So is it all bad news? What we now know about the effect of increased concentrations of greenhouse gases in the atmosphere has broadly confirmed the conclusions I drew from the scientific research available for my 2008 and 2011 Reviews. But on the other hand, these Reviews greatly overestimated the cost of meeting ambitious reduction targets.
The good news is very good indeed for Australia, and especially for rural and provincial Australia. If we are wise, we can change the political story of climate policy in this nation. Quite a few Australians once argued that atmospheric physics is bunkum; or that there is no point in reducing greenhouse-gas emissions because others will not; or that it is too costly to reduce emissions, no matter how expensive the result of a failure to act.
To those Australians, I can say: circumstances have changed.
It took me some years to realise the extent of that change. The Reviews from eight and 11 years ago touched upon the unusually high quality of Australian solar and wind energy and other renewable resources. They noted exceptional opportunities for growing biomass and capturing carbon in the landscape. They mentioned the possibility of great advantage. A chapter in each was devoted to carbon farming. But the references to exceptional opportunities were almost in passing.
After completing my official reports, I continued to take a close interest in Australian renewable resources and clever inventions that would help the transition to a low-carbon economy. I introduced leaders of many established Australian businesses to promising proposals for profitable investment in reducing emissions.
Australian business is generally slow in innovation. Established non-competitive and anti-competitive arrangements are unusually rich by global standards, and disruption of them is unattractive. So I started to take up some of the proposals privately. I worked with partners in South Australia to develop ZEN Energy. Later we brought in British businessman Sanjeev Gupta as a partner after his purchase of the Whyalla Steelworks.
ZEN and SIMEC ZEN Energy built acceptance in South Australia of the use of utility scale batteries to stabilise the power system; completed the development work on Australia’s largest solar farm; and now supply the power needs of the South Australian government and the South Australian Chamber of Mines & Energy buyers’ group.
By mid-2015, I was convinced that what in 2008 and 2011 I had perceived to be a possibility of modest dimension had become a high probability of immense economic gains. I gave a public lecture in June that year at the University of Adelaide: ‘Australia as the Energy Superpower of the Low-Carbon World’.
Australia is richly endowed with resources that allow it to prosper from a global movement to zero net emissions. If we take early and strong action in ways that build upon our natural advantages, we will not suffer a decline in living standards in the near future in conventional economic terms as we move towards zero emissions. Now, much more than was anticipated a decade ago, we can be confident that we will be richer materially sooner rather than later, as well as very much richer in human and natural heritage, should we embrace a zero-emissions future.
The economic improvement has two main sources. First is the extraordinary fall in the cost of equipment for solar and wind energy and of storage to meet the challenge of intermittency. Per person, Australia has natural resources for renewable energy superior to any other developed country and far superior to our important economic partners in north-east Asia. Together with our strengths in mining, this makes us the natural home of processing mineral ores and some foodstuffs.
Second is the immense opportunity for capturing and sequestering, at relatively low cost, atmospheric carbon in soils, pastures, woodlands, forests and plantations. Rewarding people and organisations that own and manage land with incentives equal to the true cost of carbon emissions would lead to sequestration in landscapes becoming a major rural industry. I said in 2011 that it could be a new rural industry as large as wool. That now seems to me to be a radical underestimate of the potential.
Technologies to produce and store zero-emissions energy and to sequester carbon in the landscape are highly capital-intensive. They have therefore received exceptional support from the historic fall in global interest rates over the past decade. This has reduced the cost of transition to zero emissions, at the same time as it has increased Australian advantages.
A bridge to the future
There is more to say about the changing economics of a strong global mitigation effort. In 2008, comprehensive modelling of the costs and benefits of playing our part in the global transition suggested there would be a noticeable but manageable sacrifice of Australian current income until early in the second half of this century, but that average incomes would then regain lost ground and the gains would grow late this century and beyond.
Today, calculations using similar techniques would give different results. Australia playing its full part in effective global efforts to hold warming to 2 degrees Celsius or lower would now show economic gains instead of losses in early decades, and much larger gains later on. Whereas the modelling in 2008 suggested that Australia would import emissions-reduction credits, today I would expect Australia to become an exporter of emissions permits.
Australia should have a much stronger comparative advantage in energy-intensive minerals and agricultural processing in a zero-emissions world economy than it had in the fossil-energy past.
If Australia is to realise its immense opportunity in a zero-carbon world economy, it will require a different policy framework. But here there is also good news. The advantages of the low-carbon world are so great for Australia that we can make a strong start even with incomplete and weak policies that are consistent with established state and federal commitments. Policies to support the completion of the transition can be built in a political environment that has been changed by early success.
For renewable energy, we can build on considerable recent investment in solar and wind generation. State policies in Victoria and Queensland will underwrite the early momentum, as the impetus from the Commonwealth’s Renewable Energy Target fades. It will become clear through the 2020s that drawing 50 per cent of electricity from renewable sources in these states and the country as a whole is simply a milestone on the path to more comprehensive transformation.
Three early policy developments are necessary. None contradicts established government policy.
First, the regulatory system has to focus strongly on security and reliability of power when most electricity is drawn from intermittent renewable sources.
Second, the regulatory system must support transformation of the transmission system, to allow huge expansion of supply from those regions with high-quality renewable energy resources. This is likely to require new mechanisms to support private initiative.
Third, as a first step towards imposing order on a highly unstable and uncertain policy framework, the Commonwealth government could underwrite new investment in firm electricity supply, thereby securing a globally competitive cost of capital for a capital-intensive industry.
For use of competitive power in expanding energy-intensive industry, grants for innovation in low-emissions industry along the lines provided by the Australian Renewable Energy Agency to renewable energy would also help. Among other things, this would support the hydrogen strategy being developed by Chief Scientist Alan Finkel.
The full emergence of Australia as an energy superpower of the low-carbon world economy would encompass large-scale early-stage processing of Australian iron, aluminium and other minerals.
But for other countries to accept the shift to Australia of lower-cost, low-emissions processing, and to import large volumes of low-emission products from us, we will have to accept and be seen as delivering on emissions-reduction targets that are consistent with the Paris objectives.
Paris requires zero net emissions by mid-century. Developed countries have to reach zero emissions before then, so interim targets have to represent credible steps towards that conclusion.
Japan, South Korea, the European Union and Britain are the natural early markets. China will be critically important to realisation of the full opportunity. Indonesia and India and their neighbours in South-east and South Asia will sustain Australian exports of low-emissions products deep into the future.
For the European Union, where carbon prices are now much higher than Australia’s “carbon tax” from 2012 to 2014, reliance on imports from Australia of zero-emissions aluminium, iron, silicon, ammonia and other products processed from energy and mineral ores would only follow assessments that we were making acceptable contributions to the global mitigation effort. We will not get to that place in one step or soon. But likely European restrictions on imports of high-carbon products, which will exempt those made with low emissions, will allow us a good shot.
The Australian emissions trading scheme was due to be integrated into the European one from July 1, 2014. Those arrangements went into hibernation along with Australian carbon pricing. If something like them were brought back to life, we could now expect Australia to be a rapidly expanding exporter of goods embodying renewable energy, and to be engaged in close discussion of adjustments in rules to allow large-scale trade in legitimate carbon credits from the land sector.
Alongside our strength in renewable energy, our advantages in growing, using and sequestering carbon in biomass will set Australia up as the international superpower of the low-carbon world economy. But for this to occur, Australia will need to regain its former strength in research and education on agricultural, pastoral, forestry and related industrial activities.
The low-carbon world economy will be especially favourable for rural and provincial Australia. Energy will be produced mainly outside the large cities, much of it in remote locations. This will make it commercially attractive to process many Australian mineral and agricultural goods into products of higher value close to the sources of the basic commodities. A new carbon-farming industry, prospering exceptionally in less agriculturally productive regions, will add substantially to rural incomes.
The new farm and station-based activities on average will make fewer demands on water than the old. And low-cost energy will improve the economics of recycling, desalinating and transporting limited water resources. Rural and provincial Australia will be the engine room of the superpower of the low-carbon world economy. Much of the new opportunity will be on land managed by Indigenous Australians.
Alas, the low-carbon opportunity cannot restore the life of the Murray cod on the dry bed of the Darling below Menindee. The unavoidable increases in carbon dioxide before we achieve zero emissions will keep on doing what carbon dioxide does. We will still leave for our grandchildren an awful job of cleaning up our mess.
Awful, but maybe not impossible. The low-carbon opportunity can make life better for the Australians who come after us. There is a better chance of leaving a manageable mess if we can build a bridge to a low-carbon economy, over which Australians can now walk to join the global effort on climate change. This book describes that bridge.
This is an edited extract of Ross Garnaut’s Superpower: Australia’s Low-Carbon Opportunity, La Trobe University Press, to be published on November 6.