative and can’t be manufactured or grown in many parts of the world like televisions or rice. And not every country can produce oil—production can take place only in those countries that not only have the necessary geological conditions, but also the available reserves. Australia could, if it wanted to, start to manufacture televisions again— albeit at a higher cost than elsewhere. But if we wanted to produce oil we couldn’t; it’s a finite resource—once it’s gone it can never return. So without domestic oil production, nations are completely dependent and vulnerable to foreign supplies—which, given the history of oil shocks, is not a particularly wise economic strategy. You may have come across the term ‘peak oil’, which is often defined as the point in time when oil production reaches its maximum output and starts to decline. The theory comes from geologist Marion Hubbert, who accurately predicted the peak of United States oil production, which she found followed a bell-shaped trajectory, to be 1965–70.48 Production of conventional, cheap oil has been dwindling in all regions for a long period of time. According to the International Energy Agency (IEA), Worldwide, the rate of [oil] reserve additions from discoveries has fallen sharply since the 1960s. In the last decade, discoveries have replaced only half the oil


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produced. Nowhere has the fall in oil discoveries been more dramatic than in the Middle East, where they plunged from 187 billion barrels in 1963–1972 to 16 billion barrels during the decade ending in 2002.49

Current estimates suggest about 1800 billion barrels of conventional oil are still available for extraction (with varying costs),50 which, at projected rising consumption levels, gives the world about 30 to 40 years of supply.51 Christophe de Margerie is the CEO of Total S.A., one of the biggest oil corporations in the world. He has consistently stated that global oil production has peaked, but not so much because of geological limitations. De Margerie defines peak oil as when ‘supply cannot meet demand’. The International Energy Agency forecasts the world will demand 121 million barrels per day by 2030.52 Due to technical and political limitations on new exploration licences, de Margerie says ‘numbers like 120 million barrels a day will never be reached, never’.53 The output from existing oil fields has been declining by 5 to 6 million barrels each year, which means that a lot of new oil fields need to be found just to maintain existing production levels. This is why the long-term oil price will continue to rise. Although conventional oil is finite and its production dwindling, there are multiple unconventional sources of oil, which include oil sands, oil shales, gas to oil, coal to oil and heavy oil (see Chapter 8). These unconventional production methods could produce more than ten times the reserves of conventional oil. The term ‘peak oil’ is quite misleading and should really be renamed ‘peak conventional oil’. High oil prices (because of peak conventional oil) will


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increase fuel efficiency, but they will also drive investment and production to other ways to produce oil. There is a limit to how efficient cars, trucks and planes can become over a period of time, and oil isn’t only used for transport. Oil and the petrochemical derivatives are used to make many things that may surprise you, including CDs, credit cards, crayons, plastic bags, cameras, telephones and even toothpaste and shampoo.54 Unfortunately, large amounts of oil will still be needed in the future simply due to our utter dependence on it through transport and all types of petroleum derivatives. ‘De-oiling’ our economy will cushion us from future energy shocks and is completely aligned with de-carbonising our economy as well. • Energy shocks are not just something that happened in the past—they will be inevitable in a world that is short on oil, high on consumption and needing to rapidly reduce carbon emissions. The 1970s oil shocks did damage to all nations with high oil dependency. But what if in the 1960s there was a country already planning to cushion the blow? Imagine a country that had already fostered an economy that was resilient to energy price hikes by cutting oil use and energy wastage and by developing fuel-efficient buildings, cars and power plants. With all the angst being felt by Australian motorists over high petrol prices, what if half the vehicles on the road were already running on sustainable biofuels, advanced batteries and electricity? A future carbon shock could be gradual or it could be abrupt, but either way, just like the oil shocks of the 1970s, it will


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be the way nations take early action that will determine the carbon shock’s economic impacts, and Australia would be among the worst hit. It’s like being in the 1960s again, but instead of being unaware of the impending future shocks, today we know that the world will rapidly cut carbon emissions in the future—we just don’t know how rapidly. Unfortunately, markets are reactive rather than anticipatory—that’s why government intervention is so important as a defence against long-term challenges. As the world either imposes tariffs or costs on carbon emissions, Australia’s carbon-intensive economy will potentially have deep carbon-related financial liabilities. If we want Australian innovators, businesses and exporters to thrive in a carbonconstrained world, we must rapidly make the transition to a low-carbon economy. It’s not a question of whether a carbon shock or energy shock will come, it’s a matter of when. It could be in five, ten or twenty years, but those nations that prepare for a world beyond oil and carbon will prosper far more than those that fail to act. The question for Australia isn’t ‘can we cut emissions without hurting economic growth?’ Rather, it is ‘can we grow our economy without cutting carbon emissions?’


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5 Beyond Polar Bears Beyond Polar Bears

Y

ou never quite know what to expect when attending United Nations climate change conferences. The slick suits of the governmental delegates were something altogether different from the tweed jacket-wearing scientsts of the conferences I was used to attending. During the December 2007 Bali UN climate change conference, there were a multitude of different groups, activists and societies promoting messages, campaigns and slogans to try to sway the political delegates entering the convention centre to act on solving climate change. Given the sweltering conditions outside, their messages had to be short, original and to the point to get any notice. There were 2-metre papier-mâché Earths with an overheating thermometer coming out of them and signs telling delegates to ‘stop global warming’. But even I had seen these before and they didn’t turn the heads of the thousands of policy-makers entering the conference. There was one campaign, however, which really grabbed my attention. Standing in the long security line to enter the conference, I heard a chant that was getting louder and louder. I looked towards the ruckus and saw about ten polar bears carrying signs and marching towards the entrance. I automatically assumed it was 70


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Beyond Polar Bears • 71

an environmental group raising awareness about the vulnerability of polar bears in the Arctic. But these polar bears had a different message—they were wearing T-shirts with banners and chanting the message ‘Save humans too’. Oxfam, the international development organisation, was taking a powerful, often overlooked message to the conference: climate change goes well beyond the environment. It has the potential to entrench poverty in some nations through degrading water and food security while at the same time devastating poor coastal nations through sea-level rise and extreme weather. The devastating Bangladeshi and Burmese cyclones in 2008, which killed tens of thousands, were to show how vulnerable some nations really are to extreme weather. The Oxfam message is critically important—there is a deeply human side to climate change. The shifts in weather patterns will potentially accelerate impoverishment and famine in the most vulnerable developing countries of the world. Recognising the socio-economic dimensions to climate change is critical if we have any chance to solve this 21st-century challenge.

Seeing the Other Side The speed of change in our society is, unfortunately, not related to the urgency of its problems. Social change is slow, and there is always going to be a gap between what is needed and what is being done. We can explore how change comes about by using a historical lens so that we can see how to move forward in the most effective way possible.


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It’s hard to imagine that only 40 years ago endemic discrimination was a normal part of Western culture. Back then only ‘fringe’ activists were advocating antidiscrimination on the basis of race, sex or religion. Only a few politicians supported changes to our laws that, for example, allowed Aboriginal people to vote, empowered choice for women or integrated schools. But today, the younger generation, on the whole, is completely averse to discrimination, and upholding civil rights is the norm in Western culture. Political leaders embraced the civil rights agenda only after Martin Luther King Jnr made the world aware of the deep inequality entrenched across the United States. Today, some 40 years later, America celebrates a national holiday in honour of Dr King, and its President is African-American—how times change in all but a generation. Yet it wasn’t only because of Dr King raising awareness of segregation in parts of the United States that the norms in society shifted. The progressive changes in civil rights also came about through the slow realisation among the White majority that anti-discrimination policies would not threaten their existence and would, in fact, improve the lives of millions. The lesson here is that change will only occur if the individual is presented with an understanding of the consequences of the change and can see it as a net benefit collectively while not threatening his or her existence. Social change will be slow if the downside threats overwhelm the upside arguments. The first scientific evidence highlighting the dangers of smoking were published way back in the 1950s.1 In the mid-1960s, mild warning labels began to be placed on cigarette packs and then, in the 1970s and ’80s, bans on


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cigarette advertising began in some countries. Despite the evidence that smoking increases the risk of lung cancer, throat cancer, emphysema and heart disease, today tobacco advertising still exists in cinemas, on billboards and at sporting events all over Europe. Nearly one-quarter of the adult population in Australia still smoke,2 and that figure is higher in other parts of the world. With such unequivocal scientific evidence of the harm smoking causes and that nicotine is highly addictive, why are cigarettes still legally available over the counter? One reason is that most of the nonsmoking majority don’t think it affects them at all and therefore don’t demand anti-tobacco laws. Although most people want others to quit smoking, it’s a choice just like gambling, so the argument goes. But a smoking culture deeply affects all of us through the massive healthcare costs imposed to treat an unhealthy society. In Australia direct costs attributable to medical, hospital, nursing home and pharmaceutical care are in the order of $1.1 billion,3 while declines in death, illness and disability through lower rates of smoking have saved $9 billion over 30 years.4 Despite this, most non-smokers don’t really see how the smoking population affects them other than when sitting next to them in public. Cigarettes legally remain on the shelves, despite containing carcinogens, largely because of a mostly unmotivated nonsmoking majority. The recent ban on smoking in pubs and clubs in many Australian states took decades to come about, in part because of the change-averse hotel and gaming lobby. But it would have come about far quicker if the majority of the population had seen the opportunity for them to benefit from a healthier smokefree environment.


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September 11, 2001, saw one of those crises that demonstrate the lack of adaptive capacity of societies to combat a major threat. I was living in Manhattan at the time of the attacks and during the morning of September 11 it felt like the world was coming to an end. It was a chaotic and scary time. The automatic response of the authorities was to send out the National Guard to every train station, tunnel and major building. The soldiers were decked out in full combat gear with machine-guns ready. But this was a new threat—not one based on fighting government-sanctioned armies like in the world wars or the Vietnam War. A machine-gun, tank or fighter is no match for a civilian dressed casually with a backpack full of explosives. Instead of making New York more secure, these camouflage-wearing soldiers were completely impotent in the face of the threat—and would even have made a good target for any suicide bombers. Although the old thinking of building up your military with weapons was relevant during state conflicts such as the Second World War or the Vietnam War, it has little relevancy in combating domestic terrorism. After September 11, the response of the United States and Australia was to nearly double the budgets for the military, even though building more fighters and arming soldiers could do nothing against a suicide bomber in a Bali nightclub. The conservative leadership in the United States and Australia did what they knew, not what was the most relevant for the age. Yesterday’s thinking cannot hope to solve tomorrow’s challenges. Whether it’s one idea, social movement, business or national government, it is very easy to become enslaved to accustomed ways such as linking economic growth to


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fossil fuels. Old thinking is one that believes the free market is always virtuous, climate change is only an environmental issue and that combating climate change can be done without massive technological advancement. The new longterm global challenges such as terrorism, AIDS and climate change require breaking down old ways of thinking that seem to have consumed the world’s large governments and organisations. New thinking must allow adaptation and promote resilience among the world so as to effectively meet future challenges.

The New Environmentalist Leaders all over the world use moral imperatives to try to mobilise resources to solve the world’s biggest challenges. But the problem is that billions of people across the world have different moral compasses. The vast majority of the population are guided by survival—trying to earn money and finding food and shelter for their family are the first and most important goals. Carbon emissions are probably the last thing they think about. Even in developed countries such as Australia, most people are understandably focused on reducing their debts, raising a family and paying the bills, and many aren’t convinced of the need to act on climate change. If the issue of climate change stays in the moral domain it will fail to be addressed. It needs to move from being a moral concern to being an economic imperative in order to invoke the sort of change required. Unfortunately, it’s not going to be a matter of switching off lights and having four-minute showers. The type of change required will involve action, not morality.


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The CEO of World Vision Australia, Tim Costello, has campaigned tirelessly to increase government foreign aid to the poorest of countries from 0.32 to 0.5 per cent of GDP. Morally, how can a wealthy country like Australia allow a neighbour to starve and spiral into chaos? But it’s not just moral to help poor countries. With every moral argument, there is an even more powerful self-interest argument. Better economic development in neighbouring countries in our region potentially stops young men joining terrorist organisations, creates goodwill among the people themselves and is therefore good for Australia. Morality is often invoked as a reason to combat climate change, but as with foreign aid there are even more powerful economic, strategic and national security arguments for doing so. Climate change is a deeply moral challenge for all of us because it has big consequences for each and every generation to come. But there is something that makes combating climate change much more difficult than other issues: it involves reorganising and reinvesting hundreds of billions of dollars in capital, governance and global cooperation to bring about a clean industrial revolution. When capital is entrenched, it makes it much harder for changes to occur. The only way forward is for investors and capital to move to a place which has greater upsides than elsewhere and governments must provide this platform which boosts incentives towards making this happen. The evolution of a belief is as important as the initial belief itself. The environmental movement is going through a transition from its origins in the naturalist traditions of the 1960s. Naturalists, inspired by Rachel Carson’s beautifully eloquent book Silent Spring, have tended to


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automatically dismiss technological solutions to environmental problems. This reaction comes from the notion that humankind should not interfere with the natural world. There are indeed many examples in which human engineering of the natural world has gone awry. There are, however, just as many examples of innovation that have led to better outcomes for the environment. For example, there is a new and wonderful area of technology called biomimicry, whereby technologies are developed that harness designs of the natural world that have developed over millions of years of species evolution. The best known example is a termite nest, which maintains constant cool internal temperatures despite its harsh desert conditions. Designs based on the nest’s complex, myriad channels and ducts are now used in energy-efficient buildings in our cities. Yet biomimicry depends on investment coming from a vibrant economy. Without the investment, biomimicry will only be something for the wealthy, just like computers were twenty years ago. The new generation of climate-solvers must seek to harness, rather than hinder, markets and technologies to reduce greenhouse gas emissions. They must embrace the need to mobilise trillions of dollars of capital, commercialise climate-saving technologies and create a system where people are able to profit from a new energy economy with few carbon emissions. It needs to be this way because, without the ability to quickly shift entrenched polluting capital, climate change cannot be combated in a capitalist market-driven society. We need the banker, the trader, the industrialist, the entrepreneur, the innovator and the investor to start addressing this crisis, even though they


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may not be personally concerned about it. Without the markets onside slowing climate change is virtually impossible. Environmental understanding was spawned in the postSecond World War economic boom, and combating climate change will need a growing economic prosperity throughout the world. Some may think a global downturn in the economy and a recession in the United States are exactly what is needed to at least slow greenhouse emissions and climate change. But in fact, a slowing economy makes fighting climate change much harder. During the elections in 2007 for the French presidency, climate change hardly played a role, despite the French population being particularly sensitive to social and environmental issues. The French economy had been going backwards in comparison to other European nations. Unemployment had sat around 10 per cent for a long time, while France slipped from being fifth to thirteenth in income per capita in a decade. Given this economic background, the French people resoundingly elected a centre-right candidate, Nicolas Sarkozy, whose election platform was to revitalise the French economy and grow employment. Polls showed that the French people had identified unemployment and the economy as their top two issues in the election, not the environment. The same thing happened during the US 2008 presidential election, when the economic downturn, credit crisis and Iraq War consumed voter sentiment; climate change hardly rated a mention on the campaign trail. The Australian federal election in 2007 was in stark contrast to the French and US presidential elections.


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Australia’s economy had been growing strongly since 1992. With wages increasing and the lowest unemployment rates in over 30 years, Australians felt more economically secure in comparison to the French or US electorates. Australia’s long period of economic prosperity helped shift public sentiment towards industrial relations and climate change. Based on polls, climate change was one of the top two election issues for Australia—not the economy or unemployment as in France or the United States. A growing economy is a critical prerequisite for making the changes needed to combat climate change. Some individuals, businesses and governments are more comfortable with change than others—irrespective of the potential collective outcome. Global warming is one of those issues that invokes the full spectrum of how humans view change. The long first phase in coping with new scientific evidence is denial: ‘We’ve seen these things before—it will pass and be irrelevant.’ But the CO2 we put into the atmosphere will stay up there for hundreds of years, continually casting its warming potential over the Earth. The 0.7°C warming seen since pre-industrial times is ‘unequivocal’, due mostly to human activity pushing up greenhouse gas concentrations by nearly 40 per cent.5 All governments (even the Bush administration) have accepted that the science is real. Despite this, some are still unwilling to makes the political changes that are needed, believing that combating global warming will slow economic growth and prosperity. This is, unfortunately, predominantly where the global battle lines have been drawn within recent international climate policy negotiations. Leaders who have been unwilling to make any changes in addressing


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greenhouse gas emissions do so because they believe it will ‘wreck the economy’.6 This attitude follows on from the age-old preconceived notion that doing good for the environment must be bad for the economy. But instead of devastating the economy, what if addressing climate change and leading the global new energy revolution creates a new boom in the economy? The global market for climate change solutions could make Australia’s resources boom look like short change this century. If combating climate change leads to a new clean-energy export boom, then resistance seems pretty odd. The new environmentalist sees economic growth as important rather than contributing to the problem. It’s mostly the energy supply through which economic prosperity is generated that needs to change. The climate change debate is often viewed in a polarised fashion: environment versus industry, developed versus developing countries, coal versus renewable energy, poor versus the rich. But a cleaner environment and a stable climate is in everyone’s interest, not one side or the other’s. It’s just a matter of finding the best way to achieve these goals. If there is no downside to solving climate change, then obviously everyone will support actions towards that end—but unfortunately there isn’t a one-size-fits-all solution. Industries, individuals and countries give global warming differing priorities and some will need to make larger changes than others to combat it. But change doesn’t automatically mean negative consequences. The idea of embracing climate change action to ensure a prosperous economy has been drowned out. Industry should see that combating climate change can forge a prosperous clean economy, while environmentalists should see that a vibrant


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economy is the most effective way to fast-track planetsaving technologies that will be critically needed. The importance of stabilising climate, on the one hand, and of continuing today’s economic growth, on the other, are not independent of each other—rather, they are entirely dependent on one another. To solve the problem of climate change on a global level, economic growth and greenhouse emissions must be separated. Climate-neutral development is one which allows growing prosperity but without altering the living conditions for future generations. The only way this can be achieved is through a clean industrial revolution.


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Part II How Do We Cut Carbon?


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6 Becoming the New Saudi Arabia Becoming the New Saudi Arabia

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t’s the year 2046. The United Nations has convened an urgent meeting of the Security Council to discuss how to deal with escalating Middle East tensions. The Saudi Arabian army is massing on the borders of the United Arab Emirates, which has developed into one of the world’s most important hubs for energy and commerce. Momentous changes in the early part of the 21st century resulted in rising tensions among these Arab neighbours. The Saudi Arabian monarch gambled that the world would still crave oil in the latter part of this century as they did in the previous one. He failed to listen to the former Saudi Arabian Oil Minister, Sheikh Zaki Yamani, when he said in the year 2000, ‘The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.’ With oil prices skyrocketing and supply mostly found in politically unstable states, the developed world shifted heavily away from oil after the 2008 presidential election in the United States. China and India ‘de-oiled’ their economies, albeit at a slower rate than the developed world. But it was the global sanctions against production of greenhouse emissions in 2031 85


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that finished off the age of oil and the old use of fossil fuels. A series of climate catastrophes shook the world in the 2020s: the mass flooding of inland Asia from a snap glacial meltwater pulse from the China–Tibet plateau in 2026; the US heatwave of 2028, which killed 100,000 people; and the mass coastal evacuations across the developing world after a new breed of super-storms inundated coastal communities already beset by sea-level rise. And in 2030, a chunk of ice-shelf the size of Tasmania crashed into the Southern Ocean from the West Antarctic Ice Sheet, once thought stable. Global greenhouse gas sanctions quickly followed. Saudi Arabia rapidly spiralled into economic and social decay following the greenhouse gas sanctions. Reserves of oil now lie dormant under the vast Arabian Desert— worthless even though the world still demands massive amounts of energy. It wasn’t just oil that felt the brunt of global CO2 sanctions—the use of old coal and gas also peaked and, since 2032, the world’s new energy supply has been dominated by CO 2-free energy sources. OPEC (Organisation of Petroleum Exporting Countries), previously led by Saudi Arabia, had become irrelevant and was succeeded by a new cluster of energy superpowers under OSEC (Organisation of Solar Exporting Countries). Australia was the founding member of OSEC in the year 2025. Membership is dominated by those countries with vast expanses of desert. With eternal sunshine and no limitations on space, countries that tapped just a fraction of the sun’s energy have become the energy superpowers of the 21st century. The world’s once worthless dry wastelands are now the engine-rooms of the global energy economy.


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Becoming the New Saudi Arabia • 87

Foreseeing the shift to a new global clean-energy order, the United Arab Emirates used some of the huge oil and gas windfalls of the early 21st century to invest in solar power within large chunks of the Arabian Desert. Since then, the UAE has become one of OSEC’s most influential members, through its vast solar thermal arrays, developed by Australian researchers, which pump out clean energy for the entire Middle East and some parts of India. Frustrated by their lack of foresight and crippled by plummeting oil revenues, Saudi Arabia in 2046 wants what the UAE has—a prosperous and clean economy that has longevity. The Saudi aggression seems reminiscent of the Iraqi aggression towards Kuwait in 1991 which sparked the first Gulf War. To avoid a repeat, Australia, along with its Western allies and other OSEC nations, is trying to lead a diplomatic effort using its newfound power as a permanent member of the United Nations Security Council. The Council is drafting legislation that would boost loans from the World Bank to develop vast solar arrays within Saudi Arabia. The initiative could boost clean-energy supplies to India and bring much-needed economic development to Saudi Arabia. These momentous events since the early 21st century have shifted prosperity from nations that dig and burn to those that think, design and build. Africa, fortunately, is one continent that is finally poised to prosper enormously from the global clean-energy shift. Once plagued by war and corruption, many northern African nations have moved impressively towards stable economic growth and democracy because of the world’s largest power source: the Sahara Desert. Europe led the development, with ten northern African nations, to form


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the European–Saharan Solar Thermal Energy Network in 2037. This solar thermal network now supplies Europe with 20 per cent of its CO2-neutral energy through the Trans-Mediterranean Energy Link (TMEL), connecting Africa and Europe to the same electricity grid. This cooperation has boosted European diplomatic relations with African nations such as Egypt, Algeria, Niger, Libya, Sudan and Morocco. From the early part of the 21st century, Australia played a crucial role in forging this new era of clean economic growth and international cooperation. The TMEL only came about following the successful Australian-led effort to build the Asia Pacific Electricity Grid (APEG) in 2025. APEG connects Australian energy supply to its Asian neighbours including Indonesia, Singapore and southern China. APEG was built after a breakthrough in transport efficiency for transmission cables discovered by Australian researchers in 2020 after the launch of the Helios Program. The Helios Program was a bold government-supported initiative led by the CSIRO, a group of select universities and some energy companies. Their specific objectives were to fast-track the development of commercially viable baseload clean power technologies and to develop superefficient transmission lines for electricity supply. Aside from the immeasurable environmental benefits, the program’s strategic goal was to position Australia as the world’s dominant clean-energy superpower. The Helios Program was launched from the basis of sound scientific understanding. The solar energy hitting Australia’s desert, the heat found kilometres underground and the energy within the currents of Australia’s oceans


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are enough to supply the world’s entire energy supply indefinitely. Although the potential was enormous, politicians were tentative at the beginning of the new millennium, since it was easy to continue digging up fossil fuels and burning them. Nevertheless, in 2012, then former Australian Prime Minister Kevin Rudd launched the Helios Program. One of the main constraints on the large-scale use of these renewable sources of energy was that the deserts, oceans and interior were geographically far away from the populations that needed the energy. The prime minister understood that a nation that came up with the technology to transport electricity over tens of thousands of kilometres with little energy loss would be in a premier position in this greenhouse century to supply unlimited clean, climate-neutral energy. Australia’s massive inland arid region, ocean currents and favourable geological conditions gave the country a natural competitive advantage, allowing it to generate energy and create technologies in proportions massive enough to supply a growing Asia. The investment in the Helios Program was made up from budget savings and revenue gained through the auctioning of carbon pollution permits under an emissions trading scheme that began in 2010. The government also used a portion of the $60 billion previously spent on dubious defence projects by their predecessors. The total investment of $30 billion over ten years resulted in the highest investment per capita of any government towards clean-energy R&D, exceeding that of Japan or the United States. The upfront investment cost for the Helios Program was similar in size to purchasing a suite of fighter aircraft for the Defence Department. But with the fuel sources being


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free, and the world craving CO2-free energy sources, the economic and environmental dividends for Australia over the long term were immense. By 2030, clean-energy exports to the Asian market had increased ten-fold since 2020, making clean energy by far Australia’s largest export. The super-efficient transmission cables used for APEG and TMEL were built under the Helios Program. The UAE have just purchased another US$20 billion of solar arrays to add more capacity to the nation’s clean-energy production. Private investors are now building multibillion-dollar solar thermal arrays in isolated sun-drenched regions and are assured of efficient electricity transport across global energy markets via the Helios design. Through the Asia Pacific Electricity Grid, investors now have access to the booming Asian market. Solar thermal arrays located on a 15 by 15 kilometre parcel of land in the Great Sandy Desert are powering 45 per cent of Australia’s energy supply. The Helios Program wasn’t just focused on solar but three other clean-energy technologies important for Australia’s long-term economic future: geothermal energy (or hot rocks), clean coal and wave power. Geothermal (geological heat) energy is produced by tapping the naturally boiling granite rock that lies kilometres below the surface. Massive amounts of electricity are produced, and the ‘hot-rocks’ 3 kilometres below the arid inland of Australia could supply Australia’s current energy needs for over 450 years.1 In 2046, through discoveries by Helios Program scientists, geothermal sources are providing 30 per cent of Australia’s energy supplies. Back in 2008, Australia’s coal reserves were estimated to last 400 years and were the


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country’s largest export earner. Australian-led research pioneered a new and inexpensive way to capture CO2 from coal-fired power stations and pump it underground. This technology saved the coal industry from extinction. With such unlimited amounts of clean, carbon-neutral electricity in Australia, car companies were quick to develop super-efficient biofuel-electric hybrid engines that could be plugged into the electricity network, completely unreliant on oil. Combining the electric motor with a conventional motor that uses cellulosic biofuels from the leftovers of Australia’s crops, the car industry has continued to flourish on the back of the plug-in biofuel hybrids. Australia is from 1990 levels on track to cut its greenhouse emissions by 90 per cent by the year 2050. With sanctions on CO2 emissions in place and other nations slower to de-carbonise their economies, foreign investment in Australia has surged to levels never seen before. Without risk from present and future carbon emissions penalties, companies from Google to Pfizer have outsourced a lot of their plants, offices and professionals to Australia. Human civilisation thought oil and fossil fuels were valuable in the 20th century—but any nation that harnesses even a fraction of the sun, wind, waves, or Earth’s interior energy will become the new Saudi Arabia: the world’s leading clean-energy supplier for the 21st century. Instead of the old industrial revolution that linked economic growth to polluting and finite fossil fuels like oil, the clean industrial revolution links growth to carbon-free technologies with limitless fuel supplies (sun, wind, earth, waves). The race is on for nations to become the global supplier of these


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new clean technologies. There are a number of countries today that are already leading the world in developing and building the new clean-energy economy, and are on the path to becoming the 21st century’s clean-energy superpowers.

The New Clean-Energy Economy Burj al-Taqa looks like a long, thin candle. The difference is that it’s 68 storeys high, over 300 metres tall and, when completed, will be among the tallest towers in the world. Hundreds of these grandiose projects are being constructed all over the United Arab Emirates (UAE). Among them are a US$1 billion museum in the capital, Abu Dhabi,2 and plans for building a town in Dubai that is a replica of the French city of Lyon, equipped with clones of the French city’s cinemas, cafés and schools.3 But in Abu Dhabi, Burj al-Taqa is aiming to differentiate itself from the others. It plans to be the world’s first zero-emissions tower. Looking at the Arabian Peninsula using Google Earth, all you see is desert. Despite the long history of the region, it’s easy to understand why the population density is sparse. A friend of mine who lives in Dubai, the UAE’s largest city, tells me that in summer you can’t be outdoors for more than ten minutes because of the intense heat. Everything is air-conditioned, from apartments to the underground parking garages and expansive shopping malls. Dubai is built to hide people from the elements so they can be blissfully unaware of the scorching 50°C temperatures that can occur in summer. Buildings themselves act like greenhouses, with glass windows trapping heat and elevating


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the temperature to tens of degrees hotter than the outside. To cool down a super-hot building in the desert requires an enormous amount of energy for air-conditioning. Water is, of course, scarce in the Arabian Desert. Water supply mainly comes from desalinating nearby sea water, requiring even more energy than for air-conditioning. Places such as Bahrain and Qatar have the same problems as the UAE and this makes them among the most energy-hungry nations in the world. Every dollar of economic activity spent in these countries uses four times more energy than the equivalent amount spent on similar activities in the United States or Australia.4 Abu Dhabi is possibly the most challenging environment in the world to build a zeroemissions building—and that’s one of the reasons they have planned it. So how are they going to do it? It takes a first-class designer not only to protect the interior from the outside elements but also to use non-fossil fuels for the building’s energy supply. At the base of the tower, sea water will be used to cool air before it enters a ventilation system and air-conditioning unit. The energy self-sufficiency comes from a wind turbine on the roof and a floating collection of solar panels just offshore in the Persian Gulf. The baking sun during the day produces more than enough energy from the solar panels, so the excess will be used to produce hydrogen from water. The hydrogen will then be used to generate the building’s electricity needs at night. The tower itself will be made entirely of glass, which would ordinarily cook the interior by acting as a thick greenhouse blanket that traps the blazing desert heat inside. The project would have stopped dead in its tracks if not for a newly designed


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ultra-efficient glass. This vacuum-glazed glass, in which a thin layer of low-pressure air buffers two layers of glass, acts like the thermal flask you put soup or coffee into when going on a picnic. Vacuum glazing reduces heat flow by up to two-thirds of normal glass.4 This means that despite the 50°C outside temperature, the interior is much cooler, requiring much less energy for air-conditioning to make the temperature comfortable. A project like this is not cheap since it is the first of its kind, but it is the beginning of a larger national strategy. The UAE is beginning to diversify its economy. Despite its massive oil and gas reserves, the UAE is using some of its recent windfalls to invest heavily in clean technology, where its leaders see a vibrant economic future. The government is taking the concept of zero-emissions construction a step further by planning to build the world’s first zero-carbon city, just outside Abu Dhabi, called Masdar City. Seeing that the UAE is four times as energy intensive as Australia, many people would think that making a city of 50,000 zero-carbon and zero-waste would be impossible. The ambitious project is part of the Masdar Initiative, and Abu Dhabi’s goal is to become the region’s research, development and commercialisation hub for clean-energy products and technologies. The year 2007 marked the first time that more people around the world lived in cities than in rural areas. By 2030, nearly two-thirds of the global population of 8.1 billion will be living in urban centres.5 This rapid urbanisation will improve energy efficiency—it is far cheaper and easier to build infrastructure and resources when people live closer together. It will also provide an opportunity for


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cutting-edge innovation, design and engineering that are extremely efficient at resource utilisation. Carbon-free cities like Masdar City are microcosms of the world’s future greenhouse age. But there is a dilemma for the people of the United Arab Emirates in building zero-emissions buildings and zero-emissions cities: none of the materials, expertise or technologies are produced within their own country . . . yet. Everything has to be imported. Nations such as Denmark, Germany and Japan, where clean-energy technologies have already had a foothold for many years, are now set to reap the benefits of the global shift in energy and materials. The Emirates and other emerging economies can’t develop these sorts of technologies overnight, as it takes decades of research and education. The solar panels will have to come from Germany or Japan, wind turbines from Spain or Denmark and the vacuum glass from Japan or the United States. With the Arabian Peninsula dripping with oil and oozing natural gas it would be easy for an Arab nation to become complacent and think the oil age will last forever. Saudi Arabia, for example, relies on oil production for 90 per cent of government revenue and nearly half the country’s GDP. But with oil supplies eroding, prices skyrocketing and global warming invoking serious future energy shifts and threatening direct consequences, the greenhouse age won’t be about taking things from the ground and exporting them. It will be about harnessing the immense amount of natural energy all around us and exporting the technologies that capture it. Whether it’s vacuum glass, solar panels, carbon fibre, wind turbines, ultra-insulating bricks, or carbon-capture and storage technology, clean-energy


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technologies will be in high demand, and the new Saudi Arabia will be the country that fast-tracks their development, commercialisation and export. Some countries started their energy realignment decades ago and are uniquely positioned to benefit from the emerging new clean-energy order. European countries have been forced to think of alternatives to the old conventional energy supplies. With hardly any fossil fuel reserves, European nations such as Spain, France and Germany were dependent entirely on foreign supplies, particularly for their oil and gas. The energy crisis in the 1970s stimulated European nations to make provisions within their economies to shield themselves from any future energy price shock. Some nations shifted to nuclear power, others to coal, so as to reduce their dependence on volatile outside forces. France, for example, switched virtually all its electricity generation to nuclear. Nuclear has some huge problems, notably with trying to deal with a 100,000-year radioactive waste stream, high costs and risk of catastrophic accidents. Other European nations took a different direction. Denmark’s population isn’t much larger than the city of Sydney’s. Despite the small population base, the Danes embarked on an energy program to equip their economy for the new energy order. In the early 1970s, Denmark started an intensive research and development program into wind turbines for generating electricity. Climate change wasn’t even on the radar, but independent means of generating energy was critical after the energy crisis. The added benefit of wind power became more evident in the 1980s. Power generated this way was not only greenhouseemissions free, it lacked the dangerous by-products of


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nuclear power. The Danish government poured R&D funding into wind power during the 1980s. Wind turbine manufacturers and developers were encouraged by favourable government incentives. The first suite of wind turbines constructed in the United States were all manufactured in Denmark. Today this small nation manufactures over half the world’s wind turbines. In 2007, oil-rich Bahrain completed a world first in building efficiency and design. Its 250-metre twin-towered World Trade Centre incorporates three massive wind turbines into its design. Through its positioning and the unique aerodynamic design of the towers, the prevailing onshore Gulf breeze is funnelled into the path of the turbines, delivering up to 15 per cent of the building’s energy needs. The three wind turbines didn’t come from Bahrain but from one of Denmark’s many wind turbine manufacturers, Norwin. Vestas, the largest Danish wind turbine manufacturer, began production of wind turbines in 1979. Advances in turbine technology and production techniques have reduced wind power costs by 75 per cent over that time.6 Today, Vestas employs over 15,000 people, has annual sales of nearly €5 billion and has a global market share for wind turbines of 23 per cent. Production at Vestas grew about 30% each year since 2003.7 Worldwide, about 70,000 megawatts of wind power will be put online between 2007 and 2010, which equates to about 100,000 wind turbines.8 Denmark and Vestas are poised to benefit hugely from this. Clean-energy technology exports have surged to make up nearly 10 per cent of total exports from Denmark, at US$11 billion a year (€6.7 billion).9 Today, 20 per cent of electricity generated in Denmark comes from wind power,


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a figure that the government aims to increase to 40 per cent over the next decade. If we believe some recalcitrant commentators, the growth in wind power so far would have sent the Danish economy back to the dark ages. In fact, the Danes are far richer than Australians measured by GDP per capita (by about $5000 per person),10 while their carbon intensity has been cut by over one-third in less than ten years.11 Australia’s carbon intensity hasn’t changed over the same period. Meanwhile, the Danes have invested in clean-energy research and development, increased their wealth and have positioned themselves as the world’s Saudi Arabia for wind power. Not only that, but their fuel supply is free, independent and unlimited, and provides Denmark’s economy relief from any future energy fuel price crises. It is commonly thought that either China or the United States is the world’s largest exporter of goods, yet Germany, with a population of 82 million, has been the world’s largest exporter since 2003. From cars to high-tech industrial machinery, the ‘made in Germany’ brand has driven global economic trends even more than China. China is the growing manufacturing powerhouse for cheap goods, while German engineering focuses on design, precision and higher value items that as yet aren’t manufactured in China. Although China can manufacture a 10-cent syringe, it as yet doesn’t have the precision and design experience to build a $200,000 computed tomography (CT) scanner for disease detection. Germany has caught on to the cleanenergy race and seems to understand that there is a natural competitive advantage for innovative and skilled nations in the new energy order. Its goal is to be the new Saudi


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Arabia for solar power. Being the world’s largest exporter, Germany’s economy is actually more dependent on industry and manufacturing than Australia’s. German manufacturing accounts for nearly one-quarter of the nation’s GDP, while manufacturing contributes half that to the Australian economy. The energy profile of Germany is very similar to Australia’s. Both countries have considerable coal reserves for electricity generation and export, and economies that rely on industry but Germany has taken a different tack to Australia over the past few years. With the economic growth potential of the clean-energy market, the German government has invested heavily in research and development for solar power and provides feed-in tariffs, under which electricity utilities are obliged to buy solar electricity at very generous rates. By 2020, renewable energy sources (not including hydro) will make up 27 per cent of Germany’s electricity supply. In the long term, it is envisioned that up to one-quarter of Germany’s electricity will come from solar power alone. I didn’t know how dreary, cloudy and rainy western Europe could be until my wife and I lived there for six months in 2006. Come November, temperatures plummeted to below freezing and stayed there for the next six months. Aside from the wonderful sights, history and culture, I was literally gagging to come back home from lack of sun. It simply baffles me that Germany leads the solar power market, given its climate. Australia gets the most powerful and consistent solar radiation anywhere in the world, which is why our skin cancer rate is so high. Yet there are 75 times the number of solar panels installed in Germany than Australia, even


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though Germany’s population is only four times greater than ours. As in Denmark, government-led plans created a local domestic industry. Germany now is the world’s largest market for solar energy, and German solar manufacturing companies produce over half the world’s solar panels. Companies like SolarWorld, Q-Cells, Conergy and Ersol are positioning themselves for the burgeoning global clean-tech market. These companies employ 45,000 people, a workforce that is predicted to double over the next five years.

The Clean-Energy Revolution The old global energy order is being broken down bit by bit and is undergoing a transition towards clean, lowcarbon, ultra-efficient technologies. Extracting fossil fuels from the ground will become less important than technologies that harness the natural, eternal energy available all around us. The demand for this clean energy will predominantly come from the world’s three biggest economies—Europe, the United States and Japan. The rapidly expanding Chinese economy, however, is also beginning to forge a new cleaner energy economy. By 2020, China aims to generate 15 per cent of its energy from renewable sources, almost double the current figure12 and invest US$200 billion in getting there.13 China’s annual investment in renewable energy is already about $10 billion, nearly double that of the United States and only second to that of Germany.14 China is undertaking a massive expansion in clean technologies and this is set to continue. Just as China is buying huge amounts of iron ore, copper


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and other Australia commodities, the potential is just as large for the Chinese to buy clean-energy technologies and products in the coming decades. Yet the resources boom in Australia, like the oil boom in Saudi Arabia, has entrenched complacency and status-quo economic thinking. The mining boom over the past decade has masked the need for investments for the long-term economy and will result in missed opportunities in the global clean-energy technology market, the fastest growing market in the world. New investment in clean-energy technologies (solar, wind, biomass, etc.) grew by 40 per cent in 2007 to be nearly US$100 billion. New investment in wind power is expected to grow from US$35 billion in 2007 to nearly US$100 billion annually by 2017. Solar power is projected to undergo a similar meteoric rise, from US$23 billion to US$90 billion annually by 2017. Annual new investment in clean-energy technology is expected to be nearly US$300 billion over the next decade.15 Nations that create thriving domestic clean-energy industries will be the ones to prosper while combating climate change. As we’ve seen, even UAE, with its vast reserves of oil and gas, has started on the race to become the new Saudi Arabia: the world’s leading clean-energy supplier. In Australia’s case, moves towards clean energy will need bold initiatives that invest and prioritise developing the new technologies needed for the greenhouse age. The emergence of a new energy superpower this century will be dictated by brains and technology rather than mines, shovels and what lies beneath. Whether they are known technologies, such as carbon capture and storage, hydrogen fuel cells, wind, solar-thermal, geothermal and biofuels,


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or the still unknown revolutionary technologies, cleanenergy production technologies are the new oil wells of the 21st century. With Australia’s natural endowment, wealth, innovation, capacity and vision, coupled with its proximity to the emerging economic powerhouse of Asia, the investment in clean technology is not just an environmental strategy, it is an economic growth strategy. Australia cannot be left behind in this race. As John F. Kennedy said: ‘Change is the law of life. And those who look only to the past or the present are certain to miss the future.’


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7 How Science Must Save Us How Science Must Save Us

I

t was early morning and perspiration was already dripping off my face as I hailed one of the taxis jostling for position outside my hotel. I was in Bali, Indonesia, on my way to attend the United Nations climate change conference. The sweltering conditions seemed appropriate for a group of foreign politicians, diplomats and lobbyists trying to start the world moving beyond the Kyoto Protocol, which expires in 2012. My choice of a light blue business shirt and tie was a bad one for my first day in Bali. The sweat-drenched cotton was sticking to the vinyl passenger seat, feeling like a film of Glad Wrap plastered over my back. The taxi driver, Wayan, had been driving taxis all his life. His car was small and old, probably built in the 1980s, and was typical of the thousands ducking and weaving through the Balinese streets. As he did for all tourists, Wayan immediately cranked up the air-conditioning the moment I sat down— something that happened every time I used a taxi over the next two weeks. I needed the cooled air desperately and learnt very quickly while in Bali that a bottle of water must be pretty close at all times. Despite this, I felt guilty in needing the extra energy to cool me down, particularly 103


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since I was on my way to a climate change conference. The typical Australian generates ten times the greenhouse gas emissions of the typical Indonesian. New South Wales, for example, has a carbon footprint equivalent to the combined greenhouse gas emissions of Bangladesh, Cambodia, Ethiopia, Kenya, Morocco, Nepal and Sri Lanka1. Amazingly, the round-trip flight I took between Sydney and Bali is nearly equivalent to the average Indonesian’s greenhouse footprint for the whole year. Although I purchase a swag of mallee trees somewhere in Australia to ‘offset’ the emissions, these sorts of things are a band-aid solution and won’t be around forever. Looking out the taxi window, as I started to recover from the heat, I noticed that half the vehicles zooming around were small moped motorcycles. As Bali grows, what happens when the average Balinese purchases a car instead of a two-cylinder moped? How much more oil-based energy will be burnt because of that? In China, home to nearly one and a half billion people, new car sales have tripled since 2001 to be nearly ten million per year,2 and the worldwide car fleet is projected to increase from 600 million in 2005 to a staggering 2.9 billion by the middle of this century.3 The air-conditioning guilt I was experiencing morphed into a far more frightening global conundrum. If energy in the developing world is built on exploiting carbon (through oil, coal and gas), then simple arithmetic shows that population and economic growth will lead to massive greenhouse emission increases. More than one and half billion people don’t have access to electricity.4 On current trends, in the next two decades 300 million people are going to use electricity for the first time. It is a tremendous development for these poverty-


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How Science Must Save Us • 105

stricken people to have access to electric power—and increasing access should be prioritised. From an energy and greenhouse perspective, however, it means we have an immense challenge. If those hundreds of millions use just a fraction of the energy we use and it’s generated from carbon-intensive fuels, there is little hope in reducing emissions to the levels needed. Do we tell millions of poorer people around the world not to connect to the electricity grid for the first time or taxi drivers like Wayan to stop using his taxi? Of course not. But imagine a world in 50 years where a taxi runs on greenhouse-neutral fuel or electric-powered batteries and the hundreds of millions of people who are to use electricity for the first time are served by climate-neutral energy. Aside from Western tourists having guilt-free A/C, this scenario would ensure economic prosperity without damaging the climate. Some people think that combating climate change is about changing lifestyles, that we can do it if each of us merely conserve energy from our wasteful lives. Switching off a light bulb or driving less is great, but by themselves such measures have little chance of addressing climate change. You may switch off lights or appliances whenever you are not using them, like I do, and be the most energyconscious person in the world—but what happens during the eight hours at your office or the five hours at home watching television or cooking dinner? Or when you visit your mother, either interstate or across town? No matter what anyone says, there will always be baseline CO2 emissions in our current energy framework. There is no doubt that we do waste a lot of energy, but estimates suggest we can reduce energy demand by about one-third


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at the very best.5 This is fantastic, and should be one of the first avenues pursued, but by itself it is nowhere near enough if our goal is to stabilise atmospheric CO2 and the future climate. The challenge is that a billion people are existing on less than $2 per day; these people don’t need energy conservation, they need more available energy to break them from poverty. A population of 6.4 billion is likely to grow to be nine billion. Even if we, in the developed world, achieved a 30 per cent cut in energy demand it would only buy us a little more time, since the two to three people born into the world every second will eventually negate any conservation measures achieved by you or me. The obvious solution to cut greenhouse gas emissions would be to cut economic growth, but this is not an option in a world which seeks to lift billions of people out of poverty. Without lowering standards of living or reducing the global population, combating climate change in this century requires a massive clean industrial revolution led by scientific innovation. The future world has to continue growing but with an energy framework that is carbonneutral. Although this challenge is daunting, the power of science to change the world for the better is unparalleled.

A Better World through Technology The Greek mathematician Archimedes said, ‘Give me a lever long enough and a fulcrum on which to place it and I shall move the world.’ The expansion of human understanding drives the progression of civilisation. Everything we are accustomed to today has come via technological innovation: from food, water and shelter to the more advanced items


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in our life such as machines, X-rays and movies. Science has its fingerprint on everything we do. Just as technological innovation created the first industrial revolution in the eighteenth century, it now must create a future clean industrial revolution that makes the world cleaner, healthier and more prosperous. Scientific advances are largely, and understandably, the domain of wealthy nations, but they should be used for the advancement of all humanity. The evolution of the scientific understanding of climate change only began when developed nations acquired the resources to measure continuous carbon dioxide air samples. The first continuous record came from a volcanic mountain in Hawaii by atmospheric scientists from the United States in 1957. Australia has one of the longest continuous records of atmospheric greenhouse gases in Cape Grim, Tasmania, dating back to 1976. Without the necessary resources devoted to science, and in this case measuring CO2 in the air, our climate would be changing and we wouldn’t know why. In the same way that rich nations can allocate scientific resources to diagnosing problems, they can also allocate scientific resources to the solution. In the late 1960s, the naturalist Paul Ehrlich wrote his bestselling book The Population Bomb which predicted some dire consequences as a result of exploding global populations outstripping food production. Ehrlich followed on from the great Thomas Malthus who, in the late eighteenth century, inspired thinking over the link between population and scarce natural resources in his ‘Essay on the Principle of Population’. Ehrlich went further than Malthus in predicting widespread famine and disease due to food


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demand far exceeding the natural capacity of food production. He famously predicted that ‘in the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now . . . while India couldn’t possibly feed two hundred million more people by 1980’.6 Ehrlich’s predictions might well have come true if not for the most powerful weapon in humanity’s arsenal to make the world a better place: scientific innovation. Norman Borlaug was the scientist who proved Ehrlich wrong and helped ‘feed the world’.7 In the mid-twentieth century, Borlaug, an Iowa agricultural scientist, was crossbreeding thousands of different varieties of wheat in order to produce a new, high-yielding variety. At the time, Mexico was on the verge of starvation; other countries, such as India and Pakistan, were not far off. Borlaug successfully bred a new, high-yielding dwarf variety of wheat. The amount of wheat harvested on the same area of land more than doubled because of Borlaug’s discovery. The dwarf wheat was first grown in Mexico and then introduced into India and Pakistan where wheat yields increased six-fold in a matter of years. In 1960, globally, a tonne of global grain was produced for every hectare. By the year 2003, the grain yield had tripled to nearly 3 tonnes per hectare.8 Between 1950 and 1985, grain production surpassed population growth by 23 per cent.9 Consequently, the food intake per person increased by nearly one-third over that period.10 This surge in crop yields after the 1960s removed hundreds of millions from starvation and malnourishment and came about in large part through science performed in one laboratory. Since the mid-1980s, population growth


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has started to outstrip food yields around the world. The pre-1980s level of advancement needs to happen again this century. Nevertheless, Borlaug did more for the world than virtually any other person, including presidents, diplomats and prime ministers.

Beyond Emissions It’s now easier and quicker than ever before to spread ideas globally. An invention, concept or social movement started today in the most remote place on Earth can now move instantly across the world via the internet. The power of one person, one scientist, one business or one nation to bring about change has never been greater than now. Some people say Australia should do nothing to combat climate change because our emissions only make up 1.5 per cent of global greenhouse emissions. This is dangerous thinking as the proportionate level of emissions for any country is completely irrelevant. Setting and implementing ambitious greenhouse reduction targets within an economy drives innovation towards development and commercialisation of low-carbon technologies. In a globalised trading economy, nations have more of a chance to export products and technologies than in a non-globalised one. Carbon emissions are a global problem, with every developed nation on the road to reducing emissions. Therefore any nation, no matter how small, can spread the products and technology necessary to combat climate change. Just because Australia has only 0.3 per cent of the global population, should we not invest in medical research to find cures for global diseases? Or what about the war in Iraq where Australia was part of the


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‘Coalition of the Willing’. We only had 0.4 per cent of the forces present in Iraq—so why support any troop contribution? The ‘X per cent’ argument can be used on any global issue involving Australia. But it doesn’t stand up to scrutiny; on global economic grounds, it is dangerous because technological advantage from even a small country can be used throughout the world. Finland has a population slightly larger than Sydney, about five million. Nokia was a Finnish conglomerate company that before the 1990s produced paper, footwear, televisions, personal computers and telecommunications products. Like all other low-added-value manufacturers in developed countries, it was losing the battle with China, the low-cost international competitor. In the early 1990s, Jorma Ollila, the new CEO, completely restructured the company to focus solely on high-value innovative telecommunications services. Innovation can’t be outsourced to cheap labour countries and today Nokia is at the forefront of telecommunications innovation. The interconnected economy brings huge opportunities for small, knowledgerich nations to export technologies and prosper. Nokia is Finland’s biggest company, employs over 100,000 people (including over 30,000 in research and development) and sells one billion phones worldwide, with a global market share of 38 per cent.11 For every person in Finland, Nokia sells 200 mobile phones around the world. Insular domestic thinking is a dangerous distraction for any economy in this new globalised 21st century. Like Finland, Australia has the potential to shape the world, not by raw military or economic might, but by the seeding of ideas in an interconnected world. With 1.3 billion


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internet users worldwide, ideas and discoveries have instant global reach and a single idea has the potential to transform the world for the better. Australia’s proportion of medical research, for example, is small in comparison to other developed nations, but the ability of Australian science to fundamentally change the world is not. A prime example is Professor Ian Frazer of the University of Queensland, who helped developed the first cervical cancer vaccine, which will save hundreds of thousands of lives across the world. Then there’s Professor Fiona Stanley, one of the most inspirational people you could ever meet, who helped discover that pregnant women who take folate significantly reduce the risk of spina bifida in children. There are thousands of inspirational Australian scientists working to solve society’s ills. While Australia is a comparatively small country of 21 million people, our science has made a big impact on the world, including in the area of clean-energy technology. Professor Martin Green, a researcher at the School of Photovoltaic and Renewable Energy Engineering at the University of New South Wales, has consistently led the world in the development of silicon-based solar panels, which convert sunlight into electricity. In 1985, Green’s group was the first in the world to develop a solar cell that could convert 20 per cent of the incident sunlight into electricity. The group has held the world record for silicon efficiency for most of the last twenty years; the figure is 25 per cent today.12 In 1995, the group developed a secondgeneration solar panel known as thin-film technology, which significantly cut costs by using 100 times less silicon during production. A spin-off company called Pacific Solar Pty Ltd


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was formed that same year to try to commercialise the new technology. One of Professor Green’s PhD students, Zhengrong Shi, helped develop this new thin-film technology and became leader of the Thin Film Solar Cells Research Group and executive director of Pacific Solar Pty Ltd. Shi was offered $6 million in the year 2000 by Chinese authorities to set up a thin-cell solar manufacturing plant near Shanghai.13 With few government incentives or domestic industry in Australia, he decided to move to China, forming Suntech Pty Ltd to manufacture and commercialise the thin-film technology. Dr Shi’s company now supplies a large chunk of China’s burgeoning solar power capacity as well as the world’s. He is now a billionaire and maintains close ties with his old alumni. Without a thriving domestic solar industry in Australia, Dr Shi needed to go offshore to commercialise his cutting-edge solar technology. Meanwhile, in June 2004, with a continued lack of a solar industry in Australia, Pacific Solar Pty Ltd sold its intellectual property rights for thin-film technology to a new German company, CSG Solar AG, which had the backing of a consortium of European investors. The German company now has worldwide rights to commercialise the thin-film technology the UNSW group developed. In the future, Australian innovation will not just be about engineers and scientists developing new generation clean coal, wind, solar and geothermal energy. Climate change will affect natural ecosystems, causing changes that may have profound impacts on the way we live. Understanding, monitoring and adapting to these changes will also put Australia ahead this century. From a rainforest plant called


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the periwinkle that is used to treat childhood leukaemia and hodgkins disease14 to Taxol, the chemotherapy compound derived from the Pacific Yew tree,15 more than half of drug discoveries, particularly anti-cancer treatments, have natural origins.16 A very small portion of Earth’s plants and animals have been fully understood for the purpose of drug discovery. A threat to the Earth’s biodiversity because of climate change and human overdevelopment is therefore a threat to our long-term health. Australia, with its unique climate and geologic isolation, has an immense variety of specially evolved plants and animals. Ensuring rich biodiversity in Australia’s natural environment is critical to finding new medical discoveries. Researchers working for the Victorian government in 2006, for example, discovered in tammar wallaby milk an important antimicrobial protein, which could lead to the development of effective measures to kill antibiotic-resistant ‘superbugs’.17 New genetic technologies applied to dairy and beef cattle have the potential to improve yields and also to cut one of the most important contributions to Australia’s greenhouse gas emissions: methane from livestock. The methane burped and farted from cows and sheep in agriculture represents 10 per cent of Australian greenhouse emissions.18 The CSIRO is developing techniques, from simple dietary protein supplements to vaccines, which reduce burping and farting, and therefore greenhouse emissions. We have a rich history of developing cutting-edge cleanenergy technologies but we’ve lacked the long-term vision and push to fully realise a thriving clean-energy industry. Clean technologies aren’t just needed in energy supply; we need low-carbon, ultra-efficient products for buildings,


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infrastructure and industry. The extremely efficient vacuumglazed glass, to be used in the world’s first carbon-neutral building in the United Arab Emirates, was pioneered by Australian researchers. The Applied Physics department of the University of Sydney was the first laboratory to develop a demonstration of thermal insulating vacuum glazing back in 1988.19 But like other Australian clean technologies of the last decade, a manufacturer in Japan purchased the worldwide rights for production. It’s great to see Germany, China and Japan benefiting from Australia’s research and intellectual property, but in this new greenhouse age shouldn’t Australia be producing, manufacturing and commercialising the technologies conceived in Australia? Surely our multibillion-dollar educational and research investments should create new solutions in response to the problems of climate change and energy, not just within the laboratory, but also in the commercial world, to commercialise and build new production capacity to bring clean-energy exports to a world craving clean energy. One new Australian technology could, potentially, bring down global greenhouse emissions. With over 600 billion tonnes of carbon to be avoided over the next 50 years, and the increasing population demands on energy, there is a massive global clean-technology void to fill.

The Future Climate Solvers Australian school children are scientifically and mathematically more literate than most other nations. According to the OECD, Australian school leavers rank fourth in the world on scientific literacy and eight in the


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world on mathematical literacy, well above the OECD average.20 Children in the United States, for example, rank nineteenth in science and twenty-fourth in maths literacy.21 Australia’s challenge is to encourage those school leavers to take on a career in science, engineering or mathematics. In 1985, 19 per cent of university graduates in Australia came from science, maths or engineering.22 Today, that number is barely 17 per cent. Business and management students, on the other hand, have surged from 10 per cent to account for 35 per cent of all graduates. Internationally, the number of Australian science and engineering graduates is much lower than other developed nations. According to the OECD, only 7.3 per cent of Australian graduates have degrees in engineering, compared with an average of 13.1 per cent for all OECD countries; only 0.4 per cent of degrees are in mathematics and statistics, in comparison to the OECD average of 1 per cent. In Australia, about 6000 engineers graduate each year, a figure that’s been static for over a decade. In India, 112,000 engineers graduate each year, while in China there are 351,537 engineers looking for jobs.23 Engineering Australia estimates that there is currently a shortage of about 20,000 engineers, while Australia is below average for engineering graduates per head of population.24 This does not put Australia on an optimal footing for the clean industrial revolution. To position Australia to prosper in a greenhouse age we must increase the proportion of science and engineering students who continue into research post-graduate degrees, such as a PhD—this is where the backbone of Australia’s clean-energy economy will come from. In 1988, over half of Australia’s PhD graduates came from the science and


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engineering fields. That number has continually dwindled since then, and in 2006 only one-third of PhD graduates were researching science and engineering.25 The financial burden on university students has been growing over the past decade and could be a strong reason for why students are not continuing on to the higher research degrees. In 1996, completing a four-year engineering degree incurred a HECS debt of $9800, while a three-year science or maths degree cost about $7300. Today the HECS debt is $28,000 for engineering and $21,000 for science degrees. One of the unfortunate consequences of these big student loan increases is not so much creating a disincentive to enter university as producing a dramatic shift away from sciences because they may be viewed as poorly paid professions. To attract the best and brightest to fight Australia’s most pressing long-term challenges we must lower the financial burden for students in areas where there is greatest need.

Boosting Our Ideas and Inventions Funds for scientific research in Australia come from three sources: governments, business and philanthropy. Governments support research and innovation through block funding to universities and government research organisations such as the CSIRO; competitive grant funding through the Australian Research Council; and direct funding to businesses for use on scientific research and development (R&D). In 2005, the Australian government allocated $6.8 billion to science and innovation.26 That included all money for research into thousands of different scientific areas, ranging from cancer research to military technology.


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Businesses, from food manufacturers to software companies, also fund R&D themselves so as to develop the latest and most efficient production techniques or newest range of products. Business in Australia collectively provides an additional $8.4 billion for R&D.27 Overall, government, business and philanthropy invested nearly $16 billion to R&D in Australia in 2005, representing about 1.77 per cent of (GDP).28 Relative to our national income, this amount of R&D funding puts Australia fifteenth out of 28 developed nations.29 The average R&D funding is 2.25 per cent of GDP in OECD countries and pushing 3 per cent in the United States and Japan.30 Australia’s level of investment in science and innovation is well below average in comparison to other developed nations. Increasing R&D is important, but to maximise the innovation investment Australia needs to attract the world’s best researchers. The question we have to ask ourselves is: How much do we need to open up the incentives to attract the best minds in the world? Let’s say Joe Blow is 35 years old and is at the forefront of solar panel materials research in the United States. He has all the trademarks of a fantastic asset for any university or country. How does an Australian university or the CSIRO hire him? The CSIRO rates him, based on his publication record and expertise, as a Level Six public servant, while the university rates him as a Senior Lecturer. This level at both institutions receives a salary package of, say, $95,000. Meanwhile, the US institution he is currently employed with hears about the talks he is having with these Australian research organisations and— with more flexibility and resources—immediately adds 20 per cent to the offer, a car and a deposit for a home. This


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situation actually happens all the time. Are we too rigid in Australia in hiring researchers? Should Australia enter bidding wars by breaking down existing barriers to truly invest in the best and brightest? Without leading levels of investment in science and innovation, all the reform in the world can’t make Australian science first class. However, raw investment is a first step towards prioritising Australia’s innovative clean technology capacity. Australia is a major energy exporter: both coal and natural gas generate tens of billions of dollars for the Australian economy. Given that energy is disproportionately important for Australia’s exports, shouldn’t Australia be investing in scientific R&D into new energy technologies? The energy superpowers of the greenhouse age will need to boost investment more than other countries in developing new technologies, whether it’s innovation into cleaning up conventional fossil fuels such as coal or gas, or researching conventional clean-energy technology such as wind, solar and biomass, or developing the new types of clean-energy technologies such as geothermal, wave and carbon capture and storage. So how much does Australia need to invest in clean-energy R&D? The direct government allocation of R&D for energy resources and technology was just $100 million in 2006, a mere 2.4 per cent of Australia’s public funding for science and one of the lowest scientific priorities in that year.31 Research to help find medical breakthroughs understandably receives a significant proportion of Australia’s science budget. Other areas receiving more investment than energy R&D include defence technology, industrial technologies and agriculture. Other nations that aren’t energy exporters


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invest much more than Australia in energy R&D. Japan, South Korea, Germany and France, for example, spend at least three times the amount Australia does on energy R&D, as a proportion of GDP, while the United Sates and Canada invest double.32 Industry in Australia invests 1 per cent of GDP in R&D—well below the OECD average of 1.5 per cent.33 BHP Billiton, the world’s largest mining company, is based in Australia and in 2007 had an annual revenue of US$32 billion and net profit of nearly US$11 billion. That makes BHP Billiton the 27th most profitable company in the world.34 Despite this, and the fact that coal is one of its most important commodities, BHP Billiton spent just US$76 million on R&D in 2006; 713 other companies around the world invested more into R&D.35 Meanwhile, the world is shifting beyond old energy such as coal, from which BHP makes a lot of its money. It seems that BHP sees the world using old coal forever and feels it has nothing to worry about, strategically, environmentally or economically. The lack of support for Australian energy innovation from big Australian resource companies must be made up for by public investment if Australia is to position itself for the clean industrial revolution. If it is solely the government’s responsibility, then the government has every right to adjust taxation, increase specific levies and increase funding so that our research institutions and the innovation that is developed is internationally competitive this century. Australia does have one major advantage over other countries on energy R&D: it has no nuclear power industry. Other nations have had to disproportionately fund nuclear


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power R&D over other technologies with very little gain in lowering costs or risks. Global energy R&D expenditures over the last 30 years show that nuclear technology received US$120 billion worth of funding, compared to US$19.7 billion for renewables such as wind, solar and biomass.36 Spending on nuclear leaves little room for expenditure on other technologies. Even today the federal government in the United States spends 29 per cent of energy R&D on nuclear, 29 per cent on fossil fuels and 19 per cent on renewables.37 An analysis of nuclear power in the United States showed that the cost of electricity from nuclear reactors has more than doubled since the mid-1970s,38 despite disproportionate R&D expenditure.39 You would think Japan would have cheap nuclear power, given its long-standing nuclear industry and tens of billions invested in nuclear R&D.40 But it doesn’t. Japan built two of the world’s most advanced nuclear reactors in 1996 and these are currently producing electricity at double the cost of a natural gas power plant and are up to onethird more expensive than a high-capacity wind plant.41 Having a nuclear industry is a drain on energy R&D and gives Australia a considerable advantage in leading the non-nuclear low-carbon economy. Japan and the United States spend US$3 billion each year on energy R&D, but the nuclear power industry absorbs between one-third and two-thirds of the budget. As Australia doesn’t have nuclear power, that allows it to free up R&D funding in other, safer, clean-energy technologies that have a larger potential for growth. Even when taking out the nuclear R&D spent over the world, Australia spends half what most developed nations


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do on energy. Positioning Australia to prosper in the greenhouse age needs strategic investment in developing and commercialising clean-energy technologies. From 1996 to 2006, Australia’s total investment in energy R&D was about $500 million,42 less than one-third of that spent on political advertising.43 It’s a mistake for a carbon-intensive energy exporter to virtually stand still on energy innovation in the face of a world moving towards low-carbon energy; in fact, it’s one of the gravest strategic mistakes of Australia’s federal government over the past decade. As we are so dependent on coal, Australia must be the leader in discovering new clean technologies and driving down the cost of existing clean technologies. The federal government has committed $740 million in energy R&D over three years from 2008 to 2011. This has tripled the direct public investment on energy R&D and puts Australia’s investment in energy innovation at least in the vicinity of other developed nations. This money will be spent on boosting clean-energy research, clean technology business commercialisation, an Australian solar institute, clean-coal development and developing an Australian-made petrol-hybrid vehicle. The federal government has made some important steps in the right direction for Australia, but how much more is needed?

A 21st Century Snowy Mountains Investment The Snowy Mountains Hydro-Electric Scheme is arguably Australia’s boldest and most visionary engineering project. Covering an area over 5000 square kilometres with intricate interlocking dams tapping snow melt from the Australian


5/3/09 3:43:28 PM


Alps, the scheme generates massive amounts of hydroelectric power and about 2000 giga-litres of water for food production in the arid interior.44 The Snowy Mountains scheme employed over 100,000 workers from many countries around the world upon its completion in 1974.45 The economic and social prosperity generated by this grand project is unparalleled as it provided livelihoods for tens of thousands of post-war Australian migrants, clean power supply for the eastern states and the economic sustenance for numerous regional towns. Prime Minister Ben Chifley introduced the project as a national milestone in 1949 when he declared: ‘The Snowy Mountains plan is the greatest single project in our history. It is a plan for the whole nation, belonging to no one State nor to any group or section . . . This is a plan for the nation and it needs the nation to back it’.46 In the end it cost $800 million, or about $6 billion in today’s currency. To address factors such as the dwindling supplies of conventional oil, Australia’s extremely carbon-intensive economy and the emerging global carbon price while also combating climate change, Australia will need another visionary investment like the Snowy. It was once said that a politician thinks of the next election and a statesman thinks of the next generation. There is no question that the political vision needed for Australia to be on the frontline of the climate and energy challenges this century will be hard. But given the environmental, economic and social consequences of failure, it is an effort that the Australian people need to support. The dividends on our investment will be great, whereas the short term costs will be relatively minor. US president Barack Obama is planning


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to invest US$150 billion towards building a secure and clean-energy economy in the United States that serves the purpose of both reducing greenhouse emissions and cutting their dependence on foreign oil supplies.47 Australia cannot be left behind in this century’s greatest technological race towards clean energy. Public funding of energy research and development has been stagnant at about $100–150 million between 1992 and 2007.48 Business investment in energy R&D accounts for nearly 80 per cent of the total allocation of funds (about $1 billion), yet only one-quarter of the funding is allocated towards clean technology and energy efficiency—while $800 million was devoted to fossil fuel mining and extraction of resources.49 The economic realities of the emerging greenhouse age have yet to be matched by the necessary funding of energy research and development. Professor Ross Garnaut recommended that an investment in clean energy of $3 billion each year was needed to ease the cost and exploit Australian opportunities in a world that will inevitably move to be low carbon over the coming decades.50 Nicholas Stern, the UK equivalent economist to Garnaut, recommends that developed nations should invest 1 per cent of GDP per year,51 which is about $10 billion for Australia. The beneficiaries of this new clean technology investment would not be just energy industries like solar, wind and clean-coal technologies; this investment should cast a very wide net to include transport, infrastructure and building materials as well as building and home design. For example, it could be used for tax credits for small startups attempting to convert wastewater to ethanol, or producing renewable lightweight materials for building


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supplies and insulation, or for a technology company to develop an automated sensor system for commercial buildings. Investment in rail for both metro and high-speed interstate connectors, for example, is critical to address the climate and energy challenges this century and is perfectly suited for this 21st century clean-energy fund. Clean-energy investment will boost innovation and provide a vibrant domestic economy built for a 21st century global economy, an economy that will be looking to cut carbon, move beyond oil and use water and energy more efficiently. It’s not just the government’s role to allocate funds as eventually, if the carbon price works the way it should, most of the new clean investment funds should be coming from the private sector. But governments should see themselves a bit like venture capitalists—investing in the future of Australian technologies and innovation. Venture capitalists seek big returns quickly, but the advantage of government investment is that the investment can be for the long term and will offer high returns for the Australian environment and economy. We can think of Australia’s clean-energy investment as an insurance policy against some potentially very nasty future consequences. Australia spends 3 per cent of its GDP on insurance, excluding health or life insurance52 and is similar to the expenditure of the rest of the world.53 Journalist Peter Hartcher put it very nicely in saying, ‘If the world is prepared to pay the equivalent of 3.5 per cent of its total annual output to guard against the possibility of all sorts of risks that, in any one year for any one client, are quite remote, such as fire and theft, then the prospect of paying a 1 per cent premium to protect against a


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catastrophic global event seems entirely reasonable.’54 Given the massive economic consequences for Australia of the inevitable global shift towards low-carbon energy and the known limits on the supply of oil, the clean-energy insurance policy covers all bases for future Australian prosperity. And the best minds and entrepreneurs of our nation are waiting for the government to take out this insurance policy.


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8 Breaking Our Coal Addiction Breaking Our Coal Addiction

F

or many Australians, myself included, soft drinks are a sumptuous treat—especially Coca-Cola. Without self-restraint I could guzzle Coca-Cola like it’s water, especially on a hot day. Over-consumption of Coca-Cola is hideously bad for our health, though: one 375-millilitre can contains something like ten teaspoons of sugar. The obesity epidemics in most Western nations have undoubtedly been helped along by the availability of high-sugar soft drinks. Back in the 1980s, the health-conscious consumer became wary of these drinks. Coca-Cola and the other soft-drink manufacturers were in a dilemma: how could they market their products to a world that wanted lowsugar drinks? The answer came from the laboratory. Researchers working for a pharmaceutical company developed aspartame, an artificial sweetener. The soft-drink companies had found the solution which allowed their consumers to enjoy soft drinks without the high-sugar side effects. Diet brands are now some of the biggest-selling soft drinks in the world. Coal is as bad for Earth’s climate as Coke is to your health. The coal industry today is where Coca-Cola was 126


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Breaking Our Coal Addiction • 127

twenty years ago—looking for a way to keep the world consuming its product, but without the bad side effects. Coal is the world’s most widely used fuel for electricity and it’s the most carbon-intensive power source. The United States Energy Information Agency predicts that without any policy changes, global demand for coal could nearly double by the year 2030, leading to an increase in greenhouse emissions from coal from 9.3 billion tonnes in 2008 to 18 billion tonnes by 2030.1 The vast majority of this increase will come from China and India alone. New technologies must therefore be fast-tracked in order to commercially demonstrate to the world that coal can be used with lowcarbon emissions. You’ve probably heard of the term ‘clean coal’ which has been used ubiquitously among politicians and industry experts. Clean coal refers to a number of different technologies, which are still in the development phase. It most often refers to carbon capture and storage (CCS). CCS technology involves capturing carbon dioxide emitted by power station smokestacks, liquefying it and pumping it deep underground to seal it away in deep saline aquifers, depleted oil reservoirs and uneconomic coal seams. These stable geological reservoirs could store CO2 for a very long period of time. Since coal and natural gas generate the great majority of our electricity needs, the advantage of CCS is that the world could foreseeably continue to use our abundant coal and gas reserves while burying most of the offending emissions—a seemingly win–win solution. CCS has considerable benefits for existing natural gas production. Since 1996, the Norwegian petroleum company Statoil has been capturing and storing carbon dioxide under


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the North Sea during natural gas production, instead of releasing it into the atmosphere. The US company Chevron is planning to capture and store 3 million tonnes of carbon dioxide per year from the Gorgon gas field off the coast of Western Australia. Although CCS has been proven for natural gas production, as indicated by a special CCS report published by the international Intergovernmental Panel on Climate Change, ‘there are knowledge gaps relating to large coal-based power plants’.2 The development of clean-coal technologies is in its infancy and, given Australia’s technological skills base, is one area where there are potential export opportunities to nations that cannot develop these technologies. Given the world is moving away from carbon-intensive forms of energy, you would expect big coal companies to be pumping billions into new technologies that lower the carbon footprint of their products. Just like the soft-drink industry, Australia’s coal industry must develop clean coal or it will die a slow death. Maybe they know something we don’t, but looking at their strategic investment you would be hard pressed to find evidence of any concern over carbon emissions from their commodities.

Where’s BHP? In 2006, the global business sector invested US$446 billion in R&D.3 Some companies invest enormous sums into research and development. This innovation research puts those companies at a commercial advantage by enabling them to develop and commercialise new products. But some sectors need more R&D than others. The most R&D-


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intensive sectors are found in healthcare and software, where on average 13 per cent of revenue is spent on R&D (see Figure 3). Software becomes redundant a few years after its launch. Without substantial innovation in developing new software, Microsoft isn’t going to be able to sell its computer operating system. Other sectors such as automotives, aerospace, computer hardware and electronics spend upwards of 4 per cent of their revenue on R&D. As Figure 3 shows, Toyota, for example, is the world’s biggest private investor in R&D, each year putting a massive US$7 billion into its own scientific and engineering departments’ laboratories. This is where products like the gasoline-electric hybrid were developed. In general, the larger the company, the more it invests in R&D, particularly among car manufacturers. There is one big exception to this rule—the energy and resources sector. Energy and resources companies are the world’s worst investors in R&D, while at the same time being the world’s most profitable companies. Not one energy company is even close to being in the top ten companies that invest in R&D as listed in Figure 3. In 2007, the global revenue of Exxon-Mobil, BP, Shell, Chevron, Conoco-Philips, Total, BHP and Rio Tinto was US$1.6 trillion. The total amount of R&D invested by these companies is about US$2.4 billion, averaging 0.15 per cent of total revenue.4 Toyota invests nearly triple the amount of R&D than those eight energy companies combined, despite having a fraction of their revenue. Given energy and resource companies’ extraordinarily high profits, along with the importance of finding climate-neutral forms of energy, you would think energy companies would be somewhat research


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intensive—particularly in trying to develop the new lowcarbon fuels for the greenhouse age. You may then ask why there’s such a disparity between the R&D investment of the car industry and that of the energy industry, since you can’t have one without the other. Cars are continually advanced by design innovations and have undergone a vast improvement from the gas-guzzling deathtraps of the 1960s to the safer and generally more efficient fleets of today. But as far as energy and resource corporations are concerned, all that is needed are bigger shovels and drills to extract the raw materials from the Earth.

Rank

R&D investment ($US)

R&D investment as percentage of revenue

Company

Sector auto healthcare auto healthcare

$7,691,000,000 $7,599,000,000 $7,200,000,000 $7,125,000,000

3.7% 15.7% 4.5% 13.4%

5 6 7

Toyota Pfizer Ford Johnson & Johnson DaimlerChrysler General Motors Microsoft

$6,678,000,000 $6,600,000,000 $6,584,000,000

3.5% 3.2% 14.9%

8 9

GlaxoSmithKline Siemens

auto auto software & internet healthcare computing & electronics computing & electronics

$6,351,000,000 $6,294,000,000

14.9% 5.8%

$6,107,000,000

6.7%

1 2 3 4

10

IBM

Figure 3

World’s top ten companies for research and development (R&D) investment.5

In response to the growing concern over coal’s dominant role in emitting greenhouse gases, the Australian coal industry formed a consortium of companies called COAL21.6 COAL21 has the explicit goal of reducing greenhouse gas


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emissions from coal-based electricity generation through seed funding of R&D. Given the importance to the companies’ long-term viability, this sounds very encouraging. The stated goal of COAL21, as highlighted in every coal company’s annual report, is to cumulatively invest $1 billion over ten years into clean-coal R&D, which equates to $100 million each year. Is this a reasonable investment, given coal revenue and the strategic imperative for the coal industry to demonstrate that coal can be used in a low-carbon way? Coal production in Australia is about 350 million tonnes, with a value of nearly $30 billion each year.7 The investment by COAL21 is therefore about 0.3 per cent of production value. Large pharmaceutical companies invest on average 14 per cent of their annual revenue in research to find breakthrough drugs ranging from painkillers to cancer and diabetes treatments (see Figure 3). If Australian coal companies invested the same amount as the automotive industry does, the additional R&D would be $1.2 billion each year; the figure would be $4.2 billion if coal companies matched the investment of pharmaceutical or software companies. Instead, Australia’s coal industry invests just $100 million. R&D investment by Australia’s resource sector is particularly frugal given the fact that the government lavishes tax benefits on this type of investment. Fasttracking the development of ‘Diet-Coal’ is both an economic and environmental imperative for Australia. The war chest for clean-energy innovation must be in the same league as that of, for example, the pharmaceutical companies, which employ thousands of scientists. If resource companies invested in clean technology innovation even on the same


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level as car manufacturers, then commercial-scale clean-coal power plants would be built much more quickly. Instead of being funded mostly by the coal industry, clean-coal demonstration plants across the world have been financed predominantly by government funding. The Futuregen project in the United States, the ZeroGen project in Queensland8 and the Greengen project in China are all mostly taxpayer-funded projects. A momentum against carbon-intensive commodities will build up over the coming decades, yet most coal and oil companies are yet to fully realise this. In 2007, BHP made a big announcement that it would spend $70 million a year until 2012 for low-carbon technologies.9 Meanwhile, the federal government has announced $500 million, the NSW and Victorian governments $230 million10 and the Queensland government $300 million11 for clean-coal research. Taxpayers can fund clean-coal technologies, but shouldn’t BHP, with a $20 billion profit, be funding most of it, given it’s in their long-term business interest anyway? Why should Australian taxpayers fund the development of a technology that is to benefit the most profitable resource companies, companies that spend a mere 0.3 per cent of their sales on developing clean-coal technologies?

Fitting an Airbag to a 1964 EH Holden Australia has nearly 30 coal-fired power stations that are currently operating (see Figure 4). Power stations last for up to 50 years and each has been built at various stages over the past 40 years. With clean-coal technologies still at least a decade away from meaningful implementation


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and the government seeking to cut emissions by 60 per cent by 2050, what is the fate of Australia’s existing coalfired power stations? Can clean-coal technology save the current suite of coal-fired power stations and make a contribution to lower carbon emissions? We have to be realistic about clean coal. Although the technology certainly has long-term potential, closer scrutiny shows the emission reductions over the short to medium term to be very modest at best. Based on government estimates, existing power-generators are projected to cover 75 per cent of our electricity needs by 2020.12 The only way Australia could possibly reduce emissions rapidly below current levels without closing down coal-fired power stations is to retrofit clean-coal technology to existing power stations. A number of conditions have to be met before even considering retrofitting this technology to a coal-fired power plant. Firstly, nearby geological storage reservoirs are needed. Geoscience Australia has conducted a thorough review of the potential for CCS using the current suite of coal-fired power stations. It found that some big coalfired power station regions, such as the Hunter Valley in New South Wales, have no potential for CO2 storage.13 Other sites in South Australia and Queensland would require transporting liquefied CO2 in pipelines for up to 500 kilometres (see Figure 4). These CO2 pipelines would be very expensive. Overall, there is potential favourable geological storage conditions for about half the coal-fired power stations in Australia.14 Is it possible to retrofit those coalfired power stations with geological CO2 storage reservoirs close by in order to capture CO2 from their smokestacks?


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An exhaustive multi-author study conducted in the United States in 200715 analysed the potential for carbon capture to be retrofitted to old coal-fired power stations. The study found that retrofitting an existing coal-fired plant originally designed to operate without carbon capture ‘will require major technical modification’ and would reduce electricity output by up to 40 per cent.16 Reducing output by this much imposes prohibitive economic costs on retrofitting current coal-fired power stations. Further, most of the power stations capable of storing CO2 nearby are old power stations. For example, some brown coal power stations in the Latrobe valley, located within 100 kilometres of CO2 storage areas, were built in the 1950s and 1960s (see Figure 4). Retrofitting carbon capture on the smokestacks of these old power stations would be like fitting airbags to a 1964 EH Holden—you could probably do it, but the cost of the retrofit would be higher than the cost of the car itself. Given these limitations on CCS for retrofitting Australia’s existing coal power stations, there is little room for this new technology to help cut emissions in the short to medium term. CCS is only really technically and economically feasible for new power plants. There is no way around it: to cut emissions by 60 per cent by 2050, some of the old coal power stations will need to be phased out, decommissioned and replaced with low-carbon options.

The Need for Gases and Rocks In the early 1990s, Britain was heavily dependent on coal, which supplied two-thirds of its electricity needs. It broke its coal habit by switching to natural gas power, which


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black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal black coal multi-fuel brown coal brown coal brown coal brown coal brown coal brown coal brown coal brown coal

Primary fuel

Australia’s coal-fired power stations.17

NSW NSW NSW NSW NSW NSW NSW NSW QLD QLD QLD QLD QLD QLD QLD QLD QLD WA WA WA Vic Vic Vic Vic Vic Vic SA SA

Eraring Bayswater Liddell Vales Point B Mt Piper Wallerawang C Munmorah Redbank Gladstone Tarong Stanwell Callide C Millmerran Callide B Swanbank B Tarong North Collinsville Muja Collie Kwinana WPC Loy Yang A Hazelwood Yallourn W Loy Yang B Morwell Anglesea Northern Thomas Playford B

Figure 4

State

Name 1982–84 1982–84 1971–73 1978 1992–93 1976–80 1969 2001 1976–82 1984–86 1993–96 2001 2002 1988–89 1970–73 2002 1998 1985–86, 1965 1999 1976, 1970 1984–87 1964–71 1973–75, 1981–82 1993–96 1958–59 1969 1985 1960

Year commissioned 2640 2640 2000 1320 1320 1000 600 150 1680 1400 1400 900 852 700 500 443 188 1040 330 880 2120 1600 1480 1000 195 160 530 240

>500 km >500 km >500 km >500 km >500 km >500 km >500 km >500 km 300–500 km 300–500 km 300–500 km 300–500 km 300–500 km 300–500 km 300–500 km 300–500 km 300–500 km

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