The Clean Industrial Revolution: growing Australian prosperity in a greenhouse age

Thursday, 7 May, 2009
Dan Gaffney

The energy superpowers of the looming greenhouse age will be nations that decarbonise their economies so they can prosper from the next industrial revolution that runs on renewable energy sources, according to a new book, The Clean Industrial Revolution, by UNSW climate scientist Dr Ben McNeil.

That era is dawning but nations that are investing in the high-value technical capacity to supply energy from wind, sea, sun, biomass and geothermal sources - notably Germany, Finland and Iceland - are motivated as much by economic, security and geopolitical concerns as moral or environmental ones, Dr McNeil says.

Launched today in Sydney by former federal Liberal Party leader, Dr John Hewson, the book is a pitch to the Australian business sector to re-cast its research, development, manufacturing and investment efforts to exploit the "first mover" advantage of becoming a clean energy supplier.

Australia could become one of the world's next economic superpowers but if it doesn't revolutionise its economy and move from an over-reliance on finite, carbon-based energies such as coal and oil, it could become a social and economic basket case, Dr McNeil argues. Why? Because this century could see an unprecedented series of climate disasters that will abruptly end the fossil fuel era and initiate global trade barriers and sanctions against greenhouse emissions.

He predicts that nations that once traded oil and coal and gas for export income will hold near-worthless commodities that will convert trade surpluses into deficits as they import carbon-neutral energy from those that embraced the clean-energy revolution. As well, they will experience social unrest, rising taxes and a dwindling capacity to pay for food, water and crumbling infrastructure beset by global warming and climate extremes.

These are the chief threats and opportunities foreshadowed by Dr McNeil. Like most climate scientists, he is convinced by evidence revealing how spiralling carbon emissions from fossil fuels is warming the Earth and contributing climate change impacts that are threatening life on the planet. But global warming and melting icecaps aren't just about drowning polar bears, McNeil argues, and climate change isn't just about the environment - it's about economics.

Dr McNeil is a Senior Fellow at UNSW's Climate Change Research Centre. He holds degrees in engineering, climate science and economics and was an expert reviewer for the United Nations Inter-Governmental Panel on Climate Change 4th assessment report. He has little time for climate change naysayers who deny that humankind is contributing to global warming. It's time, he says, to wake up and see climate change for what it is: a transformative issue that offers us a stark and urgent choice about how to allocate and manage resources in the 21st century and beyond.

On one hand, Australia could choose to persist with its business-as-usual approach of supplying the bulk of its energy needs from fossil fuels, thereby contributing to the irreversible economic, ecological and human disasters that are set to follow. Or, it could move quickly to de-carbonise its economy and, by 2050, gain massive prosperity from being a clean-energy supplier to the world's 9 billion people.

During the decade of the Howard government in Australia Dr McNeil was a young scientist who believed that if senior politicians understood and accepted the science of climate change, then government policy and business investment would shift to limit the nation's overreliance on fossil fuels such as coal and oil for energy.

Then he had an epiphany. In 2007 he was invited to address Federal Cabinet in Canberra about the causal link between carbon emissions and the devastating consequences of climate change. Sitting to his right was the Prime Minister, John Howard, the Minister for Education and Science, Julie Bishop, the Environment Minister, Malcolm Turnbull, and the Minister for Industry, Ian Macfarlane.

"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 Foreign Minister?

"It seems," writes McNeil, "for many years the Australian government reflected a broad and dangerous public misconception about combating climate change: that it has nothing to do with Australia's economic prosperity or national security."

Carbon is deeply embedded in the Australian economy. Eighty seven per cent of the nation's energy is sourced from fossil fuels, and our "carbon obesity" puts us in a perilous economic situation, says McNeil: "There is no other 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."

Australia is the driest inhabited continent on Earth and no nation will be more vulnerable to global warming and the climate extremes that will manifest in a hotter climate, drought, higher evaporation, water scarcity, and bushfires, he says.  In 2005, agriculture and farm exports contributed $32 billion to the Australian economy but the 2002-03 drought wiped nearly $6 billion from national GDP and saw 100,000 people lose their jobs. Today the nation's food bowl, the Murray Darling Basin, supplies 40 percent of the nation's food and contributes significantly to export income from beef, livestock, wool, barley, wheat, and canola.

Computer modelling by the Australian Bureau of Agricultural and Resource Economics reveals that Australian wheat, beef, dairy and sugar production could decline by up to 20 per cent by mid-century, and agricultural output could fall by up to 80 per cent. As incessant drought shrinks water availability it will further diminish crop production, push up food prices and heighten inflation pressure, a point acknowledged by John Howard during the last federal election campaign: "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 a very long time and it is obviously feeding into the underlying inflation rate."

Climate change will also threaten the nation's vast and fragile infrastructure network - the trillions of dollars of roads, railways, bridges, schools, hospitals, ports, electricity lines, and water and sewage pipes. These infrastructure are the "conduit to a productive and prosperous Australian economy," says McNeil, but most were built in the 20th century and are ill-equipped for rapid climate change. They will bend, buckle and eventually break, requiring increasing government spending and therefore higher taxes to fix and replace.

Banks and insurance companies don't doubt that climate change is increasing the risk and costs of severe weather events. For example, the Insurance Council of Australia has estimated that 425,000 of the nation's homes and buildings are vulnerable to sea-level rise and in its 2007 submission to the Prime Minister's Task Force on Emissions Trading, it said: "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."

The CSIRO predicts that sea levels will rise about 60cm by the end of this century, bringing increasing threats of intense storm surges. Global warming will also fuel stronger floods and currents and with 86 per cent of the population living near the coastline, few will escape the cost and devastation associated with severe weather events.

One of the world's biggest insurers, Munich Re, has released estimates that if a moderate cyclone were to hit the Sunshine Coast and Gold Coast, the damage would be $200 billion, equal to nearly 20 per cent of Australia's GDP. In the US, insurers in coastal American states have doubled premiums since Hurricane Katrina and weather-related economic losses are growing 10 times faster than insurance premiums and population. If insurance companies were to abandon some towns and cities as too risky to insure, the government will have to enter the market as the insurer of last resort and raise taxes accordingly.

So when the global economy shifts to renewable energy sources, as it will and it must, Australia stands to win handsomely or lose badly, depending upon whether it joins the vanguard of first movers to champion the clean revolution.

Will we or won't we? Presently the nation is poised much like the automotive industry of the 1990s, according to McNeil. At that time some car manufacturers, such as Honda and Toyota, invested and re-tooled to develop fuel efficient vehicles, predicting that low oil prices of the day would rise in future. Others, such as General Motors, Ford and Chrysler continued making large, inefficient cars, arguing that imposing better US environmental standards would devastate their industry.

Today the American car manufacturing industry is on its knees. It is sacking workers and seeking a tax-payer funded bailout to save it from bankruptcy due to the global financial crisis, rising fuel costs and a market shift to smaller, fuel efficient vehicles.

In 2008, Prime Minister Kevin Rudd announced modest carbon reduction targets and his government's intention to introduce a carbon emission trading scheme that would put a price on carbon. This is the incentive business needs to kick-start the revolution and invest in carbon-efficiency and clean energy alternatives to fossil fuels.

But like the US car makers of the 1990s, many in government and business are locked into a similar "growth versus environment argument". They say we can't afford deeper cuts to carbon emissions that would hand our high carbon-emitting competitors a trading advantage while we transition to a clean-energy economy. Former US President George W Bush, for instance, said cutting carbon emission would "wreck the economy", and former Prime Minister Howard said signing the Kyoto Protocol would "send jobs to China".

The story was repeated this week when Prime Minister Kevin Rudd announced that his government will delay a planned carbon emissions trading scheme by a year to mid-2011, citing claims by business that it is struggling to deal with the worst global recession since the great depression. McNeil concedes that moving to a low-carbon economy will cost growth and perhaps jobs in certain sectors in the short term. But trimming our carbon obesity and engaging in the necessary structural reforms to adopt low-carbon technologies will position Australia for sustained, long term economic prosperity.

In the coming greenhouse era, moving early will deliver early benefits as the world demands clean energy to heat, cool, cook and move about in redesigned planes, trains and automobiles. And as other economies emulate the leaders of the clean energy revolution, it will foster widespread cuts in the carbon emissions that are warming the Earth and making this transformation so urgent and necessary.

In the long run, the argument of ‘emissions versus economy' is "precisely wrong," says McNeil. Cynics and doubters will no doubt critique his arguments and dismiss his prognostications as flawed and fanciful. But on this central point McNeil has put himself in the company of the eminent economist John Maynard Keynes: "It's better to be roughly right than precisely wrong."

The Clean Industrial Revolution: growing Australian prosperity in a greenhouse age, Allen and Unwin, 2009.