There has been a lot of ill-informed and misleading argument about a carbon price, which generally grossly overstate the impacts. For example, recent claims that a carbon price of $25/tonne will add 3-5 per cent to processed food prices do not line up with our calculations of less than 1 per cent impact, including all the supply chain affects – and, by the way, our estimates line up with treasury estimates.
More concerning in the long term, though, is the limited debate about how much we risk by failing to enact policies now to reduce greenhouse gas emissions and use energy more efficiently and productively. And the other side of that coin is the scale of opportunities we will miss.
Here is a summary of the big issues that really do deserve to be debated – right now! I will write about each of these in more detail in following articles:
We have to Improve our energy productivity: Australia has been extraordinarily wasteful of energy. The Australian economy is only about 10 per cent energy efficient overall – this means that for every 1 unit of energy that delivers a useful service, e.g: delivering hot water to your bath, 10 units of fuel or other energy sources are being used, and 9 units are being wasted. Eliminating this waste is the key to reducing our carbon emissions without major economic sacrifice.
Our business competitiveness is threatened: Australia has benefited from cheap energy for decades and, as a result, most businesses have not invested in the most energy efficient equipment or processes. Our energy prices are now escalating rapidly and this will inevitably lead to us losing competitiveness. Compare the approach of our industry associations with the German associations which see their businesses' focus and investments in energy efficiency as a crucial element in the ongoing competitiveness of German industry.
Oil supply and cost could cripple our economy: What would be the impact on our economy of a doubling of world oil prices or a restriction of just 10 per cent in our access to imported oil? And what is out contingency plan for such an event? Australia was over 85 per cent self-sufficient in oil production just a decade ago, and is now we produce just 50 per cent of our still growing needs. This will drop to less than 20 per cent by 2030, and by then we expect to be consuming half a billion barrels of oil per year. Apart from the security risk, our oil trade deficit is rapidly increasing and is expected to double to over $30 billion in the next five years. By not acting on this over the past decade, our declining ability to supply ourselves coincides with the impending global peak in production of low priced oil, and political instability in the main existing supply regions.
We must act now to improve the energy efficiency of our vehicle fleet, use more efficient transport modes, and rapidly transition to using other energy sources. We need to act now to protect our future, and there are large savings to be gained. For example, long haul rail freight transport is some 3 times more energy efficient than road transport but is under-used because of logistics issues. If we fail to improve rail systems and alternative energy sources during our economic boom, heaven help our economy when commodity prices ultimately return to more usual levels, and oil prices continue their upward spiral.
Wasted investment in electricity infrastructure: Our electricity poles and wires organisations are sinking $45 billion in a five-year spending spree on their networks (shading the 10 year NBN investment), much of which might have been avoided by more efficient options like distributed cogeneration (smaller scale generators where the heat produced is used) and by applying energy management to reduce peak loads and waste usage. The industry spends a pittance on these alternatives – just 0.1 per cent of the amount going into capital infrastructure, and we pay for their poor choices. Yet the reform to electricity industry regulations needed to change this pattern of mis-investment seems as far away now as 10 years ago when first seriously identified as a problem. In California, the industry invests well over $US1 billion a year on energy efficiency and these investments are twice as cost effective as electricity network and generation investments.
Energy affordability: Cheap energy will soon be a thing of the past in Australia, as oil prices soar, electricity prices increase by 20 per cent a year because of investments mentioned in the previous point (and will continue to rise with increasing coal prices), and natural gas prices are expected to increase rapidly when the new LNG plants come on line in Queensland and we become exposed to global gas prices. Note that the infamous carbon price will have a significantly smaller effect than all these other increases. The best way to counter increasing energy prices is by improving the energy efficiency, but despite this, Australia has no energy efficiency target or a coherent energy efficiency policy. Europe is on contrast enacting a range of policies to achieve a 20 per cent improvement in efficiency by 2020.
Capturing our share of the green economy: HSBC forecasts that the global transition to a low-carbon economy will drive a green products and services market growing at over 11 per cent per annum, and worth $2.2 trillion/year by 2020. By failing to focus our economy on this market, as has been done in Europe, Japan, Korea, China and California for example, we are almost guaranteeing that we will not enjoy much of the fruits of this new growth market, while knowing that the revenue from our coal industry will necessarily start to decline from say 2020. As they say, failing to plan is planning to fail.
Damaging Australia’s national brand: We need to recognise that our behaviour on management or climate change and resource efficiency is noted internationally – it is no longer just a local debate. Europeans are bemused by the fact that a wealthy country could be so disturbed by the prospect of a modest carbon price that seeks to make carbon polluters pay the real costs of using different energy forms. The querulous statements from Australian politicians on man-made climate change and our failure to enact basic carbon mitigation policy is already impacting our hard-won reputation as a clean, green country, concerned about the environment. This has monetary implications on our economy through tourism and our ability to engage with potential partners in the green economy. If we continue, it may someday restrict our ability to export our commodities.
The time to act on these interconnected set of serious issues is right now. We must urgently develop and implement a national energy and carbon strategy which focuses on energy efficiency to avoid some of these risks and capture part of the huge opportunities in the new economy emerging.
Jonathan Jutsen is executive director of Energetics Pty Ltd – a climate change and resource efficiency consultancy.