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 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.

THE CLEAN INDUSTRIAL REVOLUTION

GROWING AUSTRALIAN PROSPERITY IN A GREENHOUSE AGE

BEN McNEIL

First published in 2009

Copyright © Ben McNeil 2009

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Contents

Introduction

Part I The Case for a Carbon Pre-emptive Strike

1 The Blind Threat

2 Climate Battlers

3 Australia’s Carbon Obesity

4 The Future Shock

5 Beyond Polar Bears

Part II How Do We Cut Carbon?

6 Becoming the New Saudi Arabia

7 How Science Must Save Us

8 Breaking Our Coal Addiction

9 The Crude Truth

10 Fitting Carbon Shock-absorbers

Part III The New Low-carbon Economy

11 Carbon Economics

12 The Accidental Environmentalist

13 More Jobs in Clean than Dirty

Notes

Index

Acknowledgments

For Henry and all those born in the

new millennium, in the hope that we

can leave them a cleaner and more

prosperous world.

Introduction

Yellowknife 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 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 diamond-mining 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 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 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 hip-pocket stake in slowing climate change: the low- to middle-class 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.

•

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 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 low-carbon 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 longer-term 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 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 long-term 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 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 low-carbon 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 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 car-makers, 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 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.

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