Lucky Last – Breaking the carbon addiction

It is truly unfortunate that during this important election campaign, neither of the two major political parties is offering any real concrete steps to begin the crucial process of de-carbonising the Australian economy, writes Michael Molitor in Climate Spectator.

Despite increasingly robust claims by leading scientists that we are running out of time to lower our carbon emissions, that the cost of responding is rising fast over time, and clear statements from major companies and business leaders that this is the greatest investment opportunity of all time, Tony Abbott and Julia Gillard have both lost the carbon plot.

For Tony and Julia, let me suggest a ten-step plan in order to put Australia at the forefront of the world’s biggest economic growth opportunity and to help ensure that a widespread global carbon correction is avoided.

Although it is easy to bash the Greens for apparently blocking passage of the meaningless and useless emissions trading scheme, upon closer inspection most of their climate change policy proposals fit nicely with the ten point plan outlined here. I want to create real and sustainable wealth in Australia with a robust carbon price – I leave it to you to guess which party will be getting my vote on 21 August. Read More

Breaking the carbon addiction

Michael Molitor in Climate Spectator (17 August 2010):

It is truly unfortunate that during this important election campaign, neither of the two major political parties is offering any real concrete steps to begin the crucial process of de-carbonising the Australian economy.

Despite increasingly robust claims by leading scientists that we are running out of time to lower our carbon emissions, that the cost of responding is rising fast over time, and clear statements from major companies and business leaders that this is the greatest investment opportunity of all time, Tony Abbott and Julia Gillard have both lost the carbon plot.

The default position for both major parties is to do nothing as, in their view, Australia accounts for less than 2 per cent of global emissions and we are currently making a lot of money exporting carbon-intensive commodities (coking and thermal coal) and products (alumina) with “cheap” coal-fired electricity.

The Prime Minister wants to throw about a billion dollars at connecting renewable energy projects to the grid, and another $100 million at improving the energy efficiency of buildings.  At the same time, the federal government is spending billions to ensure that we can ship more and more coal overseas and continue operating our large and inefficient coal-fired power plants.

Pavan Sukhdev, an international expert in attempting to put a price on nature, recently gave a few public lectures in Australia. His robust thesis is that we are spending the natural capital of the planet faster than it is being regenerated and that these real costs are simply not accounted for on the balance sheets of companies or national economies.  Extending his argument to the Australian economy has staggering ramifications and suggests that we are actually experiencing negative growth.  That is, if you reflect the full cost of the loss of natural capital on our national accounts, Australia’s total GDP is less than zero.

The full cost of coal to Australia, for example, is actually larger than the $1 trillion of GDP that is generated by the Australian economy every year. This imbalance will ultimately be corrected by physical changes in the climate system, large-scale economic corrections, or both.  Ross Garnaut and Lord Stern both caution about the gargantuan scale of the damages that would be associated with either type of correction.  Avoiding this outcome must become the paramount focus of our national government.

For Tony and Julia, let me suggest a ten-step plan in order to put Australia at the forefront of the world’s biggest economic growth opportunity and to help ensure that a widespread global carbon correction is avoided.

Step 1:  Recognise that coal is the world’s most expensive energy carrier. I know this one is difficult, because it means letting go of our large supply of the world’s reserves, but coal has not been commercially viable for decades.  Coal is artificially cheap because its production and use is directly subsidised, as well as its transport. If you price in the full health, social, economic and environmental costs then you quickly realise that coal is the world’s most expensive energy carrier – not the cheapest.  Eliminate all fossil fuel subsidies and force coal companies to bear the full cost of its extraction, use and waste and you will see how fast renewable and distributed energy technologies grow and flourish.

Step 2: Our national energy system is about 10 per cent efficient – only 10 per cent of the energy that passes through the system finds its way to perform useful work. This should be considered a national disgrace and not something we continually celebrate.  Energy regulators have recently approved retail electricity price increases of up to 40 per cent to cover the billions of dollars that will be spent to keep this staggeringly inefficient system operating.  Please note that this investment does not improve the system’s efficiency or expand its capacity, it only allows the old inefficient system to keep running.

Tony Abbott does not want Australians to have to pay for a carbon price through, for example, higher electricity prices, but he has no problem forcing us to pay substantially more for a 19^thCentury energy system relic. Change the focus of the introduction of a carbon price through regulation from one which primarily addresses climate change to one which moves investment into a 21^st Century smart grid-distributed energy system that is more than 40 per cent efficient by 2015.  If we can afford $43 billion for a National Broadband Network then we can certainly afford a similar amount for a National Smart Energy Network.

Step 3: Start the process of a full phase out of all coal-fired power plants in Australia. Premier Brumby wants to spend a few billion dollars buying and quickly retiring the biggest source of carbon emissions in Australia – the Hazelwood brown coal-fired power plant in Victoria’s Latrobe Valley. A robust carbon price would rapidly correct the inflated value of these Victorian-age clunkers and make the buy-out process much cheaper. Raise tax revenue from either a robust carbon tax or a carbon trading scheme (without a large free allocation of permits) and spend the money on retiring the biggest and least efficient coal-fired power plants once their valuations reflect their true costs.  Carbon prices need to start at around $25 per tonne of carbon dioxide in order to sufficiently change the market conditions that keep dirty coal alive. 

Step 4: Everywhere possible, start to fuel switch the remaining coal-fired power plants to burn our abundant supplies of gas. Provide both carbon price relief and other tax relief to power companies who invest in these changes early. The goal should be to eliminate all coal-fired power generation as soon as possible, but no later than 2015. This also means not approving any new coal-fired power plants. Burning gas also produces carbon emissions, but the emissions are reduced almost by half and this helps buy time until zero carbon energy sources are fully commercial.

Step 5:  Invest substantially more public dollars into large-scale renewable energy projects. The Solar Flagships initiative is a good start, but simply not enough.  We also need more diversity in the technology mix so more funds should be available to geothermal and wave energy projects on a scale commensurate with their ability to deliver large-scale de-carbonisation benefits quickly.  Think of these funds as investments into the biggest energy market opportunity in history and a means to quickly make up for the revenue lost from kicking the old business of coal to the kerb.

Step 6:  Recognise that carbon capture and storage is a waste of time and money.  No one working on this technology believes it will be commercially viable on any scale meaningful to the carbon management challenge.  Former climate change opposition spokesman Ian McFarlane made the same statement just before Malcolm Turnbull lost his Liberal Party leadership last year. If the US and China want to spend money on this technology then let them go for it. It does not make sense for Australia to pursue this option when we have so many better choices in front of us.

Step 7:  Move to leverage the massive opportunity around the production and export of sustainable biofuels. We now have an approved drop-in aviation biofuel that is the only option to allow airline travel to remain commercially viable and to achieve the industry’s stated objective of reducing their carbon emissions by half by 2050. Australia is one of a handful of countries that will be able to grow the large quantities of the plants and trees required to meet the global demand for aviation biofuels.  With Asia the region with the largest expected growth in airline travel, we are uniquely positioned to service this growing market opportunity. We need much better rules governing the production and use of biofuels in Australia and appropriate assistance to companies wanting to establish large-scale sustainable biofuel feedstock projects.

Step 8: Take improving energy efficiency seriously and create a national market-based scheme that trades in energy efficiency credits.  Most green policy initiatives never address the scale or timing of the new investment required to achieve environmental objectives. We need a national energy efficiency scheme that is capable of driving a few billion dollars of new investment towards improving how buildings use energy.  If the scheme is not capable of creating new market conditions that make it attractive for this level of annual investment, then it will be a waste of time. This is where most government environmental initiatives fail – they never drive sufficient amounts of new capital to solving the underlying problem. In most cases this does not mean using public treasury dollars – just changes to the tax regulations or a new market-based trading scheme.

Step 9:  Dick Smith is correct; we need a sustainable population policy for Australia. The cheapest way to abate carbon emissions is to have fewer people. We do not need more people to pay for the retirement of the baby boomers or to adequately support our national defence.  Companies that depend on wasteful and meaningless consumption want more people in order to be able to sell more to them.  Let the population slowly rise to 25 million and then move it back down to 20 million by 2020. We will generate more wealth with less people and allow our smaller population to enjoy substantially higher levels of well-being.

Step 10: Pursue fully electric vehicles and battery storage now, before these disruptive technologies force us to make the switch. For more than 90 per cent of Australian drivers, a battery-powered electric vehicle is not only the more environmentally responsible option, it is also going to be much cheaper.  Although our national electricity system is only 10 per cent efficient, petrol vehicles – once you subtract the energy used to move the weight of the vehicle – are only about 1 per cent efficient.  Yes, 99 per cent of the chemical energy in the petrol is lost to heat and other inefficiencies and only 1 per cent gets you to and from the supermarket. This makes your petrol vehicle the worst piece of antiquated technology you own and a very good reason to pursue 21st century electric vehicles.

Although it is easy to bash the Greens for apparently blocking passage of the meaningless and useless emissions trading scheme, upon closer inspection most of their climate change policy proposals fit nicely with the ten point plan outlined here. I want to create real and sustainable wealth in Australia with a robust carbon price – I leave it to you to guess which party will be getting my vote on 21 August.

Michael Molitor is the CEO of CarbonShift Advisory Pty Ltd, a Sydney based consultancy

Source: www.climatespectator.com.au