Opinion: Low carbon the only way to go
By Ben McNeil
The death of the Hummer sends an ominous economic warning to Australian leaders if they want to rely on relics of the past to grow our economy in the future.
The disastrous strategy of US car-makers started in the early 1990's, after the first Gulf War. During that decade, oil was sloshing around the global economy at historically low prices (US$10-15 per barrel). On top of globally cheap oil, the United States government had the lowest fuel tax and emissions standards of any western nation. Any hint better environmental regulation would be shot down by a powerful industry lobby of oil companies, car-makers and auto-unions.
These factors led American car-makers towards the ‘Hummer strategy' of developing larger, more petrol guzzling and polluting vehicles. Early in the millennium the ‘Hummer strategy' seemed to be working while oil prices remained low. But with dwindling global oil production, a booming global economy and the Iraq war, oil prices surged to nearly US$150 a barrel in 2008. The Hummer strategy failed miserably with consumers shifting in droves to fuel-efficient vehicles.
Across the Pacific in Japan, a completely different car producing strategy took place. With high government fuel-efficiency standards and government support, the big Japanese car-makers like Toyota and Honda invested massively in commercialising fuel efficient vehicles.
By 2007, Ford reported losses of US$1.4 billion and General Motors a staggering US$39billion. Remember - this was when the global economy was still booming. Meanwhile, Toyota reported a profit of US$17 billion and Honda $5billion - both rising on the back of booming sales in their fuel-efficient vehicles. By 2007, Toyota overtook Ford and General Motors to be the world largest car-maker.
The Japanese fuel efficiency strategy payed massive economic dividends. As it happens, less pollution meant more profit. But you can't just blame the CEO's of the US car-makers in making this huge strategic error - it was helped along by a very weak set of politicians unwilling to stand up to the car-industry lobby. Ironically, just like the financial crisis, it was a lack of regulation (in this case environmental regulation) that caused the terminal decline of the American car industry.
Unfortunately for the Australian car industry, it's dominated by American car-makers and still relies heavily on sales in large powerful inefficient cars like the Commodore and Falcon.
Toyota announced plans to produce the petrol-electric hybrid Camry in Melbourne by 2010, which is encouraging. But what about Ford and Holden? The government is investing $1.3 billion over the next ten years in a Green car fund, but a meaningful carbon price is the most effective way to inspire green innovation. Deep carbon cuts will give Australian industry a comparative advantage in a world short on oil and high on carbon.
If Australia doesn't pursue a low-carbon economy, some of our most important cars and resources of today may become our biggest liabilities in the future: just ask General Motors.
Dr Ben McNeil is a climate scientist and economist from the University of New South Wales and author of "The Clean Industrial Revolution: Growing Australian Prosperity in a Greenhouse Age", newly published by Allen & Unwin.
This opinion was first published in the May 5, 2009 issue of The Australian Financial Review.
