garnaut climate change review - The Natural Edge Project

SUBMISSION COVERSHEET Submissions may address any key issues related to the Review and/or in specific response to the topics raised in various issues/discussion papers. Please complete and submit this form with your submission. Where possible, the Garnaut Review requests submissions are submitted electronically. Contact us: Via email Write 'Submission' in subject field of the email and send to: [email protected]

Via post Address your submission to: Submissions Garnaut Climate Change Review Level 2, 1 Treasury Place Melbourne VIC 3002

Organisation: The Natural Edge Project (Supported by Griffith University Business School) Contact person: Charlie Hargroves Postal address: c/o- Griffith University, Room 0.28F, Building N55, Nathan Campus, Griffith University 170

Kessels Road, Nathan. State: Queensland Postcode: 4111 Email address: [email protected]

Country: Australia

Telephone: 0407 071 729 Submission title: Analysis of the Costs of Inaction versus the Costs of Action on Climate Change for Australia, a submission by TNEP to the Garnaut Review. Author(s): The Natural Edge Project (Principle investigators Michael Smith and Charlie Hargroves, research support by Peter Stasinopoulos, Cheryl Desha and Copy Edited by Stacey Hargroves.) No. of pages: 121 pages Date: 12/04/08 Please indicate if your submission: contains NO confidential material contains confidential material and the whole submission is provided ‘IN CONFIDENCE’ Please indicate which of the following your submission covers: Issues Paper 3 – Climate Change: What is the science telling us? Issues Paper 4 – Research and Development: Low Emissions Energy Trading Issues Paper 5 - Transport and Urban Planning Issues Paper 6 - Emissions Trading Scheme Discussion Paper AND/OR General (Includes information on the following areas) Role of Government/Business

Climate Change Science

Economic modelling

Transport and urban planning

Adaptation

International issues

Climate change mitigation

Research and development

Emissions trading

Other, please state:

Please acknowledge the submission guidelines: • The Garnaut Climate Change Review may publish the submissions it receives on the Garnaut Review website. Submissions will be treated as public documents and communicated to the public unless marked as confidential in this coversheet. • We will not accept any submissions that contain defamatory statements, that is, any statements which have the effect of causing damage to a person's reputation. If you make any defamatory statements in your submission then a legal proceeding for defamation may be used against you. • Authors of submissions are responsible for securing the appropriate right to use any third party material incorporated into their submissions. • Submissions made by individual community members should not include any personal details other than your name, suburb, state/territory or country. For submissions made by organisations contact details may be included. Please tick to indicate that you have read and agree to the above.

Garnaut Climate Change Review Submission by TNEP supported by the Griffith University Business School

Table of Contents 1.

Summary of Main Argument of the Submission ................................................................. 2

2.

Commendation for Garnaut Review Interim Report ........................................................... 8

3.

Responding to the complexity of the challenge of Climate Change................................. 9 3.1. 3.2. 3.3. 3.4.

4.

Support for the Current ALP commitment to 60% by 2050 (Firm Path to 550ppm) ....................... 9 Exceeding the current target to achieve 90% by 2050 (Ambitious Path to 450ppm) ................... 10 Achieving Targets through an understanding of Stabilisation Trajectories................................... 13 What is the International and Australian Business Community doing? ........................................ 18

Understanding the Costs of Inaction on GHG emissions reductions............................. 23 4.1. 4.2. 4.3. 4.4. 4.5.

The Threat of Reducing the Global Biosphere’s Resilience ......................................................... 23 The Threat of Reducing the Biosphere’s Resilience in Australia.................................................. 29 Risks and Costs of Inaction for Business...................................................................................... 34 Creative Destruction - Costs of Missing the Next Wave of Innovation ......................................... 37 Australian industry sectors facing serious challenges .................................................................. 39

Australia’s Transportation sector ............................................................................................................................................ 39 The Agricultural and Forestry Sector ...................................................................................................................................... 40 Tourism Sector........................................................................................................................................................................ 41

5.

Understanding the Costs of Purposeful Action on GHG Emissions Reductions.......... 42 5.1. 5.2. 5.3. 5.4. 5.5.

Is there a Foundation to Concerns about the Cost of Purposeful Action?.................................... 42 Accuracy of Historical Estimates of the Cost of Purposeful Environmental Action....................... 47 Underestimating the potential of Energy Efficiency opportunities................................................. 49 Why are Significant Opportunities for Energy Efficiency Overlooked? ......................................... 52 Understanding Assumptions about Economic Growth and Energy Efficiency.............................. 55

Understanding the ‘Energy Efficiency Gap Debate’................................................................................................................ 55 Understanding the Porter Hypothesis ..................................................................................................................................... 56 Reconsidering Classical Economic Assumptions about the Performance of Companies ...................................................... 59

6.

Reducing the costs of Purposeful Action on GHG Emissions Reductions ................... 64 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. 6.7. 6.8. 6.9.

7.

Reducing Electricity Consumption through Energy Efficiency Improvements .............................. 64 Reducing Electricity Consumption through Demand Management .............................................. 66 Delaying or Avoiding new Electricity Generation and Grid Infrastructure ..................................... 68 Using Renewable Energy to meet both Peak and Base Electricity Demand................................ 72 Potential Benefits of Distributed Energy Generation Infrastructure .............................................. 76 Potential Benefits of a Focus on Transport and Mobility............................................................... 81 Potential Benefits of Reducing non-CO2 Emissions...................................................................... 83 Potential Benefits from Carbon Trading from Halting Deforestation............................................. 86 The Potential Benefits from Regional Partnerships and CDMs .................................................... 87

Policy to Underpin Action on GHG Emissions Reductions ............................................. 93 7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 7.7. 7.8.

Signs of Regulations and Polices that are Changing around the World ....................................... 93 Existing Australian Policies and Programs to Build Upon............................................................. 99 Subsidies and Incentives ............................................................................................................ 102 Policies to Address Barriers to Energy Efficiency ....................................................................... 104 Policies to Improve Demand Management ................................................................................. 105 Policies to Encourage Renewable Energy .................................................................................. 105 Policies to Encourage Reducing Emissions from Existing Electricity Generation ...................... 107 Policies to Reduce Emissions in Rural Australia ........................................................................ 107

Appendix 1: Related works by The Natural Edge Project on Climate Change Mitigation .. 108 Appendix 2: Australian Studies Investigating Potential for Significant GHG emissions reductions by 2020 .................................................................................................................... 111 Appendix 3: Studies Investigating Potential for Significant GHG emissions reductions in the order of 60-100 percent by 2050......................................................................................... 112

Prepared by The Natural Edge Project (TNEP) 2008

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1. Summary of Main Argument of the Submission It is the purpose of this submission to present evidence and provide explanation around the major issues related to understanding the potential impacts and requirements for an economy scale focus on the significant reduction of greenhouse gas emissions in Australia. It seeks to provide a greater understanding of both the economic, technical and scientific realities that will influence the economic analysis being undertaken by the Garnaut team. This submission covers a range of topics, including: -

Support for the current ALP government’s commitment to 60 percent by 2050 and evidence supporting efforts to exceed the current target to achieve 90 percent by 2050.

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Clarification of the costs of inaction on emissions reductions to demonstrate that such costs are now being recognised as greater than the costs of action - at both a business level and at the economy level.

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Investigation into the impacts on industries who are at risk with regard to their core business operations, from emissions reduction targets and strategies for their transition.

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Presentation of the consensus on the economic impacts of reducing the resilience of the Earth’s ecosystems.

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Investigation into the concerns about the cost of purposeful action, including a review of the accuracy of historical estimates of the cost of purposeful environmental action, supported by a range of smart strategies and innovations to reduce the costs of mitigation.

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Investigation into whether economic models are underestimating the potential of energy efficiency opportunities, supported by a rationale for why there are significant untapped energy efficiency opportunities and why they have been overlooked.

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Investigation into the current understanding on assumptions about economic growth and energy efficiency, by considering both the ‘Energy Efficiency Gap Debate’ and the ‘Porter Hypothesis’, to reconsider classical economic assumptions about the performance of companies.

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Options for reducing the costs of purposeful action on emissions reductions, including energy efficiency, demand management, renewable energy, distributed generation, transportation options, non-carbon dioxide (CO2) emissions reduction, halting deforestation, and regional partnerships and Clean Development Mechanisms (CDMs).

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An up-to-date overview of best practice in policy reforms for climate change mitigation. The submission concludes by providing a comprehensive policy checklist to help guide considerations of policy recommendations by the Review team.

The particular strength of this submission is its presentation of the science, engineering and design information vital to a comprehensive understanding of how to technically transition Australia’s economy to a low emissions future and demonstrate to the world the most effective policies and instruments to do so. Given the rapid growth of greenhouse gas emissions globally there is a real need for a greater level of urgency and sophistication around the realities of delivering cost effective strategies and policies to achieve stabilisation. The Stern Review explored in detail the concept of stabilisation trajectories and pointed out that there are two distinct phases: 1) global emissions need to stop growing, i.e. emissions levels would peak and begin to decline; and 2) there would need to be a


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sustained reduction of annual greenhouse gas emissions across the entire global economy of up to five percent per annum. The Garnaut Interim Report has incorporated this understanding of trajectories to inform its reduction paths; i.e. investigating the case of global emissions peaking around 2010 for the 450ppm path and by 2030 for the 550ppm path. These investigations are critical to informing Australia’s response to climate change, as the date of the peaking in global emissions has a significant impact on the level of sustained annual reductions to achieve the desired global stabilisation. The Stern Review states that, ‘The longer action is delayed, the harder it will become. Delaying the peak in global emissions from 2020 to 2030 would almost double the rate of [annual] reduction needed to stabilise at 550ppm CO2e. A further ten-year delay could make stabilisation at 550ppm CO2e impractical, unless early actions were taken to dramatically slow the growth in emissions prior to the peak.’ 1 The key to the economic impact of an ambitious approach to emissions reduction is to achieve a balance in the timing of the emissions peak and the corresponding requirement for a tailing off of emissions annually. The challenge is the range of combinations of ‘Peaks’ and corresponding ‘Tails’ (i.e. trajectories), that may deliver a given stabilisation level, especially when considering that each trajectory will have a different impact on the economy. A late peak will allow short term reduction levels to be relaxed but will then require a greater level of annual sustained reduction to meet the overall target. An early peak will require a rapid short term reduction level, but these efforts will be rewarded by a lower level of required sustained annual reductions. Professor Alan Pears from RMIT explains, ‘[Greenhouse Gas] Emission reduction sounds like a daunting prospect, and many people imagine that we will have to freeze in the dark, shut down industry, and face misery. But remember, we don't have to slash greenhouse gas emissions in a couple of years - we are expected to phase in savings over decades. This allows us to take advantage of the fact that most energy producing or using equipment, from fridges and computers to cars and power stations, has to be replaced every 5 to 30 years. So we can minimise costs by making sure that, when old equipment is replaced, low greenhouse-impact alternatives are installed. For example, by 2020, most of Australia 's coal-fired power stations will be more than 30 years old - and they will have to be re-built or replaced: renewable energy, cogeneration and high efficiency energy supply technologies (such as fuel cells) could replace them.’ 2 For many years power plants were designed as complex centralised systems that provided electricity to a vast distribution network, predominantly powered by the combustion of coal. This is understandable as the technology for small scale renewable energy generation was not available to a viable scale and the level of technological sophistication at the time allowed only systems based on the large scale combustion of fossil fuels to generate the required amounts of electricity. However, based on the amazing levels of economic growth and development afforded by such centralised systems our universities, companies and innovators have developed a range of leading edge technologies that can now find their place in the electricity generation network, removing the pressure to run expensive, inefficient and polluting centralised power plants. This is particularly important as we are now coming to understand the scale of the potential impacts of pollution from such fossil fuel based systems. The range of options available for such technologies demonstrates that we now have a very sophisticated portfolio of electricity generation that can be combined to deliver electricity to a nation. Now that the technology for electricity generation is 1

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge, Chapter 8: The Challenge of Stabilisation, p 10. Available at http://www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf. Accessed 13 February 2008. 2 Smith, M. and Hargroves, K. (2006) ‘The First Cuts Must be the Deepest’, CSIRO ECOS, Issue 128, December- January. Available at http://www.publish.csiro.au/?act=view_file&file_id=Ec128p8.pdf. Accessed 13 February 2008.


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based on small modular systems we have the opportunity to locate such systems closer to the point of consumption, locate them in prime locations for generation, and add capacity that will more closely match growing load profiles. It is crucial that the economic modelling to inform the Australian Government’s climate change strategy considers the delicate balance that is needed to be reached between the short term peaking of emissions and the long term sustained reduction levels. If the peak is too soon it may have significant impacts on our ability to maintain gradual reductions, and if the peak is too late the corresponding annual reductions may be too much for the economy to bear. The Stern Review points out that, ‘Given that it is likely to be difficult to reduce emissions faster than around 3 percent per year, this emphasises the importance of urgent action now to slow the growth of global emissions, and therefore lower the peak.’ 3 A range of studies have been undertaken in Australia that can help the Garnaut Review address this question. A recent study by Hatfield Dodds 4 et al argued that it is possible for Australia’s greenhouse emissions to peak in 2012, and Diesendorf 5 and McKinsey’s 6 studies suggest similarly a peaking around 2012 to achieve 30 percent reductions by 2020. The benefit of using stabilisation trajectories as the basis for policy development is that we can capitalise on the already abundant opportunities for short term reductions to achieve the peak, while also building the experience and economies of scale to seriously tackle the issue of sustained reductions. The beauty of the sustained reductions model is that it allows an economy to stage the activities it undertakes to allow for certain industries to be given more time, or ‘head room’ to respond as the industries that can make short and medium term gains contribute to achieving the average overall reduction, potentially rewarded through an emissions trading scheme. When considering Australia’s role in the global community the situation becomes more complex: efforts across the economy need to be aggregated to deliver the annual reductions; and international efforts need to be aggregated to achieve the global stabilisation curve. The Garnaut Interim Report presented a number of country specific trajectory curves based on per capita emissions that could be aggregated to achieve the overall global stabilisation trajectory. It is widely agreed that expecting the rapidly developing countries of China and India to holt their use of fossil fuel consumption is unreasonable considering that the US, Australia and other developed countries have capitalised on fossil fuels for decades to underpin their development. The strength of the model proposed by Professor Garnaut, and the main reason for our support of it, is that it provides head room for both China and India to develop. And if all countries follow their per-capita curves this may actually make a global transition to stabilisation a reality, considering that already China 7 and India 8 are making increasingly significant commitments to energy efficiency, such as the Chinese 11th five year plan calling for a 20 percent fall in energy consumption per unit of gross domestic product (GDP).

3

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at http://www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf. Accessed 13 February 2008. 4 Hatfield-Dodds, S., Jackson, E.K., Adams, P.D. and Gerardi, W. (2007) Leader, follower or free rider? The economic impacts of different Australian emission targets, The Climate Institute, Sydney, Australia. Available at http://www.climateinstitute.org.au/images/stories/CI058_ER_FullReport_NEW.PDF Accessed 4th March 2008. 5 Diesendorf, M. (2007) Paths to a Low Carbon Future Reducing Australia’s Greenhouse Gas Emissions by 30 percent by 2020, Sustainability Centre. Available at http://www.greenpeace.org/raw/content/australia/resources/reports/climate-change/paths-to-a-lowcarbon-future.pdf Accessed 7 November 2007. 6 Gorner, S., Lewis, A., Downey, L., Slezak, J., Michael, J. and Wonhas, A. (2008) An Australian Cost Curve For Greenhouse Gas Reduction, McKinsey Consulting, Australia/New Zealand. This report argues that 30 percent reductions by 2020 can be achieved largely through energy efficiency and carbon offsets. Available at http://www.mckinsey.com/locations/australia_newzealand/knowledge/pdf/1802_carbon.pdf. Accessed 4 March 2008. 7 See China Energy Bulletin at www.energybulletin.net/3566.html Accessed 13 February 2008. 8 See India Bureau of Energy Efficiency at www.bee-india.nic.in/ Accessed 13 February 2008.


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The reality is, however, that such a leadership role is unlikely as Australia has fallen at least a decade behind global best practice on climate change mitigation. Unless there is strong government leadership working effectively with business and harnessing Australia’s national system of innovation, Australia risks again missing out on significant economic opportunities as part of emerging developments in technology. Experts predict the global market for climate change solutions will rapidly reach US$1 trillion dollars and keep growing. Already many markets for specific low carbon products and services are among the fastest growing in the world. The EU, Silicon Valley in the US, China and Japan especially are competing to ensure that their research and development (R&D) bodies and leading businesses innovate the next generation in lighting technologies, energy efficient appliances, renewable energy systems, and fuel efficient cars, because these will create multi-billon dollar revenue streams for their businesses over the coming decades. By contrast, over the last decade much of Australia’s world leading R&D in renewable energy has been commercialised overseas, and we cannot afford for such business and job creation opportunities to leave Australia’s shores. Professor Garnaut summed up the challenge well in February 2007 with the launch of the Garnaut Interim Report that, in reaching targets Australia will have to, ‘face the reality this is a hard reform, but get it right and the transition to a low-emissions economy will be manageable … get it wrong and this is going to be a painful adjustment.’ 9 When facing the issues of climate change it is easy to become hypnotised by the complexity. In order to meet the complexity of the challenges with sophistication and ingenuity of the solutions our professions need to work together to inform each others’ efforts. The study of economics, if well informed by science, can provide valuable guidance as to the potential impact on an economy from a range of emissions reduction trajectories. A study of science, engineering and design, informed by economics, can provide valuable guidance as to the potential for our industrial economies to achieve such trajectories in light of best practices and balanced by the potential impacts on the environment. Therefore, on its own, a study of economics cannot provide all the answers to our leaders who are seriously considering the trajectories our emissions must follow without being informed by what is physically possible, i.e. by the physical sciences, engineering and design professions. Likewise a study of science and engineering on its own cannot provide all the answers either without being informed by economics as to the impacts on the economy from a range of potential engineering and design options. However, the merger of these professions is in its very early stages and governments struggling to come to grips with the reality of the climate change issue and how it will affect their economies are well advised to seek advice from both professions to balance each others’ assumptions and recommendations. This submission we hope will help engineers better understand economics and policy options and economists better understand what is technically possible through energy efficiency, low carbon technologies and sustainable transport options. Achieving a low carbon future will involve significant changes to the way societies meet their energy needs, and it is vital that economists understand this will involve technically an historic shift from almost entirely centralised ways of meeting energy needs to a more decentralised approach.

9

Maiden, S. (2008) ‘Garnaut eyes massive carbon reductions’, The Australian. Available at http://www.theaustralian.news.com.au/story/0,25197,23251141-11949,00.html Accessed 5 March 2008.


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This submission is designed to help the Garnaut Review and decision makers, business leaders, communities and households find the easier, lowest cost way to make a transition to a low emissions economy. This submission shows that there are a wide range of economic and business performance studies showing that business, cities and nations pursuing emissions reductions wisely are also improving profits and delivering robust economic growth. This submission will show that there is a lot of low hanging fruit in Australia to reduce emissions cost effectively. Also, now that Australia has ratified Kyoto, the Clean Development Mechanism gives Australia and Australian business access to numerous low cost ways to gain carbon credits through regional partnerships, even making existing coal fired power stations significantly more efficient. After 2012 the Post Kyoto Framework will include forests that were planted pre-1990 as eligible for carbon credits, allowing Australia and Australian business to invest in projects in Asia which provide compensation to stop the burning and clearing of forests, thus enabling Australia and Australian business to reduce net global emissions in the short term as part of a long term strategy for the economy. Whether Australian business, government and the community identify and implement the most cost effective greenhouse gas mitigation options depends significantly upon the state of education and training in Australia on climate change mitigation solutions. Whether or not decision makers choose wise policy settings and practice wise adaptive governance on the climate change issues in coming decades, or whether businesses respond well to a carbon price signal depends on their knowledge and skills at being able to identify and implement cost effective mitigation options such as energy efficiency. Recent surveys by The Natural Edge Project’s, PriceWaterhouseCoopers, 10 and ARIES’ 11 show that business leaders and key stakeholders like engineers and built environment professionals lack adequate education and training to ensure that Australia achieves cost effective emissions reductions. Australia has been blessed with cheap electricity, oil and gas for so long that relatively little attention has been given for education and training in energy efficiency. Over the last six years The Natural Edge Project has worked with a number of businesses, universities, professional bodies, industry groups, and consultants in Australia to investigate cost effective ways forward to mitigate and adapt to climate change. For instance, in 2005, TNEP and colleagues developed an operations manual for the members of the Chicago and European Climate Exchanges on how emissions reductions can be achieved. In 2007, TNEP published a discussion paper entitled, Action on Climate Change will Help Business Competitiveness and Economic Growth which was endorsed by the National Business Leaders Forum on Sustainable Development. 12 This paper supported efforts by Australian business leaders who where publicly supporting ambitious targets for greenhouse gas emission reductions. In 2007, TNEP launched a comprehensive free online climate change mitigation education and training package for Australia. 13 This package provides industry, governments, and business with the knowledge they need to realise at least 30 percent energy efficiency savings in the short term while creating a solid foundation upon which significant further gains can be achieved through demand

10

PriceWaterHouseCoopers (2008) Carbon Countdown: A survey of executive opinion on climate change in the countdown to a carbon economy, PWC. Available at http://www.pwc.com/extweb/onlineforms.nsf/docid/0edacffba83712ab852573db000f55ff. Accessed 13 February 2008. 11 Lyth, A., Nichols, S. and Tilbury, D. (2007) Shifting Towards Sustainability: Education for climate change adaptation in the built environment sector, A report prepared by the Australian Research Institute in Education for Sustainability. Available at http://www.aries.mq.edu.au/pdf/climateChange.pdf Accessed 4 March 2008. 12 Smith, M. and Hargroves, K. (2007) Executive Summary: Action on climate change can help business competitiveness and economic growth, Official Discussion paper for the 8th National Business Leaders Forum on Sustainable Development, The Natural Edge Project (TNEP). Available at http://www.nblf.com.au/framework.php. Accessed 13 February 2008. 13 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx Accessed 13 February 2008.


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management, renewable energy, sustainable transport, and carbon offsets. This work was funded by the CSIRO and NFEE and undertaken in partnership with Griffith University and the ANU. TNEP has also undertaken a comprehensive national survey of the state of education on energy efficiency in Australian universities funded by the National Framework on Energy Efficiency, and covering 27 of the 33 universities. Utilising the experience we have gained, this submission seeks to provide the Garnaut Review with comprehensive advice to help understand efforts required to address the economic and business potential risks, costs and opportunities in addressing the challenge of climate change in Australia.


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2. Commendation for Garnaut Review Interim Report The Natural Edge Project commends the Garnaut Review Interim Report and Discussion papers for the rigorous approach taken when considering the science and economics of climate change. We particularly wish to commend the authors on the following; 1. The approach to communicating the seriousness of the latest climate science and the urgent need for action to reduce the risks of dangerous climate change. The Garnaut Review documents to date have reminded people that Australia will be one of the worst affected of all OECD countries from climate change, as many business sectors such as Great Barrier Reef tourism, agriculture, plantation forestry, skiing, infrastructure and coastal real estate markets are vulnerable to climate change. Our submission provides further recent reports which provide additional evidence for this. 2. The insistence that the focus should be on decoupling economic growth from greenhouse gas emissions. For too long the debate has been about whether or not action on climate change would harm economic growth significantly. The Garnaut Interim Report is playing an important role in reframing the climate debate to argue decoupling rather than major trade offs. Our submission lists economic studies showing that it is possible to achieve significant decoupling to achieve ambitious reduction targets by 2050 while maintaining strong economic growth. 3. The recognition of the serious costs of inaction especially compared to the real opportunities and benefits of rapid action on climate change. We commend the Review for highlighting significant opportunities like the potential for Australia to work with Indonesia and PNG to reduce deforestation. Our submission lists a number of additional ways Australia could genuinely play a world leadership role to help rapidly reduce emissions. 4. The focus on identifying the most cost effective greenhouse gas reduction opportunities such as energy efficiency and stopping deforestation. Our submission brings together a detailed discussion of the most cost effective ways for Australia to reduce greenhouse gas emissions rapidly. 5. The highlighting of the significant business benefits of early action on climate change such as the potential for Australia to become a financial hub for carbon trading in Asia. Our submission highlights further potential benefits and opportunities for Australian industry and business to benefit from strong and early action on climate change. 6. The suggested principles upon which a robust national emission trading scheme can be based that will ensure no misuse by the vested interests. Specifically we agree that no industries should be given free pollution permits. As you have correctly explained, the EU experience shows what can happen if industry is given free pollution permits. We admire the integrity and maturity of the Review approaching this complex issue against significant pressure from certain industry sectors in Australia. Our submission outlines a number of policy options to minimise any loss of competitiveness issues to those industry sectors in Australia which are trade exposed.


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3. Responding to the complexity of the challenge of Climate Change 3.1.

Support for the Current ALP commitment to 60% by 2050 (Firm Path to 550ppm)

A range of publications, many of which are listed in the appendices to this submission, 14 now provide Australia’s Federal and State governments with detailed guidance as to how to achieve cost effective greenhouse gas emissions reductions. Many of these valuable studies and reports have been published in the last 3-5 years and provide Australia with a unique opportunity to both secure its own future economic growth, and to demonstrate to the region and the world that industrial economies can effectively transition to a low emissions future. Many studies now demonstrate that strategies that use a portfolio of options - energy efficiency, demand management, renewable energy, fuel switching, transport planning, Clean Development Mechanism - have the potential to deliver cost effective reductions in emissions of at least 60 percent by 2050, with strong economic and jobs growth. The Australian Business Roundtable on Climate Change’s commissioned studies form a significant resource, and demonstrate the economic and business case for early action on climate change in Australia. 15 The Roundtable reports show that increasingly business in Australia is calling for early action on climate change as the lack of certainty about future climate policy in Australia heightens the risks associated with investment. The reality of the complexity of the response to climate change is that all sectors of the economy will eventually be affected to differing degrees, some requiring minor changes and others requiring significant overhauls, and uncertainty around the government’s response creates real risk for business. For example, the Energy Supply Association of Australia (ESAA) estimates that as part of the on-going operation of the electricity generation and distribution sector, investments in the order of $30 billion will be required over the next decade. Such infrastructure has construction lead times of four to six years and has long operation lives. In the past, these investments would be driven by well known factors, but now future requirements for reductions in greenhouse gas emissions has the potential to create significant business risk. Climate change is now a key factor in the decision-making process for the electricity sector along with other sectors reliant on fossil fuels and the generation of greenhouse gases. The ESAA understands this risk and has publicly stated that, ‘One of the biggest sovereign risk issues facing the energy sector is [the uncertainty surrounding] future Government policy and measures on emissions’. 16 One of the major challenges to achieving reductions in the order of 60 percent by 2050 has been the perception that the costs would be prohibitive to business and the economy. The Australian Business Roundtable on Climate Change’s reports, 17 published in April 2006, found there is no justification for fears and concerns. They found that early action on climate change is far better for business than delaying it. This is supported by a significant amount of investigation that has taken place over the last five years on this matter, as covered in Section 5 of this submission, as many are finding that the cost to business of not reducing emissions may actually be greater in the medium to long term than the costs of acting. The Stern Review points out that ‘Regulatory approaches may be expensive to implement in some sectors. In agriculture, for instance, enforcement of regulations could be costly because sources of emissions are diffuse. However,

14

Including the publication: Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project, Griffith University and CSIRO. Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 13. February 2008. 15 Formed in 2005, the Business Roundtable is made up of CEOs from BP, Insurance Australia Group, Origin Energy, Swiss Re, Visy Industries and Westpac with The Australian Conservation Foundation. 16 Australian Business Roundtable on Climate Change (2006) The business case for early action, ABRCC. Available at http://www.businessroundtable.com.au/html/recommendations.html. Accessed 14 February 2008. 17 Ibid


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the long run costs of inaction are often higher.’ And continues to point out that, ‘It is already very clear that the economic risks of inaction in the face of climate change are very severe.’ 18 The findings show that a strategy to achieve a 60 percent reduction in greenhouse gas emissions by 2050 has the potential to achieve strong economic growth, in particular: 19 -

Should Australia effectively achieve reductions in emissions of 60 percent, GDP will continue to grow by 2.1 percent per annum, and by 2050 will increase from AU$0.8 trillion in 2005 to AU$2 trillion.

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In 1984 the GDP per person in Australia was AU$22,000, and has now grown to AU$44,000 per person. Studies commissioned by the Roundtable show that if we reduced emissions by 60 percent this figure will double again to AU$88,000 by 2050, with employment growing by 38.7, leading to the creation of 3.5 million jobs.

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Electricity costs would be lower as business invests earlier in low and zero emission technologies. By comparison, taking delayed action will lead to vulnerability to fossil fuel prices. Future electricity price rises would be three times higher in the delayed action scenario than the early action scenario.

The Australian Business Roundtable on Climate Change is not the first report to demonstrate that 60 percent cuts by 2050 can be achieved economically and technically. There are now a number of Australian and international studies showing that such targets can be achieved economically and technically, as listed in Appendix 2 and 3. 3.2.

Exceeding the current target to achieve 90% by 2050 (Ambitious Path to 450ppm)

As pointed out in the Garnaut Review Interim Report the risks to Australia’s businesses and its economy are in many ways greater than that for many other OECD economies. This is particularly alarming as many investigators are saying that the rate of growth of global emissions is worse than even the IPCC’s worst case scenario. These facts, together with growing concerns that the tipping point of dangerous climate change may be close, supports calls to carefully consider a more ambitious target than 60 percent by 2050. As Professor Garnaut pointed out in the interim report, a target of 60 percent by 2050 is a significant achievement but may not deliver the overall reductions in emissions required to stabilise global temperature within a range that maintains current conditions in the Earth’s biosphere. In light of the fact that Australia’s emissions are negligible compared to global emissions and there is still significant progress to be made in the major emitting countries the strategy, as suggested in the interim report, to adopt a dual target is wise. The Garnaut Review has argued for a 60 percent by 2050 definite target that Australia will commit to no matter what the rest of the world does. But Garnaut has also recommended a 90 percent by 2050 target for Australia to adopt if after the Bali Summit a fair and binding global agreement can be reached which includes all the major emitters, including China, India, Brazil and the USA. One of the purposes of this submission is to explore various ways to achieve ambitious reductions in emissions in a way that benefits the economy and business competitiveness rather than harms them. Australian researchers and investigators have developed a range of leading studies and reports to inform such actions, such as McKinsey Consulting, 20 CSIRO, 21 Diesendorf 22 and the

18

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm. Accessed 13. February 2008. 19 Ibid 20 Gorner, S. Lewis, A. Downey, L. Slezak, J. Michael, J. and Wonhas, A. (2008) An Australian Cost Curve For Greenhouse Gas Reduction, McKinsey Consulting, Australia/New Zealand. This report argues that 30 percent reductions by 2020 can be achieved


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Clean Energy Group. 23 This body of work shows that Australia can technically and economically achieve a 20-30 percent reduction by 2020 and a net 70-90 percent reduction by 2050, including a Clean Development Mechanism (CDM) project as outlined in Section 7. The Environment Business Australia Targets for Our Future report 24 outlined vital research which, for the first time, argues that Australia could achieve 50 percent cuts to greenhouse gas emissions by 2020. The report stated that, ‘With a rapid introduction of new policies and systems the following approaches could deliver over 50% GHG emissions cuts by 2020 through the following strategies. Energy efficiency 20%, Recycling 10%, Fuel switching 10%, Hot rock geothermal 2%, Solar thermal 10%, Photovoltaics 2%, Wind 5%.’ The report emphasises the significant opportunities for Australian industry and business if the Australian government demonstrates strong leadership. Thus this report addresses significantly one of the major areas of research for the Garnaut Review, namely: ’The economic and strategic opportunities for Australia from playing a leading role in our region's shift to a more carbon-efficient economy, including the potential for Australia to become a regional hub for the technologies and industries associated with global movement to low carbon emissions.’ 25 McKinsey Consulting is another highly respected global business group. They have recently released detailed studies 26 which show how Australia could achieve 30 percent cuts by 2020 and 60 percent cuts by 2030 in a highly cost-effective way, through investing initially in energy efficiency, co-generation and carbon offsets (by stopping forest burning and deforestation in Asia). Under the ambitious reduction scenario proposed in the Garnaut Review it is possible to bring forward investments in energy efficiency, carbon offsets, renewable energy and sustainable transport investment and in the Clean Development Mechanism to achieve the 60 percent cuts by 2030, as McKinsey Consulting have outlined. McKinsey Consulting have been criticised by some for being overly optimistic about energy efficiency opportunities. Our detailed energy efficiency research, 27 funded by CSIRO and NFEE, shows that their findings are not over-estimates; rather they are in accord with existing NFEE studies, 28 findings from government programs 29 and energy efficiency consultants with years of experience.

largely through energy efficiency and carbon offsets. Available at http://www.mckinsey.com/locations/australia_newzealand/knowledge/pdf/1802_carbon.pdf Accessed 4 March 2008. 21 Hatfield-Dodds, S., Jackson, E.K., Adams, P.D. and Gerardi, W. (2007) Leader, follower or free rider? The economic impacts of different Australian emission targets, The Climate Institute, Sydney, Australia. Available at http://www.climateinstitute.org.au/images/stories/CI058_ER_FullReport_NEW.PDF Accessed 4 March 2008. 22 Diesendorf, M (2007) Paths to a Low Carbon Future Reducing Australia’s Greenhouse Gas Emissions by 30 percent by 2020, Sustainability Centre. Available at http://www.greenpeace.org/raw/content/australia/resources/reports/climate-change/paths-to-a-lowcarbon-future.pdf Accessed 7 November 2007. 23 Saddler, H., Diesendorf, M. and Denniss, R. (2004) A Clean Energy Future for Australia Energy Strategies, WWF, Canberra. Available at http://wwf.org.au/ourwork/climatechange/cleanenergyfuture/. Accessed 14 April 2007. 24 Environment Business Australia (2007) Targets for our Future: 20% greenhouse gas emissions cuts by 2020 and 60% by 2050, Environment Business Australia. Available at http://environmentbusiness.com.au/images/stories/targets_for_our_future_september_07.pdf Accessed 13 February 2008. 25 Ibid 26 Gorner, S. Lewis, A. Downey, L. Slezak, J. Michael, J. and Wonhas, A. (2008) An Australian Cost Curve For Greenhouse Gas Reduction, McKinsey Consulting, Australia/New Zealand. This report argues that up to 30 percent reductions by 2020 as being possible. Available at http://www.mckinsey.com/locations/australia_newzealand/knowledge/pdf/1802_carbon.pdf Accessed 4th March 2008. 27 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx Accessed 13 February 2008. 28 Energy Efficiency and Greenhouse Working Group (2003) Towards a National Framework for Energy Efficiency - Issues and Challenges Discussion Paper, Energy Efficiency and Greenhouse Working Group. Available at http://www.nfee.gov.au/about_nfee.jsp?xcid=64 Accessed 14 April 2007. 29 See Australian Federal Government’s Energy Efficiency Opportunities Program at http://www.energyefficiencyopportunities.gov.au/. Accessed 4 March 2008.


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Consider the 2007 CSIRO, The Climate Institute, Monash University and McLennan Magasanik Associates economic modelling and report, 30 written and researched by many of Australia’s leading climate modellers. This report supports a call for a target of 90 percent by 2050, and examines a range of scenarios, including one where leadership Australia goes further than 90 percent by 2050 and instead goes net carbon neutral by 2050 - they assume Australia is part of a global CDM or emissions trading scheme and thus can achieve a net carbon neutral target. The analysis also didn’t factor in the climate change impact costs of inaction which the Stern Review estimates to be between 5-20 percent of global economic activity in 2100, in a business-as-usual scenario. The report modelled the economic impacts on the Australian Economy of an emissions path that delivered 20 percent reductions by 2020 and carbone neutrality by 2050, and found that by 2050: -

The economy will grow at 2.8 percent annually versus 2.9 percent annually with no action on climate change (i.e. a 0.1 percent annual reduction in GDP growth, assuming the costs of inaction are not taken into account).

-

Employment will increase from 9.7 to 16.7 million jobs by 2050.

-

Long term impacts on energy prices and affordability are manageable with the average energy consumer bundle (electricity, petrol and gas) falling from 6 percent of average income today to 4 percent by 2050. (While electricity, petrol and gas prices increase this is more than offset by increases in real income)

The report concludes that, ‘making substantial reductions in Australia’s net greenhouse emissions is affordable, and compatible with continuing growth in incomes, employment and living standards.’ Also that, ‘The key finding of this report is that the leadership premium associated with Australia committing early to substantial cuts in our net greenhouse emissions is modest and affordable, and would help manage the economic risks to Australia as well as contributing to the global momentum and concrete actions required to avoid dangerous global climate change.’ We feature this study and the others listed in Appendix 2 and 3 to show that the literature to date shows that the ‘Ambitious Path’ is economically and technically viable. As global emissions at the time of writing this submission are close to 450ppm CO2e it may be the case that achieving the ‘Ambitious Path’ may only be possible through a bipartisan national emergency level of urgency. History may well show that this course of action was the only realistic hope of ensuring stabilisation globally at the 450ppm level, which many experts argue is the tipping point for dangerous climate change. The way that the new Australian government has taken a bipartisan approach to indigenous affairs, with a great level of urgency and clear and ambitious targets, is a clear demonstration of the ability of the Government to lead a ‘Bipartisan National Emergency’ approach to Climate Change. Such a bipartisan effort would call for significant cooperation across government and the economy, the likes of which would be reminiscent of the achievements during World War II in Australia. In the space of five years the Australian economy went from one with very little manufacturing to one that was able to build world class aircraft, tanks and sea vessels. This transformation of the Australian economy during WWII was even more remarkable because it occurred after a decade of economic depression in Australia. There is much we can learn from that era, as it showed how government, working with business and the community, could rapidly

30

Hatfield-Dodds, S., Jackson, E.K., Adams, P.D. and Gerardi, W. (2007) Leader, follower or free rider? The economic impacts of different Australian emission targets, The Climate Institute, Sydney, Australia. Available at http://www.climateinstitute.org.au/images/stories/CI058_ER_FullReport_NEW.PDF Accessed 4th March 2008.


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transform the energy, transport and communication systems while also rapidly retrofitting the industrial, commercial and residential sectors. One of the reasons government may have been reluctant to undertake such an ambitious study is that it is assumed that if Australia does seek to achieve such rapid reductions in greenhouse gas emissions this will crash the economy. Yet there is significant evidence to suggest that a rapid transformation to a low carbon economy in Australia would not harm but rather help economic growth - if done right. This is because the investment required by a rapid transition would boost economic growth and GDP significantly, since the amount of investment per annum is a key variable in determining GDP. Australia has achieved over 16 years of economic growth and has no government debt and thus is in a position to invest in national infrastructure that both boosts productivity and also rapidly reduces greenhouse gas emissions. The position of many countries on such a rapid reduction strategy is influenced by the position of the US White House. Many of the arguments around the cost to the economy of the rapid reduction of emissions have been made by US companies and lobby groups. However, few talk about the extraordinary achievements the US economy delivered as part of its contribution to WWII. In the period 1939–1945, unemployment in the USA fell from 14.6 percent to 1.9 percent, and GNP grew 55 percent. In 1942 US economic growth was 12 percent; that is 12 times more than in the 2007-8 financial year. Wages grew 65 percent over the course of the war to far outstrip inflation, and company profits boomed, all at a time when personal consumption was dampened by the sale of war bonds, some basic goods and foods were rationed and at the height of the mobilisation 42 percent of the economy was directed towards the war effort, as shown below.

Table 1: Military burden 1939-1944 (military outlay as a percentage of national income) 31

As Al Gore has stated, this is a planetary emergency. Nicolas Stern has called climate change the biggest market failure ever. Hence, given the seriousness of the situation it is wise of Professor Garnaut to research and model the ambitious path to stabilisation. 3.3.

Achieving Targets through an understanding of Stabilisation Trajectories

In the last two years, there has been compelling evidence published, which shows that global warming is accelerating under the action of several amplification/positive feedback processes (that we summarise in Section 4). Garnaut Interim Report stated that: 32 A target concentration of around 450ppm CO2-e has been widely discussed in the literature, and was the basis of the 25-40 percent emissions reduction proposal for developed countries discussed at the Conference of Parties in Bali. Achieving stabilisation at 450ppm CO2-e target would require … global emissions peaking around 2010. A less 31

Harrison, M. (2000) The Economics of World War II: Six Great Powers in International Comparison, Cambridge University Press, Cambridge. 32 Garnaut Climate Change Review (2008) Interim Report to the Commonwealth, State and Territory Governments of Australia. Available at http://www.garnautreview.org.au/CA25734E0016A131/WebObj/GarnautClimateChangeReviewInterimReportFeb08/$File/Garnaut%20Climate%20Change%20Review%20Interim%20Report%20-%20Feb%2008.pdf. Accessed 7 March 2008.


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ambitious target, leaving much higher risks of dangerous climate change, is to restrict greenhouse gas concentrations to 550ppm CO2-e… [this would require] global emissions … peaking by 2030. These stabilisation paths are only illustrative, as there are multiple paths to any specific concentration target. However, they make the point that only urgent, large, and effective global policy change leaves any hope of holding atmospheric concentrations at the 450ppm or even the 550ppm levels. Given the rapid growth of greenhouse gas emissions there is an urgent need for a greater level of sophistication around the realities of delivering such stabilisation levels. The Stern Review explored in detail the concept of stabilisation trajectories and pointed out that there are two distinct phases, firstly global emissions need to stop growing, i.e. emissions levels would peak and begin to decline, and secondly there would need to be a sustained reduction of annual greenhouse gas emissions across the entire global economy.

Figure 1: BAU emissions and stabilisation trajectories for 450 - 550ppm CO2e Source: Stern, N. (2006) 33 In its fourth assessment report the IPCC called for global greenhouse gas emissions to peak by 2014-15 in order to minimise the risk of the positive feedbacks being unleashed; ‘Emissions of greenhouse gases would have to peak by 2015 to limit global temperature rises to 2.0 to 2.4 Celsius over pre-industrial times, the strictest goal assessed.’ 34 The challenge of stabilisation is significant. If the positive feedbacks, outlined in Section 4, are unleashed it will make stabilisation of the global temperature very hard to achieve. The Garnaut Interim Report has incorporated this into its reduction paths with global emissions peaking around 2010 for the 450ppm path and by 2030 for the 550ppm path.

33

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at http://www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf. Accessed 13 February 2008. 34 IPCC (2007) Climate Change 2007: Synthesis Report, Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, Pachauri, R.K and Reisinger, A. (eds.)], IPCC, Geneva, Switzerland, p 104.


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Modelling undertaken for the Stern Review, indicates that a 450ppm trajectory with a peak in emissions by 2010 would need to be followed by a sustained reduction of 7.0 percent per annum, and the 550pm trajectory with a peak in 2030 would need to be followed by a sustained reduction of 2.5-3.0 percent. Table 2: Illustrative Emissions Paths to Stabilisation

Source: Stern, N. (2006) 35 As can be seem from the table the date of the peaking in global emissions has a significant impact on the level of sustained annual reductions to achieve the desired global stabilisation. The Stern Review states that: ‘The longer action is delayed, the harder it will become. Delaying the peak in global emissions from 2020 to 2030 would almost double the rate of [annual] reduction needed to stabilise at 550ppm CO2e. A further ten-year delay could make stabilisation at 550 ppm CO2e impractical, unless early actions were taken to dramatically slow the growth in emissions prior to the peak.’ 36 The key to the economic impact of an ambitious approach to emissions reduction is to achieve a balance in the timing of the peak and the corresponding requirement for annual reduction. As Figure 2 shows there are a range of ‘Peaks’ and corresponding ‘Tails’ that may deliver a given stabilisation level. Each of the trajectories in Figure 2 are the result of modelling a stabilisation level of 550ppm, however, each will have a different impact on the economy. A late peak, shown by the 2040 High Peak curve, will allow a slow short term reduction level but will require a 4.5 percent annual sustained reduction where as an early peak, shown by the 2020 Low Peak curve, will require a rapid short term reduction level but will afford a level of sustained reduction of 1.5 percent per annum.

35

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at http://www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf. Accessed 13 February 2008. 36 Ibid, chp 8, p 10


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Figure 2: Illustrative emissions paths to stabilise at 550 ppm CO2e. The figure shows that delaying

emissions cuts (shifting the peak to the right) means that emissions must be reduced more rapidly to achieve the same stabilisation goal Source: Stern, N. (2006) 37 It is crucial that the economic modelling to inform the Australian Government’s climate change strategy considers the delicate balance that is needed to be reached between the short term peaking of emission and the long term sustained reductions. If the peak is too soon it may have significant impacts on our ability to maintain gradual reductions and if the peak is too late the corresponding annual reductions may be too much for the economy to bear. Stern points out that, ‘Given that it is likely to be difficult to reduce emissions faster than around 3% per year, this emphasises the importance of urgent action now to slow the growth of global emissions, and therefore lower the peak.’ As Professor Jeffery Sachs stated at the 2008 Delhi Sustainable Development Summit: ‘what is needed is good arithmetic, and good engineering and good economics, all combined… We haven’t done the work on that yet. But that is the work that we need to do in the next 2 years in my view – to show a path’. 38 When facing the issues of climate change it is easy to become hypnotised by the complexity, and in order to meet the complexity of these challenges with sophistication and ingenuity, our professions need to work together to inform each others’ efforts. The study of economics, if well informed by science, can provide valuable guidance as to the potential impact on an economy from a range of GHG emissions reduction trajectories. A study of science, engineering and design, informed by economics, can provide valuable guidance for the potential for our industrial economies to achieve such trajectories in light of the impacts on the environment. Therefore, on its own a study of economics cannot provide all the answers to our leaders who are seriously considering the trajectories our emissions must follow without being informed by what is physically possible, i.e. by the physical sciences, engineering and design professions. Likewise a study of science on its own can not provide all the answers either without being informed by economics as to the impacts on the economy from a range of potential science and engineering options. The merger of these professions is in its very early stages, and governments struggling to come to grips with the reality of the climate change issue and how it will affect their economies are well advised to seek advice from both professions to balance each others’ assumptions and recommendations. This submission seeks to provide the economic

37 38

Ibid Sachs, J. (2008) Valedictory Address, delivered to the Delhi Sustainable Development Summit, Delhi (7-9 February 2008).


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analysis being undertaken by the Garnaut team as well as providing a grounding in the science, engineering and design information vital to a comprehensive understanding of how to transition Australia’s economy to a low emissions future and demonstrate to the world the most effective policies and instruments to do so. The power of using stabilisation trajectories as the basis for policy development is that we can capitalise on the already abundant opportunities for short term reductions to achieve the peak while building the experience and economies of scale to seriously tackle the issue of sustained reductions. The beauty of the sustained reductions model is that it allows an economy to stage the activities it undertakes to allow for certain industries to be given more time, or ‘head room’ to respond, as industries that can make short and medium term gains contribute to achieving the average overall reduction, and are then potentially rewarded through an emissions trading scheme. So far we have focused on the path required to achieve a global stabilisation of greenhouse gas concentrations, however, as efforts across the economy are aggregated to deliver the annual reductions as part of the tail of the stabilisation curve, efforts across countries may also need to be aggregated to achieve the global stabilisation curve. The Garnaut Interim Report presented an argument that, based on per capita emissions, there were a number of country specific trajectory curves that could be aggregated to achieve the overall global curve. Figure 3 below presents a stylised illustrative scenario of such an aggregation model across countries.

Figure 3: Contraction and convergence for different countries with ‘head room’ for the rapidly developing economies: a stylised, illustrative scenario Source: Garnaut Interim Report (2007) 39 It is widely agreed that expecting the rapidly developing countries of China and India to rapidly reduce fossil fuel consumption is unreasonable considering that the US, Australia and other developed countries have capitalised on fossil fuels for over a decade to underpin their development. The strength of the model proposed by Professor Garnaut is that it provides head room for both China and India, perhaps enough to actually make a global transition to stabilisation a reality. 39

Garnaut Climate Change Review (2008) Interim Report to the Commonwealth, State and Territory Governments of Australia. Available at http://www.garnautreview.org.au/CA25734E0016A131/WebObj/GarnautClimateChangeReviewInterimReportFeb08/$File/Garnaut%20Climate%20Change%20Review%20Interim%20Report%20-%20Feb%2008.pdf. Accessed 7 March 2008.


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3.4.

What is the International and Australian Business Community doing?

As a result of many of the reports and economic modelling outlined above, a number of international and Australian companies are now taking leadership in developing and implementing cost effective strategies to respond to the climate change problem. In November 2007 in the lead up to UN climate change negotiations in Bali, 150 of the worlds biggest corporations from around the world, including ANB AMRO, Philips, Sun Microsystems, Volkswagen, Johnson & Johnson, Tesco, Coco-Cola, Unilever, and Vodaphone, issued a remarkable statement – The Bali Communiqué - calling for a comprehensive, legally binding United Nations framework to tackle climate change to underpin rapid reductions of greenhouse gas emissions in line with scientifically based targets. The process has been led by The Prince of Wales’s UK and EU Corporate Leaders Groups on Climate Change, which is hosted by the University of Cambridge Programme for Industry. 40 The Bali Communiqué is significant in that its recommendations were based on its appreciation of the science rather than what is considered politically palatable or ‘reasonable’. The Bali Communiqué stated: 41 The scientific evidence is now overwhelming. Climate change presents very serious global social, environmental and economic risks and it demands an urgent global response. As business leaders, it is our belief that the benefits of strong, early action on climate change outweigh the costs of not acting: - The economic and geopolitical costs of unabated climate change could be very severe and globally disruptive. All countries and economies will be affected, but it will be the poorest countries that will suffer earliest and the most, - The costs of action to reduce greenhouse gas emissions in order to avoid the worst impacts of climate change are manageable, especially if guided by a common international vision, - Each year we delay action to control global emissions increases the risk of unavoidable consequences that will likely necessitate even steeper reductions in the future, causing potentially greater economic, environmental and social disruption, and - The shift to a low-carbon economy will create significant business opportunities. New markets for low carbon technologies and products, worth billions of dollars, will be created if the world acts on the scale required. In summary, we believe that tackling climate change is the pro-growth strategy. Ignoring it will ultimately undermine economic growth. It is our view that a sufficiently ambitious, international and comprehensive legally-binding United Nations agreement to reduce greenhouse gas emissions will provide business with the certainty it needs to scale up global investment in low-carbon technologies. In order to avoid dangerous climate change, the overall targets for emissions reduction must be guided primarily by science. Even an immediate peaking in global emissions would require a subsequent reduction of at least 50% by 2050, according to the Fourth Assessment Report of the Intergovernmental Panel of Climate Change, and the later the peak in emissions, the greater the required reduction. All countries will need to play their part but we recognise that the greatest effort must be made by those countries that have already industrialised.

40 41

See Bali Communiqué at http://www.balicommunique.com/communique.html Accessed 13 February 2008. Ibid


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In line with such sentiment, UNEP has created the new UNEP Climate Neutral Network to catalyse a transition to a low carbon world. Four countries so far have committed to becoming net climate neutral – New Zealand, Iceland, Norway and Costa Rica. Four cities have signed up Arendal, Norway; Rizhao, China; Vancouver, Canada; and Växjö, Sweden. Five companies have signed – Co-Operative Financial Services, UK; Interface Inc, United States; Natura, Brazil; Nedbank, South Africa; and Senoko Power, Singapore. The Network, a web-based project, is seeking to federate the small but growing wave of nations, local authorities and companies who are pledging to significantly reduce emissions en route to zero emission economies, communities and businesses. Consider the UK where numerous companies are committing to becoming climate neutral, including, Barclays Bank, 42 Marks & Spencer and BSkyB. They are a part of forty top British companies who, in early April 2007, launched an unprecedented campaign to shrink Britain's carbon footprint by cutting their own energy use and trying to turn ‘green consumerism into a mass movement’. The initiative, launched by Tony Blair, aims to counter a widespread feeling of helplessness among people who want to act to combat climate change, but fear that any contribution they make will be too small to make any difference. Top businessmen, such as Sir Terry Leahy, chief executive of Tesco, and James Murdoch, chief executive of BSkyB, are intimately involved. The companies at the heart of the plans have all promised to clean up their own operations as a precondition of the campaign. BSkyB, for example, has cut greenhouse-gas emissions from its sites by 47 percent, buys all its electricity from renewable sources and has announced its intention to go carbon neutral. 43 In Australia numerous corporate organisations have now committed to becoming climate neutral, including high profile organisations like the News Limited, Australian Football League (AFL), Price Waterhouse Coopers, Westpac, Insurance Australia Group, Swiss Re, Bunnings Warehouse, KPMG Australia, and Channel Seven’s Sunrise Breakfast TV Program. Australian based airlines, including Virgin Airlines, Qantas and Jetstar, have all launched a carbon offset option through which customers can choose to offset their emissions. 44 Europcar Australia has partnered with Greenfleet to offset the carbon emissions of every new vehicle that is added to its fleet. Companies like BP, ACTEW/AGL, Origin Energy, and Virgin Airlines have already got low carbon/climate neutral products accredited with the AGO’s ‘Greenhouse Friendly’ accreditation scheme. 45 Fuji Xerox Australia recently announced that it will soon run its company sites on 100 percent green power from renewable energy sources. Over the next four years the company will be increasing its use of renewable energy-based power by 25 percent annually, aiming to purchase 100 percent green electricity by the year 2010. Westpac has already reduced emissions by 45 percent. With the increased severity of drought, likely due to climate change, organisations across the water services sector which are directly affected are also examining climate neutrality. Melbourne’s water authorities are leading the way by all working towards becoming climate neutral. City West Water announced on March, 2007 its intensions to become the first carbonneutral water authority in Australia. Other water authorities such as Melbourne Water, Yarra Valley Water and South East Water are also working towards it but are yet to set a target. A recent

42

Bond, S. (2007) ‘Barclays bank goes carbon neutral in UK’, edie.net. Available at http://www.edie.net/news/news_story.asp?id=12751. Accessed 14 April 2007. 43 Lean, G. (2007) ‘Green giants join forces to fight carbon emissions’, The Independent (UK), 25 March 2007. Available at http://news.independent.co.uk/environment/climate_change/article2390843.ece. Accessed 14 April 2007. 44 See Virgin Airlines - Offsets – Frequently Asked Questions at www.virginblue.com.au/carbonoffset/faq/. Accessed 14 April 2007. 45 See Australian Greenhouse Office -Greenhouse Friendly Accreditation at www.greenhouse.gov.au/greenhousefriendly/products/index.html. Accessed 14 April 2007.


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survey by Yarra Valley Water showed 74 percent of its customers supported efforts to go carbon neutral, even if it meant water bills would cost more. In government, climate leaders in Australia include: Newcastle City Council - which has already reduced emissions by over 50 percent throughout its operations since the mid 1990s; and the City of Melbourne - which is working hard to achieve its goal of being climate neutral by 2020. 46 Other local governments to commit to becoming climate neutral include Moreland City Council, 47 Maribyrnong City Council 48 and the Yarra Ranges Shire Council. 49 Councils such as Townsville City Council are also focused on practical programs such as the national Solar Cities program to assist constituents to reduce energy demand and shift to renewable options. Other significant leadership has been shown by Australian business coalitions and industry groups, for example: -

Manufacturing Sector The Australian Industry Group (Ai Group), which represents over 5000 companies mostly in the manufacturing sector, has set up a member based steering committee to address the climate change issue. They have released principles upon which a national emissions trading scheme can be based and publish an annual ‘Environmental Management Handbook’ 50 that includes information about reducing emissions that is annually sent to all Ai Group members. Ai Group also assists members by providing an expert advisory service to help members identify energy efficiency opportunities to meet energy efficiency regulatory requirements at the state and Federal level.

-

Plastics and Chemicals Sector The Plastics and Chemicals Industries Association (PACIA), the pre-eminent national body representing Australia's plastics and chemicals manufacturing sector, is developing a ‘Sustainability Leadership Framework’ 51 in consultation with its members and stakeholders. A part of the Framework, PACIA have developed a ‘Discussion Paper’. 52 PACIA have also produced a training course on how to implement an energy management system to help identify energy efficiency opportunities for their members.

-

Plantations, Paper and Pulp Sector The Australian Plantation, Products and Paper Industry Council (A3P), the peak national body for Australia’s plantation products and paper industry, has launched Performance, People and Prosperity: Sustainability Action Plan. 53 The Plan includes targets, measures of performance and a commitment to public reporting. The Plan raises 21 issues and lists specific actions for addressing each. Included in the 21 issues raised are: reducing

46

The Climate Group (2007) Low Carbon Leader: Cities, The Climate Group. Available at http://theclimategroup.org/assets/resources/low_carbon_leader_cities.pdf. Accessed 14 April 2007. 47 See Moreland City Council - Climate Change Announcement at http://www.moreland.vic.gov.au/news/mr170407.htm. Accessed 2 May 2007. 48 See Maribyrnong City Council - Commitment to Becoming Climate Neutral at http://www.beyondzeroemissions.org/files/Maribyrnongcarbon-neutral.pdf. Accessed 2 May 2007. 49 See Yarra Ranges Shire Council - Climate Change Announcement at http://www.yarraranges.vic.gov.au/Page/Page.asp?Page_Id=2797. Accessed 2 May 2007. 50 See Australian Industry Group – Environmental Management Handbook at http://www.aigroup.asn.au/scripts/cgiip.exe/WService=aigroup/ccms.r?pageid=564. Accessed 12 April 2008. 51 See Plastics and Chemicals Industries Association (PACIA) – Sustainability Leadership Framework at http://www.pacia.org.au/index.cfm?menuaction=mem&mmid=021&mid=021.026.001. Accessed 12 April 2008. 52 Plastics and Chemicals Industries Association (2007) Sustainability Leadership Framework: Plastics and Chemicals Industry Discussion Paper, PACIA, Richmond, Victoria. Available at http://www.pacia.org.au/_uploaditems/docs/4.sustdiscpaper.pdf. Accessed 12 April 2008. 53 Australian Plantation, Products and Paper Industry Council (2006) Performance, People and Prosperity: Sustainability Action Plan, A3P, Braddon, Australian Capital Territory. Available at http://www.a3p.asn.au/keyissues/sustainability.html. Accessed 12 April 2008.


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greenhouse gas emissions, using renewable energy sources and encouraging the use of ‘greenhouse friendly’ plantation products. -

Infrastructure Sector The Australian Council for Infrastructure Development (AusCID) – now part of the Infrastructure Partnerships Australia, the peak infrastructure industry organisation – has published the Sustainability Framework for the Future of Australia’s Infrastructure Handbook. 54 The Handbook outlines AusCID’s framework for the future of Australia's infrastructure and recommends that any infrastructure developments consider reducing energy consumption and increasing the use of alternative energy technologies.

-

Insurance Sector Insurance Australia Group (IAG) has partnered with WWF-Australia to establish the Australian Climate Group (ACG). The ACG published the Climate Change Solutions for Australia 2008 55 report, which recommends that the Australian Federal Government adopts measures to: stabilise national emissions by 2010; establish an emissions target for 2020 consistent with that of other developed countries; and ensure the success of the emission trading scheme and ensure its flexibility to respond to new information quickly. IAG, along with Swiss Re, were also members of the Business Roundtable on Climate Change. Most major insurance groups in Australia have now committed to becoming climate neutral.

-

Telecommunications Sector Telstra commissioned a report by Climate Risk Australia 56 that analyses the opportunities to achieve nationally significant greenhouse gas abatement using telecommunication networks. The report estimates that the telecommunications sector can help reduce Australia’s total greenhouse gas emissions by 5 percent by 2015.

-

Tourism Sector In April 2007, the Minister for Small Business and Tourism, the Hon Fran Bailey MP, announced the development of a ‘Tourism Action Plan on Climate Change’ 57 . Industry submissions to this process already demonstrate how seriously the Australian tourism industry takes the risks of climate change. In another initiative, Tourism Australia 58 is in the process of creating a web resource to help member companies cost effectively reduce energy usage and waste to landfill.

-

Minerals and Mining Sector The Minerals Council of Australia (MCA), which represents Australia’s exploration, mining and minerals processing industry, nationally and internationally, has established an

54

Australian Council for Infrastructure Development (2003) Sustainability Framework for the Future of Australia’s Infrastructure Handbook, AusCID (part of Infrastructure Partnerships Australia), Sydney. Available at http://www.naturaledgeproject.net/AusCIDhandbook03.pdf.pdf. Accessed 12 April 2008. 55 The Australian Climate Group (2008) Climate Change Solutions for Australia 2008, WWF, Sydney, Australia,. Available at http://wwf.org.au/publications/wwf-climate-change-solutions/. Accessed 12 April 2008. 56 Climate Risk Australia (2007) Towards a High-Bandwidth, Low-Carbon Future: Telecommunications-based Opportunities to Reduce Greenhouse Gas Emissions, Climate Risk, Fairlight, New South Wales. Available at http://www.climaterisk.com.au/wpcontent/uploads/2007/CR_Telstra_ClimateReport.pdf. Accessed 12 April 2008. 57 See Department of Resources, Energy and Tourism – Submissions for the Tourism Action Plan on Climate Change at http://www.ret.gov.au/General/Tourism-SIT/Pages/SubmissionsfortheTourismActionPlanonClimateChange.aspx. Accessed 24 October 2007. 58 See Tourism Australia – Sustainable Tourism at http://www.tourism.australia.com/AboutUs.asp?lang=EN&sub=0303. Accessed 12 April 2008.


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‘Environmental and Social Policy Committee’. 59 The Committee serves MCA members who are actively engaged in operationalising sustainable development. Mining, Minerals and Sustainable Development (MMSD) 60 was an independent two-year process of consultation and research into understanding the contribution of the mining and minerals sector to sustainable development. The ultimate outcome was the report Breaking New Ground, 61 which proposes a clear agenda for global change in the minerals sector and identifies mechanisms for moving forward. The Australian Coal Industry initiated ‘COAL21’, 62 a program aimed at realising the potential of advanced technologies to reduce or eliminate greenhouse gas emissions associated with the use of coal. COAL21 will also explore coal's role as a primary source of hydrogen to power the hydrogen-based economy of the future. The Department of Innovation, Industry, Science and Research has established multiple Cooperative Research Centres (CRCs) that focus on research into energy use and greenhouse gas emissions in the Mining and Energy sector, including the CRC for Sustainable Resource Processing, 63 the CRC for Coal in Sustainable Development 64 and the CRC for Greenhouse Gas Technologies. 65 -

Housing Industry Association The Housing Industry Association (HIA), Australia’s largest residential building organisation, has established the ‘GreenSmart’ 66 initiative. GreenSmart includes a national training and accreditation program that includes training on domestic energy efficiency which has been completed by over 3,000 individuals. GreenSmart also includes the production of resources such as the GreenSmart website and the GreenSmart Magazine.

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Food and Grocery Sector The Australian Food and Grocery Council (AFGC), the national body representing the nation’s food and grocery products manufacturers, publish a biennial ‘Environment Report’. 67 The reports provide an industry-wide snapshot of the environmental performance of the Australian food and grocery industry and, in 2005, reported that per-finished-product energy use was down 14 percent and greenhouse emissions were down 29 percent since 2003. 68 The UNEP Working Group for Cleaner Production in Food, 69 located at The University of Queensland, has several publications and resources investigating the energy efficiency opportunities in the food processing industry and other industries.

59

See Minerals Council of Australia – Environmental and Social Policy at http://www.minerals.org.au/environment. Accessed 12 April 2008. 60 Mining, Minerals and Sustainable Development (2002) The Mining, Minerals and Sustainable Development (MMSD) Project, MMSD. Available at http://www.iied.org/mmsd/what_is_mmsd.html. Accessed 12 April 2008. 61 Mining, Minerals and Sustainable Development (2002) Breaking New Ground, MMSD. Available at http://www.iied.org/mmsd/finalreport/index.html. Accessed 12 April 2008. 62 See COAL21 – Introducing COAL21 at http://www.coal21.com.au/. Accessed 12 April 2008. 63 See Centre for Sustainable Resource Processing at http://www.csrp.com.au/. Accessed 12 April 2008. 64 See CRC for Coal in Sustainable Development at http://www.ccsd.biz/.. Accessed 12 April 2008. 65 See CO2CRC at http://www.co2crc.com.au/. Accessed 12 April 2008. 66 See Housing Industry Association – GreenSmart at http://hia.com.au/hia/channel/Builder/region/National/classification/Greensmart.aspx. Accessed 12 April 2008. 67 See Australian Food and Grocery Council – AFGC Environment Reports at http://www.afgc.org.au/index.cfm?id=390. Accessed 12 April 2008. 68 Australian Food and Grocery Council (2005) Environment Report 2005, AFGC, Barton, Australian Capital Territory. Available at http://www.afgc.org.au/index.cfm?id=390. Accessed 12 April 2008. 69 See The University of Queensland – UNEP Working Group for Cleaner Production in Food at http://www.gpa.uq.edu.au/CleanProd/. Accessed 12 April 2008.


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4. Understanding the Costs of Inaction on GHG emissions reductions Valuing the costs of inaction from climate change for Australia and the global economy is not easy. This is why so few studies have been done anywhere in the world to calculate the costs of inaction. The Stern Review is one of the few studies to do so. 70 A detailed discussion of how costs of inaction on climate change can and should be valued is beyond the scope of this submission, and Part 2 of the Stern Review already provides an overview of this topic. The Stern Review, having analysed the costs of action and inaction, concluded that costs of action to the global economy would be roughly 1 percent of GDP, while the costs of inaction would be from 5-20 percent of GDP. 71 The Stern Review stated that, ‘We estimate the total cost of business as usual climate change to equate to an average reduction in global per capita consumption of 5 percent at a minimum now and for ever.’ 72 The Stern Review describes how the cost would increase were the model to take into account additional impacts on the environmental and human health, the effects of positive feedbacks and the disproportionate burden of climate change on the poor and vulnerable globally. It predicts that if fast and dramatic action is not taken on climate change, then climate change could cause an economic recession to rival the great economic recession of the 1930s, concluding: ‘If we don’t act (on climate change), the overall costs and risks of climate change will be equivalent to losing at least 5 percent of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 percent of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions is to avoid the worst impacts of climate change – can be limited to around 1 percent of global GDP each year. The investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century and the next. (Inaction now) and over the coming decades could create risks of major disruption to economic and social activity, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes.’ 73 This is why short term targets matter. If we don’t get the short-term target for greenhouse gas reductions right and achieve it, we will irreversibly overshoot the tipping point for unleashing these positive feedback effects. There are already signs that these positive feedback effects are occurring faster than scientists have predicted. This threatens the biosphere of the planet upon which we all and the global economy depends. 4.1.

The Threat of Reducing the Global Biosphere’s Resilience

The Garnaut Review is tasked with investigating, ‘the weight of scientific opinion that developed countries need to reduce their greenhouse gas emissions by 60 percent by 2050 against 2000 emission levels, if global greenhouse gas concentrations in the atmosphere are to be stabilised to between 450 and 550ppm by mid century.’ As Professor Garnaut summarises well, “Climate change is already more advanced than the world realises, and tackling it will present ‘diabolical’ policy challenges…. (When you include non CO2) greenhouse gas concentrations the atmosphere has already topped the 450 parts per million seen as a danger level — while emissions were growing by 3.1 percent a year, much faster than forecast by the Intergovernmental Panel of Climate Change…'business as usual' is carrying the world towards high risks of dangerous 70

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge, See Part 2: Chapters 3-6. Available at www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_report.cfm. Accessed 14 April 2007 71 Stern, N. (2006) The Stern Review: The Economics of Climate Change, Executive Summary Cambridge University Press, Cambridge, p 10. Available at http://www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf. Accessed 14 April 2007. 72 Ibid 73 Ibid


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climate change faster than seemed to be the case a short while ago. The need for an effective policy response is more urgent than we thought." 74 This section provides supporting evidence for the premise that the longer we wait, the more likely the costs of inaction will increase. Developing and meeting greenhouse gas reduction targets is urgent, because emission concentrations are now exceeding environmental thresholds with regard to how much the biosphere can accommodate. As Section 1 of the Stern Review 75 states, where one or more system thresholds are exceeded (for example in the atmosphere, in oceans, or on land), escalating disturbance within the system is likely, regardless of what remedial measures are put into place. Scientists are particularly concerned about ‘positive feedback loops’, which refer to a situation where a trend already under way (such as temperature rise) begins to reinforce itself regardless of whether the original stimulation is removed (such as increasing greenhouse gas emissions). 76 Given the complexity of natural systems, it is difficult to predict when or how positive feedbacks will impact upon the surrounding system, but it is likely to be complicated. As Lester Brown writes, the impact of our current form of development means that, ‘we are crossing natural thresholds that we cannot see and violating deadlines that we do not recognise. Nature is the time keeper, but we cannot see the clock. Among other environmental trends undermining our future are shrinking forests, expanding deserts, falling water tables, collapsing fisheries, disappearing species, and rising temperatures. The temperature increases bring crop-withering heat waves, more-destructive storms, more-intense droughts, more forest fires, and, of course, ice melting.’ 77 Scientists like NASA’s James Hansen argue that if rapid greenhouse gas reductions do not occur in the next ten years then these ironically termed ‘positive feedbacks’, once unleashed, will cause a global catastrophe, increasing the risk of sea level rises and extreme weather events, and resulting in significant economic and business losses globally. 78 More than ever there is recognition of the need for unprecedented global cooperation to undertake action as rapidly as possible to avoid triggering such feedback effects. Al Gore has called the situation nothing less than a ‘Planetary Emergency’. 79 Responding to the Garnaut Review and within the context of system thresholds, we now briefly introduce several examples of the positive feedback effect that scientists are particularly concerned about, which could amplify the problems with global warming. These examples support the argument for swift and large-scale action to first stabilise then sustain long term reductions in GHG emissions. 80 For a detailed account and for other issues, please refer to the Stern Review, 81 UNEP’s GEO4 82 and Lester Brown’s Plan B. 83 -

The weakening of the ocean and land carbon sink:

74

Colebatch, T. (2007) ‘Climate worse than we thought’ The Age, November 30, 2007. Available at www.theage.com.au/news/national/climate-worse-than-we-thought/2007/11/29/1196037074795.html. Accessed 10 April 2008; Garnaut, R. (2007) ‘Must Climate Change End the Platinum Age?’ ANU S.T. Lee Lecture on Asia and the Pacific, ANU. Available at http://info.anu.edu.au/Discover_ANU/News_and_Events/Public_Lectures/_ross_garnaut.asp. Accessed 10 April 2008. 75 Stern, N. (2007) The Economics of Climate Change: The Stern Review. Cambridge Press, Cambridge, Section 1, pp 12-14. 76 Brown, L.R. (2008) Plan B 3.0: Mobilizing to Save Civilization, W.W. Norton & Company, New York, Chapter 3: Rising Temperatures and Rising Seas, p 59. Available at www.earth-policy.org/Books/PB3/Contents.htm. Accessed 10 April 2008. 77 Ibid, pp 4-5. 78 Hansen, J. and Sato, J. et al. (2007) ‘Climate change and trace gases’, Phil. Trans. Royal Soc, vol 365, pp 1925-1954. Available at http://pubs.giss.nasa.gov/abstracts/2007/Hansen_etal_2.html Accessed 13 February 2008. 79 Barringer, F. and Revkin, A.C. (2007) ‘Gore Warns Congress of ‘Planetary Emergency’’, The New York Times. Available at http://www.nytimes.com/2007/03/22/washington/22gore.html Accessed 13 February 2008. 80 Pearman, G. et al (2007) Evidence of Accelerated Climate Change Prepared by the Climate Adaptation Science and Policy Initiative, The University of Melbourne for the Climate Institute. Available at http://www.climateinstitute.org.au/images/stories/CI056_EACC_Report_v1.pdf Accessed 13 February 2008; Pittock, B. (2006) ‘Are Scientists Underestimating Climate Change?’ EOS, Transactions American Geophysical Union, vol 87, no. 34, pp 340-341. 81 Stern, N. (2007) The Economics of Climate Change: The Stern Review, Cambridge Press, Cambridge. 82 UNEP (2007) Global Environment Outlook (GEO4): Environment for Development 4, United Nations Environment Program. 83 Brown, L.R. (2008) Plan B 3.0: Mobilizing to Save Civilization, W.W. Norton & Company, New York, p 59. Available at www.earthpolicy.org/Books/PB3/Contents.htm. Accessed 10 April 2008.


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Global temperature increases are being amplified by the weakening of the planet’s ocean and land ‘carbon sinks’ to absorb greenhouse gas emissions. Scientists are warning that levels of carbon dioxide in the atmosphere have grown 35 percent more quickly than expected since 2000 not only because of fossil fuel use inefficiency (i.e. increasing use of coal-fired power stations and a lack of technological improvements) but also through a ‘weakening’ of natural carbon sinks. 84 According to the scientists from the University of East Anglia (UEA), the British Antarctic Survey and the Global Carbon Project, over half the decline of the carbon sink efficiency is the result of intensifying winds in Antarctica's Southern Ocean disrupting the sea's ability to store carbon. There are signs that there has been an additional relative weakening of oceanic sinks as result of changes in other atmospheric factors, including surface air temperatures and water temperature fluxes. 85 Over the last 200 years, the planet’s oceans have absorbed nearly half the carbon dioxide produced by human activities. 86 However, as emissions and ocean temperatures have gradually increased, the buffering capacity of the oceans have decreased, with ocean acidification, changes to biological processes, increased temperatures and a reduced ability to absorb more carbon dioxide. 87 This is also reflected in land ecosystems through reduced plant growth and the drying and burning of forests (releasing more carbon dioxide). 88 Other researchers at UEA have reported that measurements of the north Atlantic ocean from the mid-1990s to 2005 show the level of carbon dioxide reducing by about half over the decade. Research released in October 2007 confirmed that there has been, ‘a decrease in the planet’s ability to absorb carbon emissions due to human activity’. According to lead author and Executive Director of the Global Carbon Project, CSIRO’s Dr Pep Canadell. ‘Fifty years ago, for every tonne of CO2 emitted, 600kg were removed by land and ocean sinks. However, in 2006, only 550kg were removed per tonne and that amount is falling’. 89 The Global Carbon Project reports that the efficiency of natural sinks has decreased by 10 percent over the last 50 years (and will continue to do so in the future). These projections imply that the longer we wait to reduce emissions, the larger the cuts needed to stabilise atmospheric greenhouse gas emissions. 90 -

The melting of polar sea ice and implications for land ice Global temperature rise may also be amplified by the ‘albedo’ phenomenon of melting sea ice. In the Arctic, the temperature increase is currently 2.5 times the global average, causing

84

Raupach, M. et al. (2007) ‘Global and regional drivers of accelerating CO2 emissions’, Proceedings of the National Academy of Sciences of the United States of America, vol. 104, no.24, pp 10288-10293. Available at http://www.pnas.org/cgi/content/abstract/104/24/10288 Accessed 13. February 2008; British Antarctic Survey (2007) ‘Unexpected Increase in Atmospheric CO2’, Press Release, 23 October 2007. Available at www.antarctica.ac.uk/press/press_releases/press_release.php?id=328. Accessed 10 April 2008. 85 Le Quere, C. et al (2007) ‘Saturation of the Southern Ocean CO2 Sink Due to Recent Climate Change’, Science, Issue 316. 86 Kuylenstierna, J. and Panwar, T. (Ed.) (2007) ’Atmosphere’ in United Nations Environment Program, Global Environment Outlook (GEO4): Environment for Development 4, United Nations Environment Program, p 65. Available at http://www.unep.org/geo/geo4/media/. Accessed 12 April 2008. 87 Royal Society (2005) Ocean Acidification due to increasing atmospheric carbon dioxide, Policy Document 12/05, The Royal Society, London. Available at http://www.royalsoc.ac.uk/displaypagedoc.asp?id=13539. Accessed 10 April 2008. (Cited in GEO4 (2007), Chapter 4 , p 128; Homer-Dixon, T. (2007) ‘Op-Ed Contributor: A Swiftly Melting Planet’, NY Times, 4 October 2007. Available at www.nytimes.com/2007/10/04/opinion/04homer-dixon.html. Accessed 10 April 2008; Cox, P., Betts, R., Jones, C., Spall, S. and Totterdell, I. (2000) ‘Acceleration of Global Warming Due to Carbon-Cycle Feedbacks in a Coupled Climate Model’, Nature, 408, pp184–187; Jones, C.D.. and Cox, P.M. et al. (2003) ‘Strong carbon cycle feedbacks in a climate model with interactive CO2 and sulphate aerosols’, Geophysical Research Letters, vol. 30, no. 9, pp 1479. 88 Intergovernmental Panel on Climate Change (2001) Climate Change 2001: Synthesis Report, Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge. 89 Canadell, J. G. and LeQuere, C. et al. (2007) ‘Contributions to accelerating atmospheric CO2 growth from economic activity, carbon intensity, and efficiency of natural sinks’, Proceedings of the National Academy of Sciences, October 2007. 90 Global Carbon Group (2008) Carbon Trends: State of the carbon cycle - An annual update of the global carbon budget, Global Carbon Group. Available at http://www.globalcarbonproject.org/carbontrends/index.htm. Accessed 10 April 2008.


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extensive melting of sea and land ice. 91 Prior to 2007, the IPCC consensus was that a two degree temperature rise was the upper bound that the planetary system needed to stay under, to avoid serious climate change. To do this, the IPCC argued that global emissions had to start to decline no later than 2012-13, followed by global reductions of 25-40 percent by 2020, and at least 80 percent reductions by 2050. 92 However, where scientists once thought the Arctic would be free of sea ice in summer by 2100 or perhaps 2070, there is now discussion that with the complex nature of feedback loops within the oceans and atmosphere, this could now be as early as 2030 and even this could be a conservative estimate. 93 Figure 4 shows the 2007 summer melt of the Arctic sea ice which occurred after the IPCC formally stopped taking new evidence for its 4th Assessment. The extent of sea ice for September 2007 was the lowest ever recorded, beating the old record set in September 2005 by 23 percent, an area the size of the USA’s states of Texas and California combined. 94

Figure 4: Actual Arctic Summer Sea Ice Loss Compared to IPCC Models Source: Dr Asgeir Sorteberg, Bjeknes Centre for Climate Research and University Center at Svalbard, Norway (2007) 95 Thawing of Arctic sea-ice to water also means that heat absorption at the poles is drastically increased from around 10 percent to 80 percent of incoming radiation. This is known as the ‘albedo’ effect, where the replacement of highly reflective sea ice with darker open water 91

ACIA (2004) Impacts of a warming Arctic, Arctic Monitoring and Assessment Programme, Cambridge University Press, Cambridge. (Cited in GEO4 (2007), Chapter 4, p 120) 92 IPCC (2007) Climate Change 2007: Synthesis Report, Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, Pachauri, R.K and Reisinger, A. (eds.)], IPCC, Geneva, Switzerland, p 104. 93 Adam, D. (2007) ‘Ice-Free Arctic Could be Here in 23 Years’ The Guardian, UK, 5 September 2007. 94 Serreze, M., Luthcke, S.B. and Konrad, S. (2007) Arctic Sea Ice Melt and Shrinking Polar Ice Sheets: Are Observed Changes Exceeding Expectations? An address to the American Meteorological Society's Environmental Science Seminar Series. Available at http://www.ametsoc.org/atmospolicy/ESSSSummaryPrint11262007.html. Accessed 10 April 2008. 95 Courtesy of Dr Asgeir Sorteberg, 2007, Bjeknes Centre for Climate Research and University Center at Svalbard, Longyearbyen, Norway. Available at http://www.carbonequity.info/images/seaice07.jpg. Accessed 12 April 2008.


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greatly increases heat absorbed from sunlight. 96 Such a concentration of heat at the poles then has the ability to reach a temperature threshold that can melt land ice. At the same time that the Arctic sea ice rapidly melted in 2007, mean land melt on the Greenland land ice sheet was the largest in the 29 years that records have been kept, which is 10 percent greater than the previous 2005 record. Records show that mass lost from the ice sheet has more than doubled between 1996 and 2005. 97 Should the Greenland and the Western Antarctic Ice Shelves melt, this would result in up to a 7m global sea level rise from the Greenland ice sheet, and a 5m global sea level rise from the Antarctic ice sheet respectively. Current models estimate that this could occur sometime within the next 1000 years, 98 but perhaps much sooner if recent melt rates are anything to go by. According to Robert Corell, chairman of the Arctic Climate Impact Assessment, there has also been a massive acceleration of the speed with which glaciers are breaking up and moving into the sea, with Arctic ice moving at 2 metres an hour on a front 5 kilometres (3 miles) long and 1,500 metres deep. 99 He noted that the projected rise in sea level during this century of 18-59 centimetres (7-23 inches) by the IPCC was based on a conservative assessment of the contribution of this ice melt to sea level rise, with some scientists now believing the increase could be as much as 2 metres. 100 With this new evidence of accelerating ice melt on both land and in the sea, leading climate scientists from the IPCC like James Hanson now argue that only a target of 350 ppm will ensure a truly safe level of greenhouse gas emissions. 101 The fact that net greenhouse gas equivalent levels are already at 450 ppm shows, as Garnaut has stated, that we may already have passed a tipping point of dangerous climate change. -

Release of methane from peat deposits, wetlands and thawing permafrost The rate of global temperature rise may also be amplified by the release of methane from peat deposits, wetlands and thawing permafrost, 102 which has the potential to release billions of tons of carbon. Some of this carbon would be in the form of methane, which is a potent greenhouse gas with a global warming effect per ton that is 25 times more potent than carbon dioxide. 103 Models suggest that up to 90 percent of the upper layer of permafrost will thaw by 2100. 104 A recent study found that Siberia’s thawing wetlands are a significant, underestimated source of atmospheric methane. 105 Consider that, together, the wetland and permafrost soil stores comprise more than double the total cumulative emissions from fossil fuel burning so far. 106 Arctic permafrost has warmed by up to 2 degrees Celsius in recent

96

Brown, L.R. (2008) Plan B 3.0: Mobilizing to Save Civilization, W.W. Norton & Company, New York, p 64. Available at www.earthpolicy.org/Books/PB3/Contents.htm. Accessed 10 April 2008. 97 Earth Watch Institute (2008) Selected examples of ice-melt around the world, Earth Watch Institute. Available at http://www.earthpolicy.org/Indicators/Ice/2008_data.htm. Accessed 10 April 2008. 98 United Nations Environment Program (UNEP) (2007) Global Outlook for Ice and Snow, United Nations Environment Program, Nairobi, p103; Hansen, J. et al (2007) ‘Climate Change and Trace Gases’, Philosophical Transactions of the Royal Society A, vol. 365, pp 1949-50; Gregory, J.M. and Huybrechts, P. (2006) ‘Ice-sheet contributions to future sea-level change’, Pil. Trans. R.Soc A, vol. 364, pp 1709-1731. (Cited in GEO4(2007), p 64) 99 Brown, P. (2007) ‘Melting Ice Cap Triggering Earthquakes’ The Guardian, UK, 8 September 2007, cited in Brown, L.R. (2008) Plan B 3.0: Mobilizing to Save Civilization, W.W. Norton & Company, New York, p 4. Available at www.earthpolicy.org/Books/PB3/Contents.htm. Accessed 10 April 2008. 100 Ibid; Doyle, A. (2007) ‘Sea Rise Seen Outpacing Forecasts Due to Antarctica’ Reuters, 23 August 2007. 101 Hanson, J. (2008) Global Warming: The Perfect Storm, University of Columbia. Available at http://www.columbia.edu/~jeh1/RoyalCollPhyscns_Jan08.pdf Accessed 13. February 2008. 102 ACIA (2004) Impacts of a warming Arctic, Arctic Monitoring and Assessment Programme. Cambridge University Press, Cambridge. (Cited in GEO4 (2007) Chapter 4, p 120) 103 Intergovernmental Panel on Climate Change (2007) ‘Summary for Policymakers’ in Climate Change 2007: The Physical Science Basis, Contribution of Working Group 1 to the Fourth Assessment Report of the IPCC, Cambridge University Press, Cambridge and New York, p 33; Zimov, S.A. et al (2006) ‘Permafrost and the Global Carbon Budget’, Science, vol 312, no. 3780, pp 1612-13. 104 st Lawrence, D.M. and Slater, A.G. (2005) ‘A projection of severe near-surface permafrost degradation during the 21 century’, Geophysical Research Letters, vol 32, p L24401. Based on the IPCC’s A2 Scenario, cited in Stern, N. (2007) Stern Review, Cambridge University Press, Cambridge. 105 Wickland, K.P., Striegl, R.G., Neff, J.C. and Sachs, T. (2006) ‘Effects of Permafrost Melting on CO2 and CH4 Exchange of Poorly Drained Black Spruce Lowland’, Journal of Geophysical Research, vol 111, no. G0201. 106 Stern, N. (2007) The Economics of Climate Change: The Stern Review, Cambridge Press, Cambridge, p 14.


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decades and methane emissions from thawing permafrost in Northern Siberia increased an estimated 58 percent between 1974 and 2000. 107 As the Stern Review recognises, with lakes in the region growing in number and size and emission rates appearing to be five times higher than previously estimated, permafrost melting is now another escalating issue to consider with global warming. 108 In total, methane emissions each year from thawing permafrost and wetlands could increase by more than 50 percent of current methane emissions, equivalent to 10 – 25 percent of current human induced emissions. 109 With the potential for escalating temperature changes, there is the potential for significant impacts on our ability to source fresh water and food, as briefly highlighted below: -

Temperature Rise and Agricultural Impacts Higher temperatures diminish crop yields, melt the snow/ice reservoirs in the mountains that feed the Earth’s rivers, cause more-destructive storms, increase the area affected by drought, and cause more frequent and destructive wildfires. A one degree Celsius rise in temperature above the norm for crop growth has been shown to lower wheat, rice, and corn yields by 10 percent. A two degree Celsius rise has been found to lead to a decline in irrigated wheat yields ranging from 37 to 58 percent. 110 In Australia, alongside rising temperatures, farmers are faced with shrinking supplies of irrigation water, a diminishing response to additional fertiliser use, the loss of cropland to nonfarm uses, rising fuel costs, and a dwindling backlog of yield-raising technologies. 111 Production from agriculture and forestry is projected to decline by 2030 over much of southern and eastern Australia due to increased drought and fire. By 2030, grape prices per ton will drop by 4-10 percent in the Yarra Valley and 16-52 percent in the Riverina. By 2070, south-western wheat regions are likely to have significant yield reductions while north-eastern wheat regions are likely to have moderate increases in yield, although increased rainfall intensity is likely to exacerbate soil erosion problems. 112 As advocated by Land and Water Australia, ‘Australian agriculture needs innovation through continued research, development and adoption to meet these challenges – delivering better seasonal forecasting, decision tools for cropping and grazing, improved irrigation scheduling and new plant varieties’. 113 Prime Minister Rudd has stressed that the federal government will not walk away from struggling farmers, but wants a situation in which after every time a farmer contacts the government, they are better prepared for climate change. 114

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Temperature Rise and Access to Fresh Water Climate change will reduce by at least half the available water from rivers which depend on snow melt from the Himalayan plateau. In China by 2040, climate change could mean 30 percent less land for rice and grain at a time when it needs to be boosting its food production

107

Earth Watch Institute (2008) Selected examples of ice-melt around the world, Compiled by Earth Policy Institute, January 2008, from sources including WWF, Arctic Climate Impact Assessment, UNEP, IPCC, NASA, National Snow and Ice Data Center, and other scientific literature. Available at http://www.earth-policy.org/Indicators/Ice/2008_data.htm. Accessed 10 April 2008. 108 Walter, K. M. and Zimov S. A., et al (2006) ‘Melting Lakes in Siberia Emit Greenhouse Gas’, Nature, vol 443, pp 71 – 75. Available at http://www.nature.com/news/2006/060904/full/060904-10.html Accessed 13. February 2008. 109 Davidson and Janssens (2006) Gedney et al (2004) and Archer (2005) cited in Stern N. (2007) The Economics of Climate Change: The Stern Review, Cambridge Press, Cambridge, p 14. 110 Brown, L.R. (2008) Plan B 3.0: Mobilizing to Save Civilization, W.W. Norton & Company, New York. Available at www.earthpolicy.org/Books/PB3/Contents.htm. Accessed 10 April 2008. 111 Ibid, p 176. 112 IPCC (2007) cited in Hennessy, K. and Fitzharris, B. (2007) Australian climate change impacts, adaptation and vulnerability, A CSIRO presentation to Greenhouse 2007 Sydney, 2 October, 2007. Available at www.greenhouse2007.com/downloads/keynotes/071002_Hennessy.pdf. Accessed 11 April 2008. 113 Land and Water Australia (2007) ‘Australian Farmers Managing Climate Change: Impacts and Adaptations’, Fact Sheet in the Managing Climate Variability R&D Project, Land and Water Australia. 114 Franklin, M. (2008) ‘PM: Farmers to adapt for climate change’, The Australian, March 05, 2008.


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by 40 percent to meet rising population demands. Head of the Australian police, Mick Keelty has commented, ‘How does it achieve this if its available land is dramatically shrinking and millions of people are on the move because of [loss of] land and water?’ 115 In the same interview, Keelty also stated that in Asia, ‘we could see a catastrophic decline in the availability of fresh water. Crops could fail, disease could be rampant and flooding might be so frequent that people – en masse – would be on the move.’ In Australia, since 1950 there has been a 0.7 degree Celsius temperature rise, with more heat waves, fewer frosts, more rain in north-western Australia, less rain in southern and eastern Australia, an increase in the intensity of Australian droughts and a rise in sea level of about 7 centimetres. 116 -

Temperature Rise and Security In defence and security circles it is common to examine all possible scenarios when assessing risks. We need this to be done for climate change. Now that security experts are arguing that climate change is just as big, if not a bigger risk, to national security this century than terrorism the time is right to fund a proper investigation of a national emergency scenario for rapidly mitigating climate change in Australia. The region of the Asia Pacific will be particularly negatively affected by climate change increasing the risks of conflict, refugees, and lawlessness. Keelty has stated that across Australia, ‘in their millions, people could begin to look for new land and they’ll cross oceans and borders to do it’. 117 Already islands are being overwhelmed by sea level rises in the Pacific and Bangladesh only needs a half a meter to a meter rise in sea levels to force 50-100 million to migrate. Most of the mega cities in Asia are on low lying river delta’s which are very vulnerable to the slightest sea level rises. Professors Dupont and Pearman outlined the security risks of climate change in detail in their Lowy Institute paper 118 in 2006.

In summary, there are a number of positive feedbacks within the world’s biosphere in relation to climate change which, once triggered, threaten to raise global temperatures significantly, irrespective of what other reductions are achieved. These were outlined in detail in Chapter 1 of the Stern Review yet few decision makers yet realise that now most of these positive feedbacks are being activated faster than even the IPCC predicted for their 4th Assessment, published just 12 months ago. Submissions to the Garnaut Review by respected climate scientists like Pearman have outlined that the science is worse than thought even 12 months ago. This has been acknowledged by Garnaut who has publicly stated that the world is close to the tipping point for dangerous climate change. It has also been acknowledged by Opposition Spokesperson on Climate Change, Greg Hunt who has said that the, ‘Science is worse but the economics are better than we previously thought’. As Winston Churchill once said, warning about the imminent second world war, ’The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences’. 119 4.2.

The Threat of Reducing the Biosphere’s Resilience in Australia

115

Johnston, T. (2007) ‘Climate change becomes urgent security issue in Australia’, International Herald Tribune – Asia Pacific, 3 October 2007. Available at www.iht.com/articles/2007/10/03/asia/australia.php. Accessed 11 April 2008. 116 IPCC (2007) Fourth Assessment Report. WG2: ‘Climate Change 2007: Impacts, Adaptation & Vulnerability', Intergovernmental Panel on Climate Change. 117 Johnston, T. (2007) ‘Climate change becomes urgent security issue in Australia’, International Herald Tribune – Asia Pacific, 3 October 2007. Available at www.iht.com/articles/2007/10/03/asia/australia.php. Accessed 11 April 2008. 118 Dupont, A. and Pearman, G. (2006) Heating up the planet: climate change and security, Lowy Institute for Sustainable Policy. Available at http://www.lowyinstitute.org/Publication.asp?pid=391. Accessed 11 April 2008. 119 Churchill, W. cited in Gore, A. (2005) The Time to Act is Now: The Climate Crisis and the Need for Leadership, Salon Media Group, USA. Available at http://dir.salon.com/story/opinion/feature/2005/11/04/gore/index.html. Accessed 12 April 2008.


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Few studies have been done anywhere in the world to calculate the costs of inaction (the Stern Review 120 is one of these few). Valuing the costs of inaction from climate change for Australia is not easy, but will be crucial in the ongoing debate about costs of action versus inaction, to have a solid study for the costs of inaction for Australia. It is therefore very important that the final Garnaut Review discusses the costs of inaction in detail for Australia and Australian industry. There are a number of documents which can assist the Garnaut Review to both compile an estimate of costs of inaction and justify those estimates. CSIRO has published a number of assessments of the risks of inaction on climate change for Australia. 121 In 2007, the Intergovernmental Panel on Climate Change (IPCC) published a specific report for Australia 122 warning that, if no action was taken climate change would cause rapid changes to temperature, water availability and regional climates, which is already impacting on Australia’s ecosystems and putting our unique biodiversity at risk. 123 The IPCC’s Fourth Assessment Report 124 identified six key Australian ‘vulnerability hot spots’: the Murray-Darling Basin, Wet Tropics (including the Great Barrier Reef), Kakadu, South-Western Australia, south-eastern Queensland and our alpine regions. A temperature rise above two degrees Celsius not only risks irreversible damage to our natural world, but also significant economic losses. Damage to vulnerable ecosystems such as the Great Barrier Reef, south-west Australia, the Kakadu wetlands, rainforests and alpine areas, many of which are world heritage sites and tourist destinations. CSIRO estimates that in Australia, nature provides approximately AUD$1.3 trillion worth of ecosystem services, upon which the Australian economy depend. 125 Specific risks of inaction on climate change to industries including tourism, water, primary infrastructure and insurance are highlighted in the following table.

120

Stern, N. (2007) The Economics of Climate Change: The Stern Review, Cambridge Press, Cambridge. Preston, B.L. and Jones R.N. (2006) Climate Change Impacts on Australia and the Benefits of Early Action to Reduce Global Greenhouse Gas Emissions, CSIRO. Available at http://www.csiro.au/files/files/p6fy.pdf. Accessed 13. February 2008 122 IPCC (2007) ‘Summary for Policymakers’. in Parry, M.L., Canziani, O.F., Palutikof, J.P., van der Linden, P.J. and Hanson, C.E. (eds) Climate Change 2007: Impacts, Adaptation and Vulnerability, Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, UK, pp 7-22. 123 Insurance Australia Group, World Wildlife Fund (2008) Climate Change Solutions For Australia, The Australian Climate Group. Available at www.wwf.org.au/publications/wwf-climate-change-solutions.pdf. Accessed 12 April 2008. Includes references to the following reports: Raven, J et al (2005) Ocean acidification due to increasing atmospheric carbon dioxide, Royal Society Special Report; Riebesell, U., Shepherd, J., Turley, C. and Watson, A. (2005) Ocean acidification due to increasing atmospheric carbon dioxide, Royal Society Special Report; Hoegh-Guldberg, O. et al (2007) ‘Coral Reefs Under Rapid Climate Change and Ocean Acidification’, Science, vol 318: 1737–1742; Bruno, J. F. and Selig, E. R. (2007) ‘Regional Decline of Coral Cover in the Indo-Pacific: timing, extent, and sub-regional comparisons’, PLOS One, Pub Med Central. Available at http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1933595 Accessed 10 April 2008. 124 IPCC (2007) Fourth Assessment Report. WG2: ‘Climate Change 2007: Impacts, Adaptation & Vulnerability’, IPCC. Available at http://www.ipcc.ch/SPM6avr07.pdf. Accessed 14 April 2007. 125 Refer to the CSIRO Ecosystem Services Project at http://www.ecosystemservicesproject.org/ and Publications from the Australian Productivity Commission, including: Creating Markets for Ecosystem Services, 19 June 2002 , Harnessing Private Sector Conservation of Biodiversity, Creating Markets for Biodiversity: A Case Study of Earth Sanctuaries Ltd Constraints on Private Conservation of Biodiversity, and Cost Sharing for Biodiversity Conservation: A Conceptual Framework. 121


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Table 3: Summary of climate change impacts on Australia across selected areas

Source: CSIRO Marine & Atmospheric Research (2006) 126

126

Preston, B.L. and Jones, R.N. (2006) Climate Change Impacts on Australia and the Benefits of Early Action to Reduce Global Greenhouse Gas Emissions, CSIRO. Available at http://www.csiro.au/files/files/p6fy.pdf. Accessed 13 February 2008.


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Implications with respect to specific ecosystem services are briefly highlighted below: -

Coral Reef Systems A two degree Celsius sea temperature rise and associated acidification (with an atmospheric carbon dioxide concentration of 450ppm) could cause reefs such as the Great Barrier Reef (GBR) and those off Western Australia to start eroding, with significant ramifications for those ecosystems and subsequently the tourism, commercial and recreational fishing industries. 127 Approximately 1.6 million tourists visit the GBR annually and associated tourism is a significant employer and economic mainstay. In 2004-2005 the GBR generated over AUD$5 billion and provided the equivalent of around 63,000 full-time positions. A recent study has shown that the area of coral in the Pacific region (including the GBR) is currently declining at the rate of 1-2 percent a year. While a range of factors, including declining water quality and over-exploitation of key fish species, have contributed to this decline, the growing periods of heat stress is a major factor.

-

Rainfall and Runoff In future, average rainfall is predicted to decline across Australia, but not in a uniform manner. A marked increase in the frequency of droughts is also likely, with up to 20 percent more droughts predicted over most of Australia by 2030. By 2070 this increases to up to 40 percent in eastern Australia and 80 percent in south-western Australia. 128 According to CSIRO, by 2030 there will be far less water for coal-fired power plants and water electricity. 129 The coal industry will struggle to meet the predicted increases in electricity peak load demand by 2050 due to lack of availability of water needed for the Snowy Mountain Scheme and for the coal production and burning process.

-

Evaporation and Runoff Warmer temperatures also mean faster evaporation. Together with less rain, this is likely to lead to marked reductions in soil moisture and stream flow throughout much of Australia, particularly in the south and east. Water security problems are projected to intensify by 2030 in southern and eastern Australia. The Murray-Darling Basin, which accounts for around 70 percent of our irrigated crops and pastures, can expect a decrease in annual stream flow of 10–25 percent by 2050. By 2020, there is a 50 percent chance that the average salinity of the lower Murray River will exceed the threshold for drinking and irrigation. Production from agriculture and forestry by 2030-2050 is also projected to decline over much of southern and eastern Australia. The Australian Bureau of Agriculture and Resource Economics (ABARE) has predicted that farm production could drop by 20 percent by 2050, and Australian farm exports to fall by anywhere between 30-80 percent as a result of the effects of climate change. 130

127

Hobday, A., Okey, T.A., Poloczanska, E., Kunz, T. and Richardson, A. (2007) Impacts of Climate Change on Australian Marine Life, CSIRO Marine and Atmospheric Research report to the Australian Greenhouse Office, Department of Environment and Water Resources. Available at http://www.greenhouse.gov.au/impacts/publications/pubs/marinelife-parta.pdf. Accessed 13. February 2008; Dayton, L. (2007) ‘Reef Gone in 20 Years If Warming Continues’, The Australian. Available at http://www.theaustralian.news.com.au/story/0,20867,21516991-601,00.html.. Accessed 13. February 2008. 128 Insurance Australia Group, World Wildlife Fund (2008) Climate Change Solutions For Australia, The Australian Climate Group. Available at www.wwf.org.au/publications/wwf-climate-change-solutions.pdf. Accessed 12 April 2008. 129 ABC (2007) ‘CSIRO Warns Vic on Global Warming Impact’, ABC News Online, May 16, 2007. Available at http://www.abc.net.au/news/newsitems/200705/s1924167.htm Accessed 13 February 2008. 130 ABARE (2007) Australian Commodities December Quarter 07.4, Commonwealth of Australia. Available at http://www.abare.gov.au/publications_html/ac/ac_07/a1_dec.pdf Accessed 13. February 2008.


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-

Sea Level Rise There is a high probability of at least a half a metre to a metre sea level rise by 2100, which has serious implications for the largely coastal real estate market in Australia, and businesses along the coastline. There is a significant risk that such low lying areas will be difficult to insure in decades ahead. Accessible and affordable insurance that spreads weather related risk is an important component of the national economy. If the insurance industry’s ability to underwrite weather-related risk was reduced or the cost of insurance rose significantly, it could have severe implications for the economic health of vulnerable regions.

-

Extreme Weather Events There is a higher probability and intensity of extreme weather events leading to greater risks of bushfires, hail storms, cyclones, droughts and floods. Heatwaves are a particular hazard, especially in heat-retaining urban environments. A dramatic rise in the number of summer days over 35 degrees by 2050, leading to loss of productivity at work, higher peak load electricity costs for business and industry, and increases in heat stress injuries and deaths. A dramatic rise in the number of summer days over 35 degrees will also lead to rising peak load electricity demand, putting pressure on electricity providers (see Rainfall and Runoff). There is the potential for increases in the number of deaths and serious illness events, particularly in older persons and those with pre-existing chronic diseases. Modelling studies project a two to three-fold increase in urban heat-related death rates by around mid-century. The impact of climate change on rural Australia, with long-term drying likely in some regions, will threaten livelihoods, community cohesion and mental health. Greater exposure to heat, dust, and smoke in the rural environment will pose health risks, and drying and freshwater shortage may endanger local food yields and domestic hygiene. Many infectious diseases are sensitive to climate conditions. Bacterial food poisoning rates increase with warmer temperatures. Diseases spread by mosquitoes and other vectors tend to spread more widely with increases in temperatures, rainfall and humidity – and some, such as mosquito-borne Dengue Fever, are anticipated to spread further south into sub-tropical Australia. 131 Climate change is expected to affect several factors that drive hailstorm intensity in the Sydney Basin, such as sea surface temperatures and air currents. Some scientific research suggests that hailstorms with hail 9 centimetres in diameter could become twice as frequent between 2000 and 2050. Sydney has already experienced hailstones 9 centimetres in diameter during the April 1999 hailstorm, which is the most costly natural disaster in Australia’s history with losses in excess of $2.35 billion (CPI-indexed to 2007 dollars). 132 Climate change is expected to cause tropical cyclones to become more intense and possibly to move south over the heavily populated areas of south-eastern Queensland and northern NSW. However, this trend could remain hidden for several decades, masked by high natural variations in the number of cyclones from decade to decade. During the next 50 years there is potential for tropical cyclones that are more intense than have ever been recorded in the South-West Pacific Basin. This significantly higher cyclone risk would have serious consequences for communities and infrastructure in heavily populated coastal regions unprepared for the damaging winds, flooding and destructive storm surges. 133

131

Insurance Australia Group, World Wildlife Fund (2008) Climate Change Solutions for Australia, The Australian Climate Group. Available at www.wwf.org.au/publications/wwf-climate-change-solutions.pdf. Accessed 12 April 2008. Leslie, L.M., Leplastrier, M. and Buckley, B. (2007)’Estimating future trends in severe hailstorms over the Sydney Basin: A climate modelling study’, Atmospheric Research, vol 87, no 1, pp 37-51. 133 Leslie, L. M., Karoly, D. J., Leplastrier, M. and Buckley, B. W. (2007) ‘Variability of tropical cyclones over the southwest Pacific Ocean using a high-resolution climate model’, Meteorology Atmospheric Physics, vol 97, pp 171–180. 132


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4.3.

Risks and Costs of Inaction for Business

The latest climate science has revealed more extensive consequences and shorter timelines for solving global warming problems than had previously been thought. The latest IPCC 4th Assessment’s 3rd report published on 4 May 2007 makes this very clear. 134 Reporting on the IPCC’s report, journalist Minchin wrote, 135 The world has less than eight years to arrest global warming or risk what many scientists warn could be catastrophic changes to the planet…. The latest volume of the Intergovernmental Panel on Climate Change report, on how to slow global warming, found that making deep emission cuts will require significant changes to the way we live, from the types of power and transport we use, to how much we consume. In the panel's strongest warning so far that time is running out, it said that the next two to three decades will largely determine how much the planet warms up and how severely climate change affects our lives. Clearly, the time to act is now and companies that ignore climate change will be left behind and risk loosing significant business opportunities, reputation and community good will. Most leading corporations around the world are now taking action on climate change and positioning themselves for the booming markets in greenhouse friendly products. The trend to be first to market with low carbon products and improved environmental performance is taking hold in the world’s largest companies: -

In May 2005, General Electric, the oldest ‘corporation’ on the planet, announced ‘Ecomagination’, a major new business driver expected to more than double revenues from cleaner technologies to US$20 billion by 2010 (from US$6.2 billion in 2004). In May 2006, the company has already reported revenues of US$10.1 billion from its energy efficient and environmentally advanced products and services. 136

-

Wal-Mart announced in 2006 a US$500 million climate change commitment including initiatives to increase truck fleet fuel efficiency by 25 percent in three years and double it in ten. 137 They projected that such efficiency improvements will reap significant bottom line benefits for WalMart, making it even tougher for their competitors to compete. In addition, WalMart has developed a strategy to influence its 60,000 suppliers to produce lower carbon products. 138

A pro-active position on climate change also assists business to address other risks. Companies that do not proactively act on climate change will struggle to attract and retain the best and brightest graduates and recruits. In a world that overwhelmingly recognises climate change as a serious threat, behaviour that ignores it is coming to be seen as irresponsible. In 2003 the Columbia Journal of Environmental Law published an article 139 demonstrating the legal feasibility

134

IPCC (2007) Fourth Assessment Report. WG2: ‘Climate Change 2007: Impacts, Adaptation & Vulnerability’, IPCC. Available at http://www.ipcc.ch/SPM6avr07.pdf. Accessed 14 April 2007. 135 Minchin, L. (2007) ‘A Climate of Change’, The Age. Available at http://www.theage.com.au/news/national/a-climate-ofchange/2007/05/04/1177788398904.html?page=fullpage#contentSwap1. Accessed 5 May 2007. 136 Ibid 137 Climate Change Corp.Com (2006) Wal Mart – An Environmental Epiphany? Climate Change Corp.Com. Available at http://www.climatechangecorp.com/content.asp?ContentID=4009&ContTypeID=8. Accessed 14 April 2007. 138 The Climate Group (2007) Profits Up, Carbon Down (3rd ed), The Climate Group. Available at http://theclimategroup.org/assets/resources/cdpu_newedition.pdf. Accessed 14 April 2007. 139 Grossman, D. (2003) ‘Warming Up to a Not-So-Radical Idea: Tort-Based Climate Change Litigation’, Columbia Journal of Environmental Law, vol 28.


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of lawsuits holding companies accountable for climate change. The effects of such have already started. 140 In 2003, the Wall Street Journal reported, 141 With all the talk of potential shareholder lawsuits against industrial emitters of greenhouse gases, the second largest re-insurance firm, Swiss Re, has announced that it is considering denying coverage, starting with director’s and officer’s liability policies, to companies it decides aren’t doing enough to reduce their output of greenhouse gases. In an era of instant global communication, corporations and organisations who are seen to be laggards have their activities broadcast to an audience of millions, and risk swiftly losing their reputation. A 2004 survey of some of the world’s leading CEOs, undertaken by the World Economic Forum at Davos, found that the responding leaders felt that corporate reputation is now a more important measure of success than stock market performance, profitability, and return on investment. Only the quality of products and services edged out reputation as the leading measure of corporate success. Fifty-nine percent of the respondents estimated that corporate brand or reputation represents more than 40 percent of a company’s market capitalisation. 142 For all these reasons businesses are increasingly and proactively wanting to be seen as leaders on climate change rather than laggards. Take for instance, News Ltd and Fox, one of the biggest media companies in the world. Rupert Murdoch’s media empire will seek to become climate neutral by 2012 and use his vast media empire to promote action on climate change, as Murdoch stated recently, 143 And as many companies have already learned, acting on this issue is simply good business. Reducing our use of energy reduces costs… Inviting our employees to be active on this issue helps us recruit and retain the world's best. For us, as a media company - this is a chance to deepen our relationships with our viewers, readers, and web users. The debate is shifting from whether climate change is really happening to how to solve it. And when so many of the solutions make sense for us as a business, it is clear that we should take action not only as a matter of public responsibility, but because we stand to benefit. Let’s consider first Westpac, one of Australia’s oldest companies. Westpac has already achieved a 45 percent reduction in greenhouse gas emissions on 1996 levels. In 2007, The Climate Group reported that, 144 Since 1996 reductions in travel, paper and electricity use have cut the company’s GHG emissions by 45% on 1996 levels. In 2005-06, Westpac realized a 12% reduction by purchasing green power and integrating energy, water and emission performance indicators into facility managers’ contracts. Westpac is striving towards an ultimate goal of zero net emissions. Since 1993, Westpac has saved over US$7 million in energy costs and recently invested in a new headquarters designed to achieve optimal energy efficiency and minimal GHG emissions. As well as reducing its own carbon footprint, Westpac helps its customers

140

Friends of the Earth, in conjunction with Greenpeace and several western cities, filed one of the first climate change lawsuits last year. The suit charges two US government agencies with failing to comply with the National Environmental Policy Act (NEPA) requirements to assess the environmental impact of projects they financed over the past decade. The states of Connecticut, Massachusetts, and Maine have also filed a climate change lawsuit against another US government bureau, the Environmental Protection Agency, for failing to regulate carbon dioxide emissions under the Clean Air Act. 141 Ball, J. (2003) ‘Insurers Weigh Moves to Cut Liability for Global Warming Directors, Officers Could Face the Denial Of Coverage After Rules Are Implemented’, Wall Street Journal, May 7, 2003. Available at http://www.heatisonline.org/contentserver/objecthandlers/index.cfm?id=4277&method=full. Accessed 7 May 2007. 142 Sosnowchik, K. (2004) ‘Between Blue and Yellow: What's In a Name?’, Green@work. Available at http://www.greenatworkmag.com/magazine/between/04mayjun.html. Accessed 14 April 2007. 143 See Rupert Murdoch speech on Climate at http://www.theaustralian.news.com.au/story/0,20867,21705121-601,00.html. Accessed 10 May 2007. 144 See The Climate Group’s 2007 -Carbon Down Profits Up at http://theclimategroup.org/assets/resources/cdpu_newedition.pdf. Accessed 14 April 2007.


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reduce theirs – for example, through its green mortgage scheme. Its environmental credentials are also attracting new business and employees – 50% of graduates chose Westpac over other Australian banks explicitly because of its CSR approach. Hence, more than ever, competent greenhouse gas management is becoming a proxy for competent corporate governance. By taking a leadership position in dealing responsibly with climate change, businesses will be positioning themselves for new emerging markets and also ahead of likely changes to regulations and government incentives. Post the UK Stern Review 145 it is clear that significant policy reform on climate change from governments nationally and globally is warranted to correct what Nicholas Stern described as the biggest market failure ever – that of climate change. Significant policy and regulatory changes occurring globally will rapidly increase the markets for low carbon products and services, as summarised in the following table. Table 4: Fast Growing Markets in a GHG Constrained World Climate Change Mitigation

The Stern Review states that ‘Markets for low carbon energy products are likely to be worth at least $500bn per year by 2050, and perhaps much more. Individual companies and countries should position themselves to take advantage of these opportunities.’ 146 The WorldWatch Institute stated in its 2008, State of the World Report that ‘In 2006, an estimated US$52 billion was invested in wind power, biofuels, and other renewable energy sources, up 33 percent from 2005. Preliminary estimates indicate that the figure soared as high as US$66 billion in 2007.’ 147

GHG Emissions Trading

GHG Emissions trading is growing even more explosively, reaching an estimated US$30 billion in 2006, nearly triple the amount traded in 2005. 148

Greener Building Design

In the USA, by 2004 the Green Building market was already worth US$300 billion, and featured everything from environmentally sound New York skyscrapers 149 to homes and shopping malls.

Renewable Energy

Since 2003, Clean Energy Technologies - solar, biofuels, geothermal, tidal and hydropower – produced more electricity globally than nuclear energy ever has. With a global market of AUD$74 billion, which is forecast to grow fourfold by 2015. The global market for wind energy has averaged 40% growth annually in cumulative capacity over the last five years. 150 The global turnover of wind generation equipment is estimated at US$1.5 billion per year, and total industry turnover is estimated to reach between US$5 and $10 billion. 151 The global wind turbine market is expected to grow, driven by improved cost structures and supportive government policies. Both Germany and the UK have renewable energy targets of 10% by 2010, and California has a renewable energy target of 20% by 2017. The annual export market for wind manufacturing products from Asia has been estimated at US$110 million. 152 China’s Tenth Five Year Plan (2001 – 2005) calls for a nearly five-fold increase in wind capacity to 1.5 GW. The Philippines plans to introduce over 3,500 MW of renewable capacity by 2012, and New Zealand has introduced a renewable energy target similar in scale to the Mandatory Renewable Energy Target in Australia. This boom will increase for the foreseeable future, however, the later companies shift into

145

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm. Accessed 14 April 2007. 146 Stern, N. (2006) The Stern Review: The Economics of Climate Change: Executive Summary, Cambridge University Press, Cambridge , p10. Available at. www.hm-treasury.gov.uk/media/8AC/F7/Executive_Summary.pdf Accessed 13 February 2008. 147 WorldWatch Institute (2008) State of the World 2008: Innovations for a Sustainable Economy, WorldWatch Institute. Available at http://www.worldwatch.org/stateoftheworld Accessed 13 February 2008. 148 WorldWatch Institute (2008) State of the World 2008: Innovations for a Sustainable Economy, WorldWatch Institute. Available at http://www.worldwatch.org/stateoftheworld Accessed 13 February 2008. 149 Rocky Mountain Institute (1998) Green Development Services latest CD-ROM of European green buildings, Rocky Mountain Institute. Available at http://www.rmi.org/store/p385pid958.php Accessed 13 February 2008. 150 Australian EcoGeneration Association (2002) EcoGeneration Magazine, Issue 12 June/July 2002, p 12. 151 Gipe, P. (2002) ‘Soaring to new heights – the world wind energy market’, Renewable Energy World, July-August. 152 Sinclair Knight Merz (2001) Portland Wind Energy Project Environmental Effects Statement and Planning Assessment Report: Summary Document, Sinclair Knight Merz, p. 17.


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the sector the harder it will be to break into the market and establish economies of scale and supply chain relations. Recycling and Remanufacturing

4.4.

In the USA the re-manufacturing market is now worth almost US$53 billion dollars. The USA recycling sector is worth over US$250 billion per annum. A recent report by the Recycling Coalition Group 153 found that the industry created more than 56,000 public and private sector recycling facilities, with 1.1 million jobs, US$236 billion in gross, annual sales, US$37 billion in annual payroll.

Creative Destruction - Costs of Missing the Next Wave of Innovation

The international business community is not waiting. In the world of international globalised corporations, the nature of business competitiveness has changed. As outlined in detail in our TNEP publication, The Natural Advantage of Nations, business competitiveness today is heavily reliant on innovation for new and emerging markets. But one of the big risks to business has been the uncertainty over whether or not there would be an emerging market for their innovations. Now that it is inevitable that business will be operating in a GHG emissions constrained world, it is clear that clean/green tech is going to be one of the biggest new waves of innovation. Such a transition will require shifts in thinking, design, management and operations rather than small adjustments around the edges. As the above table shows, markets for climate change solutions are already booming. Increased environmental regulation, markets and levies driven by the ratification of the Kyoto Protocol are creating new markets in many areas of the economy. Many major global corporations around the world are taking action now on climate change and positioning themselves for these booming markets in greenhouse friendly products. As Philip Stephens recently wrote in the UK’s Financial Times, ‘Business is about to discover that the shift towards a low-carbon economy is irreversible. Going green is about staying competitive. The steady trickle of companies signing up to do their bit to reduce carbon emissions is turning into a sizeable river.’ 154 As we consider the findings of the Stern Review 155 it is clear that far greater action on climate change from governments nationally and globally is warranted to correct what Stern described as the biggest market failure ever – climate change. Companies and nations that miss waves of innovation like this are forever playing catch up and rarely re-capture markets lost to early movers. In this area of climate change mitigation and adaptation, where there will be tighter global regulations over time, history has shown that companies who move first can gain lasting competitive advantage. Professor Michael Porter, from Harvard Business School, wrote as far back as 1986 on the benefits of firms and businesses choosing to locate in areas with higher regulations and standards not less. As Michael Porter wrote, 156 [Countries should] establish norms exceeding the toughest regulatory hurdles or product standards. Some localities (or user industries) will lead in terms of the stringency of product standards, pollution limits, noise standards and the like. Tough regulatory standards are not a hindrance but an opportunity to move early to upgrade products and processes. [And that firms should] find the localities whose regulations foreshadow those elsewhere. Some regions and cities will typically lead others in terms of their concern with social problems such as safety, environmental quality and the like. Instead of avoiding 153

See Recycling Coalition Group at http://www.nrc-recycle.org/, Accessed 13. February 2008. Stephens, P. (2007) ‘Bend or bust for big business’, UK Financial Times. Available at http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A363984. Accessed 13 February 2008. 155 Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm. Accessed 13. February 2008. 156 Porter, M. (1991) ‘Green Competitiveness’, Scientific American, 5 April. 154


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such areas, as some companies do, they should be sought out. A firm should define its internal goals as meeting, or exceeding, their standards. An advantage will result as other regions and ultimately other nations modify regulations to follow suit. Firms like governments are often prone to see the short-term cost of dealing with tough standards and not their long-term benefits in terms of innovation. Firms point to foreign rivals without such standards having a cost advantage. Such thinking is based on an incomplete view of how competitive advantage is created and sustained. Porter further demonstrates five years later that, when there is inevitably going to be increased regulation and raised standards globally in a certain area of economic activity, nations that lead in raising standards and tightening regulations will provide incentive to their businesses to innovate for these inevitably growing global markets in environmental solutions. Through taking a pro-active approach on such regulations nations help their firms become more competitive, not less. At a fundamental level the government needs to pioneer leading regulation to foreshadow future changes in the sector, local companies are then encouraged and supported to innovate solutions and adapt to the future requirements, the regulations slowly become adopted or mimicked in other economies, and then the local companies are very well placed to penetrate the external markets. As Porter explains, 157 As other nations have pushed ahead, US trade has suffered. Germany has had perhaps the world’s tightest regulations in stationary air-pollution control, and German companies appear to hold a wide lead in patenting and exporting air-pollution and other environmental technologies. As much as 70% of the air pollution-control equipment sold in the US today is produced by foreign companies. Britain is another case in point. As its environmental standards have lagged, Britain’s ratio of exports to imports in environmental technology has fallen from 8:1 to 1:1 over the past decade. In contrast, the US leads in those areas in which its regulations have been the strictest, such as pesticides and the remediation of environmental damage. Such leads should be treasured and extended. Environmental protection is a universal need, an area of growing expenditure in all the major national economies and a major export industry. The strongest proof that environmental protection does not hamper competitiveness is the economic performance of nations with the strictest laws. The time for inaction and waiting for other countries to lead has passed. If the Australian government does not set clear, strong and effective economic signals and policies Australian business will be left behind their EU, Californian, North East American, Japanese and Chinese counterparts and loose ‘first mover advantage’ in clearly one of the fastest growing market areas in the world. Internationally, business is increasingly recognising that the time has come for action. 158 There is now evidence that those companies that ignore the business opportunities risk losing significant market share. In 2005, Standards and Poors downgraded GM and Ford in the US market to junk-bond status, leading to a drop in share price, while Toyota’s profits reached over US$14 Billion more than GM or Ford due to a focus on energy efficient cars like the Hybrid Prius and the Toyota Corolla. 159 GM 160 and Ford 161 ignored the hybrid car market in the early to mid 1990s and banked on people wanting to continue to buy SUVs.

157

Porter, M. (1991) ‘Green Competitiveness’, Scientific American, 5 April. Minchin, L. (2007) ‘A Climate of Change’, The Age. Available at http://www.theage.com.au/news/national/a-climate-ofchange/2007/05/04/1177788398904.html?page=fullpage#contentSwap1 Accessed 13 February 2008. 159 Business Week (2005) ‘GM, Ford Fall on Ratings Downgrade to Junk’, Business Week Online. Available at http://www.businessweek.com/investor/content/may2005/pi2005055_1209_pi004.htm. Accessed 14 April 2007. 160 GM (2005) General Motors Sustainability Report, GM. Available at http://www.gm.com/company/gmability/sustainability/reports/05/600_environment/index.html. Accessed 14 April 2007. 158


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Australia has missed waves of innovation in the past because of a failure of the private sector and government to see the business opportunities. Australia was the third country in the world, after the US and the UK, to develop a programmable computer; CSIRAC, in 1949. CSIRAC's coinventor, Dr Trevor Pearcey, went on to build a highly advanced transistorised computer, CIRRUS, at the University of Adelaide, in 1963. Both projects lapsed from lack of private and government support, and Australia lost a clear opportunity to join the world leaders in the ICT wave of innovation. 4.5.

Australian industry sectors facing serious challenges

Some experts may struggle to see how Australia can compete with larger economies to be a part of this new wave of innovation in climate change solutions. Clearly significant up front investment would need to be spent to put Australia at the forefront of these areas. The truth is that Australia will need to invest in the restructuring of major sectors anyway, due to additional risks from climate change. This is because specific Australian economic and industry sectors face serious challenges related to environmental damage and climate change which require government investment to support restructuring to address these challenges over the next 5-10 years. It is important that efforts to restructure sectors ensure that such restructuring results in a low carbon future for Australia. Studies exist showing that rapid transformations to a low carbon future are economically possible for each of these sectors. We now consider three key sectors to highlight the multiple benefits of business and government working more closely together with the public to restructure these sectors and ensure that Australia does not miss this next wave of innovation while also achieving a low carbon future. Australia’s Transportation sector The transport sector is the third largest source of emissions in Australia and thus, the direct and indirect costs of inaction on climate change in the transport sector will be significant for Australia. It is in Australia’s national interests to ensure that our car and truck manufacturers can keep up with innovations in fuel efficiency and greenhouse gas reductions, for the following reasons: -

Being proactive on manufacturing fuel efficient cars will help to ensure the future of the Australian car industry. The combination of concerns about climate change and high oil prices is shifting Australian consumer demands. Already we have seen Mitsubishi stop manufacturing in Adelaide because they backed a traditional 6-cylinder car which the Australia market is now buying less of because of higher oil prices. We believe that if the Australian car industry had been building fuel efficient vehicles, it would be far more profitable and competitive than it is today. Lack of adequate government leadership over the last 10 years to phase in tighter fuel and air pollution standards in Australia has meant that now the Australian car industry has fallen behind those leading this next wave of innovation in vehicle design.

-

Australia’s domestic oil supply is likely to essentially run out by 2020 and by 2015 oil imports will amount to AUD$15 Billion dollars. By 2030, oil imports will cost Australia AUD$30 Billion per annum. 162 Oil experts predict world oil production peaking soon and oil prices staying high and rising after that, which will add significantly to business costs in industries exposed to high oil prices. This affects a significant percentage of the Australian business community

161

Ford Motor Co. (2006) Ford Motor Co. Sustainability Report 2005-06, Ford Motor Co. Available at www.ford.com/NR/rdonlyres/5syl5bb33xlhoaxv4z7yc3yty6sdi25makivgg/2005-06_sustainability_report.pdf. Accessed 14 April 2007. 162 Senate Economics Committee (2005) Incentives for petroleum exploration in Frontier areas, Parliament of Australia, Chapter 3 Schedule 5, p E12. Available at http://www.aph.gov.au/SEnate/committee/economics_ctte/tlab_7/report/c03.htm. Accessed 7 February 2008


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who require cost effective transportation of products and services. Needless to say oil price rises which lead to price rises of food and other core consumer items are inflationary. Thus we need rapid action anyway to improve fuel efficiency standards and design to help Australia address the emerging overseas oil dependency. -

Congestion in Australia’s cities already costs the economy and business AUD$10 Billion per annum and is predicted to cost AUD$20 billion by 2020. Urban sprawl costs the nation in numerous ways making it expensive to provide basic infrastructure and essential services. Urban sprawl plus increased urban congestion means that more and more people are spending more and more time commuting. The Premier of Victoria stated that currently the economy loses 1 hour per 4 productive hours due to congestion, but by 2020 this will be a ratio of 1:2.

-

Urban sprawl correlates with obesity, heart disease and type 2 diabetes. 163 Already diseases of inactivity are the major factor in the predicted doubling of health expenditure by 2050 in an aging population. 164 If nothing is done, this will cost the Australian economy an extra AUD$30 billion per annum in health expenditure by 2050. This will also lead to a major loss of productivity in the workplace due to ill-health and general lack of fitness of the workforce.

A significant body of knowledge is available that shows how Australia can act now to avoid the costs of inaction and reduce the costs of action for the transport sector. In particular, Newman and Kenworthy have published a range of studies and books over the last decade demonstrating that a smart shift to more sustainable urban planning and sustainable transport helps, rather than harms, economic growth. 165 The Rocky Mountain Institute have also released a pro-business plan for how the USA can cost effectively eliminate their oil dependency by 2050 (which is freely available online). 166 The Agricultural and Forestry Sector As outlined earlier, the Australian agricultural and forestry sector is very vulnerable to the drought in the Murray Darling Basin. If the Murray Darling Basin drought does not break in the next two years, it risks pushing off the land a significant percentage of Australia’s rural communities, businesses and the loss of a not insignificant percentage of Australia’s food bowl. Plantations need a great deal of water and thus the potential expansion of Australia’s plantations will be limited by inaction on climate change. Hence, there is a strong incentive for the agricultural and forestry sectors to reduce their greenhouse gas emissions. The government has already recognised and committed to restructuring Australia’s water usage. Significant government funding is being committed to this as part of the AUD$10 billion water plan for Australia agreed on in 2008 by COAG. CSIRO has published a compelling study on how the agricultural sector and rural economies can, as part of this restructuring, shift and adapt to a new low carbon economy and earn an extra AUD$3 billion per annum through carbon offsets, wind power and biomass/biofuel generation. 167 If Australia is proactive here on reforming Australia’s agriculture to be a low emitting sector, there will be great commercial interest globally in Australia’s expertise and IP in this area.

163

Medibank Private (2007) The cost of physical inactivity. What is the lack of participation in physical activity costing Australia?, Medibank Private. Available at www.medibank.com.au/Client/Documents/Pdfs/pyhsical_inactivity.pdf Accessed 7 February 2008 Fleming. K (2007) ‘Waist Management’, The Bulletin. September 25,2007. 165 Newman, P. and Kenworthy, J. (1999) Sustainability and Cities, Island Press, Washington, DC. 166 Lovins, A. et al (2004) Winning the Oil Endgame, Rocky Mountain Institute. Available at www.oilendgame.com. Accessed 12 April 2008. 167 Hatfield-Dodds, S., Carwardine, J., Dunlop, M., Graham, P. and Klein, C. (2007) Rural Australia Providing Climate Solutions, Preliminary report to the Australian Agricultural Alliance on Climate Change, CSIRO Sustainable Ecosystems. Available at www.climateinstitute.org.au/images/stories/agribusiness/firstreport.pdf. Accessed 12 April 2008. 164


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Tourism Sector Finally, as Section 4.2 outlined, scientists warn that within decades Australia’s Great Barrier Reef may be completely bleached, threatening a significant part of the Queensland tourism industry. Also, other significant icon tourism destinations like Kakadu are threatened. It is in the tourism sector’s best interests for Australia to take a leading position on climate change. If the Australian tourism sector takes a leadership role to help the sector as a whole walk the talk, there will be significant interest globally in how to mitigate and adapt to climate change, and the tourism sector is currently developing a Climate Change Action Agenda Plan, for this reason. TNEP also has recently undertaken research on how the tourism sector can rapidly reduce greenhouse gas emissions.


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5. Understanding the Costs of Purposeful Action on GHG Emissions Reductions 5.1.

Is there a Foundation to Concerns about the Cost of Purposeful Action?

George Monbiot summed up the debate about the global costs of purposeful action on stabilising greenhouse gas emissions as follows; 168 I have not come across such wildly varying claims in any other field. Bjorn Lomborg’s extraordinarily accurate figure - US$37,632 billion – occupies one extreme; at the other end are people who claim that cutting carbon emissions will actually make us money, as the requirement to invest in new technologies will stimulate economic growth and energy efficiency will lead to financial efficiency. The reason that conclusions in this field vary so much is that action on climate change requires changes across the entire economy over long periods of time. There are numerous options and ways to reduce greenhouse gas emissions and issues related to the speed of mitigation efforts. Modelling such a wide range of options throughout an economy over long time frames is very complex. Hence economic models have to make assumptions about variables, such as: -

The potential economic benefits of energy efficiency options in both the short and long term,

-

How the cost of renewable energy may vary in the future, and

-

The rate that energy efficient technologies will be taken up in the marketplace.

According to Stern, most economic models on the costs of stabilising greenhouse gas levels find that it would cost the economy anywhere between -1.0 percent and 3.5 percent of GDP by 2050. 169 The Stern Review explains in detail how this is due to the choice of assumptions made by economists upon which they build their economic models. In other words, depending on the assumptions modellers make about how rapid and how costly different mitigation strategies will be, economic modelling has shown a range of outcomes leading to either slightly higher or slightly lower economic growth. Many economists understand that since estimating the potential costs of mitigating climate change depends on many assumptions, it is best to present their estimates of potential costs as a range. The IPCC has always expressed potential costs of mitigation as a range, and in the 2001 IPCC reports the IPCC stated that, 170 In the 2001 IPCC assessment, the cost of stabilising the atmospheric concentration of CO2 at 450, 550 and 650 ppm is estimated to lie in the range 2.5–18 trillion USD, 1–8 trillion USD and roughly 0.5–2 trillion USD, respectively. The EU Commission likewise have presented their estimates of costs as a potential range of costs and reference the IPCC figures. 171 These global costs of climate change mitigation are not insignificant, however, the costs of inaction may actually be much greater. Since there are investment costs required to mitigate climate change it is vital that we identify the most cost effective ways to reduce greenhouse gas emissions with the fastest rates of return on investment. In Section 6 we explore a number of cost effective methods to support purposeful action to reduce greenhouse gas emissions. Section 6

168

Monbiot, G. (2006) Heat How to Stop the Planet Burning, Penguin Books, p 51. Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge, p 10. Available at http://www.hm-treasury.gov.uk/media/F/0/Chapter_9_Identifying_the_Costs_of_Mitigation.pdf. Accessed 14 April 2007. 170 Intergovernmental Panel on Climatic Change (IPCC) (2001).’Climate Change 2001’ in Metz, B., Davidson, O., Swart, R. and Pan, J. (eds.) Mitigation Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge. 171 Commission of the European Communities (2005) Winning the Battle Against Climate Change, staff background paper, Commission of the European Communities. Available at http://ec.europa.eu/environment/climat/pdf/staff_work_paper_sec_2005_180_3.pdf. Accessed 14 April 2007. 169


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also looks in more detail at the common assumptions made by economists regarding the potential for emissions reductions in the economy to help explain why economic models generate a range of cost estimates. Before exploring these issues, however, it is important to better understand the real costs of purposeful action on climate change. In 2002, Professor Stephen Schneider, a United States representative on the Intergovernmental Panel on Climate Change, and Swedish climate expert Professor Christian Azar, a specialist in Sustainable Industrial Metabolism at Chalmers University of Technology, published a seminal paper 172 which provided a new perspective about the relative costs and benefits of stabilising greenhouse gas emissions. This paper has underpinned the Australian Business Roundtable and CSIRO’s modelling results outlined in this submission. Thus, the Schneider and Azar paper is a critical one for all business leaders, politicians, economists and policy makers to understand to better inform debates on costs of action versus inaction in Australia. In this paper Schneider and Azar pointed out that the estimates by many economists of significant costs of purposeful action incorrectly assume that the cost will be born in the short term. Rather, if countries, business and citizens focus on investing over time, firstly in the most cost effective methods of mitigation, such as energy efficiency, and then more systemic options, the costs can be spread out over at least a number of decades, and economic growth will continue to be strong. Schneider and Azar 173 showed that even those economic modellers who predict at worst 3.5 percent costs to GDP by, for instance, 2050 and also argue that action on climate change will cost tens of trillions of dollars (US), have not accounted for the predicted growth of the global economy of 2-3 percent a year throughout the 21st Century. This means that the global economy will have grown an order of 8-10 times in size by 2100 than it was in the year 2000, as shown in Figure 5 below. As Schneider and Azar explain, 174 Top–down models typically suggest that the cost of a 50% reduction of global CO2 emissions from baseline by 2050 would cost some 1–4% of global GDP, and a 75–90% reduction by 2100 would cost some 3–6%. But since these studies also assume that global income grows by 2–3% per year, this abatement cost would be overtaken after a few years of income growth. Thus, the cost of ‘climate insurance’ amounts to ‘only’ a couple of years delay in achieving very impressive growth in per capita income levels. To be ten times richer (than in 2000) in 2100 AD versus 2102 AD would hardly be noticed and would likely be politically acceptable as an insurance policy against the spectre of potential ‘dangerous’ climatic changes by most risk averse people.

172

Schneider, S. and Azar, C. (2002) ‘Are the Costs of Stabilising the Atmosphere Prohibitive?’, Ecological Economics, vol 42, pp 73-

80

173 174

Ibid Ibid


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Figure 5: Global income trajectories under business-as-usual and in the case of stabilising the atmosphere at 350, 450 and 550ppm Source: Schneider, S. and Azar, C. (2002) 175 This clarity of perspective from Schneider and Azar has been sorely needed to help progress the economics of climate change debates. In Australia, the previous Federal Government did not understand such realities and instead, encouraged by lobby groups, assumed that the costs of concerted action on climate change would be large and significantly damaging to the economy. The previous Australian Federal Government used the Australian Bureau of Agriculture and Resource Economics (ABARE) modelling from 1997 which concluded that Australia’s real gross national expenditure would fall by 0.49 percent by 2020 if Australia committed to a 15 percent cut in emissions below 1990 levels by 2020. This was the target being recommended by the EU at the time. Most government ministers at the time in Australia assumed that ABARE’s modelling was predicting a fall in 0.49 percent of the economic growth rate per year. Thus Australian government ministers made speeches at the time that action on climate change would severely damage the economy and lead to significant job loses. However, what ABARE was referring to was that absolute levels of real gross national expenditure would be lower by less than half a percentage point by 2025. This is an extremely small reduction by any standard. As Clive Hamilton explains in his 2008 book, Scorcher: The Dirty Politics of Climate Change, 176 A projected fall in gross national expenditure by half a per cent over a 25 year period would be swamped by many other changes in the economy. It was pointed out by economist Professor John Quiggan, then at the ANU, that if the Australian economy were to grow by an annual average of 3.5 per cent, then per capita incomes would reach double their prevailing levels around 1 January 2025. If Australia reduced its emissions, according to the estimates, the doubling of per capita incomes would have to wait until around March 2025, a delay of a mere 2 months.

175 176

Ibid Hamilton, C. (2008) Scorcher: The Dirty Politics of Climate Change, Black Inc., p 61.


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Thus Schneider and Azar’s work shows there is no foundation to fears of purposeful action significantly harming economic growth and wages. While some academics may argue that it is still early days for economic modelling of these issues, already there are many studies which support such findings, many of which are listed in Appendix 2 and 3. As Dr Steve Hatfield Dodds, from the CSIRO, writes, 177 There is an emerging consensus that avoiding dangerous levels of climate change will require high-income nations to reduce their greenhouse emissions footprint by 80–90% from current levels by 2050. While this is an enormous task, contrary to some views now there is a growing consensus from a range of economic modelling suggests that sensible policy options utilising the latest advances in energy efficiency and low carbon technologies can achieve reductions of this magnitude with at worst only modest negative social and economic impacts. The most recent significant global modelling on the costs of mitigation of climate change was released by the OECD in March 2008. The OECD 2030 Global Environmental Outlook stated that, 178 The results show that even for the most aggressive mitigation case – stabilising concentrations at 450ppm CO2e – global costs of mitigation are positive, but manageable. Total loss of GDP (relative to the Baseline) is projected to be roughly 0.5% by 2030, rising to about 2.5% by 2050. This is equivalent to slowing annual growth rates in GDP over the 2005 to 2050 timeframe by about 0.1 percentage point. This growing consensus in economics is backed up by important technical studies which have shown for over a decade that ambitious reductions in greenhouse gas emissions are technically achievable. 179 This significant body of evidence, as highlighted in Appendix 2 and 3, acknowledges that climate change poses a significant risk to the world economy and the range of viable technical options need to be incorporated into economic modelling and policy recommendations as it will be far cheaper to proactively address the problem than to deal with the consequences of inaction. As the Stern Review states, ‘The world does not need to choose between averting climate change and promoting growth and development. Changes in energy technologies and in the structure of economies have created opportunities to decouple growth from greenhouse gas emissions. Indeed, ignoring climate change will eventually damage economic growth. Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries.’ 180 And continues to say ‘Historical experience shows that technological development does not stand still in the energy or other sectors. There have been major advances in the efficiency of fossil-fuel use; similar progress can also be expected for low-carbon technologies as the state of knowledge progresses.’ 181

177

Hatfield, Dodds, S. (2007) ‘The Economic Impacts of Deep Cuts to Australia's Greenhouse Emissions’, CSIRO ECOS, 31 January 2007. Available at http://www.publish.csiro.au/?act=view_file&file_id=EC134p12.pdf. Accessed 22 March 2008. 178 OECD (2008) OECD Environmental Outlook to 2030, OECD. Available at http://www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22 March 2008. 179 Ishitani, H. and Johansson, T.B. et al (1996) Impacts, Adaptation and Mitigation Options, IPCC Working Group II, Cambridge University Press, Cambridge, UK, Chapter 19; Nakicenovic, N. et al (1995) Global Energy Perspectives to 2050 and Beyond, World Energy Council and International Institute for Applied Systems Analysis, London; Lazarus, M. (1993) Towards a Fossil Free Energy Future-the Next Energy Transition, Stockholm Environment Institute, Boston Center, Boston, and Greenpeace International, Amsterdam. 180 Ibid 181 Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at http://www.hm-treasury.gov.uk/media/F/0/Chapter_9_Identifying_the_Costs_of_Mitigation.pdf. Accessed 14 April 2007.


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Figure 6: Relative marginal costs of climate change abatement per unit GHG Source: Stern Review (2006) 182 Recent innovations over the last 5-10 years are enabling these rapid improvements and cost reductions in the energy sector and across the economy. As the Stern Review shows there have been many cost reductions in several important areas of low carbon technology over the last two decades. Also economies of scale tend to help bring down the manufacturing costs of different low carbon technologies.

Figure 7: IEA Learning Curve showing how innovation, economies of scale plus experience lowers costs over time Source: IEA (2000) 183 Economists have fitted ‘learning curves’ to such data to estimate how much costs might decline with investment and operating experience, as measured by cumulative investment. ‘Learning’ is of course an important contributor to cost reductions, but should be seen as one aspect of several factors at work. According to the Stern Review these include:

182 183

Ibid International Energy Agency (2000) Experience curves for energy technology policy, OECD/IEA, Paris, p 21.


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5.2.

-

The development of new generations of materials and design concepts through R&D and the insights gained from investment and operating experience. 184

-

Opportunities for batch production arising from the modularity of some emerging technologies, such as solar PV. This leads to scale economies in production; to associated technical developments in manufacture; to the reduction of lead times for investments, often to a few months, as compared with three to six years or longer for conventional plant; and to the more rapid feedback of experience.

-

Opportunities for scale economies in the provision of supporting services in installation and use of new technologies, the costs of which are appreciable when markets are small. For example, if specialised barges are required to install and service off-shore wind turbines, the equipment is much more efficiently utilised in a farm of 100 turbines than in one with just ten, and of course if there are many offshore wind farms in the project pipeline. 185 Accuracy of Historical Estimates of the Cost of Purposeful Environmental Action

One of the main reasons for inaction on the scientific warnings on climate change has been the perception of increased costs to industry. But an historical perspective shows that innovation has significantly reduced the initial estimates of likely costs of action to industry on a whole range of environmental issues. Over the last 100 years repeatedly industry has argued that the costs of acting on early warnings of environmental problems would be prohibitive. This has been a key factor in many early warnings being ignored by decision makers, governments and politicians over the last one hundred years. The EU study Late Lessons from Early Warnings: the Precautionary Principle 1896–2000 186 states that, Information [about asbestos, PCBs, radiation, benzene, lead, soil degradation and salinity from deforestation, and risks of overshoot from over-fishing and over-harvesting of natural resource] was not used, or ignored: or we were all taken by ‘surprise’. In many of the case studies, adequate information about potential hazards was available well before decisive regulatory advice was taken, but the information was either not brought to the attention of the appropriate decision-makers early enough, or was discounted for one reason or another. It is also true that in some of the case studies, early warnings - and even ‘loud and late’ warnings - were effectively ignored by decision makers because of short-term economic and political interactions. 187 Estimates about the cost of environmental regulations are used in analyses to set public policy, and they influence the public sentiment that in turn influences political decisions. If estimates are biased and overstate the costs, the public may conclude that the regulations are too expensive when, in fact, the actual cost might be acceptable. Or policy analysts may decide that the benefits do not justify the costs, when the benefits may actually exceed the costs ultimately paid. It is therefore critical to balance current projections of the future costs of climate change related government action with an understanding of how effective past efforts have been in forecasting regulatory costs.

184

For example, rapid improvements and cost reductions are expected for instance from R&D into LED lighting, plug in hybrid cars, solar thermal energy systems, batteries for energy storage and solar PV through ANU’s Solar Sliver technology within a decade. These innovations will open up significant possibilities to mitigate climate change more cost effectively than today. 185 Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at http://www.hm-treasury.gov.uk/media/F/0/Chapter_9_Identifying_the_Costs_of_Mitigation.pdf Accessed 14 April 2007. 186 Harremo, P., Gee, P., MacGarvin, M., Stirling, A., Keys, J., Wynne, B. and Vaz, S.G. (2002) Late Lessons from Early Warnings: the Precautionary Principle 1896-2000, Environmental issue report No 22 European Environment Agency. Available at http://reports.eea.eu.int/environmental_issue_report_2001_22/en Accessed 11 January 2008. 187 Ibid, p 168.


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Hart Hodges, an economist with the City of Portland, has undertaken a detailed economic analysis of past projections of environmental regulatory costs as they relate to a variety of industries. 188 His examples range from asbestos to vinyl, and in all but one instance the estimated cost flowing from regulatory change was at least double the actual cost paid, while in some cases the estimates were wildly exaggerated. This inflation of estimated costs holds, regardless of whether industry itself or an independent assessor did the work, which suggests a systematic source of error. Table 5: Industry original estimates of the cost of particular forms of environmental protection versus the actual costs (in $US) Ex-Ante Estimate

Ex-Post or Revised ExAnte Estimate

Overestimation as a Percent of Actual Cost

Asbestos

$150 million (total for mfg. and insulation sectors)

$75 million

100%

Benzene

$350,000 per plant

Approx. $0 per plant

Infinite

CFCs

Early 1980s: Predicted financial catastrophe. Dupont had stopped undertaking research for alternatives in 1980 due to there being no ‘cheap’ alternatives.

Total cost globally of implementing the Montreal Protocol - 235 billion US (1997) dollars. 189

CFCs-Auto Air Conditioners

$650-$1,200 per new car

$40-$400 per new car

63%-2,900%

$200 million – billion

$160 million

29%-1,500%

Coke Oven Emissions EPA 1980s

$4 billion

$250-400 million

900%-1,500%

Cotton Dust

$700 million per year


241%

Halons

1989: phase out not considered possible

1993: phase out considered technologically and economically feasible

n/a

Landfill Leachate

Mid-1980’s: $14.8 billion

1990: $5.7 billion

159%

Sulphur Dioxide

1980s $1,000–1,500 per ton of sulphur dioxide

1996: $90 per ton of sulphur dioxide

~750%

Surface Mining

$6-$12 per ton of coal

$0.50-41 per ton

500%-2,300%

Vinyl Chloride



445%

Pollutant

Coke Oven Emissions OSHA 1970’s

Source: Hodges, E. (1999)

190

188

Hodges, H. (1997) Cost of Complying With Environmental Regulations Almost Always Less Than Advertised, Economic Policy Institute. Available at http://www.epi.org/briefingpapers/bp69.pdf. Accessed 14 April 2007. Bornman, J.F. and van der Leun, J.C. (1998) ‘Frequently asked questions’, Journal of Photochemistry and Photobiology, vol 46. Available at http://www.gcrio.org/ozone/toc.html. Accessed 15 February 2008. 190 Hodges, H. (1997) Cost of Complying With Environmental Regulations Almost Always Less Than Advertised, Economic Policy Institute. Available at http://www.epi.org/briefingpapers/bp69.pdf. Accessed 14 April 2007. 189


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The reason for this discrepancy, Hodges argues, is that business groups and economists find it nearly impossible to predict the innovative ways in which industry goes about complying with new regulations. In some instances, they replace the old processes altogether with new, cost-effective ones, radically transforming their entire operations. The projections, in contrast, generally assume a business-as-usual approach that must directly absorb the burden of costs. The Stern Review explains Hodges’s result as follows, 191 When such numbers [Hodges’s work] come to light, companies are often accused of inflating initial cost estimates to support their lobbying efforts. But there is a more positive side to the story. The dramatic reduction in costs is often a result of the process of innovation, particularly when a regulatory change results in a significant increase in the scale of production. And the process of complying with new policies may reveal hidden inefficiencies which firms can root out, saving money in the process. In a major work called An Introduction to the Economics of Climate Change Policy, Professor John Weyant 192 and his team at Stanford University investigated a wide range of models from around the world examining the difference in the estimated cost of reducing carbon emissions according to the various models. Professor Weyant identified five key areas where assumptions made by economists significantly affect the results of their modelling in this area. One of the key assumptions Weyant found was the way in which economic models make assumptions about innovation and technological change. The conclusion that Weyant comes to, when he talks about innovation and technological change, is that it probably does not make much difference in the short term to estimates of economic costs of action but, over the longer term, say ten years or more, innovation and technological change could be a very substantial contributor to reducing the costs of reducing emissions. That makes sense, because we are actually talking about not only the development but also the adoption of new technologies which you would expect to take a decade or more to really have a big impact on the economy. 5.3.

Underestimating the potential of Energy Efficiency opportunities

Perhaps the most important assumption made in economic models is to the level of energy efficiency opportunities available in the economy. If this assumption is underestimated it can have a significant impact on the results of the model as energy efficiency investments can improve the performance of the economy in a number of ways that are difficult to take into account in the modelling. McKinsey Consulting’s recent study 193 argues that the cost savings for industry, commercial and residential buildings through energy and fuel efficiency are significant, and many are overlooked in estimating the future cost of action. Many researchers and experts are proposing that energy efficiency opportunities are in fact pervasive throughout the Australian and global economy. Detailed technical analysis by energy efficiency experts, 194 the Rocky Mountain Institute, 195 the Wuppertal Institute, 196 and The Natural Edge Project 197 and numerous government

191

Stern, N. (2006) The Stern Review: The Economics of Climate Change, Executive Summary Cambridge University Press, Cambridge. Available at http://www.hm-treasury.gov.uk/media/F/0/Chapter_9_Identifying_the_Costs_of_Mitigation.pdf. Accessed 14 April 2007. 192 Weyant, J. (2000) An Introduction to the Economics of Climate Change Policy, prepared for the Pew Center on Global Climate Change, Stanford University. 193 Gorner, S., Lewis, A., Downey, L., Slezak, J., Michael, J. and Wonhas, A. (2008) An Australian Cost Curve For Greenhouse Gas Reduction, McKinsey Consulting, Australia/New Zealand. Available at http://www.mckinsey.com/locations/australia_newzealand/knowledge/pdf/1802_carbon.pdf Accessed 4 March 2008. 194 See Industrial Energy Analysis at http://industrial-energy.lbl.gov/. Accessed 13 January 2008. 195 Hawken, P., Lovins, A. and Lovins, L. H. (1999) Natural Capitalism: Creating the Next Industrial Revolution, Earthscan, London. 196 von Weizsäcker, E., Lovins, A. and Lovins, H. (1997) Factor Four: Doubling Wealth, Halving Resource Use, Earthscan, London. 197 Hargroves, K. and Smith, M.H. (eds) (2005) The Natural Advantage of Nations: Business Opportunities, Innovation and Governance in the 21st Century, Earthscan/James and James Publishing, London. Available at www.thenaturaladvantage.info Accessed 12 January 2008.


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eco-efficiency programs 198 show that 30-75 percent efficiency opportunities commonly exist throughout most sectors of the economy due to design, market, informational and institutional failures. 199 Some economists, without the benefit of engineering technical training, are understandably suspicious of such claims. They understandably wonder why - if such large energy efficiency opportunities exist - they have not already been identified and implemented? Even if the reality is that the opportunities are closer to half of the value estimated by the experts in the field this is still significant. In addition to the evidence presented so far in this submission, there is now a wealth of literature providing further evidence that large resource productivity and energy efficiency opportunities exist across our economies. 200 One of the best examples of this is the publication Factor 4: Doubling Wealth and Halving Resource Usage, published in 1995. Factor 4, focused on efficiency in the use of resources, and highlighted that in some cases, this can be done (with fast returns on investment). The book contained fifty examples of at least quadrupling resource productivity. Twenty examples related to energy, twenty related to materials including water, and ten to transport. The book shows that we can do more with less for longer. In Australia, COAG’s National Framework for Energy Efficiency’s research in 2003 shows that energy-efficiency opportunities of 30–70 percent exist for most industry, commercial and residential building sectors in Australia. 201 The analysis indicates significant energy efficiency improvement potential available to be exploited across all sectors of the economy (see Figure 8) under both a low (4 year or less pay back) and a high (8 year or less pay back) energy efficiency improvement scenario. Economic modelling by the National Framework for Energy Efficiency has shown that if Australia as a whole implemented 50 percent of available energy-efficiency opportunities having a four-year or less payback, this would increase real GDP by AU$1.8 billion and create 9,000 new jobs in addition to the environmental benefits of reducing emissions. 202

198

See Department of Environment, Water Resources, Heritage and the Arts at http://www.environment.gov.au/settlements/industry/corporate/eecp/industry.html Accessed 13 January 2008. 199 Lovins, A. and Lovins, L. H. (1997) Climate: Making Sense and Making Money, Rocky Mountain Institute, Colorado 200 Hart, S. and Ahuja, G. (1996) ‘Does it Pay to be Green? An Empirical Examination of the Relationship between Emission Reduction and Firm Performance’, Business Strategy and the Environment, vol 5, pp 30-37; Schaltegger, S. and Synnestvedt, T. (2002) ‘The Link between “Green” and Economic Success: Environmental Management as the Crucial Trigger between Environmental and Economic Performance’, Journal of Environmental Management, vol 65, pp 339-46; Waddock, S. and Graves, S.B. (1997) ‘The Corporate Social Performance–Financial Performance Link’, Strategic Management Journal, vol 18.4, pp 303-19; Schmidheiny, S. (1992) Changing Course: A global business perspective on development and the environment, MIT Press, Boston; Halliday, C.O., Schmidheiny, S. and Watts, P. (2002) Walking the Talk, The Business Case for Sustainable Development, World Business Council for Sustainable Development, Greenleaf Publishing; Innovest Strategic Value Advisors (2004) Corporate Environmental Governance: A study into the influence of Environmental Governance and Financial Performance, Innovest Strategic Value Advisors, p 10; McDonough, M. and Braungart, M. (2002) Cradle to Cradle – Remaking The Way We Make Things, North Point Press, NY; Hawken, P., Lovins, A.B. and Lovins, L.H. (1999) Natural Capitalism: Creating the Next Industrial Revolution, Earthscan, London; von Weizsäcker, E., Lovins, A. and Lovins, L. H. (1997) Factor Four: Doubling Wealth, Halving Resource Use, Earthscan, London. 201 National Framework for Energy Efficiency (NFEE) (2003) Towards a National Framework for Energy Efficiency – Issues and Challenges Discussion Paper, NFEE. Available at http://www.nfee.gov.au/about_nfee.jsp?xcid=64. Accessed 7 November 2007. 202 Ibid


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Figure 8: Percentage of energy efficiency potential with a four year or less pay back (low) or a eight year or less payback (high) across different sectors Source: NFEE (2003) 203 A recent study by the team from The Natural Edge Project, in partnership with Griffith University and the Australian National University as part of a research project funded by CSIRO and NFEE produced a 640 page online textbook 204 that demonstrates that business, governments, organisations and households can reduce greenhouse gas emissions significantly through energy efficiency. This online book features existing Australian case studies and/or designs of: -

Households rapidly retrofitted - reducing emissions by over 60 percent. 205

-

(Virtually) net climate neutral buildings. 206

-

Low carbon ways to process minerals and recycle metals. 207

-

Net climate neutral manufactured products. 208

-

Net climate positive paper and pulp mills. 209

-

Food processors that can reduce emissions by 30-80 percent through energy efficiency, onsite co-generation and/or renewable energy. 210

-

Supermarkets and bakeries that use 40 percent less energy than market average through energy efficiency initiatives. 211

-

Fast food retail outlets that use 40-70 percent less energy than market average through energy efficiency and better design. 212

203

Ibid, p 7. Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C., and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia.’ Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 13. February 2008. 204

205 206

Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C., and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. See Lectures 2.1-2.3, 5.3, 9.1 and 9.2 Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 13. February 2008. 207 Ibid. See Lecture 5.1 Opportunities for Energy Efficiency in the Aluminium, Steel and Cement Sectors at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture5_1. Accessed 13. February 2008. 208 Ibid. See Lecture 5.2: Opportunities for Energy Efficiency in Manufacturing Industries at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture5_2. Accessed 13. February 2008. 209 Ibid, Lecture 5.2. 210 Ibid. See Lecture 6.2: Opportunities for Energy Efficiency in the Food Processing and Retail Sector at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture6_2. Accessed 13. February 2008. 211 Ibid. See Lecture 6.2.


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-

Lighting, 213 HVAC 214 and motor systems, 215 that use at least 30-60 percent less energy than the industry average.

-

Office IT systems and servers that together use over 60 percent less energy. 216

-

Public street lighting 217 that is at least 50 percent more energy efficient than current mercury street lighting.

Also, in the transport sector: -

Overseas cities that are rapidly shifting to sustainable transport patterns. 218

-

Cars 219 and trucks 220 that are at least 50 percent more fuel efficient than those using the internal combustion engine.

-

The telecommunications sector can help reduce Australia’s greenhouse gas emissions by 5 percent by 2015. 221

5.4.

Why are Significant Opportunities for Energy Efficiency Overlooked?

There are many reasons why energy efficiency opportunities have been overlooked in the Australian economy: -

Access to cheap energy: Historically Australia has had cheap energy, resulting from significant national reserves of coal and Government subsidises to certain business sectors which has further reduced incentives to invest in energy efficiency.

-

Profits tied to gross energy sales: Electricity utilities in the past have made higher profits for the more electricity they sell. There has been little incentive for electricity utilities to help their customers use less electricity.

-

Pressure to deliver short term profits: CEO’s of stock-listed companies have to deliver quarterly profit results. Energy efficiency opportunities usually have a 1-3 year return on investment. The market pressure for CEO’s to deliver profits every 3 months results is a significant disincentive for CEO’s wanting to make even medium term investments to improve efficiency and productivity of the company.

212

Ibid. See Lecture 6.3: Opportunities for Energy Efficiency in the Fast Food Industry athttp://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture6_3. Accessed 13. February 2008. 213 Ibid. See Lecture 2.2: Opportunities for Energy Efficiency in Commercial Buildings http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture2_2. Accessed 13. February 2008. 214 Ibid. See Lecture 2.3: Opportunities for Improving the Efficiency of HVAC Systems http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture2_3. Accessed 13. February 2008. 215 Ibid. See Lecture 3.1: Opportunities for Improving the Efficiency of Motor Systems http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture3_3. Accessed 13. February 2008. 216 Ibid. See Lecture 5.3: Opportunities for Energy Efficiency in the IT Industry and Services Sector http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture5_3. Accessed 13. February 2008. 217 See ICLEI Public Street Lighting at http://www.iclei.org/index.php?id=6473. Accessed 13. February 2008. 218 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C., and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia, Lecture 8.1. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_1. Accessed 13. February 2008. 219 Ibid. See Lecture 8.2: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Passenger Vehicles at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_2. Accessed 13. February 2008. 220 Ibid. See Lecture 8.3: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Trucking at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_3. Accessed 13. February 2008. 221 Telstra (2007) Towards a High Bandwidth: Low Carbon Future, Telstra. Available at http://www.climaterisk.com.au/wpcontent/uploads/2007/CR_Telstra_ClimateReport.pdf. Accessed 13. February 2008.


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-

Education and Training: A discussion paper for the Australian Government’s National Framework for Energy Efficiency 222 highlights numerous additional barriers to the uptake of energy efficiency, highlighting for instance the need for greater capacity building among business and technical professionals concerning energy efficiency opportunities. In late 2007 The Natural Edge Project undertook a survey of engineering schools and departments in Australia across 27 universities funded by the National Framework for Energy Efficiency and found that most engineering students receive low levels of education in identifying and realising energy efficiency improvement opportunities throughout their undergraduate degrees.

There are other significant market, informational and institutional barriers to the uptake of energy efficiency opportunities which also need to be addressed if Australia is to realise the billions of dollars of potential economic savings possible from energy efficiency. Market failures, such as split incentives can lead to energy efficiency opportunities being disregarded in the residential and commercial building industry. A split incentive occurs when there are two parties involved such as builder/tenant or manufacturer/customer. In the case of the builder/tenant relationship - many apartment blocks are not designed as energy efficiently as they could be due to split incentives. The costs of energy efficiency improvements to standard designs adds to the direct upfront cost of the builder that can not be recovered, such as the cost of double glazed windows and extra insulation in the roof and walls. These improvements will reduce the energy consumption over the life of the building however it’s the tenant that can benefit from this and not the builder. Therefore, the financial incentives for the builder and tenant are not aligned and often this is the primary barrier to builders choosing to design buildings that are more energy efficient. Another common split incentive failure is in the case of the manufacturer/customer, shown by the fact that most electrical appliances – kettles, microwaves, fridges, dishwashers – are not as well insulated as they could be and therefore consume more electricity. This occurs because better insulating appliances adds upfront costs to the manufacturer while the manufacturer does not benefit financially from the cheaper running costs. In order to make such improvements a viable option for the manufacturer they need to be able to either charge a premium to the customer or improve the brand recognition and increase overall sales, perhaps by promoting the environmental performance of the products. In May 2005, General Electric, one of the largest companies in the world, announced its new program called ‘Eco-magination’, a major new initiative expected to more than double revenues from cleaner technologies and higher efficiency electrical appliances to US$20 billion by 2010 (from US$6.2 billion in 2004). In May 2006, the company has already reported revenues of US$10.1 billion from its energy efficient 223 and environmentally advanced products and services. There are many barriers like these to the uptake of energy efficiency opportunities, but around the world there are a growing number of examples where governments, business and professional organisations have addressed and overcome such barriers. Amory and Hunter Lovins summarised examples of the implementation of energy efficiency opportunities in their seminal 1997 paper Climate: Making Money, Making Sense. 224 There is now an enormous body of overlooked empiricism, including government-sponsored studies and worldwide business practice, shows that significant energy efficiency opportunities exist. What is more, when companies and government programs address barriers to identifying and implementing energy efficiency 222

National Framework for Energy Efficiency (NFEE) (2003) Towards a National Framework for Energy Efficiency – Issues and Challenges Discussion Paper, NFEE, p 7. Available at http://www.nfee.gov.au/about_nfee.jsp?xcid=64. Accessed 7 November 2007. The Climate Group (2007) Profits Up. Carbon Down. The Climate Group. 224 Lovins, A. and Lovins, L (1997) Climate: Making Money, Making Sense, Rocky Mountain Institute, Colorado, pp 16-25. Available at http://www.rmi.org/images/PDFs/Climate/C97-13_ClimateMSMM.pdf Accessed 3 September 2007. 223


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opportunities, the results can be remarkable. This has been shown in The Climate Group’s report Carbon Down: Profits Up 225 in 2006. This report showed that 43 companies had significantly reduced their greenhouse gas emissions and saved a total of AUD$15 billion. 226 The Climate Group also published a report on the leading cities around the world that are making similar savings to both costs and greenhouse gas emissions. 227 Since the early 1990s, The Climate Group’s reports 228 have shown that six major firms – Dupont, IBM, British Telecom, Alcan, NorskeCanada and Bayer – have collectively saved over US$4 billion while reducing their carbon emissions by more than 60 percent In Australia most companies participating in the Federal Government’s Energy Efficiency Best Practice program from 1998 to 2003 were able to achieve 30-60 percent energy efficiency gains in specific plants, supermarkets, wineries, breweries, bakeries and hotels. 229 Many companies which have been a part of the Australian Government’s Greenhouse Challenge have also demonstrated that significant energy efficiency gains are possible. 230 Energy efficiency is an economic opportunity to improve performance and also create the experience, corporate knowledge and funds required to deliver a range of more sophisticated initiatives to further improve productivity and reduce emissions. Consider for instance Westpac, which has already achieved a 45 percent reduction in greenhouse gas emissions on 1996 levels. In 2007, The Climate Group reported that, Since 1996 reductions in travel, paper and electricity use have cut the company’s GHG emissions by 45% on 1996 levels. In 2005-06, Westpac realized a 12% reduction by purchasing green power and integrating energy, water and emission performance indicators into facility managers’ contracts. Westpac is striving towards an ultimate goal of zero net emissions. Since 1993, Westpac has saved over US$7 million in energy costs and recently invested in a new headquarters designed to achieve optimal energy efficiency and minimal GHG emissions. As well as reducing its own carbon footprint, Westpac helps its customers reduce theirs – for example, through its green mortgage scheme. Its environmental credentials are also attracting new business and employees – 50% of graduates chose Westpac over other Australian banks explicitly because of its CSR approach. 231

225

See The Climate Group’s 2004 and 2005 Carbon Down Profits Up reports at www.theclimategroup.org/index.php?pid=732. Accessed 14 April 2007. 226 Ibid. 227 The Climate Group (2007) Low Carbon Leader: Cities, The Climate Group. Available at http://theclimategroup.org/assets/resources/low_carbon_leader_cities.pdf. Accessed 14 April 2007. 228 See The Climate Group’s 2004 and 2005 Carbon Down Profits Up reports at www.theclimategroup.org/index.php?pid=732. Accessed 14 April 2007. 229 See Department of Resources, Energy and Tourism - Energy Efficiency Best Practice (EEBP) Program at http://www.ret.gov.au/Programsandservices/EnergyEfficiencyBestPracticeEEBPProgram/Pages/default.aspx. Accessed 12 April 2008. 230 See Department of the Environment, Water, Heritage and the Arts – Success Stories at http://www.environment.gov.au/settlements/challenge/members/profiles.html. Accessed 12 April 2008. 231 See The Climate Group’s 2007 Carbon Down Profits Up at http://theclimategroup.org/assets/resources/cdpu_newedition.pdf. Accessed 14 April 2007


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5.5.

Understanding Assumptions about Economic Growth and Energy Efficiency

Still a diminishing number of neoclassical economists and groups such as the Australian Productivity Commission question whether or not even these modest efficiency gains exist. Hence, we now briefly overview this important debate to provide the review with greater understanding. Classical microeconomic theory - which assumes that firms always maximise profits and that they operate in perfectly competitive markets - struggles to explain the recent success companies making significant profits from efficiency programs, many as a result of private initiatives or voluntary government partnerships. 232 As Paton explains, 233 Classical microeconomic theory assumes that the firm maximizes profits by incorporating an optimal mix of labour, capital and other inputs in accordance with a standard production function, using fixed technologies freely available to all industry participants. It assumes that under perfect competition any in-efficiencies will be eliminated. Under these assumptions, efforts to reduce pollution then would be expected to add costs to an idealized firm, which has already maximized its profits, through already implementing any cost effective cost cutting strategies. This highly stylized picture of the firm in conventional microeconomic analysis denies what may be the most significant motivation for pursuing sustainable development strategies, namely eliminating economic inefficiencies within the firm. A range of market, information and institutional failures have been shown by Professor Joseph Stiglitz, a Nobel prize winning economist and former Chief Economist of the World Bank, to be more endemic than previously thought. 234 The results concerning whether or not market failures are endemic or not are important to understand these debates about microeconomic assumptions. Debates due to the use of classical microeconomic assumptions, which play down such market failures, arise in two contemporary debates in energy and environmental policy - concerning firstly the ‘Porter hypothesis’ and secondly the ‘energy efficiency gap debate’ - which focus on the potential for voluntary and mandatory regulatory environmental initiatives to increase energy efficiency within the firm, and the barriers preventing many companies from addressing these opportunities. Understanding the ‘Energy Efficiency Gap Debate’ The ’energy efficiency gap debate’ focuses on the underlying factors causing unrealised opportunities to reduce energy consumption that persists in companies. This debate seeks to explore why individuals and firms forego energy-saving investments with potentially high positive rates of return while others achieve significant cost savings. 235 This work is important because it contradicts the conventional economic assumptions and opens up a vast area of investigation that is crucial to achieving rapid emissions reductions. On the one hand it is a blessing that such opportunities actually exist, but on the other hand it exposes significant flaws in traditional neoclassical economics, flaws in assumptions that have been held by economists for so long that it will be hard to change in the time frame required for action. The debate over the energy efficiency gap is fundamentally important to current debates concerning the potential economic

232

See Department of Environment, Water Resources, Heritage and the Arts at http://www.environment.gov.au/settlements/industry/corporate/eecp/industry.html Accessed 13 January 2008. 233 Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178. 234 Greenwald, B. and Stiglitz, J. (1986) 'Externalities in Economies with Imperfect Information and Incomplete Markets', Quarterly Journal of Economics, vol 101, no 2. 235 Jaffe, A.B. and Stavins, R.N. (1994) ‘The energy-efficiency gap’, Energy Policy, vol 22, no. 10, pp 804–10; DeCanio, S.J. (1993) ‘Barriers within firms to energy-efficient investments’, Energy Policy; vol 21, no. 9, pp 906–14; DeCanio, S.J. (1994) ‘Why do profitable energy-saving investment projects languish?’, Journal of General Management, vol 20, no. 1, pp 62–71.


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impacts of policies to reduce global greenhouse emissions. 236 The ‘energy efficiency gap’ literature has focused on barriers to change that inhibit firms from undertaking energy-saving investments with potentially high positive rates of return. This literature identifies behavioural barriers arising from principal-agent problems, other information asymmetries, and bounded rationality. 237 Top down economic modelling estimates, based on conventional microeconomic assumptions, assume that existing energy demand patterns are optimally adjusted to prevailing market prices. As a result, ’reductions in greenhouse-gas emissions can only be purchased at the expense of a reduction in the output of other goods and services’, 238 and therefore, under conventional microeconomic assumptions and policy measures, must harm the economy. Bottom-up technological, engineering approaches however, recognise barriers that may have inhibited firms from taking advantage of potentially profitable energy-saving opportunities. Bottomup estimates typically predict that policy initiatives can induce reductions in energy consumption cost effectively. As a result, bottom-up estimates typically suggest less economic disruption from programs to reduce global greenhouse gas reductions. As discussed in Section 3, the study of economics, if well informed by science, can provide valuable guidance as to the potential impact on an economy from a range of GHG emissions reduction trajectories. A study of science, engineering and design, informed by economics, can provide valuable guidance as to the potential for our industrial economies to achieve such trajectories in light of the potential impacts on the environment. Therefore, on its own, a study of economics cannot provide all the answers without being informed by what is physically possible, nor can a study of science without being informed by economics. Understanding the Porter Hypothesis The ‘Porter hypothesis’, developed by Harvard Business School Professor Michael Porter, argues that the relationship between environmental improvements (including energy conservation) and economic efficiency has been improperly framed as a conflict. 239 Porter suggests that pollution is generally associated with a waste of resources, or with lost energy potential, pointing out that ‘Pollution is a manifestation of economic waste and involves unnecessary or incomplete utilisation of resources… Reducing pollution is often coincident with improving productivity with which resources are used.’ 240 From this reasoning, Porter argues that, ‘properly designed environmental regulation can trigger innovation that may partially or more than fully offset the costs of complying with them’. This has come to be known as the Porter Hypothesis (PH). In other words, it is possible to reduce pollution and costs at the same time, resulting in the potential for economic growth and improvements in productivity contrary to the traditional paradigm. Jaffe and Palmer 241 present three distinct variants of PH: 1. The ‘weak’ version of the hypothesis is that environmental regulation will stimulate certain kinds of environmental innovations, although there is no claim that the direction or rate of this 236

DeCanio, S.J. (1997) The economics of climate change, Background paper, Redefining Progress, San Francisco. DeCanio, S.J. (1998) ‘The efficiency paradox: bureaucratic and organizational barriers to profitable energy-saving investments’, Energy Policy, vol 26, no. 5, pp 441–54; DeCanio, S.J. (1994) ‘Agency and control problems in US corporations: the case of energyefficient investment projects’, Journal of the Economics of Business, vol 1, no. 1, pp 105–23. 238 st Hargroves, K. and Smith, M. (2005) Natural Advantage of Nations: Business Opportunities, Innovation and Governance for the 21 Century, Earthscan, London. 239 Porter, M.E. and van der Linde, C. (1995) ‘Green and Competitive: Ending the Stalemate’, Harvard Business Review; vol 73, no. 15, p 120; Porter, M.E. and van der Linde, C. (1995) ‘Toward a New Conception of the Environment–Competitiveness Relationship’, Journal of Economic Perspectives, vol 9, no. 22, p 97. 240 Porter, M. (1991) ‘American Green Strategy’, Scientific American, no. 264, p 168; Porter, M. and van der Linde, C. (1995) ‘Towards a New Conception of Environment-Competitiveness Relationship’, Journal of Economic Perspective, vol 9, pp 97-118. 241 Palmer, K., Oates, W.E. and Portney, P.R. (1995) ‘Tightening Environmental Standards: the Benefit-Cost or the No-Cost Paradigm?’ Journal of Economic Perspectives, vol 9, no. 4, pp 119–32. 237


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increased innovation is socially beneficial. [In-line with the ‘Partial Ad-Hoc’ scenario under investigation by the Garnaut Review.] 2. The ‘narrow’ version of the hypothesis asserts that flexible environmental policy instruments such as pollution charges or tradable permits give firms greater incentive to innovate than prescriptive regulations, such as technology-based standards. [In-line with the ‘Firm’ scenario under investigation by the Garnaut Review.] 3. Finally, the ‘strong’ version asserts that properly designed regulation may induce innovation that more than compensates for the cost of compliance. 242 [In-line with the ‘Ambitious’ scenario under investigation by the Garnaut Review.] Under the Porter hypothesis, companies acting to improve their environmental performance may under appropriate circumstances - simultaneously increase profits. Similarly, economic inefficiencies embedded in organisations provide opportunities for appropriately designed policy interventions to improve economic efficiencies, while simultaneously increasing environmental efficiency. Porter and van der Linde detailed evidence from a wide range of industries to indicate that firms often gain competitive advantage from their efforts to improve environmental performance. 243 The key element of Porter and van der Linde’s argument is the concept of product and process innovation offsets. Product improvements occur when resource productivity improvements increase revenues through product differentiation or lower costs, whether on product inputs or reducing customers’ costs, i.e. by lowering product-related waste disposal or energy costs. Process offsets occur when environmental improvements reduce costs by raising process yields, reducing machine downtime and maintenance or reducing the cost of process inputs. Porter and van der Linde argue that, ‘offsets will be common because reducing pollution is often coincident with improving the productivity with which resources are used’. 244 Palmer et al 245 counter Porter and van der Linde’s empirical studies with a model that predicts that such inefficiencies should be relatively rare. Palmer et al’s model is a classic example of how the assumptions of an economic model inevitably lead to a certain conclusion. Palmer et al adopt the conventional microeconomic assumptions that firms always maximise profits and that they operate in perfectly competitive markets. Under these assumptions a firm cannot reduce emissions without raising marginal costs. The importance of Palmer et al’s work is that it identifies (correctly) a key assumption (that the validity of the Porter hypothesis rests on); ‘pre-existing opportunities for cost savings or profitable product enhancements that have, for some reason, gone unrealized’. 246 Such unrealised efficiencies should not be significant under the traditional microeconomic assumptions of profit maximisation and perfect competition, but as a range of the evidence now demonstrates outlined thus far in this submission, eco-efficiency opportunities, like energy efficiency, appear to be pervasive in actual practice. The controversies over the ‘Porter hypothesis’ and the ‘energy efficiency gap’ illustrate the critical role of underlying assumptions about economic efficiency within firms in the formulation of environmental policy. The latest advances in analysis of the

242

Lanoie, P., Laurent-lucchetti, J., Johnston, N. and Ambec, S. (2007) Environmental Policy, Innovation and Performance: New Insights on the Porter, Insitiute De’conomie Apliquee’, Montreal. Available at http://www.hec.ca/iea/cahiers/2007/iea0706_planoie.pdf Accessed 2 February 2008. 243 Porter, M. and Kramer, M. (2006) ‘Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility’, Harvard Business Review, December 2006; Porter, M. and van der Linde, C. (1995) ‘Green and Competitive: Ending the Stalemate’, Harvard Business Review, September–October, pp 121–134; Porter, M. and van der Linde, C. (1995) ‘Toward a New Conception of the Environment–Competitiveness Relationship’, Journal of Economic Perspectives, vol IX-4, Fall, pp 97–118. 244 Ibid. 245 Palmer, K., Oates, W.E. and Portney, P.R. (1995) ‘Tightening Environmental Standards: the Benefit-Cost or the No-Cost Paradigm?’ Journal of Economic Perspectives, vol 9, no. 4, pp 119–32. 246 Ibid.


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Porter Hypothesis debate have been synthesised in papers by Paten, 247 Lanois et al, 248 Wagner, 249 Osang et al 250 and Mohr. 251 They rightly point out that given the mixed nature of the empirical results obtained thus far, assessment of the hypotheses remains an open research question. However, this more recent literature points ways forward both empirically and theoretically to resolve the debates on the Porter Hypothesis. For instance, Lanois et al 252 empirical study tested the significance of the three different variants of the Porter Hypothesis using data on environmental policy, research and development, environmental performance and commercial performance. Their analysis was based upon a unique database which included observations from approximately 4,200 facilities in seven OECD countries. In general, they found: -

strong support for the ‘weak’ version; that stringent but efficient regulation stimulates innovation,

-

qualified support for the ‘narrow’ version; that flexible environmental policy instruments give firms greater incentive to innovate than prescriptive regulations, and

-

qualified support for the ‘strong’ version as well.

Theoretically, Alpay, 253 Mohr 254 and Oseng et al 255 have made significant contributions demonstrating, with their models, conditions under which the Porter Hypothesis does apply. Also, theoretically, Paten has shown that neo-classical critiques of the Porter Hypothesis 256 use overly simplistic microeconomic assumptions that do not acknowledge significant market, informational and organisational failures. 257 Paten’s defence of Porter 258 plus other modern studies of the Porter Hypothesis provides a new and significant body of work to help shift the Porter Hypothesis debates forward.

247

Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178. 248 Lanoie, P., Laurent-lucchetti, J., Johnston, N. and Ambec, S. (2007) Environmental Policy, Innovation and Performance: New Insights on the Porter, Insitiute De’conomie Apliquee’, Montreal. Available at http://www.hec.ca/iea/cahiers/2007/iea0706_planoie.pdf Accessed 2 February 2008. 249 Wagner, M. (2003) The Porter Hypothesis Revisited: A Literature Review of Theoretical Models and Empirical Tests, University of Luneburg. Available at http://129.3.20.41/eps/pe/papers/0407/0407014.pdf Accessed 2 February 2008. 250 Osang, T. and Nandy. A (2004) Environmental Regulation of Polluting Firms: Porter's Hypothesis Revisited . Available at http://faculty.smu.edu/tosang/pdf/regln0803.pdf Accessed 2 February 2008. 251 Mohr, R.D. (2002) ‘Technical Change, External Economies, and the Porter Hypothesis', Journal of Environmental Economics and Management, vol 43, pp 158-168. 252 Lanoie, P., Laurent-lucchetti, J., Johnston, N. and Ambec, S. (2007) Environmental Policy, Innovation and Performance: New Insights on the Porter. Available at http://www.hec.ca/iea/cahiers/2007/iea0706_planoie.pdf Accessed 2 February 2008. 253 Alpay, S. (2001) Environmental Regulations: Innovation and International Competitiveness - Some New Insights, Paper Presented at the International Summer School on Economics, Innovation, Technological Progress and Environmental Policy, Seeon, Germany, 812 September. 254 Mohr, R.D. (2002) ‘Technical Change, External Economies, and the Porter Hypothesis', Journal of Environmental Economics and Management, vol 43, pp 158-168. 255 Osang, T. and Nandy. A (2004) Environmental Regulation of Polluting Firms: Porter's Hypothesis Revisited. Available at http://faculty.smu.edu/tosang/pdf/regln0803.pdf. Accessed 2 February 2008. 256 Palmer, K., Oates, W. and Portney, P. (1995) ‘Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?’ Journal of Economic Perspectives, vol 9, no 4, pp 119–132. 257 Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178. 258 Ibid


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Reconsidering Classical Economic Assumptions about the Performance of Companies Mainstream economic theory has evolved significantly in its understanding of market failure which helps to explain why potential inefficiencies still exist. Lanois et al 259 summarise this key point well, stating that; Indeed, Ambec and Barla 260 argue that, analytically speaking, for the Porter Hypothesis to be valid, at least one market imperfection is required in addition to the environmental externality. Examples of such market failures include spill-overs in knowledge or in learning-by-doing, 261 or market power. 262 Alternatively, they may arise out of systemic organisational failures within the firm, such as contractual incompleteness, 263 asymmetric information, 264 and agency control problems. 265 Advances in microeconomic theory have begun to relax some basic assumptions of conventional neo-classical theory, in ways that leave room for inefficiencies within firms. As Paten explains; Kreps 266 argues that a ‘somewhat revolutionary shift in the economic paradigm has begun’, based on a partial abandonment of three ‘canonical principles’ - farsighted rationality, purposeful behaviour, and equilibrium. These principles have allowed economists to build a powerful system of deductive reasoning to predict or explain the behaviour of firms and markets. Modifying or abandoning these ‘canonical principles’ has become necessary to increase the ability of economic theory to predict or explain commonly observed economic behaviours. In short it provides a richer picture. One result of these recent advances has been to provide potential explanations for why inefficiencies within firms are so prevalent. 267 All of these recent advances provide explanations - consistent with modern economic theory - for the persistence of inefficiencies within firms. Research in management strategy provides several perspectives that complement these economic insights. In this emerging view, firms are incapable of finding the best way to maximise profits for many reasons, and instead tend to find better ways forward. Firms clearly seek profits, but the cognitive limits of their managers, and the massive complexity inherent in developing the optimum configuration prevent them from achieving the optimal outcome. Although many firms fail in such an environment, market competition is not always strong enough to eliminate some firms that are significantly less efficient than the industry leaders. Under these conditions, opportunities for firms to harbour inefficiencies are common. Relaxing the key assumptions of conventional microeconomic theory allows now allows economists to provide

259

Lanoie, P., Laurent-lucchetti, J., Johnston, N. and Ambec, S. (2007) Environmental Policy, Innovation and Performance: New Insights on the Porter, Insitiute De’conomie Apliquee’, Montreal. Available at http://www.hec.ca/iea/cahiers/2007/iea0706_planoie.pdf Accessed 2 February 2008. 260 Ambec, S. and P. Barla (2005) ‘Quand la réglementation environnementale profite aux pollueurs : survol des fondements théoriques de l'hypothèse de Porter’ working paper GREEN, Laval University. 261 Mohr, R.D. (2002) ‘Technical Change, External Economies, and the Porter Hypothesis’, Journal of Environmental Economics and Management, vol 43, no. 1, pp 158-168. 262 Simpson, D. and Bradford, R.L. (1996) ‘Taxing Variable Cost: Environmental Regulation as Industrial Policy’, Journal of Environmental Economics and Management, vol 30, no. 3, pp 282-300; Greaker, M. (2003), ‘Strategic Environmental Policy; Ecodumping or a Green Strategy?’, Journal of Environmental Economics and Management, vol 45, pp 692-707. 263 Ambec, S. and Barla, P. (2006) ‘Can Environmental Regulations be Good for Business? An Assessment of the Porter Hypothesis’, Energy Studies Review, vol 14, pp 42-62. 264 Ambec, S. and Barla, P. (2002), ‘A theoretical foundation of the Porter Hypothesis’, Economics Letters, vol 75, pp 355-360. 265 Gabel, H.L. and Sinclair-Desgagné, B. (2002) ‘The Firm, its Procedures, and Win-Win Environmental Regulations’ in Henk Folmer et al. Frontiers of Environmental Economics, Cheltenham, UK. 266 Kreps, D.M. (1997) ‘Economics — the current position’, Daedalus, vol 126, no. 1, pp 59–85. David M. Kreps is Paul Holden Professor of Economics at the Graduate School of Business at Stanford University. 267 Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178.


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potentially valuable methods for approximating the efficiency frontier, against which the actual efficiency of firms could be estimated. Reconsidering the ‘Far-Sighted Rationality’ Assumption The far-sighted rationality assumption requires that each economic actor, whether they be employee or CEO, base his or her actions on a ‘detailed probabilistic picture of the future’ 268 As Professor Krebs 269 assumes that: ‘This is not to say that worker X can foresee the future; but he has a detailed probabilistic picture of the future in mind, as does the firm (or its managers), and he uses this picture in forming his own actions’. 270 Teece argues that this ‘rational’ behaviour really constitutes super- or hyper-rational thinking. 271 Behavioural arguments suggest that relaxing the far-sighted rationality assumption allows us to incorporate human cognitive limits into calculations concerning decision making and therefore have a better picture of the reality of the situation, though this may complicate economic modelling. 272 Put plainly, in their modelling, some economists assume that we can make rational assumptions about the conditions long into the future and that this should be used to direct business decisions today. However, this is unreasonable as there have been many examples where market trends have been impossible to predict. For instance, in 1984, when Bill Gates patented the DOS operating language, very few would have suggested that it would lead to a revolutionary information and communications technology revolution that would radically change business. IBM also, when faced with the threat of the Personal Computer, continued to insist on picturing tomorrow as an extrapolation of today and assumed the demand for the PC would not be great enough to warrant a change in strategy. In doing so, the company missed market opportunities worth an estimated US$70 billion. 273 This recognition allows us to take into account the simple fact that there is not perfect information all the time upon which our decisions are made. If you do not know how to identify and implement efficiencies or sustainable design, chances are those opportunities will be missed. Most business leaders and engineers in Australia have very little formal training in how to identify and implement efficiencies or sustainable design opportunities. Also as the field of energy, water and materials efficiency moves so rapidly, every 12 months the benchmark for industry best practice has moved on. Hence, unless the corporation has a team of engineers expert in these fields there is a reasonable chance that the corporation will miss opportunities to further improve their operational performance and product design. These limits also include behaviours motivated by market failures, perverse incentives, political interests rather than economic rationality. Perverse incentives exist for corporations in many countries. There also can be significant institutional and regulatory barriers, disincentives and market failures that often halt change. For instance, one of the best win-win opportunities for business comes from energy efficiency investment. Significant work has been done demonstrating the benefits in this area since the OPEC oil crisis of the early seventies. But even here there can be disincentives for firms adopting energy efficient best practice. For instance, at the November 2003 Sustainable Energy Authority Victoria (SEAV)/Business Council for Sustainable Energy 268

Krebs, D.M. (2007) ‘Economics--the current position’, Daedalus, vol 126, no. 1, pp 59–85. Available at http://www.nicolaifoss.com/teaching/Economics_the%20current%20position.pdf Accessed 10 April 2008. 269 David M. Kreps is Paul Holden Professor of Economics at the Graduate School of Business at Stanford University. 270 Krebs, D.M. (2007) ‘Economics--the current position’, Daedalus, vol 126, no. 1, pp 59–85. Available at http://www.nicolaifoss.com/teaching/Economics_the%20current%20position.pdf Accessed 10 April 2008. 271 Teece, D.J. (1990) ‘Contributions and impediments of economic analysis to the study of strategic management’, in Fredrickson, J.W. (ed) Perspectives on strategic management, Harper Business, New York. 272 Kahneman, D., Slovic, P. and Tversky, A. (1982) Judgment under uncertainty: heuristics and biases, Cambridge University Press, Cambridge; Conlisk, J. (1996) ’Why bounded rationality?’ Journal of Economic Literature, vol 34, no. 2, pp 669–700. 273 Foster, R. and Kaplan, S. (2001) Creative Destruction: Why Companies that are Built to Last Under-Perform the Market and How to Transform Them, Doubleday , New York


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(BCSE) energy efficiency conference in Melbourne, PricewaterhouseCoopers consultants presented on how the taxation system in Australia discourages investment in energy efficiency. Apparently, if a business maintains old equipment, it can claim 100 percent of the cost as a tax deduction in that year, but if it improves the equipment (for example by making it more efficient) that’s considered to be a capital investment, and the tax deduction can only be claimed over the estimated life of the improved equipment. Even worse, equipment purchased before 1999 is eligible for accelerated depreciation (a higher tax deduction each year) if it is upgraded: but purchase of new equipment is ineligible for accelerated depreciation. So the least attractive option financially for a business is to invest in a new, more efficient plant. Even upgrading efficiency is less attractive than just maintaining equipment. Of course, this doesn’t necessarily mean we should change the tax system, because it is designed to take into account many issues. However, it does raise the question of the design and implementation of incentives for energy efficiency to overcome these disincentives. But where are the incentives for energy efficiency to overcome these disincentives? Reconsidering the ‘Purposeful Behaviour’ Assumption The purposeful behaviour assumption requires that each economic actor ‘acts purposefully, to achieve a well-defined goal’. 274 Relaxing this assumption permits the firm to be considered as a collection of partially aligned interests, rather than a single, monolithic actor capable of always acting purposefully as one to achieve the same goal. As Professor Krebs explains, 275 (One of the 3 canonical assumptions is that) Behaviour is purposeful. Employees (and the firm employing them) act purposefully, to achieve a well-defined goal. This goal is put into the model as a numerical index of the individual's well-being, for example, utility for consumers and (usually) profits for firms. Put plainly, people within companies are assumed to share exactly the same goals at the same time and are assumed to be in complete communication internally to always act together in the best interest of the company. However, few companies actually achieve anything close to this. The former Australian Department of Industry Tourism and Resources Energy Efficiency Best Practice program found cases where there was a lack of communication leading to reduced energy efficiency. For instance at one of the dairy companies, they were producing over third more steam than needed on average simply because those in the boiler room thought it was their job to produce enough steam at all times for peak usage periods. By simply requiring staff to ring the boiler room ahead of time to inform them when they would need extra steam is now saving this firm over 30 percent of its energy usage. In other words problems in vertical coordination, excessive hierarchy and the communication problems that go with it, may create barriers to change. Directives from top management to focus on issues such as growing market share and nothing else, can prevent an organisation from focusing efforts on potential savings from more efficient consumption of energy or other resources. BP globally have started to address this by reducing the number of hierarchical levels within BP from thirty to four, making BP globally far more responsive to change and opportunities.

274

Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178 275 Krebs, D.M. (2007) ‘Economics-the current position’, Daedalus, vol 126, no. 1, pp 59–85. Available at http://www.nicolaifoss.com/teaching/Economics_the%20current%20position.pdf Accessed 10 April 2008.


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Problems in horizontal coordination within a firm may also limit its ability to achieve its intended purposes. For example, differences in priorities and incentives among research and development, marketing and manufacturing functions, and competition for budgets often inhibit the design of environmentally sound products. 276 Short term market pressures on CEOs and boards of corporations can also prevent longer term investments in efficiency gains. In 2004, the BCA published a major report 277 calling for the sharemarket and shareholders to take a longer term view of their investments and stop constantly demanding higher and higher profit results over shorter and shorter time spans. The report argued that this constant pressure from the share-market and shareholders - for better quarterly profit results - was preventing even good blue chip companies in Australia from focussing on the investments needed to be competitive, profitable and to perform with good social and environmental outcomes in 2-5 years’ time. Significantly, it was supported by the Australian Shareholders Association, which also argues that a focus on short term returns could be undermining shareholder value in the medium to long term. ASA chairman John Curry said fund managers competed against one another for rankings - based on share price performance, and in turn profits and outlook - ‘even over a period like a month, which is a ludicrous situation. The pressure is there to get short-term results’. 278 Mr Curry said that convincing investors to take a long term outlook was difficult because it was necessary to change the fundamental psyche that governed investment decisions. He said immediate commercial imperatives were often contrary to creating an environment for sustained growth, and investors liked to see strong returns - quickly. The problem is we are, most of us, members of managed superannuation funds and we look at those performances every quarter and we say they're good or they're bad, why doesn't the company do something about it. 279 Research shows that this pressure on companies from their shareholders and the superfunds is currently having a critical effect on whether companies can pursue efficiency and sustainable development related activities. Such a short term immediate profit focus leads inevitably to companies being in a position where they feel they have no choice but to oppose any changes to regulation or community attitudes that will add costs to their bottom line. This creates a dynamic where companies fund think tanks and experts to argue against any potential changes that might harm their bottom line, even if they are in the best interest of the company, sector or economy in the medium to long term. This leads to CEOs being prevented from making investments with anything more than a 3–12 month pay back, even though such investments may help the company save or make millions over a 3-5 year period. External pressure from investors and analysts is a serious problem, but it's only half the picture. 280 The other half is the advent of stock options. Stock options are agreements between the company and its top executives that allow the executives to buy the company's stock at prices far below what the public pays. Companies don't pay anything to issue stock options, making it a form of ‘free money’. In Australia in 2001, 45 percent of an average CEO's compensation was in the form of variable compensation; of this, roughly 57 percent was in the form of bonuses and 43 percent was in the form of stock options. Bonuses are usually annual and pegged to short term

276

Paton B. (1994) ‘Design for environment: a management perspective’ in Socolow, R.H. et al (ed) Industrial ecology and global change, Cambridge University Press, Cambridge. The Business Council Sustainable Growth Task Force (2004) Beyond the Horizon: Short-Termism in Australia, The Business Council. Available at www.bca.com.au/content.asp?newsID=9686. Accessed 4 February 2008. 278 Costa, G. (2004) ‘Dump short-termism, investors urged’, The Age. Available at http://www.theage.com.au/articles/2004/10/21/1098316787112.html?from=moreStories. Accessed 11 April 2008. 279 Ibid. 280 Stiglitz, J. (2003) The Roaring Nineties: Seeds of Destruction, Penguin, p 143. 277


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performance measures such as annual earnings per share or share price. This focuses CEOs on short term thinking. 281 Voluntary initiatives, corporate law reform, better economic incentives, emission trading schemes, and regulations by governments can focus attention on opportunities to improve both economic and environmental performance by helping to overcome these problems in horizontal and vertical coordination and short term market pressures. Reconsidering the ‘Equilibrium’ Assumption Let’s now assume that a corporation has chosen to pursue sustainable development. There is still no guarantee they will choose the best options each step of the way. The equilibrium assumption requires ‘all parties to adopt their best alternatives, given that all actors will do the same’. 282 Put plainly, it is assumed that all companies will choose the best options and that all companies will choose similar options and strategies to increase economic growth. Nelson et al point out that relaxing this assumption allows researchers to explore industry dynamics that cannot be described adequately by static equilibrium assumptions. 283 As Paten explains, economic models in the past have often assumed the equilibrium assumption, however if it is relaxed this would; 284 … allow researchers to explore industry dynamics that cannot be described adequately by static equilibrium assumptions. 285 This allows economists to create models closer to what actually happens. These models include then the following assumptions about the actors: First, the management team for each firm must attempt to optimize the mix of technologies, marketing programs, and production schedules to compete for current business. Second, it must choose an appropriate portfolio of investments in research and development, market research, process development, and capacity development to prepare to compete in future time periods. Different firms are likely to hold diverse beliefs about consumer desires and competitor strategies for future time periods. Finally, each firm must calculate the appropriate investments in environmental performance improvement and energy efficiencies to meet customer and investor expectations in future time periods. As a result, calculating the most efficient mix of current and future product offerings and production schedules is beyond human computational abilities. In response to this challenge, firms experiment and adjust offerings and production schedules iteratively. This process then reveals that more often than not the best firms choose a better way but not the best way forward, as there will be potentially more efficient solutions outside their experience and beliefs. This applies equally to decisions about organisational structures and processes, research and development opportunities, energy efficiency and environmental performance. The pressure on each individual firm to move innovations quickly to market reduces the ability of management to focus on many efficiency-improving options, including efforts to conserve energy or reduce pollutant emissions.

281

Ibid. Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178. 283 Nelson, R.R. and Winter, S.G. (1992) An evolutionary theory of economic change, Belknap Press of Harvard University Press, Cambridge, MA; Nelson, R.R. (1995) ‘Recent evolutionary theorizing about economic change’, Journal of Economic Literature, vol 33, no. 1, pp 48–90. 284 Paton, B. (2001) ‘Efficiency Gains within Firms Under Voluntary Environmental Initiatives’, Journal of Cleaner Production, vol 9, pp 167–178 285 Ibid 282


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6. Reducing the costs of Purposeful Action on GHG Emissions Reductions 6.1.

Reducing Electricity Consumption through Energy Efficiency Improvements

The success of the Australian economy to harness energy efficiency opportunities will be a crucial factor in our ability to achieve a short term peaking of greenhouse gas emissions. This will allow for reasonable targets for the economy wide annual reductions to follow. In a 2004 Federal Government White Paper it was estimated that cost effective energy efficiency opportunities could contribute an additional AUD$1 billion to GDP if identified and implemented. 286 Energy efficiency gains of this magnitude can be achieved as energy-efficiency savings are the quickest, easiest and most cost-effective way for business, government and households to reduce greenhouse emissions. This is because energy efficiency opportunities tend to have the fastest return on investment of any climate change mitigation measure. The most recent study estimating the energy efficiency potential in the Australian economy has been done by McKinsey Consulting, who found that; 287 Significant quantities of ‘negative-cost’ (energy efficiency) opportunities are available. These opportunities would allow Australia to reduce emissions in 2020 by 20 percent below 1990 levels at no net cost to the economy. This is because the contribution to the economy of the negative cost opportunities is enough to pay for other abatement measures up to a marginal cost of A$62 per tonne CO2e, representing 270 Mt of abatement. For 2030, an equivalent analysis suggests reductions of 35 percent are achievable at no net cost. McKinsey explain that they have been quite conservative in their approach to estimating the costs for energy efficiency and conservation over the coming decades. They state that for this modelling, ‘The scope of the measures considered were those requiring deployment of presentday technologies, as well as a limited number of maturing emerging technologies. Speculative technologies or those requiring significant future breakthroughs were not included, nor were those requiring any significant lifestyle changes. For example, fuel substitution and improved efficiency in private vehicles was in scope, but promotion of public transport or bicycle riding to replace those vehicles was not. Similarly, efficiency in residential air conditioning was in scope, but reduction in the use of air conditioning was not.’ 288 The McKinsey study found there was significant potential in the building sector (commercial and residential buildings), industry and transport sectors. In the building sector, for instance, McKinsey found that, 289 By 2030, a total of 60 Mt of carbon-reduction opportunities can be found in the building sector, all at low or negative cost. Most of these opportunities (~50 Mt) will be available by 2020 and many can be implemented today. Significant opportunities include improving commercial air handling, air conditioning and residential water heating systems. Australia’s relatively low level of insulation creates significant opportunities for increased energy efficiency in residential and commercial buildings. Other major areas of opportunities include reducing energy consumption through improvements in lighting and mandating that appliances have energy-efficient standby features. Two of the key levers for change here

286

Australian Federal Government (2004) Energy White Paper, Australian Federal Government. Available at http://www.aar.com.au/pubs/ener/foewpjun04.htm Accessed 11 April 2008. 287 Gorner, S., Lewis, A., Downey, L., Slezak, J., Michael, J. and Wonhas, A. (2008) An Australian Cost Curve For Greenhouse Gas Reduction, McKinsey Consulting, Australia/New Zealand. Available at http://www.mckinsey.com/locations/australia_newzealand/knowledge/pdf/1802_carbon.pdf Accessed 4 March 2008. 288 Ibid. 289 Ibid.


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are better aligning tenants’ and developers’ incentives to improve energy efficiency, and using direct regulation to establish appropriate building codes and standards. Significant opportunities lie in the industry sector through improving energy efficiency through electric motor efficiency, co-generation and more efficient industrial processes. Methods of improving the efficiency of electric motor-drive systems include the use of control mechanisms more sensitive to variations in load, which are thus more energy efficient. 290 Most industries require electricity as well as either steam, hot water or hot air - so there is great potential for cogeneration. Co-generation converts 60-90 percent of fuel energy to useful power (usually electricity) and heat, whereas conventional centralised electricity generation usually converts 2550 percent of fuel energy to electricity. 291 Co-generation is one of few technological energy efficiency opportunities that does not necessarily require equipment changeover – in many applications, older and inefficient prime-mover technologies can be more suitable if there is a relatively high heat load. Greater efficiency can be achieved by optimising all of the major components (prime-mover, fuel and heat recovery technology) for the electricity and heat load profiles. 292 Many abatement opportunities in the industry sector represent net gains to the economy, reflecting the fact that they are often efficiency improvements. There are also significant opportunities to improve fuel efficiency in the transport sector. Less than 10 percent of the fuel consumed by modern automotive road vehicles, such as cars and heavy trucks, contributes to hauling their passengers and loads. Taking a whole system approach to the design of new vehicles can reduce fuel consumption in cars by 50 percent at roughly no cost and by more than 70 percent with a two-year payback period; 293 and in heavy trucks by 50 percent at an internal rate of return (IRR) of 60 percent. 294 Almost any modern car or heavy truck can approach these levels of fuel efficiency by (in order): 1) reducing body mass by substituting steel with new lightweight metals and plastics, 2) improving the aerodynamic properties of the body, 3) using lowrolling-resistance tires, and 4) using a fuel efficient engine. Applying features (1), (2) and (3) substantially reduces the required engine capacity and hence makes alternative engine options cost-effective such as hybrid-electric engine, which can then also take advantage of regenerative braking and new battery technologies. 295

290

Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 10 March 2008. 291 nd Educogen (2001a) The European Education Tool on Cogeneration, 2 ed, The European Association for the Promotion of Cogeneration, Belgium p 8. Available at http://www.cogen.org/Downloadables/Projects/EDUCOGEN_Tool.pdf. Accessed 17 April 2007; Gans, W., Shipley, A.M. and Elliot, R.N. (2007) Survey of Emissions Models for Combined Heat and Power Systems, ACEEE, USA, p 1. Available at http://aceee.org/pubs/ie071.pdf?CFID=1902973&CFTOKEN=31285910. Accessed April 2007; Onsite SYCOM Energy Corporation (1999) Review of Combined Heat and Power Technologies, US Department of Energy, USA, p 4. Available at http://www.eere.energy.gov/de/pdfs/chp_review.pdf. Accessed 17 April 2007; Sustainability Victoria (2006) Cogeneration, Victorian State Government, Australia. Available at http://www.seav.sustainability.vic.gov.au/manufacturing/sustainable_manufacturing/resource.asp?action=show_resource&resourcetype =2&resourceid=23. Accessed 17 April 2007; See United Nations Environment Programme (n.d.) Energy Technology Fact Sheet: Cogeneration, UNEP Division of Technology, Industry and Economics - Energy and OzonAction Unit, France. Available at http://www.cogen.org/Downloadables/Publications/Fact_Sheet_CHP.pdf. Accessed 17 April 2007. 292 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, ‘Lecture 3.3: Energy Efficiency Improvements available through Co-Generation’, The Natural Edge Project (TNEP), Australia. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 17 April 2007. 293 Lovins, A.B. (2007) Class Lectures in Advanced Energy Efficiency: 3. Transportation, Stanford University. 294 Lovins, A.B., Datta, E.K., Bustnes, O.E., Koomey, J.G. and Glasgow, N.J. (2004) Winning the Oil Endgame: Innovation for Profits, Jobs and Security, Technical Annex, Rocky Mountain Institute, Snowmass, Colorado, Chapter 6: Class 8 Heavy Trucks. Available at http://www.oilendgame.com/TechAnnex.html. Accessed 29 July 2007. 295 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, ‘Lecture 8.2: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Passenger Vehicles’ and ‘Lecture 8.3: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Trucking’, The Natural Edge Project (TNEP), Australia. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx.


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In most sectors of the Australian economy there are significant energy efficiency opportunities that can yield rapid greenhouse gas reductions and cost savings. In addition to the reduced electricity consumption a range of secondary benefits from energy efficiency programs for industry can be achieved, these can include increased productivity and yields, lower capital costs and operating costs, and reductions in the consumption of other resource use such as water. Some energy efficiency improvements may primarily be aimed at one goal, but also generally include beneficial impacts on other aspects of a production process. For instance, certain designs or technologies that are identified as being ‘energy-efficient’ because they reduce the use of energy will bring a number of additional enhancements to the production process. These improvements include lower maintenance costs, increased production yield, safer working conditions, and many other ‘productivity benefits’ or ‘non-energy benefits’, because in addition to reducing energy, they all increase the productivity of the firm and economic growth. Several authors have studied the relationship between productivity and energy efficiency and found a direct relationship using different methodologies and datasets. 296 Energy efficiency also reduces the amount of renewable energy companies will need to purchase to further reduce their emissions. 6.2.

Reducing Electricity Consumption through Demand Management

Reducing greenhouse gas emissions through reductions in peak 297 and base load 298 demand can be achieved in Australia through targeting a range of demand management strategies. Demand management is not focused on improving efficiencies but rather the demand patterns of use of electricity, such as reducing unnecessary consumption and moving loads from the peak times to the base period. Peak load electricity demand can be reduced with tariff reform and smart metering. In states around the world where smart meters have been used along with tariff reform to provide lower rates during off-peak periods, significant reductions in peak electricity loads have occurred. 299 In Florida for example, electricity suppliers Georgia Power, and Gulf Power, have implemented smart meters and real time pricing with remarkable results. For Georgia Power, large customers reduced electricity demand by 20-30 percent during peak periods. For Gulf Power, a 41 percent reduction in load during peak times was achieved. 300 Similarly base load electricity demand in Australia could be significantly reduced. Base load electricity describes the electricity used by the economy 24 hours a day, seven days a week. Periods of high consumption spike this load to form the peak load times. Given the size of electricity consumption from the Australian service industry, commercial buildings and the residential market, the national consumption should drop during the evenings and weekends when these facilities are not in use. However, in practice this is not the case. Research by Genesis Auto shows that in NSW and Victoria (shown in Figure 9) there is very little variation between electricity base-load between weekdays (when one would expect the highest base-load) and between 10pm-5am or over the weekends (when one would expect the lowest base-load electricity demand). 296

Boyd, G.A. and Pang, J.X. (2000) ’Estimating the linkage between energy efficiency and productivity’. Energy Policy, vol 28, no. 5, pp 289–296; Kelly, H.C., Blair, P.D. and Gibbons, J.H. (1989) ‘Energy use and productivity: current trends and policy implications’, Ann. Rev. Energy, vol 14, pp 321–352; US Department of Energy (1997)The interrelationship between environmental goals, productivity improvement, and increased energy efficiency in integrated paper and steel plants, US Department of Energy, Office of Policy and International Affairs and Office of Energy Efficiency and Renewable Energy, DOE/PO-0055, Washington, DC. 297 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, See Lecture 4.2: Demand Management Approaches to Reduce Rising ‘Peak Load’ Electricity Demand. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture4_2. Accessed 10 March 2008. 298 Ibid, See Lecture 4.3: Demand Management Approaches to Reduce Rising ‘Base Load’ Electricity Demand at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture4_3. Accessed 10 March 2008. 299 Smith, M. and Hargroves, K. (2007) ‘Smart Approaches to Electricity Use’, CSIRO ECOS, Issue 135, pp 12-13. 300 Ibid


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Friday

Sunday

Figure 9: Victoria’s Summer Electricity Demand (GW) Saturday 22 January 2005 to Friday 28 January 2005. Includes Australia Day public holiday showing much higher load than the Saturday and Sunday Source: Genesis Auto 301 This suggests that there is significant potential to reduce base-load electricity demand in Australia between 10pm and 5am and on weekends through better management of demand by employing mechanisms such as timers to switch off lights and appliances when not in use. In Italy they have instituted regulations that require commercial buildings to turn their lights off after midnight. Research by energy efficiency experts Alan Pears and Geoff Andrews suggests that most organisations leave at least 5-10 percent of their equipment, lighting or appliances on when they are not in use. 302 Australia is blessed with very cheap energy compared to most OECD countries, due to our coal reserves. This has led to many businesses, commercial buildings and households simply leaving on machinery, lighting, appliances, air-conditioning and heating throughout the night and over weekends rather than ensuring that such equipment turns off when it is not needed. It is estimated that commercial buildings can save as much as 70 percent over the weekend simply by ensuring that more efficient lighting and air-conditioning is used and turned off when not needed. Australia wastes over 10 percent of all electricity used simply through leaving domestic appliances on standby which could otherwise be turned off. This results in Australia’s base load electricity being a higher percentage of total electricity usage than other OECD nations. Australia’s base load electricity usage is 70 percent while the UK’s is 40 percent. 303 Geoff Andrews, Director of GenesisAuto, says that, after twenty years as an energy consultant, 304 Our experiences have led us to conclude that roughly 50 per cent of the base load electricity usage we find should not be there... Hospitals run 24 hrs, 7 days a week, so it might be reasonable to expect a flat load profile… But then you ask about the areas in a 301

Source Data from National Electricity Market Management Company (NEMMCO) at http://www.nemmco.com.au/. Accessed 10 March 2008. 302 Pears, A. (2004) Misconceptions About Energy Efficiency – Its Real Potential: Some Perspectives and Experiences, Background paper for International Energy Agency Energy Efficiency Workshop, Paris April 2004. Available at http://www.naturaledgeproject.net/NAON_ch17.aspx. Accessed 7 May 2007. 303 Caten, T. (2006) ‘Science Chief Seeks Nuclear Power Increase’, Financial Times. 304 Geoff Andrews, Genesis Now at http://www.genesisnow.com.au/. Private Communication, June 2007.


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hospital which aren't 24 hrs 7 days a week – consulting rooms, admin, laundry, kitchen, xray, central sterilising, maintenance, pathology – and more often than not there is still a flat load profile. 6.3.

Delaying or Avoiding new Electricity Generation and Grid Infrastructure

Improvements from a range of options in energy efficiency and demand management as highlighted above could save tens of billions of dollars in infrastructure costs by reducing both the overall electricity demand and the level of peak demand that is required to be serviced. This could then effectively delay or even avoid the need to build new power stations and reduce maintenance requirements on the electricity grid. This may sound like an exaggeration, however, when you consider that in order to deliver 1 kilowatt to the end user the power station may actually need to generate in the order of 6-10 kilowatts to overcome the losses throughout the distribution system. As the authors of Natural Capitalism wrote in 1999, 305 From the power plant to an industrial pipe, inefficiencies along the way whittle the energy input of the fuel - set at 100 arbitrary units in this example - by more than 90%, leaving only 9.5 units of energy delivered to the end use. Small increases in end-use efficiency can reverse these compounding losses. For instance, saving one unit of output energy will cut the needed fuel input by 10 units, slashing cost and pollution at the power plant. Hence by focusing on increasing the efficiency of the end user the reductions in the required electricity to be generated can compound and create cascading savings for the generator all the way back through the system to the power plant.

Figure 10: From the power plant to an industrial pipe, inefficiencies along the way whittle the energy input of the fuel - set at 100 arbitrary units in this example - by more than 90 percent, leaving only 9.5 units of energy delivered to the end use. Source: RMI 306 A strategic focus on improving the efficiency and demand management of engineered systems employing motors, HVAC systems, air-conditioners, boilers, chillers, condensers, appliances and office equipment can deliver both savings to the user in reduced electricity bills together with savings in costs of infrastructure, maintenance and operations to the utility through the compounding reductions in generation requirements, while also helping Australia to reduce greenhouse gases emissions. Such efficiency and demand management opportunities exist in

305

Hawken, P. et al (1999) Natural Capitalism: Creating the Next Industrial Revolution, Earthscan Publishing, London, Chapter 6: Tunnelling Through the Cost Barrier. Available at www.natcap.org Accessed 13 February 2008. 306 Lovins, A.B. (2005) ‘More Profit with Less Carbon’, Scientific American, Sept. 2005. See the extended bibliography at www.rmi.org/sitepages/pid173.php#C05-05. Accessed 13 February 2008.


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most countries and thus provide a tangible way to both improve the productivity of industries and reduce the dependence on current forms of fossil fuel generated electricity. This reduced demand for generation also reduces the demand requirements for current renewable technologies, improving their viability, especially when combined with a decentralised distribution system as outlined further in this submission. There are a number of secondary and complimentary benefits from improving efficiency and the management of demand in Australia. For example, if peak loading is reduced then retailers of electricity are exposed to lower peak prices for wholesale energy. As electricity is sold on the open market in Australia, electricity retail companies need to purchase electricity to meet the demands of their customers. The market price for electricity varies throughout the day and during peak times the price increases inline with the increased demand. So even if consumers do not pay differential tariffs for their electricity (meaning they pay the same rate all day) the retailer has to cover the cost of purchasing electricity during the peak times.

Figure 11: Victoria’s 5 Minute Demand and Price for 10/04/08 00:00 to 11/04/08 17:25 Source: National Electricity Market Management Company (NEMMCO) 307 From the point of view of the customer any savings in home electricity costs will be well received, however, for a large business it may seem like less of a concern as the average electricity bill is small compared to the turn over of the company but if you consider that the electricity bill is in many cases comparable to the profit margin for the company it starts to look like a different picture. By reducing the demand for electricity not only does this reduce the cost to business and the consumer but it reduces the requirement to maintain and build new electricity generation infrastructure, especially the additional infrastructure required to meet peak period demands that is then redundant for the rest of the time.

307

See National Electricity Market Management Company (NEMMCO) website at http://www.nemmco.com.au/. Accessed 11 April 2008, 17:27 AEST.


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As the NSW Independent Pricing and Regulatory Tribunal Inquiry found in 2002, 308 This is the situation NSW is increasingly facing. If no action is taken on the demand side of the market, additional capital expenditure of $1.5 billion to $3 billion may be required over the next 10 years. This is in addition to foreshadowed network capital expenditure of $5 billion, a significant proportion of which may be required to meet growth in demand. The Tribunal summed up the seriousness of this issue when it stated, The Tribunal is very concerned about the potential for substantial increases in capital expenditure and worsening asset utilisation, with adverse consequences for costs faced by end-users. Already, 10 per cent of network capacity is required for less than 1 per cent of the year. This will worsen if demand continues to get peakier and networks have to invest in new network capacity to meet this demand. Potentially massive increases in network expenditure to meet demand growth highlight the importance of getting demand management right. 309 The National Framework for Energy Efficiency (NFEE) has commissioned a wide range of modelling that has revealed major economic benefits to Australia from significantly reducing electricity demand and thereby delaying the need for new infrastructure and networks. 310 This can help the economy, as shown in the analysis undertaken by McLennan Magasanik Associates 311 (under business-as-usual assumptions): [About] 1,000 MW of new capacity per annum is required across the electricity supply sector from about 2009/10 onwards. Although not all of this capacity will be base load, about 500 MW to 700 MW is likely to be required for high load duty [or Peak Load]. Energy efficiency [and demand management] initiatives, which target base load sources, will delay the need to invest in this new capacity... Benefits were estimated to range from $2.4 billion to $6.6 billion. Energy efficiency initiatives that both reduce running costs to business and delaying the need to invest in new capacity can provide between $2.54 and $6 Billion in benefits to Australia. 312 There are also commercial benefits to electricity utilities to delaying the need to build new plants because it reduces the risks of potential economic losses if either the forecast demand fails to meet projections, the construction of plants runs over schedule, or if there are sudden changes to energy and climate policy that makes different supply options more economical. There is considerable evidence from overseas that where electricity utilities have encouraged energy efficiency in the community it has helped to boost the local economy and improve the bottom line of the electricity utility. Take the now classic case of the town of Osage, Iowa, where the city Municipal Utilities Department successfully implemented an energy efficiency program as far back as 1975. Osage Municipal Utilities has been able to reduce electricity rates by 19 percent during the last eight years and natural gas rates by 5 percent during the last five years. 313 In addition the program

308

Independent Pricing and Regulatory Tribunal of NSW (2002) Inquiry into the Role of Demand Management and Other Options in the Provision of Energy Services, IPART, p i. Available at http://www.ipart.nsw.gov.au/electricity/documents/InquiryintoRoleofDemandManagementandOtherOptions-FinalReport.pdf. Accessed 4 September 2007. 309 Ibid 310 National Framework for Energy Efficiency (2007) Commissioned Modelling Studies for Australia, NFEE. Available at http://www.nfee.gov.au/about_nfee.jsp?xcid=65. Accessed 2 June 2007. 311 McLennan Magasanik Associates (2004) National energy efficiency target Modelling for the National Energy Efficiency Framework, MMA. Available at http://www.nfee.gov.au/default.jsp?xcid=41. Accessed 2 June 2007. 312 Ibid 313 See Smart Communities Network - Green Buildings Success Stories at http://www.smartcommunities.ncat.org/success/osage_muni.shtml. Accessed 2 June 2007.


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reduced unemployment to half that of the national average as the lower electricity rates has attracted more factories and companies to town, while reducing the emissions and costs of the utility itself. 314 Several Osage businesses, such as Fox River Mills (now one of the area’s largest employers), experienced exemplary growth after participating in the town’s energy efficiency program. Fox River Mills has reduced the energy cost of producing a pair of socks, their primary product, by 29 percent since 1984. The plant, which employed 110 workers in 1984, employs 310 people today. As John Lessard, president of Fox River Mills states, ‘Energy efficiency improvements have helped to reduce our production costs and have led to business growth. This, in turn, is good for our local economic and employment picture.’ 315 And, says Pam Schaefer-Smith, president of the Osage Chamber of Commerce, ‘Our community and business environment has benefited from energy efficiency improvements in terms of local economic health.’ 316 ‘One of the most effective things we did was to take an infrared scanner into many local buildings,’ says Wes Birdsall the CEO of the Osage electricity utility. ‘When we showed people on the scanner how much energy they were losing, they usually were on the phone to a contractor before we could get out the door.’ 317 In doing so, the OMU’s Demand-Side Management Program, 318 saved its customers in this small rural town US$1.2 million annually, which is almost US$200 a year in energy bills per household. ‘I don't see any difference between a dollar brought in by a new business and a dollar that's saved due to energy conservation,’ says Birdsall. Governments across the world are now investigating ways to improve the existing regulatory frameworks to reward electricity utilities for helping their customers to use electricity more efficiently and effectively. Currently there is little incentive for electricity utilities to move in this direction: Electric utility experts have recognised for a long time that under regulatory structures (e.g.: traditional rate-of-return regulation, rate caps etc) utilities do not have an economic incentive to provide programs to help their customers be more energy-efficient. In fact, they typically have a disincentive because reduced energy sales reduce utility revenues and earnings. The financial incentives are very much tilted in favour of increased electricity sales and expanding supply side systems. 319 Hence in the past, electric utilities have often opposed and lobbied against sustainable development type initiatives such as a utility run customer energy efficiency program and carbon emissions trading schemes. A new report, Aligning Utility Interests with Energy Efficiency Objectives: A Review of Recent Efforts at Decoupling and Performance Incentives 320 has investigated how to re-align incentives and regulations to ensure that electric utilities and customers can create a win-win situation from sustainable development. Their report has found that there are at least 25 states in the USA with serious utility rate-payer-funded energy efficiency programs in operation, all with very positive results. All of these states have addressed the

314

National Renewable Energy Laboratory (1996) The Jobs Connection: Energy Use and Local Economic Development, produced for the US Department of Energy (DOE). The document was produced by the Technical Information Program, under the DOE Office of Energy Efficiency and Renewable Energy. Available at http://www.flasolar.com/pdf/energy_jobs.pdf. Accessed 12 May 2007. 315 Ibid, p 1. 316 Ibid, p 1. 317 US Department of Energy (2007) Smart Communities Initiative: Featured Case Study Osage, US Department of Energy. Available at http://www.smartcommunities.ncat.org/success/osage_muni.shtml. Accessed 2 June 2007. 318 Ibid.. 319 Kushler, M. (2006) Aligning Utility Interests with Energy Efficiency Objectives: A Recent Review of Efforts at Decoupling and Performance Incentives, American Council for an Energy Efficient Economy, Washington, DC, p 5. Available at http://aceee.org/pubs/u061.pdf?CFID=1902973&CFTOKEN=31285910. Accessed 14 April 2007. 320 Ibid


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traditional disincentives by introducing some type of cost recovery mechanism for these energy efficiency programs for the electric utility. An example of such legislation to reward utilities for selling less energy is to create new regulatory frameworks where customers received 85 percent of the savings as lower bills, while the utility's shareholders received the rest as extra profits, not to mention the direct savings in infrastructure from the reduced peak load generation requirement. This was introduced in California in 1992. Retaining 15% of the savings inspired Pacific Gas and Electric (PG&E) in 1992, the U.S.'s largest private utility, to put a halt to building or planning any new conventional power plants. PG&E found that they could address any subsequent increase demand for electricity through renewables. Using this method in California in 1992, PG&E 321 invested over US$170 million to help customers save electricity more cheaply than the utility could make it. That investment created US$300–400 million worth of savings. Customers received 85% of those savings as lower bills, while the utility's shareholders received the rest—over US$40 million. 322 Seven states now in the USA have such decoupling mechanisms now in place. 323 6.4.

Using Renewable Energy to meet both Peak and Base Electricity Demand

Carbon geo-sequestration and nuclear power will take at least 15 years respectively to make a significant difference to global greenhouse gas emissions when coupled with efficiency and demand management improvements. Renewable energy technologies can be implemented rapidly between now and 2020 to allow our emissions to peak and then will underpin an economy wide strategy to sustain annual emissions reductions. Hence assumptions about the costs and benefits of renewable energy are critical in estimating the likely costs of short and long term greenhouse gas reduction targets for Australia. A commonly misunderstood assumption among many decision makers is that a combination of demand management, energy efficiency and renewable energy options can significantly contribute to both peak and base load demands. A number of studies and investigations have been undertaken since the early 1980’s that provide a wealth of information to support the proposal that renewable energy generation can actually make a meaningful contribution to base load power. 324 This is demonstrated by the remarkable achievement to deliver renewable energy projects accounting for one-quarter of California’s installed capacity, one-third of Sweden’s energy, half of Norway’s, three-quarters of Iceland’s, and since 2003, 20 percent of Denmark’s electricity from wind power alone. The main misunderstanding is that renewable forms of energy generation are at the whim of weather conditions. Indeed in a particular location the performance of solar panels, wind turbines or tidal generators may be directly influenced by the amount of sun, wind and tidal movement, however, when such small systems are connected to a grid, it allows them to be located across the state and subject to different wind, wave or tidal regimes. Meaning there is a very small chance that the sun is not shining enough across the entire state, or at the same time there is not enough wind or tidal movement. 321

This sensible program was mothballed when the ‘deregulation’ mania swept California, and set the state down the path to exporting billions of dollars to Enron and other Texas energy companies. But in the wake of the 2001 California Energy Crisis, it is coming back into fashion. Today, PG&E now runs an extensive Customer Energy Management Program that provides customers with access to energy efficiency experts in order to address demand-side energy efficiency and conservation. 322 See RMI - Saving the Utilites at http://www.rmi.org/sitepages/pid322.php. Accessed 14 April 2007. 323 Kushler, M. (2006) Aligning Utility Interests with Energy Efficiency Objectives: A Recent Review of Efforts at Decoupling and Performance Incentives, American Council for an Energy Efficient Economy, Washington, DC, p 5. Available at http://aceee.org/pubs/u061.pdf?CFID=1902973&CFTOKEN=31285910. Accessed 14 April 2007. 324 Diesendorf, M. (2007) Greenhouse Solutions with Sustainable Energy, UNSW Press, Sydney.


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Australia, with its wealth of hydrological potential, gas reserves and geothermal energy options is well positioned to compliment the more traditional options of wind and solar power to, over time, reduce Australia’s local dependency on coal. To date more than 17,000 Australian’s are employed in sectors related to renewable energy generation or improving energy efficiency of residential and industrial systems. Graham Sinden from Oxford University has investigated the potential contribution of wind, solar, tidal, wave power and other renewable energy sources for electricity in the UK. 325 He concluded that most of the UK’s electricity could be generated from renewables, with wind from dispersed sites providing the greatest contribution. 326 Solar energy can also be stored at low cost as heat in water, rocks or thermo-chemical systems such as ammonia, enabling it to be stored on a daily bases to balance out the load profile and providing electricity 24 hours a day. 327 A promising innovation in the area of solar energy generation is solar thermal electric power plants that concentrate solar energy to super heat water in order to produce steam to drive a thermal power plant. 328 Australian scientists have made world-class contributions to solar thermal research over the last 50 years. 329 As was reported on ABC TV’s 7.30 Report, two of America's biggest power utilities have unveiled plans for a multi-billion dollar expansion of solar power supply based on solar thermal technology developed by a former Sydney University professor, David Mills, now based in California. 330 The utilities have confidently predicted that their solar power will soon be providing base-load electricity at prices competitive with coal. Indeed, according to a review by CSIRO scientists for the CRC for Coal in Sustainable Development, some experts now argue that the cost of concentrated solar thermal will become competitive to coal-fired generation when the former’s installed capacity reaches 5,000 MW worldwide, anticipated to be as soon as 2013. 331 The study’s lead author, Dr Louis Wibberley from CSIRO, said, ‘What makes solar thermal particularly attractive is the fact that it integrates very well with existing technologies including coal, gas, biomass, photovoltaics and wind power’. 332

325

Sinden, G. (2005) Variability of Wave and Tidal Stream Energy Resources, Oxford University Environmental Change Institute. A summary of the report and further information is available on the Carbon Trust's website at www.carbontrust.co.uk/NR/rdonlyres/EC293061-611D-4BC8-A75C-9F84138184D3/0/variability_uk_marine_energy_resources.pdf. Accessed 13. February 2008. 326 Tickell, O. (2005) ‘Wave, wind, sun and tide is a powerful mix’, The Guardian, Thursday May 12 2005. Available at http://www.guardian.co.uk/life/opinion/story/0,,1481539,00.html. Accessed 13. February 2008 327 Lovegrove, K. et al (2007) Closed loop thermochemical energy storage system using ammonia, ANU Solar Thermal Energy Research, Canberra. Available at http://engnet.anu.edu.au/DEresearch/solarthermal/high_temp/thermochem/index.php. Accessed 13. February 2008. 328 Lovegrove, K. et al (2007) Introduction to Concentrated Solar Thermal, ANU Solar Thermal Energy Research, Canberra. Available at http://engnet.anu.edu.au/DEresearch/solarthermal/high_temp/concentrators/basics.php. Accessed 13. February 2008. 329 Lovegrove, K. and Dennis, M. (2006) ‘Solar thermal energy systems in Australia’, International Journal of Environmental Studies, vol 63, no 6. Available at http://engnet.anu.edu.au/DEresearch/solarthermal/pages/pubs/IJES06.pdf. Accessed 13. February 2008. 330 O’Brien, K. (2007) ‘Australian technology to revolutionise clean electricity’, 7:30 Report, 1 October 2007, Australian Broadcasting Corporation. Available at http://www.abc.net.au/7.30/content/2007/s2047734.htm. Accessed 12 April 2008. 331 CSIRO (ed) (2006) ‘Solar Thermal Warms Up – In Brief’, CSIRO ECOS, Issue 129. Available at http://www.publish.csiro.au/?act=view_file&file_id=EC129p4b.pdf Accessed 13 February 2008. 332 Wibberley, L., Cottrell, A., Scaife, P. and Brown, P. (2006) Synergies with Renewables: Concentrating Solar Thermal Technology Assessment Report 56, CRC for Coal in Sustainable Development. Available at www.ccsd.biz/publications/files/TA/ACF4FBF.pdf. Accessed 2 June 2007.


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The Australian Government’s Energy White Paper 333 has outlined the significant renewable resources available and demonstrated this with resource maps 334 for solar, geothermal, wind and bioenergy in Australia. Studies show that wind power could provide as much as 20 percent of Australia’s electricity needs. 335 Opponents of wind power grossly overestimate the amount of landmass this would need. Professor Diesendorf has provided an analysis of the land required for wind power: 336 To replace the electricity generated by a 1000 megawatt (MW) coal fired power station, with annual average power output of about 850 MW, a group of wind farms with capacity (rated power) of about 2600 MW, located in windy sites, is required. The higher wind capacity allows for the variations in wind power and is taken into account in the economics of wind power. Although this substitution involves a large number of wind turbines (300 turbines, each rated at 2MW), the area of land actually occupied by the wind turbines and access roads is only 5-19 square km depending on wind speeds. Farming continues between the wind turbines. For comparison, the coal fired power station and its open cut coal min occupies typically 50-100 square km.

Figure 12: Map of Australia's wind resources, dark designating areas of strong wind resource Source: The Energy Taskforce (2004) 337

Associate Professor Keith Lovegrove 338 has shown that Australia has enough solar resources alone to meet Australia’s electricity needs easily if 138 km by 138 km of land in Australia was covered with 20 percent efficient solar thermal power stations.

333

The Energy Taskforce (2004) Securing Australia’s Energy Future, Australian Federal Government. Available at http://www.pmc.gov.au/publications/energy_future/#about. Accessed 4 September 2007. 334 Ibid, chp 2. 335 Saddler, H., Diesendorf, M. and Denniss, R. (2004) A Clean Energy Future for Australia Energy Strategies, Clean Energy Future Group, Canberra. Available at http://wwf.org.au/ourwork/climatechange/cleanenergyfuture/. Accessed 2 June 2007. 336 Diesendorf, M. (2007) ‘The Base Load Fallacy’ in Australia Industry Group (2007) Environmental Management Handbook 2007, The Australia Industry Group. 337 Ibid. 338 Lovegrove, K. (2007) ‘Maintaining Australia as an Energy Exporter’, ANZSES Solar Congress, October 2007.


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Figure 13: Size of solar thermal power stations to meet Australia’s electricity needs Source: Lovegrove, K. (2007) 339 Renewable sources of electricity – co-generation (the combined production of electricity and heat, typically from natural gas) and renewables (such as solar and wind power) - surpassed nuclear power in global generating capacity in 2003. Solar, biofuels, geothermal, tidal and hydropower now represent a global market of AUD$74 billion, which is forecast to grow fourfold by 2015. 340

Figure 14: Worldwide electrical generating capacity (2000-2010) Source: Rocky Mountain Institute Renewable energy generation is now acknowledged as an effective solution to helping utilities, industry and the whole economy meet rising peak and base load electricity demand. Allen Consulting has shown the economic savings from energy-efficiency opportunities to be large 339 340

Ibid. The Climate Institute (2006) The Global Clean Energy Boom: A snapshot of recent key market trends, The Climate Institute.


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enough to cover the cost of building new renewable energy infrastructure. 341 In short, a smart combination of energy efficiency, demand management and renewable energy would offset the losses from decommissioning coal fired power stations and would have negligible negative effects on Australia’s economic growth. Many businesses and organisations in Australia are reducing their energy usage and then purchasing at least a percentage of their remaining energy needs from accredited green power sources. This sort of approach by millions of households and thousands of businesses globally is leading to a rapid expansion of the renewable energy sector globally. For example, the European Union has committed to improved energy efficiency and use of renewables, which it sees as key to competitive advantage in the 21st Century. The Energy Intelligent Europe Initiative, signed by Parliamentarians from 15 member countries, calls for the integration of energy efficiency and renewable energy as the basis for European competitiveness and a higher quality of life. The EU is seeking to source 22 percent of its electricity and 10 percent of its energy from such clean sources as wind within 10 years. 342 But it is not just in Europe that this is happening, China, Japan, Canada and the North East and Western States of the USA are investing heavily in renewable energy. 6.5.

Potential Benefits of Distributed Energy Generation Infrastructure

For many years power plants were designed as complex centralised systems that provided electricity to a vast distribution network, predominantly powered by the combustion of coal. This is understandable as the technology for small scale renewable energy generation was not available to a viable scale and the level of technological sophistication at the time allowed only systems based on the large scale combustion of fossil fuels to generate electricity. However, based on the amazing levels of economic growth and development afforded by such centralised systems our universities, companies and innovators have developed a range of leading edge technologies that can now find their place in the electricity generation network, removing the pressure to run expensive, inefficient and polluting centralised power plants. This is particularly important as we are now coming to understand the scale of the potential impacts from the greenhouse gas pollution from such fossil fuel based systems. The range of options highlighted above for such technologies demonstrates that we now have a very sophisticated portfolio of electricity generation that can be combined to deliver electricity to a nation. Now that the technology for electricity generation is based on small modular systems we have the opportunity to locate such systems closer to the point of consumption, locate them in prime locations for generation, and add capacity that will more closely match growing load profiles. Extensive research undertaken by Rocky Mountain Institute demonstrates that there are over 200 benefits of decentralised renewable energy compared to centralised electricity generation that are rarely factored in when economists and energy businesses analyse comparative costs. In 2002, The Economist magazine ranked Rocky Mountain Institute’s publication, Small is Profitable: The Hidden Economic Benefits of Making Electrical Resources the Right Size 343 as its book of the year. This is because this book, for the first time, outlined 207 reasons why renewable 341

Allen Consulting (2006) Deep Cuts in Greenhouse Gas Emissions: Economic, Social and Environmental Impacts for Australia, Report to Business Roundtable on Climate Change, The Allen Consulting Group, Australia. Available at www.allenconsult.com.au/publications/view.php?id=316. Accessed 12 April 2008. 342 ‘Intelligent Energy – Europe’ (EIE) is the Community’s support program for non-technological actions in the field of energy, more specifically the field of energy efficiency and renewable energy sources. The duration of the program is from 2003-2006. The program was adopted by the European Parliament and the Council on 26 June 2003. It was published in the Official Journal of the European Union on 15 July 2003 (OJ, L 176, p 29-36) and entered into force on 4 August 2003. 343 Lovins, A.B. et al (2002) Small is Profitable: the hidden economic benefits of making electrical resources the right size, Rocky Mountain Institute, Colorado, p 173. Available at www.smallisprofitable.org/. Accessed 2 June 2007.


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distributed energy sources are a lower risk and more cost effective way to meet peak and base load electricity demand than had been previously understood. Clearly covering all 207 reasons is beyond the scope of this submission, but we recommend that the Garnaut Review team members should purchase this publication online by RMI at its website for more detail. 344 Here we consider four of the economic benefits that need to be taken into account in cost benefit analysis of the costs of investment in renewable energy. 1. Distributed renewable energy has significantly shorter lead times for construction than large scale centralised plants Shorter lead time means that the utility does not have to keep as much capacity under construction (which costs money and increases financial risk), to meet expected load growth in a timely fashion. Nearly twenty years ago, M.F. Cantley noted that, ‘The greater time lags required in planning [and building] giant power plants mean that forecasts [of demand for them] have to be made further ahead, with correspondingly greater uncertainty; therefore the level of spare capacity to be installed to achieve a specified level of security of supply must also increase.’ 345 It takes only 4-7 months to install wind farms for instance while most nuclear power plants take at least five years to build. Coal plants can vary but similarly take some time to build. 2. Slower to build, larger centralised power station’s capacity often overshoots demand The yellow areas of Figure 15 below show the extra capacity that large centralised units require to be installed before they can be used. Small distributed-generation modules don’t overshoot as much; they can be added more closely in step with demand.

Figure 15: Comparison of capacity and cost implications of adding distributed generation (DG) versus centralised energy sources Source: Swisher, J. (2002) 346 Note: The central source is available in large capacity increments and has a long lead-time. The distributed source is available in flexible capacity increments and has a short lead-time. Option value benefits of distributed generation compared to the central source include: 1) increased lead-time and cost of central sources, 2) increased cost of idle capacity that exceeds existing load, and 3) increased cost of overbuilt capacity that remains idle.

344

Ibid. Cantley, M.F. (1979) ‘Questions of Scale’, Options ’79, vol 3, International Institute for Applied Systems Analysis, pp 4-5. 346 Swisher, J. (2002) Cleaner Energy, Greener Profits: Fuel Cells as Cost-Effective Distributed Energy Resources, RMI, CO. Available at www.rmi.org/images/PDFs/Energy/U02-02_CleanerGreener.pdf. Accessed 2 June 2007. 345


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Large centralised stations risk overshooting demand permanently if demand for electricity plateaus or declines, at any point, as shown by the red area. Given the energy efficiency opportunities to reduce peak and base load demand it is possible for electricity demand to plateau and fall in the future. Historically there are examples where projections of future summer peak electricity demand have had to be ratcheted down significantly. Figure 16 shows a comparison of annual 10-year forecasts of summer peak demand projections, and shows successive industry forecasts of US summer peak electric load continually reduced until they aligned with reality around 1984.

Figure 16: Industry forecasts of US summer-peak electric load Source: OTA (1985) 347 3. Shorter lead time means investments in distributed renewable energy can start earning revenue earlier As soon as each module is built, small scale renewable options can start generating electricity rather than waiting for the entire total capacity to be completed. Modular plants can start yielding revenue while big, slower to build, centralised power stations are still under construction. This benefit has been quantified in modelling using a model example of a 500MW plant built in one segment over five years (to approximate a large centralised power station) vs. ten 50-MW modules with 6-month lead times (to approximate distributed energy generation approaches) 348 as shown in Figure 17. Assuming that each asset runs for 20 years, then under either plan, the same capacity operates identically with the same generation capacity for the middle 15 years, but the modular plant has higher revenue-earning capacity in the first five years. But because of discounting, the early operation is worth much more today.

347

OTA (1985) New Electric Power Technologies: Problems and Prospects for the 1990s, OTA, p 45, fig 3.3. Hoff, T.E. and Herig, C. (1997) ‘Managing Risk Using Renewable Energy Technologies’, in Awerbuch, S. and Preston, A. (eds)The Virtual Utility: Accounting, Technology and Competitive Aspects of the Emerging Industry, Kluwer Academic, Boston. Available at www.cleanpower.com./research/riskmanagement/mrur.pdf. Accessed 2 June 2007. 348


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Using a 10 percent/year discount rate and $200/MWy revenues, the modular solution will have returned 31 percent higher revenue over the 20 year period.

Figure 17: Modular resources’ early operation increases their present value Source: Hoff, T.E. and Herig, C. (1997) 349

4. Shorter lead time decreases the burden on utility cashflow Shorter lead time and smaller, more modular capacity additions can reduce the utilities financial risk and hence market cost of capital. 350 Distributed energy generation can be installed effectively in a modular fashion where additional wind farms are built if electricity demand is increasing. Built in this modular fashion, such an approach can need 10 plus times less working capital than large centralised electricity power stations or nuclear power plants, reducing default risk.

Figure 18: Modular distributed energy plants reduce need for working capital. Source: Hoff, T.E. and Herig, C. (1997) 351

349

Ibid, p. 22, fig. 7. Kahn, E. (1978) Reliability Planning in Distributed Electric Energy Systems, Lawrence Berkeley Laboratory, Berkeley, CA, p 333ff; Lovins, A.B. (1981) ‘Electric Utility Investments: Excelsior or Confetti?’, Journal of Business Administration, vol 12, no. 2, pp 91–114; Lovins, A.B. (1982) ‘How To Keep Electric Utilities Solvent’, Energy Journal. 351 Hoff, T.E. and Herig, C. (1997) ‘Managing Risk Using Renewable Energy Technologies’, in Awerbuch, S. and Preston, A. (eds)The Virtual Utility: Accounting, Technology and Competitive Aspects of the Emerging Industry, Kluwer Academic, Boston, p. 26, fig. 9. Available at www.cleanpower.com./research/riskmanagement/mrur.pdf. Accessed 2 June 2007. 350


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These four benefits were first shown by a 1985 Los Alamos National Laboratory system dynamics study. 352 As Lovins et al described in Small is Profitable, 353 [The Los Alamos National Laboratory] analysts used a Northern California case study for Pacific Gas and Electric Company under the regulatory policies prevailing in the early 1980s. They examined how both the ‘lead time’ to plan, license, and build a generic power station and the financial or accounting cost of that lead time (due to real cost escalation and interest on tied-up capital) would affect its economic value over a 20-year planning horizon. However, to clarify choices, they inverted the calculation: Rather than modelling longer-lead-time plants as riskier or costlier (in present-valued revenue requirements), they simulated the utility’s financial behaviour and asked how much ‘overnight’ (zero-lead-time) construction cost could be paid for the plant as a function of its actual lead time in order to achieve the same financial objectives. Adding also a similar analysis for a coal-fired utility 354 and another for Southern California Edison Company, 355 the Los Alamos team found that: shorter lead times justified paying about one-third to two-thirds more per kW for a plant with a 10 instead of a 15 year lead time; that a 5 year lead time would justify paying about three times as much per kW; and that a 2.5 year lead time (analysed only for SCE) would justify paying nearly five times as much per kW. In each case, these far costlier but shorter lead-time plants would achieve exactly the same financial performance as their 15-year-lead-time competitors.

Figure 19: Power-plant financial feasibility vs. lead time Source: Meade, W.R. and Teitelbaum, D.F. (1989) and Sutherland, R.J. et al. (1985) 356

352

Sutherland, R.J. et al (1985) The Future Market for Electric Generating Capacity: Technical Documentation, Los Alamos National Laboratory, Los Alamos, NM. 353 Lovins, A.B. et al (2002) Small is Profitable: the hidden economic benefits of making electrical resources the right size, Rocky Mountain Institute, Colorado. Available at www.smallisprofitable.org/. Accessed 2 June 2007. 354 Sutherland, R.J. et al (1985) The Future Market for Electric Generating Capacity: Technical Documentation, Los Alamos National Laboratory, Los Alamos, NM, pp 77-185. 355 Ford, A. (1985) ‘The Financial Advantages of Shorter Lead Time Generating Technologies and the R&D Cost Goals of the Southern California Edison Company’, Proprietary study prepared for Southern California Edison, cited in Meade, W.R. and Teitelbaum, D.F. (1989) A Guide to Renewable Energy and Least Cost Planning, Interstate Solar Coordination Council (ISCC), p 11, ex. 8. 356 Meade, W.R. and Teitelbaum, D.F. (1989) A Guide to Renewable Energy and Least Cost Planning, Interstate Solar Coordination Council (ISCC), p. 11, ex. 8.; Sutherland, R. J. et al (1985) The Future Market for Electric Generating Capacity: Technical Documentation, Los Alamos National Laboratory, Los Alamos, NM, pp 145–146.


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6.6.

Potential Benefits of a Focus on Transport and Mobility

Consider for instance the potential benefits to business of Australian governments working with industry and the community to invest in a rapid transition to a low carbon transport system. Australian business is currently dependant on modes of transportation that use oil both for transporting goods and services and through the use of aircraft to attend business meetings interstate rather than conduct such meetings via video-conferencing. Since, many experts in the field warn that the rate of global oil production has, or is about to, peak it is likely that oil prices will continue to be high over coming decades. 357 Many experts argue that this will result in historically high oil prices becoming a permanent fixture of the economic landscape. This threatens the Australian economy and business in four ways. Firstly, oil prices directly raise transport costs to business. Secondly, higher oil prices have an inflationary effect increasing the price of most goods and services and thus increasing purchasing costs to business. Thirdly, this inflationary effect also causes the Reserve Bank to lift interest rates and thus makes it harder for business to borrow and reduces consumer confidence and disposable income. Finally, high oil prices threaten Australia’s balance of payments deficit. Australia is already importing 50 percent of its oil, a figure set to reach 100 percent by 2020, and by 2015, ‘… imported oil would subtract about $30 billion a year to the Australian national export bill.’ 358 Such a blow-out in Australia’s balance of payments deficit will leave the Australian Reserve Bank with little choice but to raise interest rates again to dampen local demand. The Australian economy’s vulnerability to high oil prices makes us vulnerable to recession. Since 1965 there have been five peaks of world oil price, all of which were followed by economic recessions of varying degree. As former US Reserve Bank Governor Alan Greenspan has pointed out, ‘All economic downturns in the US since 1973 have been preceded by sharp increases in the price of oil.’ 359 Yet Australia could rapidly decrease its dependency on oil, reduce greenhouse emissions and avoid negative impacts on economic growth associated with peak oil, by: 1. Rapidly shifting at least part of the domestic Australian vehicle industry to manufacturing low emission vehicles - this is already Federal ALP policy as part of the ALP Green Car Innovation package. 2. Shifting to low emission, and cheaper, freight transport options. Wal-Mart in the USA, for instance, is investing in trucks with double the fuel efficiency of traditional trucks to both reduce greenhouse gas emissions and reduce operational costs. 360 3. Investing in faster national broadband coverage to bring down the costs of video-conferencing to reduce the need for as many interstate business meetings. A world-class broadband network is something that the Federal ALP has already committed to. In the financial services industry sector, over 50 percent of their emissions come from air travel for business meetings. Yet for large organisations video-conferencing is already a cheaper way to conduct meetings. Government departments have done the cost–benefit analysis and found video conferencing 357

Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project, Lecture 8.1: Designing a Sustainable Transport Future. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_1 Accessed 13. February 2008. 358 Senate Economics Committee (2005) Incentives for petroleum exploration in Frontier areas, Parliament of Australia, Chapter 3 Schedule 5, p E12. Available at http://www.aph.gov.au/SEnate/committee/economics_ctte/tlab_7/report/c03.htm. Accessed 07 February 2008. 359 Porritt, J. (2005) Capitalism as if the World Matters, Earthscan, London. 360 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project, Lecture 8.3: Integrated Approaches to Energy Efficiency and Alternative Transport Fuels – Trucking. Available at http://www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx#EnergyTransformedLecture8_3. Accessed 13.February 2008.


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saves significant money. The Australian Taxation Office has now implemented multimedia conferencing to significantly reduce air travel across its 25,000 staff. 361 4. Reducing congestion costs, which currently cost the Australian economy AUD$10 billion (in 2005), with current trends predicting Australian congestion costs to rise to AUD$21 billion by 2020. 362 Investing in sustainable transport and urban design is a key strategy to reducing congestion costs to business and improve public health and productivity of employees. One of the reasons why it takes business freight so long to move through Australian cities is that half of all car trips in, for instance, Melbourne are less than 2km and more than 90 percent of people drive to work on their own 363 - it is easy for such trips to be made by walking, cycling and or public transport if these options are invested in. Such an investment in sustainable transport options would help business, not just by reducing congestion but in a wide range of ways, which to date have been largely ignored. Businesses, that encourage staff to cycle and walk to work, benefit from increased productivity as a result of improved fitness and mental health. Staff who cycle are reported to be more punctual and take less sick days. 364 One study has shown that absenteeism can be reduced 14-80 percent by encouraging cycling to work. 365 A 2005 study commissioned by Medibank Private found that healthy workers are almost three times more effective at work than unhealthy workers. 366 As former CEO of BHP-Billiton Chip Goodyear stated, ‘Regular exercise is a key to staying focused and productive at work, so I’m happy to invest in facilities and programs that make riding to work easier.’ 367 Opposition Treasurer Malcolm Turnball concurs, stating, ‘Cycle-friendly workplaces may have greater morale, lower absenteeism and higher productivity. A healthy and happy workforce can also have substantial financial and community benefits as well as productivity benefits which are complemented by other direct financial savings to the organisation. These can include reduced costs for taxis, car parking, fleet packages and petrol cards.’ 368 Creating walkable cities, with safe cycling options and reliable public transport, is a key strategy to encourage greater public health and combat spiralling health costs with an aging population. Australian Government health spending is projected to almost double by 2050, due in large part to the costs of diseases of physical inactivity – obesity, diabetes, cardiovascular - in an aging population. If nothing is done to improve the public health of an aging population then tax increases will be needed from Australians and businesses to cover the significant short fall unless governments and business act now to encourage their workforce to get fit and healthy. Recent studies show that:

361

Smith, M. and Hargroves, K. (2007) ‘Climate Leaders: The New Corporate Standards’, CSIRO ECOS, Issue 136, pp 26-29. Available at http://www.publish.csiro.au/?act=view_file&file_id=EC136p27.pdf Accessed 13 February 2008. Bureau of Transport and Regional Economics (BTE) (2007) Estimating urban traffic and congestion cost trends for Australian cities Working Paper No 71 Bureau of Transport and Regional Economics Department of Transport and Regional Services Canberra, Australia. Available At: http://www.btre.gov.au/publications/06/Files/wp71.pdf Accessed September 2007. 363 Mitchell, G. (2007) ‘Daily commute is getting slower, says VicRoads’, Herald Sun, 21 December, 2007. Available at http://www.news.com.au/heraldsun/story/0,21985,22956853-661,00.html Accessed 13 February 2008. 364 Queensland Transport and Main Roads (1999) Cycle South East. Integrated Cycle Strategy for South East Queensland, Queensland Government. 365 Shayler, M. et al (1993) Bikes Not Fumes: The emission and health benefits of a modal shift from motor vehicles to cycling, Cyclist's Touring Club, Surrey. 366 Bicycle Victoria (2007) The Cycle-Friendly Workplace, Department of Health and Aging and the Department of Environment and Water Resources. Available at http://www.bv.com.au/file/file/RTW/BICY%20-%20Cycle-Fndly%20Workplaces_v12.pdf Accessed 13 February 2008. 367 See Chip Goodyear, former CEO BHP Billiton, at http://www.bv.com.au/file/file/RTW/BICY%20-%20CycleFndly%20Workplaces_v12.pdf Accessed 13 February 2008. 368 Department of Environment and Water Resources (2007) The Cycle-Friendly Workplace, Bicycle Victoria, Department of Environment and Water Resources. Available at http://www.bv.com.au/file/file/RTW/BICY%20-%20CycleFndly%20Workplaces_v12.pdf Accessed 13 February 2008. 362


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-

Investing in sustainable transport to encourage 30 minute cycle/walking trips each day provides all the exercise people need to halve the chance of becoming obese or diabetic. 369 Obesity already costs Australian business and the economy AUD$21 billion annually. Seven million Australians are estimated to become obese by 2025 if no action is taken. 370

-

Regular exercise can help reduce insomnia/sleep disorders through creating lactic acid which assists with getting to sleep at night. Over 1.2 million Australians (6 percent of the population) experience sleep disorders, with costs to business and the economy of AUD$10.3 billion in 2004. 371

-

Regular exercise helps combat depression and anxiety. Depression and anxiety cost business and the Australian economy almost AUD$10 billion a year in lost business productivity AUD$6.6 billion for sick days and AUD$3 billion for poor work performance. 372

-

Paul Gross, from the Institute of Health Economics and Technology Assessment argues that for every dollar invested by government in encouraging people to be active and live healthier lifestyles, the government would save six dollars in improved business productivity, reduced absenteeism and reduced drain on the healthcare dollar. 373

To date, most economic cost benefit analyses on climate change like the Stern Review have ignored these additional costs and benefits to business from action on climate change. When additional issues, like health costs and benefits, reduced absenteeism, and improved productivity are factored into the modelling then this significantly changes the economy wide return on investment of low carbon sustainable transport investments. The latest studies, which do factor in such hidden benefits, show that investing in sustainable transport options leads to higher economic growth than business-as-usual, not less. 374 6.7.

Potential Benefits of Reducing non-CO2 Emissions

Of the various GHG’s emitted by human activities, CO2 is the dominant and fastest growing contributor to climate change. In 2004 the IPCC estimated that of the total GHG emissions of approximately 48Gt/yr, non-CO2 emissions were approximately 12Gt/yr, or roughly a quarter. 375 With its relative role expected to increase in the future, a continuing emphasis in economic modelling on the costs of reducing CO2 emissions is therefore justified. However, to effectively limit climate change, climate change related policies must also take into account the importance of non-CO2 greenhouse gases. Improvements in our ability to measure and assess the non-CO2 gases in recent years have made it clear that their control is an essential part of a cost-effective climate policy. Efforts to engage developing countries in climate mitigation will need to give even greater attention to the non-CO2 greenhouse gases since these gases typically account for a higher percentage of their overall emissions. Non-CO2 gases currently account for well over 50 percent of the GHG emissions in Brazil and India as compared to 20 percent in the United States 369

World Health Organisation (2000) Transport, Environment and Health, Regional Office for Europa, Copenhagen, Denmark. Available at http://www.euro.who.int/document/e72015.pdf Accessed 7 February 2008. Access Economics (2005) The Economic Costs of Obesity, Access Economics. Available at http://www.diabetesaustralia.com.au/_lib/doc_pdf/reports/obesity/Economic_Costs_of_Obesity_Exec_Summ.pdf Accessed 7 February 2008. 371 Access Economics (2004) Wake Up Australia: The Value of Health Sleep, .Access Economics. Available at http://www.accesseconomics.com.au/publicationsreports/showreport.php?id=22&searchfor=Economic%20Consulting&searchby=area st Accessed 7 February 2008; Farouque, F. and Stark, J. (2008) ‘Truly Madly Sleepy’, The Age, 1 March, 2008. 372 Hilton, M. (2005) ‘The Costs of Depression’, Online Opinion. Available at http://www.onlineopinion.com.au/view.asp?article=46 Accessed 7 February 2008. 373 ABC (2006) ‘The Costs of Obesity’, ABC. Available at http://www.abc.net.au/health/thepulse/s1587390.htm Accessed 7 February 2008. 374 Newman, P. and Kenworthy, J. (1999) Sustainability and Cities, Island Press, Washington, DC 375 Rogner, H.H. et al (2007) ‘Introduction‘ in Metz, B., Davidson, O.R., Bosch, P.R., Dave, R. and Meyer, L.A. (eds) Climate Change 2007: Mitigation, Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge. 370


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and 29 percent in Australia. 376 There are five classes of greenhouse gases, other than CO2, recognised by the Kyoto Protocol as causing global warming. Though allowances for these substances are not regulated by the European Union Emissions Trading Scheme until 2008, reductions of these emissions will earn CFIs from the CCX. These gases have significantly higher global warming potential than CO2. For instance, sulphur hexafluoride (SF6) has a global-warming potential 23,900 times higher than that of CO2. This means that one SF6 molecule has the same effect on warming the planet as 23,900 CO2 molecules. Non-CO2 greenhouse gases are also noteworthy for their very high global warming potentials and atmospheric lifetimes. Table 6: The IPCC has identified the six major GHGs Atmospheric lifetime (years)*

Global warming potential

% of US emissions in 1998

Symbol

Name

Common sources

CO2

Carbon dioxide

Fossil fuel combustion, forest clearing, cement production, etc.

50-200

1

79.9

CH4

Methane

Landfills, production and distribution of natural gas and petroleum, fermentation from the digestive system of livestock, rice cultivation, fossil fuel combustion, etc.

12

21X

9.5

N2O

Nitrous oxide

Fossil fuel combustion, fertilisers, nylon production, manure, etc.

150

310X

5.8

HFCs

Hydrofluorocarbons

Refrigeration gases, aluminium smelting, semiconductor manufacturing, etc.

264

Up to 11,700X

PFCs

Perfluorocarbons

Aluminium production, semiconductor industry, etc.

10,000

Up to 9200X

SF6

Sulphur hexafluoride

Electrical transmission and distribution systems, circuit breakers, magnesium production, etc.

3,200

Up to 23,900X

1.8

*Standard industry classification

Source: Compiled using Energy Information Administration (1998) and IPCC (2001) 377 Economic modelling studies 378 indicate that a cost-effective abatement strategy would focus heavily on the non-CO2 gases in the early years. For smaller percent reductions, such as a case where total GHG emissions in the US are held at year 2000 levels through 2010, nearly all of the most cost-effective cuts would come from the non-CO2 gases. Including the abatement options available for these non-CO2 greenhouse gases, which would reduce the carbon-equivalent price of the policy by two-thirds from that needed if the same level of abatement were achieved only through reductions in CO2 emissions from fossil fuels. The relative value of controlling non-CO2 gases, as indicated by the indices or weights known as global warming potentials, is one key 376

Reilly, J.M., Jacoby, H.D. and Prinn, R.G. (2002) Climate Impacts and Mitigation Costs of Non-CO2 Gases, Massachusetts Institute of Technology. Available at http://www.pewclimate.org/docUploads/Multi%2DGas%2Epdf. Accessed 10 March 2008. 377 Energy Information Administration (1998) Form EIA-846: Manufacturing energy consumption survey, and Form EIA-810: Monthly refinery report, Energy Information Administration; Intergovernmental Panel on Climate Change (2001) Climate change 2001: the scientific basis, IPCC, Cambridge University Press, Cambridge. 378 Reilly, J., Jacoby, H. and Prinn, R. (2008) Multi-Gas Contributors to Global Climate Change: Climate Impacts and Mitigation Costs of Non-CO2 Gases, MIT. Available at http://www.pewclimate.org/global-warming-in-depth/all_reports/multi_gas_contributors. Accessed 10 March 2008.


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reason that inclusion of the non-CO2 gases in policies to address climate change can be so effective in lowering implementation costs, especially in the short term. Another reason is that, historically, economic instruments (i.e. prices, taxes and fees) have not been used to discourage or reduce emissions of non-CO2 gases, even though price signals via energy costs exist to curb fossil-fuel emissions. Given the high carbon-equivalent values of the non-CO2 gases, even a small carbon-equivalent price on these gases could create a huge incentive to reduce emissions. An example of leadership in reducing such emissions is the case of DuPont. In the 1990s DuPont set itself the goal of reducing its GHGs by 65 percent by 2010. It achieved this goal in 2002, while reducing total global energy use in the company to 6 percent below 1990 levels. This saved DuPont over US$1.5 billion, compared to what it would have paid had energy use increased in proportion to increases in production. 379 Setting this target encouraged the company to look for new and creative ways to reduce GHG emissions. As Charles O. Holliday Jr., chairman, CEO and chief safety, health and environment officer of DuPont stated, ‘Our goal for the 21st century is to become a sustainable growth company – one that creates shareholder and societal value while decreasing our environmental footprint along the value chains in which we operate. As part of our transformation we have worked hard on reducing our environmental impacts and have set aggressive targets to be attained by 2010 in the areas of energy use, greenhouse gas reductions and the use of renewable energy and feedstocks.’ 380

Figure 20: Global GHG emissions for DuPont from 1990 – 2002 Source: DuPont (2002) 381 DuPont was able to achieve such significant, yet profitable, reductions in GHG emissions largely by reducing and replacing the non-CO2 GHGs; that is, largely through reducing the emissions of HFCs, PFCs, N2O (by 80 percent) and CH4.

379

DuPont Sustainable Growth (2002) Progress Report: Creating Shareholder and Societal Value, While Reducing Our Footprint Throughout the Value Chain, DuPont Sustainable Growth. 380 Ibid 381 Ibid


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Numerous other companies have demonstrated such reductions as well. IBM achieved a 10 percent reduction in onsite non-CO2 PFC emissions between 2000 and 2005, 382 while also saving US$791 million, through a 65 percent reduction in CO2 emissions (1990-2002). 383 The magnesium industry is in the process of phasing out SF6 by 2010 through a voluntary partnership with the US EPA and the International Magnesium Association. 384 Nike is well on the way to phasing out all SF6 from its manufacturing facilities. 385 6.8.

Potential Benefits from Carbon Trading from Halting Deforestation

As the Garnaut Review’s Interim Report stated, There are large opportunities for relatively low cost early reduction in Australian emissions, as they would be measured in an international agreement. Some would arise from the promotion of energy efficiency and renewable energy. Others would emerge through international trading with regional partners, which could utilise opportunities created by major reductions in deforestation. Wider opportunities for international trade in permits would reduce the costs of meeting tightly defined targets for particular years. We commend the Garnaut Review Interim Report for its clear understanding of and communication of these opportunities for Australia to play a leading role regionally working with Indonesia (which has the 3rd largest emissions in the world mainly because of deforestation) and PNG. Australia can play an important role in accelerating progress towards an effective global architecture by increasing the level of ambition for a post-Kyoto framework, and by pursuing supportive regional agreements. The potential for Australia to be able to gain carbon credits cost effectively in a post Kyoto framework from paying Indonesia and PNG to protect their forests is significant. It provides Australia with a low cost way to ensure Australia meets almost any interim target likely to be set internationally. Indonesia’s emissions are thought to amount to as much as two GtCO2 per year, around five times Australia’s total CO2 emissions, with over three quarters of that from deforestation. PNG’s forestry related emissions may exceed 100 MtCO2, a quarter of Australia’s total CO2 emissions. According to the Stern Review and McKinsey Consulting the marginal cost per GHG abated from avoiding deforestation is the cheapest form of greenhouse abatement after energy efficiency. The Stern Review states, 386 Almost 20 per cent (8GtCO2/year) of total greenhouse gas emissions are currently from deforestation. A study commissioned for the Review looking at 8 countries responsible for 70 per cent of emissions from deforestation found that, based on the opportunity costs of the use of the land which would no longer be available for agriculture if deforestation were avoided, emission savings from avoided deforestation could yield reductions in CO2 emissions for under $5/tCO2 possibly for as little as $1/tCO2.

382

IBM (2003) Environment and Well-Being Report, IBM, p 8. Available at www-8.ibm.com/ibm/au/environment/annual/2003.html. Accessed 10 March 2008. 383 Presentation by Ravi Kutchibhotla, corporate program manager for energy management, IBM Conference of the Reducers, May 12, 2004, Toronto. 384 See US Climate Change Technology Research Program - Research and Current Activities: Reducing Emissions of Other Greenhouse Gases at www.climatetechnology.gov. Accessed 10 March 2008. 385 Nike Partners with World Wildlife Fund and the Center for Energy and Climate Solutions to Reduce Greenhouse Gas Emissions, Nike Joins Climate Savers Program, October 2, 2001. 386 Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge, p 244-247. Available at http://www.hm-treasury.gov.uk/media/F/0/Chapter_9_Identifying_the_Costs_of_Mitigation.pdf Accessed 13. February 2008.


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6.9.

The Potential Benefits from Regional Partnerships and CDMs

Since Australia has only recently ratified the Kyoto Protocol most of the general public are relatively new to the idea of the Clean Development Mechanism (CDM) and Joint Implementation (JI) and how they provide Australia and Australian business with a wide range of low cost ways to gain carbon credits to count towards meeting future interim and 2050 targets. The Clean Development Mechanism (CDM) is an opportunity for corporations to create tradable carbon credits through investment in greenhouse gas reduction projects in the developing world. Thus, this Clean Development Mechanism can provide a cost effective way for Australia and Australian business to help developing countries rapidly achieve a peaking in their greenhouse gas emissions. Environment Business Australia sums up the opportunities for Australian business from the Clean Development Mechanism (CDM), The importance of the CDM to Australian business is emphasised heavily in this paper. The CDM is designed to encourage the development of projects and infrastructure in developing countries that are energy efficient and less emission intensive than would otherwise occur. There would be outstanding export opportunities for Australian technologies and services…. Over 70% of the CDM projects are predicted to be located in the Asian region. China and India, in particular, will host the majority of these CDM projects. It comes as no surprise that these countries are being pursued aggressively by technology providers from ratifying countries. These developing countries are actively preparing themselves to be attractive CDM project host nations and have agreed to ratify the Kyoto Protocol. The inflow of investment and technology has huge economic development implications for these nations. Discussion with a number of African countries has revealed similar intents. 387 Consider the potential for Australian government through AID projects and Australian companies through CDM projects helping developing countries improve energy efficiency in addition to helping to stop deforestation. A recent 2007 study by McKinsey & Company has found that, through investing in energy efficiency, global emissions could be reduced by 20 percent by 2020 without harming economic growth. 388 Given that deforestation, which is mainly occurring in developing countries, contributes another 20 percent to global emissions, there is the potential through energy efficiency and stopping deforestation for OECD countries to help developing countries achieve a 40 percent reduction in greenhouse gas emissions within 5-10 years. Countries such as China, 389 India 390 and Brazil, are now making increasingly significant commitments to energy efficiency in recognition of these win-win opportunities. All types of energy efficiency projects, if done on a large scale, count for the CDM. Helping Chinese coal plants to have greater conversion efficiency even counts as a CDM project. Thus, there are significant business opportunities for Australian companies to earn carbon credits and gain new sources of income through the Clean Development Mechanism. As Environment Business Australia explains, Australia's efficiency in mining (both resource extraction and metals processing) and power generation is high. Now that Australia has ratified Kyoto, this efficiency would become a strong positive. Australia is highly regarded in these areas and the skills of heavy industry are exportable to developing countries who need to either build or modernise entire industry sectors. For example transforming Chinese power stations into efficient and less 387

Environment Business Australia (2002) The Business Case for Ratifying Kyoto. Environment Business Australia. Available at http://environmentbusiness.com.au/templates/template2/images/pdfs/Kyoto%20-%20business%20case.pdf, Accessed 10 April 2008. 388 McKinsey and Company (2007) Curbing Global Energy Demand Growth: The Energy Productivity Opportunity, McKinsey Consulting. Available at www.mckinsey.com/mgi/publications/Curbing_Global_Energy/index.asp. Accessed 22 January 2008. 389 See China Energy Bulletin at www.energybulletin.net/3566.html. Accessed 22 January 2008. 390 See India Bureau of Energy Efficiency at www.bee-india.nic.in/ Accessed 22 January 2008.


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emissions-intensive sources of energy would provide a winning combination. Australia would be well-placed to embark on CDM projects of this nature. 391 Other energy efficiency projects gaining CDM credits include large scale roll out of subsidies for fuel efficient heaters and cookers around the world, energy efficient lighting and cost effective strategies to reduce greenhouse gas emissions from transport. As the Garnaut Review Interim Report stated, Australia will be one of the hardest hit of all developing countries from climate change: 1. Australia, Indonesia and PNG working together to provide a model to the world of how OECD and fast growing economies can work together. The Garnaut Review Interim Report outlined one way that Australia can help to be a model for the world and influence how fast the global peak in emissions is reached, providing examples where Australia could work with PNG and Indonesia to create a model of how developed and developing countries could work together. A key point made by the Stern Review is that currently deforestation, often from just burning forests, is responsible for 18 percent of global emissions. If Australia worked with PNG and Indonesia to better manage each nation’s remaining forests to ensure they remain carbon stores and embarked on reforestation to increase carbon stores, this could make a significant difference. 2. Australia and Australian business will be able to invest in Clean Development Mechanism Projects, gaining carbon credits and helping fast growing economies to reduce emissions rapidly. Since Australia ratified the Kyoto Protocol, there are now a wide range of ways that Australia (and Australian business) can invest in clean development projects which both help developing and fast growing countries and provide carbon credits to Australia. Most people do not realise that energy efficiency projects above a certain size qualify for Clean Development Mechanism projects. 3. Energy Efficiency projects on a large enough scale count for Clean Development Mechanism Credits. Australia could be helping developing and fast growing countries on a large scale through energy efficiency to rapidly reduce emissions and thereby help bring the global greenhouse emission peak forward. But there are still significant barriers to investment in energy efficiency in many countries, such as low awareness of the benefits of energy efficiency, finance reservations, and the general lack of energy efficiency training among the global pool of engineers. Thus, there are many potential projects to which Australia could contribute and gain clean development mechanism credits. There are already great examples of projects that have begun to successfully address these barriers from which both OECD and non-OECD countries can learn a great deal. The starting point is community awareness. Since all citizens, organisations and government agencies need lighting, and Australia’s banning of the incandescent lights shows how Australia could change the world. When the Australian Government announced that it would phase out inefficient lighting by 2012, the European Union, California, and even the Philippines followed suit rapidly. This will have significant flow-on effects by driving a change among manufacturers in China to focus on more energy efficient products. The same concept could be applied to other everyday household appliances and office and industry equipment. Why should we in Australia be allowing into our market the least energy efficient products? If it is right to ban the most inefficient types of lighting why not apply this concept to other products on the market? If Australia did phase out the least energy efficient 391

Environment Business Australia (2002) The Business Case for Ratifying Kyoto, Environment Business Australia. Available at http://environmentbusiness.com.au/templates/template2/images/pdfs/Kyoto%20-%20business%20case.pdf, Accessed 10 April 2008.


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products, home appliances and office and industry equipment it could lead to the EU and California following suit, and more than likely very rapidly. This would provide clear incentives to domestic and international manufacturers to change. This would help give local manufacturers a competitive advantage by enabling them to be first to market with more efficient products. Through this strategy Australia has the potential to truly change the world by ensuring that all manufacturers globally design and make appliances and catering and industrial equipment as energy efficient as is cost effective. Investing in energy efficient lighting is an ideal place to start to raise community awareness about the benefits of energy efficiency generally. Poland’s Efficient Lighting Project (PELP), 392 funded by the Global Environment Facility (GEF), 393 is widely regarded as the model success story here. In Poland 1995, a compact fluorescent light globe (CFL) required an upfront investment of as much as US$15.00. While this was economical in the long run is was off-putting as an incandescent bulb at the time cost just 40 cents. But under the Poland Efficient Lighting Project, OECD nations, through The Global Environment Facility (GEF), committed US$5 million to provide an incentive to Polish CFL manufacturers, wholesalers and retailers to help bring down the upfront cost of CFLs. As a result, more than 1.6 million new compact fluorescent lights 394 (CFLs) were installed through Poland from 1995 to 1998. This increased the uptake of globes from one in every ten homes to one in every three homes by 1998, and by 2004, about one in two homes in Poland used a CFL and the project had saved an estimated 2320 gigawatt-hours of electricity – a reduction of 2.8 million tons of CO2 emissions. The GEF’s incentives were carefully administered. CFL manufacturers had to engage in competitive bidding to be part of the program and this led to pledges of additional manufacturers’ discounts. A manufacturer’s discount of, say, 50 cents (US$), would mean that a GEF CFL price reduction incentive of $1.50 led to a total price reduction of $2.00. Importantly, negotiations with wholesalers and retailers ensured that they too adjusted their margins accordingly. If the original manufacturer’s price was then $6.00, the price to the wholesaler was subsequently only $4.00. The wholesalers’ and retailers’ reduced mark-ups, as well as value-added tax, were then also calculated on a lower original price. So instead of a manufacturer’s price of $6.00 resulting in a retail price of $12.00, a manufacturer’s adjusted price of $4.00 led to a sales price of only $8.00. Of course all this required the initial commitment of US$5 million, twelve years ago, but it illustrates the power of the mechanism. There has also been a fall in CFL costs over that time to consider. Such was the success of this program that the GEF then funded the US$15 million dollar Efficient Lighting Initiative (ELI) from 2000-2003 to foster the efficient lighting market in Argentina, the Czech Republic, Hungary, Latvia, Peru, Philippines, and South Africa. 395 There is a significant opportunity for OECD countries to fund similar energy efficiency incentive schemes through the GEF to encourage more countries to adopt energy efficient products and services, thereby changing community attitudes to energy efficiency. Meanwhile, the Three Country Energy Efficiency Project (3CEE 396 ) – involving China, India, Brazil – has run from 2002 to 2006 to address barriers to lack of local Investment in Energy Efficiency. ‘Many energy efficiency projects quickly pay for themselves, with typical returns on investment of 20 - 40%,’ says Chandra

392

See Poland’s Efficient Lighting Project (PELP) at www.un.org/esa/sustdev/mgroups/success/2000/PCBCP-4.htm. Accessed 22 January 2008. 393 The Global Environment Facility (GEF), established in 1991, helps developing countries fund projects and programs that protect the global environment. See www.gefweb.org/default.aspx. Accessed 22 January 2008. 394 CFLs last eight to ten times longer than normal incandescent electric bulbs and consume only a quarter of the electricity. 395 See International finance Corporation - Energy Efficient Lighting Initiative Story at www.ifc.org/ifcext/enviro.nsf/AttachmentsByTitle/p_ELI/$FILE/ELI_FINAL.PDF. Accessed 22 January 2008. 396 See 3 Country Energy Efficiency Project at http://3countryee.org/. Accessed 22 January 2008.


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Govindarajalu, a senior World Bank environmental specialist working with the 3CEE program. ‘Despite the demonstrated benefits, though, companies often cite other, more immediate investment and borrowing priorities. Meanwhile, commercial banks in these countries are generally unfamiliar with financing projects designed to achieve cost savings, rather than develop new product lines or other tangible assets.’ 397 To address these issues, the 3CEE Project has worked with the banking and finance sector to promote energy efficiency projects. It is a joint initiative of the World Bank, the UN Environment Programme’s Denmark-based Risoe Centre (URC), and partners in Brazil, China and India. 398 World Bank consultant Jeremy Levin, who worked on the project, said, ’Because Chinese commercial banks were wary of making any investments that weren't practically guaranteed, the World Bank effectively co-signed the loans from the banks to Chinese ESCOs for up to 90 percent of the loan amounts. In the end, the World Bank guaranteed US$36.4 million in loans over 52 projects, which resulted in energy savings that cut 102,700 tons (93,100 metric tons) of Chinese carbon dioxide emissions per year.’ The 3CEE project has been instrumental in making local banks recognise the soundness of investments in energy efficiency projects. It's a matter of getting the first couple of loans going. With wider uptake, confidence in the mechanism grows and barriers to financial facilitation for such a project reduce. As more countries commit to stronger energy efficiency targets and different avenues for cooperatively reducing emissions the need for more help and start up finance from countries like Australia increases. One of the reasons for deforestation globally is poverty. Two billion people are without electricity to enable them to cook food, stay warm or see at night. At least two billion people worldwide burn wood, dung and crop residues indoors for home cooking and heating. Lester Brown explains: 399 The largest single demand on trees - the need for fuel - accounts for just over half of all wood removed from forests. Some international aid agencies, including the U.S. Agency for International Development (AID), are sponsoring fuelwood efficiency projects. One of AID’s more promising projects is the distribution of 780,000 highly efficient wood cookstoves in Kenya that not only use far less wood than a traditional stove but also pollute less. Kenya is also the site of a solar cooker project sponsored by Solar Cookers International. These inexpensive cookers, made from cardboard and aluminum foil and costing $10 each, cook slowly, much like a crockpot. Requiring less than two hours of sunshine to cook a complete meal, they can greatly reduce firewood use at little cost. They can also be used to pasteurize water, thus saving lives. Over the longer term, developing alternative energy sources is the key to reducing forest pressure in developing countries. Replacing firewood with solar thermal cookers, or even with electric hotplates fed by windgenerated electricity or with some other renewable energy source, will lighten the load on forests. Recent discoveries by climate scientists in early 2008 suggest there are additional climate change mitigation benefits from investing in fuel efficient wood cook stoves and solar cookers. In early 2008, scientists discovered that black carbon, a form of particulate air pollution produced from biomass burning and cooking, has a global warming effect in the atmosphere three to four times greater than prevailing estimates. Scripps Institution of Oceanography at UC San Diego atmospheric scientist V. Ramanathan and University of Iowa chemical engineer Greg 397

UNEP (2006) Fighting Climate Change through Energy Efficiency, UNEP. Available at ww.unep.org/Documents.Multilingual/Default.asp?DocumentID=477&ArticleID=5276&l=en. Accessed 22 January 2008. The UN Foundation and the World Bank Energy Sector Management Assistance Program provided financial support, with complementary activities supported by the Asia Alternative Energy Program and the UK Department for International Development. 399 Brown, L.R. (2008) Plan B 3.0: Mobilizing to Save Civilization, W.W. Norton & Company, New York. Available at www.earthpolicy.org/Books/PB3/Contents.htm. Accessed 10 April 2008. 398


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Carmichael 400 have found that soot and other forms of black carbon could be a significant contributor to global warming. 401 Between 25 and 35 percent of black carbon in the global atmosphere comes from China and India, emitted from the burning of wood and cow dung in household cooking and through the use of coal to heat homes. Ramanathan and Carmichael write that; 402 Black carbon in soot is an efficient absorbing agent of solar irradiation that is preferentially emitted in the tropics and can form atmospheric brown clouds in mixture with other aerosols. These factors combine to make black carbon emissions the second most important contribution to anthropogenic climate warming, after carbon dioxide emissions. …. soot and other forms of black carbon could have as much as 60 percent of the current global warming effect of carbon dioxide, more than that of any greenhouse gas besides CO2. Black carbon particles only remain airborne for weeks compared to carbon dioxide, which remains in the atmosphere for more than a century. 403 Thus investments in more efficient wood and solar heaters and cookers would have a very rapid pay back in terms of greenhouse gas mitigation. The health benefits from investing in more efficient wood and solar heaters are significant too. As stated above, at least two billion people worldwide burn wood, dung and crop residues indoors for home cooking and heating. According to the World Health Organization, this widespread use results in the premature deaths of an estimated 1.6 million people each year from breathing elevated levels of indoor smoke, resulting in ‘indoor air pollution’ as the fourth leading cause of death in developing countries. The Partnership for Clean Indoor Air (PCIA), which involves over 160 partners worldwide, is addressing the problem by funding projects in Asia, Africa, and Latin America to identify and demonstrate effective approaches for increasing the use of clean, reliable, affordable, efficient, and safe home cooking and heating practices that reduce people’s exposure to indoor air pollution. Australia could partner with PCIA on CDM aid projects in coming decades and very cost effectively achieve significant health and climate change mitigation benefits. In addition to cooking and staying warm the other reason those in developing countries burn wood is to be able to see at night in order to continue to carry out tasks and teach children to read who often have to work in the fields during the day. Ultra efficient lighting and renewable energy has the potential now to make a significant difference here. Consider the case study of The Barefoot Solar Engineering program 404 in north-west India, which clearly demonstrates the revolutionary power of efficient lighting powered by renewable energy. At the Barefoot Engineering College, illiterate woman have been trained to make circuits for solar lighting and also how to install and maintain hand pumps, water tanks, solar cooking heaters and pipelines. Just one of the Barefoot engineering products, solar lanterns, has transformed community life. Traditionally, only the boys have been able to get an education with the young girls needing to work in the fields during the day for the families to survive. Now thanks to solar lanterns they are able to run a school in the evening, after dark, so the young girls can learn to read and write after their work during the day. All around the developing world this problem of young woman not getting a chance for an education exists; hence this simple practical solution has great significance.

400

See Scripps - Media Release at http://scrippsnews.ucsd.edu/Releases/?releaseID=891. Accessed 22 January 2008. Ramanathan, V. and Carmichael, G. (2008) ‘Global and regional climate changes due to black carbon’, Nature Geoscience, April (To be released in April 2008). For further information see Scripps Media Release at http://scrippsnews.ucsd.edu/Releases/?releaseID=89. Accessed 22 January 2008. 402 Ibid 403 rd Unknown (2008) ‘Black Carbon Pollution emerges as Major Player in Global Warming’,PHYSORG.com, March 23 , 2008. Available at http://www.physorg.com/news125500721.html. Accessed 22 January 2008. 404 See Barefoot Solar Engineering Program at http://www.boloji.com/wfs/wfs122.htm. Accessed 17 February 2008. 401


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In many parts of the world the problem of air pollution is due to transportation. A World Bank study in 2001 calculated that transport was responsible for potentially 80 percent of poor air quality or even higher. Hence there are significant health co-benefits of investments to greater fuel efficiency, which also reduce greenhouse gas emissions from the transport sector. Accounting for the co-benefits of reduced air pollution and reduced greenhouse gas emissions can have significant impacts on the cost effectiveness of climate change policy. As the OECD states, The co-benefit relationship suggests that co-ordination of policy efforts in these areas could deliver important cost savings. For example, van Harmelen et al. 405 found that to comply with agreed or future policies to reduce regional air pollution in Europe, mitigation costs are implied, but these are reduced by 50-70% for SO2 and around 50% for NOx when combined with GHG policies. Similarly, in the shorter-term, van Vuuren et al 406 found that for the Kyoto Protocol, about half the costs of climate policy might be recovered from reduced air pollution control costs. 407 Clearly aligning investments to decouple economic growth from both greenhouse gas emissions and air pollution simultaneously will increase the economic efficiency of such investments. Unlike American and European cities, Asian and developing country metropolitan areas owe a substantial portion of their air pollution to two- and three-wheel motorised vehicles. Motorcycles and ‘baby taxis’ constitute the majority of vehicles in many Asian and developing countries. Many of these small vehicles employ two-stroke engines which emit 50 times the amount of air pollution compared to modern automobiles. Envirofit, 408 an independent, non-profit company established at Colorado State University in 2003, is now distributing affordable retrofit kits that will both reduce air pollutant emissions by 90 percent while also improving the fuel efficiency of two-stroke engines by 30-50 percent and thus reducing greenhouse gas emissions. Originally developed for snowmobiles, the direct injection technology of the kits has now been adapted so that the retrofit system eliminates the carburettor and fuel is instead introduced directly into the engine cylinder, thus conserving more unburned fuel. Envirofit’s retrofit engine kit costs about US$300. This may sound a lot for people in a developing economy, but governments are sponsoring micro financers to lend taxi drivers the money for their installation. At the moment, taxi drivers make US$3–5 a day, but after their motorcycles are fitted with the kit, they can expect their income to increase by US$1–2 a day due to the engines’ improved fuel efficiency. This provides the taxi driver with a 30 percent pay rise which enables drivers to pay back their loans within a year. Since retrofitting two stroke engines results in a 3050 percent improvement in fuel efficiency, projects to roll this out on a large scale will qualify as projects under the Clean Development Mechanism. This should attract further funding from governments looking for effective CDM projects to invest in.

405

van Harmelen, T. et al (2002) ‘Long-term reductions in costs of controlling regional air pollution in Europe due to climate policy’, Environmental Science and Policy, vol 5, no. 4, pp. 349-365. 406 van Vuuren, D. et al (2006) ‘Exploring the Ancillary Benefits of the Kyoto Protocol for Air Pollution in Europe’, Energy Policy, no. 34, pp 444-60; van Vuuren, D. et al (2007) ‘Stabilizing Greenhouse Gas Concentrations at Low Levels: an Assessment of Reduction Strategies and Costs’, Climatic Change, vol 81, no. 2, pp 119. 407 OECD (2008) OECD Environmental Outlook to 2030, OECD. Available at www.oecd.org/document/20/0,3343,en_2649_37465_39676628_1_1_1_37465,00.html Accessed 22 March 2008 408 CSIRO (2007) ‘Engine retrofit kit helps Filipino’s breathe easier’, CSIRO ECOS, Issue 139, p 4. Available at http://www.publish.csiro.au/?act=view_file&file_id=EC139p4.pdf. Accessed 10 March 2008.


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7. Policy to Underpin Action on GHG Emissions Reductions 7.1.

Signs of Regulations and Polices that are Changing around the World

The Garnaut Review’s central task is assessing, ‘The costs and benefits of Australia taking significant action to mitigate climate change ahead of competitor nations.’ 409 This term of reference for the Garnaut Review implies that Australia could rapidly become a leader on climate change. However, Australia is currently a long way behind most other ‘competitor nations’ on the climate change issue, having lost a decade for concerted action. The reality is that Australia’s emissions are currently still rising at 1.5 percent per annum, and current trends predict, under existing policy settings, that Australia’s emissions will be 20 percent above 1990 levels by 2020. 410 Most tellingly are the statistics that Australia’s per capita emissions and per capita oil use are among the worst in the world. 411 Research by Professor Peter Newman and colleagues has compared the oil consumption per capita of Australian cities to comparable population European cities, and have highlighted many significant opportunities to improve transport planning and reduce oil consumption. 412 With regard to industry, a respected international study has found that Australia's power sector is the world's worst emitter of greenhouse gases on a per capita basis. 413 However on the upside, Australia can learn from the policy experience of many other OECD nations who have already implemented climate change policy reform. Most European Union (EU) countries are on track to achieve or get very close to achieving their Kyoto greenhouse emission targets. 414 The following pages briefly highlight a range of climate change policy areas where Australia can learn much from the example of nations leading on climate change policy reform. -

Climate Neutral Nations: Four nations – Iceland, New Zealand, Norway, and Costa Rica have now committed to becoming net climate neutral by 2050 if not before. 415 They are leading a new UNEP climate neutral global network. 416 Norway, a significant OECD economy, has committed to becoming net climate neutral by 2030. Costa Rica aims to be climate neutral by 2021 when it celebrates 200 years of independence. 417 Other countries are moving towards similar levels of commitment such as the USA, with California committing to achieving 80 percent cuts in emissions by 2050. 418 All Democratic US presidential candidates have stated in their policy

409

Garnaut Climate Change Review (2007) Garnaut Climate Change Review: Terms of Reference, Garnaut Climate Change Review, Melbourne. Available at http://www.garnautreview.org.au/CA25734E0016A131/WebObj/GarnautClimateChangeReviewTermsofReference2007/$File/Garnaut% 20Climate%20Change%20Review%20Terms%20of%20Reference%202007.pdf. Accessed 12 April 2008. 410 Australian Associated Press (2008) ‘Australia on Track to Meet Kyoto But Emissions Keep Rising’, Australian Associated Press. Available at http://en.epochtimes.com/news/8-2-25/66573.html. Accessed 7 March 2008. 411 Turton, H. (2004) Greenhouse gas emissions in industrialised countries – Where does Australia stand? Discussion Paper Number 66. Available at http://www.publish.csiro.au/?act=view_file&file_id=EC120p6.pdf Accessed 7 March 2008. 412 Professor Peter Newman, interview on SBS Insight’s City Limits, 26 February 2008. Available at http://news.sbs.com.au/insight/city_limits_541199 Accessed 7 March 2008. 413 SBS (2008) ‘Australians worst per capita emitters', SBS. Available at http://news.sbs.com.au/worldnewsaustralia/australians_39worst_per_capita_emitters39_135130 Accessed 7 March 2008. 414 European Environment Agency (2006) Greenhouse gas emission trends and projections in Europe 2006, EEA, Copenhagen. Available at http://reports.eea.europa.eu/eea_report_2006_9/en/eea_report_9_2006.pdf Accessed 7 March 2008. 415 See UNEP Climate Neutral Network at www.climateneutral.unep.org/cnn_contentdetail.aspx?m=175&amid=666 Accessed 7 March 2008. 416 See UNEP Climate Neutral Network at www.climateneutral.unep.org/cnn_contentdetail.aspx?m=175&amid=666 Accessed 7 March 2008. 417 The strategy will build on Costa Rica’s decision to tax fossil fuels in 1996 with 3.5 percent of the money raised allocated to the National Forestry Financing Fund. In 2007 Costa Rica planted more than five million trees or 1.25 per person making it the highest per capita planting in the world. Various industries are supporting the initiative including a C-neutral plan by Costa Rica’s banana sector. 418 The Climate Group (2005) Low Carbon Leader California, The Climate Group. Available at http://theclimategroup.org/assets/resources/low_carbon_leader_california.pdf. Accessed 7 March 2008.


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promises their intention to commit the USA to 80 percent cuts by 2050. 419 The Climate Institute’s 2007 report on the economic impacts of Australia addressing emission reduction targets, shows that Australia becoming carbon neutral by 2050 is consistent with strong economic growth, and that Australia would benefit if it were to take a leadership position on targets. 420 -

GHG Reductions – Regional Targets: The EU has committed to a minimum 20 percent reduction in greenhouse gas emissions (from 1990 levels) by 2020 and is pushing in international meetings for a global agreement of 30 percent reductions by 2020. If the world will agree to the 30 percent target by 2020 then the EU will adopt this stronger target. 421 As yet there are no such regional targets in the Asia-Pacific region.

-

Energy Efficiency Targets: In the UK the biggest 10,000 energy using companies have to, by law, sign up to and achieve energy efficiency targets to receive an 80 percent exception from the UK carbon tax. 422 Most of the 10,000 UK companies have exceeded their energy efficiency targets ahead of time and overall saved £650 million in the process. The European Union plans to increase energy efficiency sufficiently to reduce energy use by 13 percent by 2020 as part of its 2006 Energy Efficiency Action Plan, saving $164 billion in the process, even though their economy is already much more energy efficient than Australia’s. 423 In contrast, Australia does not yet have a national energy efficiency target. Although Australia’s 250 biggest energy-using companies are required to publicly report their energy efficiency opportunities with a return on investment of less than four years, to date there is no legal requirement to invest in such opportunities - even those with a one year or less return on investment.

-

Residential Buildings with Improved Energy Performance: The USA, Europe, China and Japan have all gone down the path of better regulation to improve building standards. 424 In the UK, all new homes are required to be ‘climate neutral’ by 2016. The UK Government's 'Code for Sustainable Homes' legislates binding regulations for energy reduction with staggered targets; 25 percent more efficient by 2010, 44 percent by 2013, and 100 percent, or zero emissions by 2016. Now passed into law, the code sets minimum standards for both energy and water efficiency. In addition, the UK government has agreed that any home achieving a Level 6 sustainability rating will be exempt from stamp duty. 425 In France, the government has committed to ensuring that all new buildings

419

Minchin, L. (2008) ‘An Uncomfortable Truth’, The Age, 19 February 2008. Available at http://www.theage.com.au/news/opinion/lizminchin/2008/02/18/1203190737634.html?page=2. Accessed 10 April 2008. 420 Hatfield-Dodds, S., Jackson, EK., Adams, PD., and Gerardi, W. (2007) Leader, Follower or Free Rider? The economic impacts of different Australian emission targets, The Climate Institute, Sydney, Australia. 421 Environment News Service (2007) ‘Europe to Cut Greenhouse Gases 20 Percent by 2020’, Environment News Service, March 8, 2007. Available at www.ens-newswire.com/ens/mar2007/2007-03-08-04.asp. Accessed 10 April 2008. 422 House of Commons Environment, Food and Rural Affairs Committee (2004-2005) Climate Change: looking forward, Ninth Report of Session, House of Commons Environment, Food and Rural Affairs Committee. Available at www.publications.parliament.uk/pa/cm200405/cmselect/cmenvfru/130/130i.pdf. Accessed 14 April 2007; Kirby, A. (n.d.) ' UK Industry Succeeding: UK Beats Greenhouse Gas Targets', BBC News Online . Available at www.defra.gov.uk/environment/ccl/pdf/cca_aug04.pdf. Accessed 14 April 2007; UK Government (2006) Explanatory Memorandum to the Climate Change Agreements (eligible facilities) (amendment) Regulations, UK Government. Available at http://www.opsi.gov.uk/SI/em2006/uksiem_20061931_en.pdf. Accessed 14 April 2007; Kirby, A. (n.d.) 'UK Industry Succeeding: UK Beats Greenhouse Gas Targets', BBC News Online. Available at www.defra.gov.uk/environment/ccl/pdf/cca_aug04.pdf Accessed 14 April 2007. 423 European Union (2007) Saving 20% by 2020: European Commission unveils its Action Plan on Energy Efficiency, Memo/07/6, European Union, p 2. Available at http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/07/6. Accessed 10 April 2008. 424 The Insulation Council of Australia and New Zealand (2006) ‘ICANZ applauds ACT 5-Star decision’, Press Release, 20 February 2006. Available at www.icanz.org.au/news/ACT-5-Star/ Accessed 10 April 2008. 425 BBC (2006) 'Zero carbon homes plan unveiled’, BBC, London. Available at http://news.bbc.co.uk/2/hi/science/nature/6176229.stm. Accessed 10 April 2008.


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should ‘produce more energy than they consume’ by 2020. 426 In the Netherlands, which experiences very cold winters, the standard design for a new home would qualify for an Australian star rating of 8-10. In contrast, Australian buildings still fall short of overseas minimum building regulations for equivalent climate zones, with energy use in Australian new homes continuing to rise. Some states have begun to address this, following the Australian Building Code Board’s introduction of minimum energy performance requirements into the Building Code of Australia (BCA) in January 2003. 427 In Victoria from July 2004, every new house and apartment in Victoria was required to meet a 5-Star Energy Efficiency standard. 428 During 2006, requirements for 5-star energy ratings were introduced in South Australia, Western Australia and the Australian Capital Territory. 429 New South Wales operates its own Building Sustainability Index, which includes a certification process for new dwellings with respect to mandatory targets for greenhouse gas emissions. 430 However, Tasmania, Queensland and the Northern Territory have still not adopted 5-star requirements for new homes. In addition, the Insulation Council of Australia and New Zealand cautions that even with 5-Star energy efficiency regulations across the country, Australian buildings would still fall far short of overseas minimum building regulations for equivalent climate zones, noting that Australia still has a long way to go from having the least energy efficient buildings of OECD countries to anything approaching international minimum standards. 431 -

Energy Efficient Products and Services: The energy demand in households accounts for 25 percent of the final energy needs in the EU, with electricity used for domestic appliances in households showing the sharpest increase. The EU is responding to this issue by requiring energy labelling of household appliances and to demand minimum efficiency requirements. 432 The Japanese government has set strict new energy-saving targets, focusing on 18 types of consumer and business electronics. Home and office air-conditioners, for instance, must be redesigned to use 63 percent less power by 2008. The targets have sparked a frenzy among electronics makers, who are producing record numbers of energy-saving consumer products. 433 Although not yet as strict as Japan standards or as progressed as the EU, Australia is contributing a leadership role in this area, through mandatory approved energy labels, and minimum energy performance standards (MEPS). The Department of Resources, Energy and Tourism is delivering a world-leading Energy Efficiency Opportunities (EEO) Program which aims to improve the competitiveness, productivity and business investment in energy efficient

426

Deutsche Well (2007) Sarkozy Promises Green Revolution for France, Deutsche Well. Available at http://www.dwworld.de/dw/article/0,1433,2847015,00.html . Accessed 10 April 2008. 427 See DEWAR - Building Code of Australia at www.environment.gov.au/settlements/energyefficiency/buildings/code.html. Accessed 10 April 2008. 428 See Sustainability Victoria website at www.sv.sustainability.vic.gov.au/renewable_energy/policies_and_initiatives/shw/industry/5star_regulations.asp. Accessed 10 April 2008. 429 See Australian Capital Territory Government website at www.chiefminister.act.gov.au/media.asp?section=52&media=1098&id=1098&title. Accessed 10 April 2008; See Planning South Australia website at http://www.planning.sa.gov.au/index.cfm?objectid=1F05999B-96B8-CC2B-691B6F3A96013410. Accessed 10 April 2008; See Western Australian Government website at http://www.5starplus.wa.gov.au/. Accessed 10 April 2008. 430 See BASIX website at http://www.basix.nsw.gov.au/information/index.jsp. Accessed 10 April 2008. 431 The Insulation Council of Australia and New Zealand (2006) ‘ICANZ applauds ACT 5-Star decision’ Press Release, 20 February 2006. Available at www.icanz.org.au/news/ACT-5-Star/. Accessed 10 April 2008. 431 See Code for New Sustainable Homes at http://www.planningportal.gov.uk/england/professionals/en/1115314116927.html. Accessed 10 April 2008. 432 See European Commission - Energy Efficiency at http://ec.europa.eu/energy/demand/legislation/domestic_en.htm. Accessed 10 April 2008. 433 Faiola, A. (2006) ‘Turn off the heat – how Japan made energy saving an art form’, The Guardian, UK. Available at www.guardian.co.uk/world/2006/feb/17/japan.oil. Accessed 10 April 2008.


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technologies. The program requires involvement by an estimated 250 mining, manufacturing, transport, resource processing and commercial businesses that are responsible for about 40 percent of all energy used in Australia, 434 to help reduce growth in greenhouse gas emissions and demands on energy infrastructure. -

Reducing Private Vehicle Transport GHG Emissions: New Zealand have committed to halving per capita transport emissions by 2040 by introducing electric cars and a requirement to use bio-fuels. 435 As of 2006, vehicles with low emissions already account for almost 11 million cars (21 percent) on Japan's roads. 436 Australia has yet to announce national targets for the private transport sector. In Sweden, private car buyers receive a subsidy of kr10.000 (Swedish krona) (AUD$1,800) for zero or low emission vehicles since April 2007 (due to expire in December 2009) and the initiative has become a runaway success. While kr250 million (AUD$45 million) was set aside for the scheme over three years, sales of ‘eco-cars’ are soaring to the extent that the real cost may top kr1.4 billion (AUD$2.5 million) in 2008. Forty five thousand vehicles were sold in the nine months the scheme was operative in 2007 (44 percent private sales), and dealers expect to sell another 100,000 in 2008. 437 Australia is one of the few OECD nations who don’t have a single car manufacturer that produces fuel efficient cars, let alone a hybrid car or a car that runs on biofuels. This is the main reason the Australian car industry is in trouble. Australians are choosing to buy more fuel efficient imported cars; i.e. more four cylinder models, more diesels (especially diesel 4WDs) and more hybrids. Australians are buying fewer Falcons and Commodores, and fewer Toyota Land Cruisers and Nissan Patrols, which is a warning to the local car industry. 438 In July 2006, Holden Commodore’s sales figures hit a 12 year low while the Australian Car Industry continued to grow at a steady rate, with record new car sales figures set every year for the last four years. 439

-

Improving Freight Transport: In 2007 France committed to invest heavily in rail infrastructure to take freight transport off the roads and onto rail as part of France’s ‘Green Revolution’. 440 In Australia greenhouse emissions from trucking freight continues to rise. In 2004, freight related emissions represented 36 percent of transport emissions and approximately 6 percent of Australia’s overall greenhouse gas emissions and in 2005 road transport contributed 84 percent of the total freight emissions despite carrying out only 38 percent of the domestic freight task. 441 Yet, the prospect of investing in rail or shipping to shift a significant proportion of transport freight to low emission options is still to be seriously considered in Australia.

434

See Department of Resources, Energy and Tourism (formerly the Department of Industry, Tourism and Resources) website - at www.energyefficiencyopportunities.gov.au/. Accessed 10 April 2008. 435 See UNEP Climate Neutral Network at www.climateneutral.unep.org/cnn_contentdetail.aspx?m=175&amid=666. Accessed 7 March 2008. 436 Faiola, A. (2006) ‘Japanese Putting All Their Energy Into Saving Fuel’, Washington Post Foreign Service, Thursday, February 16, 2006. Available at www.washingtonpost.com/wp-dyn/content/article/2006/02/15/AR2006021502762_pf.html. Accessed 12 April 2008. 437 Vidal, J. (2006) ‘Sweden plans to be the world’s first oil-free economy’, The Guardian, UK, 2 February 2006. Available at http://www.guardian.co.uk/environment/2006/feb/08/frontpagenews.oilandpetrol. Accessed 10 April 2008; Simpson, P.V. (2008) ‘Ecocar subsidy could break budget’, The Local, 1 March 2008. Available at http://www.thelocal.se/10196/20080301/. Accessed 10 April 2008. 438 McKinnon, B. (2006) Fuel Efficient Cars, National Roads and Motorists' Association (NRMA). Available at http://www.mynrma.com.au/cps/rde/xchg/mynrma/hs.xsl/fuel_efficient_cars.htm. Accessed 10 April 2008. 439 See CarAdvice - Holden VE Commodore Fuel Consumption, 17 July 2006, at http://www.caradvice.com.au/540/holden-vecommodore-fuel-consumption/. Accessed 10 April 2008. 440 Chrisafis, A. (2007) ‘Sarkozy puts France on green track’, The Guardian, UK. Available at http://www.guardian.co.uk/world/2007/oct/26/france.climatechange. Accessed 7 March 2008. 441 Bailey, S. and Dodd, A. (2007) Trade and Transport Bulletin – Carbon pricing for road transport: getting closer?, DLA Phillips Fox, 22 Nov 2007. Available at www.dlaphillipsfox.com/article/64/Trade-and-Transport-Bulletin---Carbon-pricing-for-road-transport-gettingcloser. Accessed 10 April 2008.


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-

Reducing Traffic Congestion and Encouraging Modal Shifts: Over 15 cities in OECD countries have successfully implemented a congestion tax. 442 London is still a stand-out example, using revenue from its congestion tax to spend AUD$500 million in improving and building safe bike paths and cycle lanes. 443 Mayor Ken Livingstone in February 2008 announced changes in the capital's ‘congestion charge’ roadpricing policy, increasing the congestion tax for powerful cars and certain pickup trucks with high carbon emissions to a £25 (AUD $54) daily charge, up from £8 ($17). Hybrid cars have also been made exempt from the congestion tax. 444

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Reducing Oil Dependence: A number of countries have committed to significantly reducing their nation’s oil dependency. Sweden, which was badly hit by the oil price rises in the 1970s, has committed to getting off oil by 2020. The country relies on fossil fuels mainly for transport, with only 32 percent of the energy coming from oil in 2003, down from 77 percent in 1970. Almost all of the country’s heating was converted in the past decade to schemes which distribute steam or hot water generated by geothermal energy or waste heat. Iceland hopes by 2050 to power all its cars and boats with hydrogen made from electricity drawn from renewable resources. Brazil intends to power 80 percent of its transport fleet with ethanol derived mainly from sugar cane within five years. 445 Japan, the world's second-largest economy with no domestic sources of fossil fuel has kept its oil consumption steady since 1975 - while world consumption has risen steadily - by dramatically diversifying its power sources over the years, becoming far less dependent on oil and cultivating a culture of conservation. 446 These plans are a part of broader sustainability plans like Hawaii’s 2050 447 Sustainability project, which has created a citizen-driven blueprint for the state's next half-century. The Hawaii 2050 strategy documents outline how the state will handle a tourist economy, a swelling population, friction between cultures and a changing climate and environment. 448 Australia has not yet developed a similar ‘off-oil’ plan. The last Australian federal plan for sustainable development was the National Strategy for Ecologically Sustainable Development, adopted in 1992, but which has not been evaluated since 1995. 449 In 2002, the Australian Conservation Foundation produced the Natural Advantage: A Blueprint for a Sustainable Australia, 450 which outlined a plan in response to the 1992 World Summit’s Agenda 21 call for action.

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Increasing the Role of Renewable Energy: Renewable electricity generation capacity reached an estimated 240 gigawatts (GW) worldwide in 2007, a 50 percent rise over 2004, however, renewable energy represents only

442

See Roadpricing - 15 Cities at http://www.roadpricing.biz/ Accessed 7 March 2008. Taylor, M. (2008) ‘City's two-wheel transformation’, The Guardian, UK. Available at http://www.guardian.co.uk/uk/2008/feb/09/transport.world1 Accessed 7 March 2008. 444 See Transport for London at http://www.tfl.gov.uk/roadusers/congestioncharging/. Accessed 7 March 2008. 445 Vidal, J. (2006) ‘Sweden plans to be the world’s first oil-free economy’, The Guardian, UK, 2 February 2006. Available at http://www.guardian.co.uk/environment/2006/feb/08/frontpagenews.oilandpetrol. Accessed 10 April 2008. 446 Faiola, A. (2006) ‘Turn off the heat – how Japan made energy saving an art form’, The Guardian, UK. Available at www.guardian.co.uk/world/2006/feb/17/japan.oil. Accessed 10 April 2008. 447 See Hawaii 2050 website at http://hawaii2050.org/. Accessed 10 April 2008. 448 Hawaii 2050 Sustainability Task Force (2008) ‘Hawaii 2050 Sustainability Plan Sets Direction for State's Future’, PR Newswire. Available at http://www.foxbusiness.com/article/hawaii-2050-sustainability-plan-sets-direction-states-future_474971_1.htmll. Accessed 10 April 2008. 449 Krockenberger, M., Kinrade, P., and Thorman, R. (2000) Natural Advantage: A Blueprint for a Sustainable Australia, Australian Conservation Foundation. Available at www.naturaledgeproject.net/documents/natural_advantage_000.pdf. Accessed 10 April 2008. 450 Ibid. 443


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3.4 percent of global power generation. 451 By setting bold targets for the amount of the country’s electricity that will be sourced by renewable sources, national governments around the world are signalling to the market that innovation in renewable energy will be rewarded. For example, the UK renewable energy target is 40 percent by 2020, New Zealand is 90 percent by 2025, Costa Rica’s is 90 percent by 2030. The European Union has boosted the region’s renewable energy target to 21 percent by 2010. Where countries and regions may not have bold targets, states and cities are signalling their support and leadership at a global level. California has set a target of 20 percent renewable energy by 2010 and 33 percent by 2020. 452 In contrast, Australia’s goal is currently 20 percent by 2020. Polling by The Climate Institute shows that 86 percent of Australians will readily accept an immediate shift to a target of 25 percent of Australia’s electricity generation to come from renewable energy sources by 2020. 453 As yet, no Australian states or cities have targets that exceed the federal target. -

Increasing the Use of Feed-In Tariffs (FITs): FITs place a legal obligation on utilities to purchase electricity from renewable energy installations, whereby the tariff rate is guaranteed (in the best examples for a long period up to 20 years), and is determined for each technology to ensure profitable operation of the installation. In the EU, FITs are the norm, with Germany, Denmark, and Spain considered model countries achieving significant results. For Germany, where FITs have been in place and supported politically since 1990, their law has made them a world leader in renewable energy, generated billions of dollars a year in exports, created in the region of a quarter of a million jobs, saved nearly 100 million tons of carbon dioxide annually in recent years, and set records for installed capacity across many technologies, all at the cost of around US$1.80 per household, per month. 454 Among developing countries, India was the first to establish feed-in tariffs, followed by Sri Lanka and Thailand (for small power producers only), Brazil, Indonesia, and Nicaragua. In the first half of 2005, feed-in policies were enacted in China, Ireland, Turkey, and the US state of Washington. China’s feed-in policy was part of a renewable energy promotion law enacted in February 2005. 455 In Australia only one state, South Australia, has set up a feed-in tariff (through the Electricity Bill 2007), allowing smallscale grid-connected photovoltaic electricity system owners to receive 44 cents per kilowatthour of electricity fed back into the grid - twice the standard retail price – until 2013. 456

-

Roll-Out of Electricity Metering – Smart Meters: Several OECD countries have already undertaken national rollouts of smart meters. In Italy, the energy utility Enel SpA undertook a roll-out of smart meters to 27 million customers, completing it in five years by 2005. In various publications Enel has estimated the cost of the project at approximately 2.1 billion Euros and the savings they are receiving in operation of

451

Renewable Energy Network for the 21st Century and Worldwatch Institute (2007) cited in ‘Editorial: Renewable energy surges forward’, The Japan Times Online, 16 March 2008. Article available at: http://search.japantimes.co.jp/cgi-bin/ed20080316a1.html. Accessed 10 April 2008. 452 See California Energy Commission’s Renewable Energy Program at http://www.energy.ca.gov/renewables/. Accessed 10 April 2008. 453 Australian Conservation Foundation (2007) ‘The future’s bright – a boost in renewable energy is a boost for the Australian economy’ Press Release 23 April 2007. Available at http://www.acfonline.org.au/articles/news.asp?news_id=1229. Accessed 10 April 2008. 454 Mendonca, M. (2007) ‘Energy, Ethics and Feed-In Tariffs’, Renewable Energy World.Com, 30 April 2007. Available at www.renewableenergyworld.com/rea/news/reinsider/story?id=48310. Accessed 10 April 2008. 455 REN21 (2008) Global Status Report: Policy Landscape / Power Generation Promotion Policies, REN21. Available at www.ren21.net/globalstatusreport/gsr4b.asp. Accessed 10 April 2008. 456 Solarbuzz (2007) ‘State Government Tables Legislation for Solar Feed In Tariff’, Solarbuzz, August 15, 2007. Available at http://www.solarbuzz.com/news/NewsASGO74.htm. Accessed 10 April 2008.


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500 million Euros per year. 457 In 2003, Sweden announced that monthly readings would be required of all electricity meters by 2009, resulting in a flurry of activity in the region. In September 2007, the Dutch government proposed that all seven million households of the country should have a smart meter by 2013, as part of a national energy reduction plan. 458 Roll-outs are also underway in California and Pennsylvania in the USA. According to John Hutton, the UK Secretary of State for business, enterprise and regulatory reform, smart energy meters should be brought in under an accelerated program, as 10 years is just simply, ‘too long’. 459 In Australia, the Council of Australian Governments (COAG) agreed at the February 2006 meeting to a conditional national rollout of smart meters for all consumers where, ‘the benefits outweigh costs’, but there was no timeframe put on this initiative. 460 As of 2008, Australia is still assessing whether smart meters are economically viable. 461 Although no rollout has yet been undertaken, in some parts of Australia, the rollout of smart meters has already commenced. There is progress towards a state-wide rollout in Victoria, and companies have trialled or are planning to trial metering technologies in NSW, Qld, WA and SA. It is hoped that the Commonwealth’s ‘Solar Cities’ program will also demonstrate the application of integrated smart meter, renewable energy and energy efficiency technologies. 462 -

Incorporating the Pricing of GHG Emissions: There is much Australia can learn from overseas experiences. The EU has had the European Union Emission Trading Scheme since 2005. In the USA, the private sector took the initiative in 2003 to set up the Chicago Climate Exchange. A number of EU countries have taxes on greenhouse gas emissions such as Germany, UK, Sweden, Austria and Norway. The Australian Federal and State governments have promised to introduce a capand-trade system by 2010. At a state level, there is also some movement. The New South Wales (NSW) state government has set up the NSW Greenhouse Gas Abatement Scheme to reduce emissions requiring electricity generators and large consumers to purchase NSW Greenhouse Abatement Certificates (NGACs) to offset a fraction of their GHG emissions. This can be built upon nationally.

7.2.

Existing Australian Policies and Programs to Build Upon

It is important as a first step to affirm that the new Federal Government has many existing government policies and R&D programs upon which it can rapidly build, some of which have already been alluded to above. Key initiatives are briefly highlighted below: -

Establishing the world’s first ‘Solar Cities’ program. 463 This program will provide the new Federal Government with a wealth of information over the next five years to better develop and implement policy to reduce Australia’s peak load electricity demand.

457

Smith, M. and Hargroves, K (2007) ‘Smart Approaches to Electricity Use’, CSIRO ECOS, Issue 135, pp12-13. Available at http://www.publish.csiro.au/?act=view_file&file_id=EC135p12.pdf. Accessed 7 March 2008. 458 Parliamentary Office of Science and Technology (2008) Smart Metering of Electricity and Gas, Postnote, February 2008, no. 301. Available at www.parliament.uk/documents/upload/postpn301.pdf. Accessed 10 April 2008. 459 Davies, J. (2007) ‘Smart meters win minister's backing: John Hutton says 10 years is too long to wait for smart energy meters to be rolled out’, Computing, 12 Nov 2007. Available at www.computing.co.uk/computing/news/2203262/smart-meters-win-minister. Accessed 10 April 2008. 460 Energy Networks Association (2008) Smart Meters – Policy Paper. Available at: www.ena.asn.au/udocs/ena_102506_160523.pdf. Accessed 10 April 2008. 461 (2008) National rollout of smart meters may not be justified in Australia. In Metering.Com, 10 March 2008. Available at: http://www.metering.com/node/11953. Accessed 10 April 2008. 462 Ministerial Council on Energy (2007) Smart Meters: Information Paper - Development of an implementation roll-out of smart meters, Ministerial Council on Energy. Available at http://www.mce.gov.au/assets/documents/mceinternet/SmartMetersInfoPaper20070123163300.pdf. Accessed 10 April 2008. 463 See The Solar Cities Program at http://www.greenhouse.gov.au/solarcities/index.html. Accessed 10 April 2008.


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Working with the states through the Council of Australian Governments (COAG) to establish and facilitate: 1. The National Framework for Energy Efficiency, 464 a COAG initiative to add AUD$1 billion to Australia’s GDP through energy efficiency. What is needed is a solid energy efficiency target for both 2015 and 2020. 2. The Australian Minimum Energy Performance Standards (MEPS) 465 for appliances, which have encouraged the refrigeration industry to achieve more than 50 percent energy efficiency improvements in the last 20 years. These are positive steps upon which Australia can build a sustainable energy future.

-

Involving 250 of the biggest energy consuming companies in Australia in the Department of Resources, Energy and Tourism’s Energy Efficiency Opportunities program. 466 Further to previous comments above, this program involves companies that represent 60 percent of energy usage by business in Australia. However, currently the businesses that have signed up are only required to publicly report their energy efficiency opportunities of four years or less. In Victoria, the Government requires business to publicly report and implement any energy efficiency opportunity of three years or less. There is an opportunity for the Federal Government to apply the Victorian model nationally and thus align national regulation in this area.

-

Phasing out inefficient lighting by 2012. 467 The European Union and California have committed to doing the same. This will have significant flow-on effects by driving a change among manufacturers in China to focus on more energy efficient products. The same concept could be applied to other everyday household appliances and office and industry equipment. Why should we in Australia be allowing into our market the least energy efficient products? If it is right to ban the most inefficient types of lighting why not apply this concept to other products on the market? If Australia did phase out the least energy efficient products, home appliances and office and industry equipment it could lead to the EU and California following suit. This would provide clear incentives to domestic and international manufacturers to change. This would also help to give local manufacturers a competitive advantage by enabling them to be first to market with.

-

Supporting and initiating numerous other innovations in energy efficiency. 468 This is a tradition that deserves to be highlighted and built on by the new Federal Government by setting up specific energy efficiency innovation research and development (R&D) projects. The Federal government has enormous R&D expertise in Australia such as the CSIRO Energy Transformed Flagship program. This program is tasked with researching how Australia can achieve 60 percent reductions in greenhouse gas emissions by 2050. It would be timely for CSIRO to now also be tasked with researching the following questions: -

How best can Australia best achieve 25-40 percent greenhouse gas reductions by 2020?

-

Can Australia become climate neutral and if so, 1) by what date? 2) how much would it cost? and 3) what would the effect on jobs be?

464

See National Framework for Energy Efficiency at www.nfee.gov.au/home.jsp?xcid=48. Accessed 10 April 2008. See Minimum Energy Performance Standards at www.energyrating.gov.au/meps1.html. Accessed 10 April 2008. See Department of Industry, Tourism & Resources’ Energy Efficiency Opportunities program at www.energyefficiencyopportunities.gov.au. Accessed 10 April 2008. 467 Department of Environment and Water Resources (2007) World first! Australia slashes greenhouse gases from inefficient lighting, Department of Environment and Water Resources. Available at www.environment.gov.au/minister/env/2007/pubs/mr20feb07.pdf. Accessed 10 April 2008. 468 Pears, A. (2005) Innovation and Energy Efficiency, Sustainable Solutions and RMIT. Available at http://www.naturaledgeproject.net/NAON_ch17.aspx#PapersPears. Accessed 13 March 2008. 465 466


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-

What is a safe emissions reduction target for the world?

-

Providing higher rebates for solar photovoltaic energy 469 and hot water systems. 470 South Australia has initiated a feed-in tariff providing further incentives for families to save energy and invest in solar energy. There is a significant opportunity for the Federal Government to work with the state governments to adopt the South Australian model nationally.

-

Supporting world-leading renewable energy research at Universities, such as ANU and UNSW. With its ready availability of land relative to population, sunny climate, winds, long coastline and existence of underground ‘hot rock’ geothermal resources, Australia would seem to have a natural advantage in developing renewable technologies. There is significant need to still improve the levels of investment in renewable energy in Australia. At the moment, with the government’s decision to put off a carbon trading framework until 2012, Australia has no such price signal, with the result that some companies have moved offshore. Australian company Solar Heat and Power, for example, has relocated to California, where venture capital for renewable energy is abundant, further to incentives provided by Governor Arnold Schwarzenegger’s administration. We are heartened to read Garnaut stating that, in his opinion, the emissions trading scheme should start earlier than 2012.

-

Committing to a 20 percent renewable energy target by 2020. So far, this is supported at a state level by the South Australian strategic plan, which has a target of 20 percent of South Australia's energy consumption to be sourced from green power by the year 2014, and the NSW renewable energy target levels which are 10 percent of NSW end use consumption by 2010 and 15 percent by 2020. 471 The target is also supported by the Victorian Government, which has committed to 10 percent of all electricity coming from renewables by 2016, 472 and the Western Australian Government, who have committed to purchase 20 percent renewable energy by 2010. 473 In addition to these renewable energy targets in Victoria, New South Wales, South Australia and Western Australia; other current state government initiatives to encourage reduced greenhouse gas emissions include: 1. A mandatory gas energy target in Queensland. 2. Feed-in tariffs in South Australia and Victoria. 3. Legislated greenhouse gas emission targets in Victoria and South Australia. 4. Minimum building efficiency schemes in each state. 5. Energy savings and demand management incentive programs in Victoria, South Australia and New South Wales.

Building on these existing initiatives we recommend that the Federal and State Governments review global best practice in policy, economic incentives and regulations. The choices made by policy makers in the next five years on climate change in Australia will be some of the most important that any Australian or State governments will make. The Garnaut Review and Government should proceed with confidence as Australian business is now looking for certainty and a sophisticated, comprehensive and fair road forward with clear short and long term targets. 469

Department of Environment, Water, Heritage and the Arts (2008) Photovoltaic Rebate Programme, Department of Environment, Water, Heritage and the Arts. Available at www.greenhouse.gov.au/renewable/pv/index.html. Accessed 10 April 2008. 470 Ibid 471 See NSW Renewable Energy Targets at http://www.deus.nsw.gov.au/Publications/NRET%20Explanatory%20Paper%20FINAL.pdf. Accessed 13 February 2008 472 See Victoria’s Renewable Energy Targets at http://www.envict.org.au/inform.php?menu=4&submenu=20&item=1211. Accessed 13 February 2008 473 See WA Governments Renewable Energy Targets at http://www.mediastatements.wa.gov.au/media/media.nsf/9dbd10dc05971ee348256a76000cc002/3ebfa997263f4435c825727900050a 50?OpenDocument. Accessed 13 February 2008.


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The Garnaut Review has also been tasked with assessing what Australia’s short term greenhouse gas reduction targets should be. This submission lists several important reports which should reinforce the position that Australia does have the capacity to rapidly peak Australia’s rising emissions and achieve strong short term targets. Specifically: -

McKinsey’s 2008 report argues that Australia could easily achieve 30 percent reductions by 2020 and even 60 percent by 2030.

-

The Environment Business Australia’s report is also significant in that it suggests that Australia could easily meet an ambitious short term target of 25-40 percent greenhouse gas reductions by 2020.

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Professor Mark Diesendorf’s 2007 report 474 shows how Australia could reduce its greenhouse pollution by 30 percent by 2020, through a combination of energy efficiency, demand management, decarbonising our transport fleets, and expanding renewable energy infrastructure.

-

In TNEP’s new 640 page online textbook Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, 475 the Natural Edge Project (TNEP) has come to a similar conclusion. This online textbook 476 shows that through a comprehensive approach to energy efficiency and demand management, and using existing renewable energy technologies, it is technically and economically possible for Australia to rapidly achieve 30 percent cuts. Our online textbook resource shows that business, governments, organisations and households can reduce greenhouse gas emissions significantly within 1-4 years once they commit to act.

-

We have outlined in this submission that there are at least 10 major cost effective areas for climate change mitigation where it is in Australia’s economic and business competitive interests to be a leader.

Clearly the major climate change policy improvement will be the implementation of a national emissions scheme. Some economists argue that this alone will be an adequate policy initiative to enable Australia to make a transition to a low carbon future. However, overseas and local experience shows that a national emissions trading scheme needs to be complimented by additional policies and regulations to ensure that significant market barriers are overcome. The following sections provide policy recommendations which are aligned with overseas best practice. 7.3.

Subsidies and Incentives

Phase out perverse subsidies which encourage greenhouse gas pollution and replace them with incentives for renewable energy and energy efficiency. It has recently been estimated that Australia currently spends AUD$6.5 billion annually on perverse subsidies, i.e. subsidies which lead to more greenhouse gas pollution. 477 This is far more than what is currently being spent by government to reduce greenhouse gas emissions. A ‘whole of government’ approach is needed to realign economic incentives and subsidies to ensure all government departments grants and incentives focus on reducing greenhouse gas emissions. According to Riedy and Diesendorf, these current subsidies include: 478

474

Diesendorf, M. (2007) Paths to a Low Carbon Future Reducing Australia’s Greenhouse Gas Emissions by 30 percent by 2020, Sustainability Centre. Available at http://www.greenpeace.org/raw/content/australia/resources/reports/climate-change/paths-to-a-lowcarbon-future.pdf. Accessed 7 November 2007. 475 Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia.’ Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx. Accessed 13. February 2008 476 Ibid 477 Riedy, C. and Diesendorf, M. (2003) ‘Financial subsidies to the Australian fossil fuel industry’, Energy Policy, no. 31, pp 125-137. 478 Ibid


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electricity price subsidies to aluminium smelting;

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tax benefits for salary packaging motor vehicles;

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Greenhouse Gas Abatement Programs (which go mostly to fossil fuels);

-

fuel excise reduction;

-

fuel sales grants scheme;

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automotive industry support;

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land for roads and car parking;

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reduced import duty on 4WDs;

-

inappropriate company tax concessions; and

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R&D support for fossil fuels.

Simple policy changes need to be made to remove disincentives to do the right thing, such as: -

Remove the fringe benefits tax incentive to drive company vehicles long distances. Create incentives for employers to provide free public transport for their employees.

-

Remove favourable tariff treatment of four-wheel-drive vehicles by increasing their import tariff from 5 percent to 10 percent, to bring it into line with regular vehicles, making exceptions for primary producers.

-

Remove the GST from public transport.

-

Remove GST from the sale of biofuels and indefinitely extend the biofuel-excise holiday.

-

Remove GST from the sale fuel efficient cars (7litres per 100 km or less), hybrids and new electric cars.

-

Remove GST from the sale of 5-star energy efficient appliances

Since climate change is considered the most significant market failure of all, the following incentives and subsidies are recommended as justifiable for governments to apply, to address this market failure, removing perverse subsidies (AUD $6.5 billion annually) that encourage greenhouse gas pollution, and applying subsidies instead to the following climate change mitigation strategies (in addition to revenue raised from the permits for a national emissions trading scheme of between AUD$5-20 billion): -

Extend government subsidies for energy audits for small businesses and households. Introduce government subsidies for the purchase of energy-efficient equipment by small businesses and households as part of the follow-up to energy audits. This would help overcome upfront investment costs of energy efficiency for retrofitting homes, buildings and industry. Introduce financial incentives for new energy efficient equipment.

-

Fund demand management infrastructure such as the national rollout of smart meters.

-

Introduce tax incentives or subsidies for installation of co-generation and local energy-storage equipment.

-

Subsidise renewable energy. Establish a government-sponsored venture capital fund to complement the Sun Fund, to help developers of renewable-energy and energy-efficient technology to get their new products to market. Initiate cooperation between the federal


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government and the finance industry in developing new forms of energy related venture capital funds. -

Increase tax incentives for private research and development of new energy-efficient and renewable-energy equipment.

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Fund major national sustainable transport infrastructure such as very fast trains and an upgrade of the national freight rail network.

-

Compensate the poor for the likely higher electricity and fuel prices under an emissions trading scheme by funding the retrofitting of public housing, rental markets and low cost flats/housing with insulation, energy efficient lighting and appliances.

7.4.

Policies to Address Barriers to Energy Efficiency

International experience suggests that the following policies and targets are needed to compliment both the Australian national emissions trading scheme and to provide economic incentives to ensure the uptake of energy efficiency opportunities (other authors have provided still more detailed recommendations in this area 479 ): 480 -

Set a national energy efficiency target for 2015, 2020 and 2030.

-

Introduce mandatory energy audits of all medium to large energy users, with compulsory implementation of energy saving opportunities that have a payback period of four years or less, coupled with public reporting of all energy-saving opportunities that have a payback period of up to eight years.

-

Increase national mandatory minimum energy performance standards to match best global practice. Update the standards every two years and expand the reach of the National Appliance and Equipment Energy Efficiency Committee.

-

Implement national mandatory minimum energy and greenhouse performance standards for all appliances and equipment with the capacity to use more than 50 Watts of electricity or 5 megajoules per hour (MJ/hour) of natural gas. Make standards increasingly stringent every 5 years, publishing schedules for improvement 3-5 years ahead, so that businesses can plan, and with requirements based on the world’s best practice, not just removal of the worst products from the marketplace.

-

Use public-sector purchasing to help create a ‘critical mass’ market for new energy efficient office and computer equipment. Require all government purchases to meet minimum energy ratings.

-

Legislate for mandatory energy performance standards for all homes, with new and renovated homes to meet standards forthwith and existing homes to achieve specified standards increasing in 5 year increments.

-

Legislate to ensure that all new homes and buildings have solar hot water systems and support this by maintaining the current rebate systems at the Federal and State government levels.

479

Watt, M. and Outhred, H. (1999) Energy Industry Sustainability: Policy Options, Australian Co-operative Research Centre for Renewable Energy, Murdoch University; Greene, D. and Pears, A. (2003) Policy Options for Energy Efficiency in Australia, ACRE Policy Committee; Lovins, A. and Lovins, H. (1997) Climate: Making Money, Making Sense, RMI. Available at http://stephenschneider.stanford.edu/Publications/PDF_Papers/LovinsLovins1997.pdf Accessed 13 February 2008. 480 Geller, H. et al (2006) ‘Policies for Increasing Energy Efficiency: Thirty Years of Experience in OECD Countries’, Energy Policy no. 34, pp 556 -557.


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-

For all homes mandate energy and greenhouse gas ratings and require that these ratings be published in all advertisements and contracts for the sale or rental of the homes.

-

For all commercial buildings mandate minimum energy and greenhouse performance standards based on the Australian Building Greenhouse Rating Scheme. Building owners should be given options to comply, including the use of Green Power and Renewable Energy Certificates (RECs) under MRET. The minimum performance standards should initially include a 5-star requirement for new buildings including fit-out, and a requirement for existing commercial buildings to be progressively improved to achieve 4-star rating.

-

Increase funding for the Cities for Climate Protection (CCP) program for local governments from the present level of AUD$13 million over 5 years, to 10 times that level for the next 5 years and maintain that level to 2020 at least. The present funding only provides on average about AUD$3,500 annually per Council. Ensure that at least part of this funding is used to upgrade the energy efficiency of public street lighting. Require each local government to report annually on the use of the funding.

-

Award one-off grants to manufacturers of energy consuming appliances and equipment, thus enabling them to retool in order to meet the mandatory energy performance standards.

7.5.

Policies to Improve Demand Management

Restructure electricity tariffs to provide financial incentives for saving electricity Australia's electricity system is the main cause of our excessive greenhouse emissions but there is no consideration of this, or the cost of greenhouse emissions to the economy, in the design of the market. The rules of the National Electricity Market (NEM) are inappropriately focused on the supply of coal-fired electricity at the expense of energy savings and renewable energy technologies. The failure to harness an adequate level of demand management is such a fundamental flaw of the NEM that broad-scale changes to the rules are urgently required. Unnecessary pressures to build expensive new infrastructure inflate costs - decrease the efficiency and reliability of networks, destroy options for cost-effective demand management and unnecessarily raise prices for consumers. These outcomes are in conflict with the long term interests of consumers. The Total Environment Centre has published a range of publications providing detailed and clear recommendations for change to regulations and policies to encourage rather than discourage demand management. 481 7.6.

Policies to Encourage Renewable Energy 482

Policies to help ensure a smooth transition to a low carbon electricity sector: -

Include a greenhouse trigger in the Environment Protection and Biodiversity Conservation Act that ensures federal oversight of developments that will have greenhouse emissions greater than 100,000 tons of CO2-e each year. 483

-

Increase Australia’s Mandatory Renewable Energy Target (MRET) to ensure at least 15 percent of national electricity demand is met from renewable sources by 2015, and 25 percent

481

See publications on Demand Management at the Total Environment Centre’s web page at http://www.tec.org.au/index.php?option=com_content&task=view&id=640&Itemid=316. Accessed 10 March 2008. 482 See EU Renewable Energy Policy online resources at http://www.euractiv.com/en/energy/eu-renewable-energy-policy/article117536. Accessed 10 March 2008. 483 McGrath, C. (2006) 'Review of the EPBC Act', paper prepared for the 2006 Australian State of the Environment Committee, Department of the Environment and Heritage, Canberra. Available at http://www.environment.gov.au/soe/2006/publications/emerging/epbc-act/index.html. Accessed 10 March 2008.


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is met from renewable sources by 2020. 484 Introduce annual auditing of national progress towards the target. -

Introduce ‘feed-in tariff’ laws for renewable energy that guarantee minimum prices for renewably generated electricity for set periods, to give it a commercial foothold.

Policies to help the uptake of solar energy opportunities: -

Mandate that a solar, heat pump or solar compatible natural gas hot water system with low standby losses be installed in every proposal for a new or substantially renovated residential building. Where natural gas and sunshine are both available, mandate that the only system that may be installed is gas boosted solar.

-

Local governments must implement rules protecting solar access of all existing and new buildings.

-

Local governments must remove planning requirements on the installation of solar hot water and photovoltaic modules on residential buildings

-

Strengthen the development of Australia’s manufacturing base by committing to making Australia a world leader in solar photovoltaic and solar thermal technology. This can be achieved by keeping locally researched solar technology in the country through appropriate use of government subsidies, tax incentives, venture capital funds and research funding.

Policies to help the uptake of wind power opportunities: -

With wide public consultation, develop and implement consistent planning guidelines across all levels of government for the establishment of wind farms nationally.

-

Develop grid management policies that allow for the inclusion of wind farm output forecasting data. The use of such data will allow for the greater penetration of wind energy and optimised cost and/or emissions reductions.

-

Extend State and federal incentives for small renewable energy generation systems, such as solar thermal and solar photovoltaic rebates, to include small wind turbines of less than 100 kW capacity that service a similar need and market.

Create a more holistic and integrated approach to Research and Development (R&D) Funding for Renewable Energy in Australia, by: -

Over the past decade, the Federal Government has systematically cut funds to Australia’s renewable-energy focussed research and development programs. Programs cut over the past decade include the Energy R&D Corporation, the Australian Cooperative Research Centre for Renewable Energy, and the Renewable Energy Commercialisation Program of the Australian Greenhouse Office.

-

After a decade of stop-start management of R&D support there remains a critical funding gap (see between early stage research and support at the point of commercialisation). 485 Furthermore, the Low Emissions Technology Development Fund, (the Government’s flagship low emissions technology program) allocation has favoured fossil fuel projects over renewable energy projects by a ratio of more than four to one on a dollar basis (AUD$335 million so far to

484

ACF, CANA et al (2007) A Bright Future. 25 Percent Renewable Energy by 2020, ACT and CANA. Available at http://www.cana.net.au/documents/25_RenewableEnergyforAustraliaby2020report_2007.pdf. Accessed 10 March 2008. 485 For more details see the report: Greenpeace Australia Pacific (2007) Hung out to dry: Federal neglect of renewable energy research and development in Australia, Greenpeace Australia Pacific. Available at http://www.greenpeace.org/raw/content/australia/resources/reports/climate-change/hung-out-to-dry-federal-negle.pdf. Accessed 10 March 2008.


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fossil fuel projects; AUD$75 million to renewable energy). Moreover this program is not available to support R&D. Other countries, like Germany, effectively plug this gap for renewables funding, through integrated programs of support which cover every aspect of the renewable energy industry ― research, development, demonstration, commercialisation and market support. Critical mass is built via the availability of large-scale and stable R&D funding in, for example, the Fraunhofer Institute for Solar Energy Systems, which has a budget of $47 million per year. The Fraunhofer Institute is just one of many such large European solar research institutes. This type of integrated support for renewable energy research is not available in Australia. 7.7.

Policies to Encourage Reducing Emissions from Existing Electricity Generation

-

Mandate generator efficiency standards for power stations to ensure that the existing stock of power stations is reducing emissions and improving efficiency.

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Require electricity retailers to progressively reduce the greenhouse intensity of electricity sold. Retailers must be able to meet these requirements in part by providing programs to reduce their customers’ energy use.

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Establish a target for co-generation and provide grants on a dollar for dollar basis to assist in funding feasibility studies for specific projects.

7.8.

Policies to Reduce Emissions in Rural Australia

Implement a national plan to enhance carbon sinks by: -

Preserving and protecting old growth forests.

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Retaining, restoring and expanding native vegetation cover.

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Encouraging minimum tillage practices to improve soil carbon retention.

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Reviewing the long-term impacts on Australian primary producers, rural communities and the environment of climate change, especially the reduced and increasingly variable rainfall, increased temperatures and higher evaporation rates, and more frequent and extreme storm, flood and drought impacts.

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Developing adaptation strategies to mitigate these impacts to ensure the security of Australian food production and maintain the viability of rural communities.

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Reviewing Australia’s agricultural practices to reduce greenhouse emissions.

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Changing the MRET regulation to actively encourage dedicated tree energy crops for the purpose of growing biomass for fuel on land that has been cleared before 1990.

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Paying a contribution for the planting of energy (and other) crops grown for the purpose of limiting dry-land salinity, erosion and other forms of land degradation.

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Introducing biomass establishment grants for growing energy crops.

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Providing specific support for the development of a national bioenergy roadmap for Australia and its implementation.


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Appendix 1: Related works by The Natural Edge Project on Climate Change Mitigation Completed Publications: 1) National Business Leaders Forum: Executive Report on ‘Action on Climate Change Can Help Business Competitiveness and Economic Growth’ It has become clear that it is inevitable that society will need to adapt to a new climate regime as a result of a rapid increase in greenhouse gas emissions since the industrial revolution. There is a parallel and crucial requirement to focus on both reducing emissions of greenhouse gases and therefore stabilising the corresponding increases in global temperature; and to also prepare for a certain level of adaptation by society and the environment to an altered climate, assuming appropriate stabilisation is achieved. This report considers four topic areas to assist CEOs and Government Ministers identify win-win opportunities on the critical issue of action on climate change, with the aim of achieving a 60 percent reduction in greenhouse gas emissions by 2020. http://www.naturaledgeproject.net/ESSP.aspx It was the official 2007 Discussion Paper on the Australian National Business Leaders Forum for Sustainable Development www.naturaledgeproject.net/60by2050.aspx. 2) CSIRO ECOS Magazine: Series of Articles on Deep Cuts CSIRO ECOS magazine is featuring a series of articles by The Natural Edge Project on how to achieve sustainable cuts to greenhouse gas emissions. The following short articles provide new insights into some of the most exciting and effective ways to profitably reduce greenhouse gas emissions. www.naturaledgeproject.net/TNEPArticles.aspx. -

(2008) Issue 141: Clever cooperation will step up climate progress.

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(2008) Issue 140: Energy superpower – or sustainable energy leader – 2 and Seeing the wood for the trees: What to look for when purchasing carbon credits.

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(2008) Issue 139: Energy Superpower – or Sustainable Energy Leader?

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(2008) Issue 138: Business signs up to support short-term cuts and Tuning into a Deeper Wisdom.

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(2007) Issue 136: Climate Leaders: The New Corporate Standards.

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(2007) Issue 135: Smart Approaches to Electricity Use.

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(2006) Issue 129: Wood - another low carbon footprint solution.

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(2006) Issue 128: The First Cuts Must be the Deepest.

3) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation (CSIRO & NFEE) This 600+ page freely-available and online education and training package aims to bring together the knowledge of how Australia can achieve at least 60 percent cuts to greenhouse gas emissions by 2050. The publication provides industry, business and households with the knowledge they need to realise at least 30 percent energy efficiency savings in the short term while providing a strong basis for further improvement. Three modules, each containing 10 chapters, cover: 1) Understanding, Identifying and Implementing Energy Efficiency Opportunities for Industrial/Commercial Users – By Technology; 2) Understanding, Identifying and Implementing Energy Efficiency Opportunities for Industrial/Commercial Users – By Sector; and 3) Integrated Approaches to Energy Efficiency and Low Emissions Electricity, Transport and Distributed Energy. TNEP received grants from CSIRO, as part of the Energy Transformed Flagship, and the National Framework for Energy Efficiency (NFEE). www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx.


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4) National Higher Education Survey on Energy Efficiency (CSIRO, NFEE) In 2007, supported by the CSIRO and the National Framework for Energy Efficiency, TNEP conducted the inaugural National Survey on Energy Efficiency, asking every Australian university teaching engineering education the question, ‘What is the state of education for energy efficiency in Australian engineering education?’. There was an excellent response with 48 course responses from lecturers across 27 of the 33 universities teaching engineering education in Australia, and 260 student responses from 18 courses across 8 universities from all 6 states. This report including executive summary, summarises the findings of the survey and includes the compiled data-set for both the lecturer survey (48 respondents) and the student survey (260 respondents). It concludes that the state of education for energy efficiency in Australian engineering education is currently highly variable and ad hoc across universities and engineering disciplines. www.naturaledgeproject.net. Val MacGregor from the National Framework for Energy Efficiency Trade and Professional Training Implementation Committee (fund providers for the survey) writes, ‘We commend the Summary of Questionnaire Results document as an important resource to influence curriculum renewal initiatives nationally. We also encourage all academics in the field to make use of the freely available online ‘Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation’ publication, which was informed by the survey results.’ 5) Emissions Trading Schemes: ‘Prospering in a Carbon Constrained World’ How can business best profit when operating in an emissions trading scheme? This key question is addressed in detail in a report commmisioned by the Chicago and European Climate Exchanges in May 2005. This report was developed by Natural Capitalism Solutions (NCS) and The Natural Edge Project for the Chicago Climate Exchange (CCX) and the European Climate Exchange (ECX). The report was researched and prepared by Karlson ‘Charlie’ Hargroves and Michael H. Smith of The Natural Edge Project, and supervised, reviewed and edited by Hunter Lovins and Christopher Juniper. www.naturaledgeproject.net/KeyAchievements.aspx. 6) The Natural Advantage of Nations: Business Opportunities, Innovation and Governance for the 21st Century Hargroves, K. and Smith, M. (2005) The Natural Advantage of Nations (Vol I): Business Opportunities, Innovation and Governance in the 21st Century, Earthscan, London. Chapter 17: Profitable Greenhouse Solutions, www.naturaledgeproject.net/NAON_ch17.aspx. Collated and edited by The Natural Edge Project, this book brings together leaders from business, government, civil society, academia and NGOs to demonstrate how it is possible and profitable to achieve sustainable development in our lifetimes. Chapter 17: ‘Profitable Greenhouse Solutions’ was written by co-editor Mike Smith (TNEP Secretariat member), with support from mentor Adjunct Professor Alan Pears, a senior lecturer at the Faculty of the Constructed Environment in the RMIT School of Social Science Planning. Alan Pears was named on Anzac Day 2006 as a recipient of the Centenary Medal, one of the nation’s highest honours awarded for achievements or contributions at the time of the centenary of federation, for outstanding service to public policy on climate change and the environment. 7) Design Transformed: Whole Systems Design Suite The Whole System Design Suite provides introductory technical design based teaching material to demonstrate how advances in energy, materials and water efficiency can be achieved through applying a Whole System Approach to Sustainable Design. Whole System Approaches for designing buildings, cars, cities, industry plants, motors, farming and agriculture, and lighting systems are increasingly being seen as the key to the most cost effective reduction in negative environmental impacts. TNEP received a grant from the Australian Federal Department of the Environment and Water Resources under the Education for Sustainable Development Grants Programme. It is due to be published in hard cover in 2008 (Earthscan), www.naturaledgeproject.net/Whole_Systems_Design_Suite.aspx Prepared by The Natural Edge Project (TNEP) 2008

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8) Engineering Sustainable Solutions Program - Critical Literacies Portfolio The ESSP Critical Literacies Portfolio was developed by The Natural Edge Project with the support of Engineers Australia and UNESCO. It forms part of the UN’s Decade of Education in Sustainable Development, which runs from 2005-2015. This Portfolio is a comprehensive resource to help engineers help business and industry make the transition to a low carbon economy. It features courses designed to help business achieve deep cuts and various parts of the program have been trialled and reviewed by 15 universities across Australia. The entire package is freely available online. Available at www.naturaledgeproject.net/ESSP-CLP.aspx http://www.naturaledgeproject.net/ESSP.aspx Publications Underway: 1) Factor 5: A Convenient Truth - Increasing Wealth and Reducing Resource Use This publication updates the 1997 publication Factor Four: Doubling Wealth and Halving Resource Use, updating the case studies, policy mechanisms and technical innovations to provide a significant sustainability educational resource. Factor Four is widely regarded as one of the most significant books on sustainable development translated into 12 languages, and remaining on the Earthscan/James&James’s bestsellers list for eight years after publication. In the last ten years, significant advances in technology, design and policy innovation have occurred, leading to the conviction that in updating Factor 4, we should rather aim at a higher factor of resource productivity gains. Factor 5: A Convenient Truth is being led by Ernst Von Weizsäcker and TNEP. It will be published in English, Chinese, German and French, with 20 percent being freely available online at the time of publication. www.naturaledgeproject.net/factor5.aspx. 2) Cents and Sustainability: Securing Our Common Future Cents & Sustainability is a response from the next generation to key themes developed in the 1987 publication Our Common Future (also known as The Brundtland Report). This new publication will also commemorate and celebrate Our Common Future’s 20 year anniversary. Our Common Future is one of the most important books written on sustainable development - a landmark publication in many ways. Cents & Sustainability provides a response to the call by Gro Brundtland in the Foreword to Our Common Future when she stated, ‘What is needed now is a new era of economic growth – growth that is forceful and at the same time socially and environmentally sustainable.’ The book will include forewords by Dr Brundtland, Dr Pachauri, Professor Sachs, and Dr Kenneth Ruffing. In addition, key contributor to Our Common Future, Dr McNeill is also a mentor and advisor. It is intended that it will be published in English and Chinese, with 20 percent being freely available online at the time of publication. www.naturaledgeproject.net/TNEPOurCommonFuture-A20YearResponse.aspx.

The Natural Edge Project (TNEP) is a partnership for research on innovation for sustainable prosperity. TNEP’s mission is to contribute to and succinctly communicate leading research, case studies, tools and strategies for achieving sustainable prosperity across government, business and civil society. Hosted administratively by Griffith University and the Australian National University, TNEP initiatives are not-for-profit. Our main activities involve research, creating training material and producing publications, which are supported by grants, sponsorship (both in-kind and financial) and donations. Our other activities involve delivering short courses, workshops, and working with our consulting associates as we seek to test and improve the material. All support and revenue raised is invested directly into existing project work and the development of future initiatives. www.naturaledgeproject.net.


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Appendix 2: Australian Studies Investigating Potential for Significant GHG emissions reductions by 2020 -

Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx Accessed 13. February 2008.

-

Gorner, S. Lewis, A. Downey, L. Slezak, J. Michael, J. and Wonhas, A. (2008) An Australian Cost Curve For Greenhouse Gas Reduction, McKinsey Consulting, Australia/New Zealand. This report argues that 30 percent reductions by 2020 can be achieved largely through energy efficiency, renewable energy and carbon offsets. Available at http://www.mckinsey.com/locations/australia_newzealand/knowledge/pdf/1802_carbon.pdf Accessed 4th March 2008.

-

Diesendorf, M. (2007) Paths to a Low Carbon Future Reducing Australia’s Greenhouse Gas Emissions by 30 percent by 2020. Sustainability Centre. Available at http://www.greenpeace.org/raw/content/australia/resources/reports/climate-change/paths-to-a-lowcarbon-future.pdf Accessed 7 November 2007.

-

Smith, M., and Hargroves, K. (2007) Executive Summary: Action on climate change can help business competitiveness and economic growth, Official Discussion paper for the 8th National Business Leaders Forum on Sustainable Development, The Natural Edge Project (TNEP). This paper called for a 20 percent by 2020 target and was formally supported by the National Business Leaders Forum. Available at http://www.nblf.com.au/framework.php. Accessed 7 November 2007.

-

Environment Business Australia (2007) Targets for our Future: 20% greenhouse gas emissions cuts by 2020 and 60% by 2050. Environment Business Australia. This report argues that 50 percent reductions by 2020 could be possible. Available at http://environmentbusiness.com.au/images/stories/targets_for_our_future-_september_07.pdf Accessed 13 February 2008.

-

Energy Efficiency and Greenhouse Working Group (2003) Towards a National Framework for Energy Efficiency - Issues and Challenges Discussion Paper, Energy Efficiency and Greenhouse Working Group. Available at http://www.nfee.gov.au/about_nfee.jsp?xcid=64 Accessed 14 April 2007.

-

Telstra (2007) Towards a High Bandwidth: Low Carbon Future, Telstra Available at http://www.climaterisk.com.au/wp-content/uploads/2007/CR_Telstra_ClimateReport.pdf. Accessed 13 February 2008.

-

CANA, Australian Conservation Foundation, Greenpeace (2007) A Bright Future: 25 percent Renewable Energy by 2020, CANA, Australian Conservation Foundation, Greenpeace. Available at http://www.acfonline.org.au/uploads/res/res_a_bright_future.pdf. Accessed 13 February 2008.

-

Allen Consulting (2003) Sustainable Energy Jobs Report: A Report for the Sustainable Energy Development Authority, The Allen Consulting Group, Sydney. http://www.allenconsult.com.au/publications/download.php?id=221&type=pdf&file=1. Accessed 13 February 2008.

-

Hatfield-Dodds, S., Carwardine, J., Dunlop, M., Graham, P. and Klein, C. (2007) Rural Australia Providing Climate Solutions, Preliminary report to the Australian Agricultural Alliance on Climate Change, CSIRO Sustainable Ecosystems. Available at www.climateinstitute.org.au/images/stories/agribusiness/firstreport.pdf. Accessed 13 February 2008.

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Foran, B. (2008) Powerful Choices: Options for Australia’s Transition to a Low Carbon Economy (in Press)


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Appendix 3: Studies Investigating Potential for Significant GHG emissions reductions in the order of 60-100 percent by 2050 Australian Studies -

Australian Business Roundtable on Climate Change (2006) The Business Case for Early Action, ABRCC. Available at www.businessroundtable.com.au. Accessed 14 April 2007.

-

Diesendorf, M. (2007) Greenhouse Solutions with Sustainable Energy, UNSW Press, Sydney.

-

Hatfield-Dodds, S., Jackson, E.K., Adams, P.D. and Gerardi, W. (2007) Leader, follower or free rider? The economic impacts of different Australian emission targets, The Climate Institute, Sydney, Australia. Available at http://www.climateinstitute.org.au/images/stories/CI058_ER_FullReport_NEW.PDF. Accessed 4th March 2008.

-

Saddler, H., Diesendorf, M. and Denniss, R. (2004) A Clean Energy Future for Australia Energy Strategies, WWF, Canberra. Available at http://wwf.org.au/ourwork/climatechange/cleanenergyfuture/. Accessed 14 April 2007.

-

Smith, M., Hargroves, K., Stasinopoulos, P., Stephens, R., Desha, C. and Hargroves, S. (2007) Energy Transformed: Sustainable Energy Solutions for Climate Change Mitigation, The Natural Edge Project (TNEP), Australia. Available at www.naturaledgeproject.net/Sustainable_Energy_Solutions_Portfolio.aspx Accessed 13 February 2008

-

Turton, H., Ma, J., Saddler, H. and Hamilton, C. (2002) Long-Term Greenhouse Gas Scenarios: a pilot study of how Australia can achieve deep cuts in emissions, Australia Institute Paper No 48, The Australia Institute. Available at (http://www.tai.org.au/documents/dp_fulltext/DP48.pdf) . Accessed 14 April 2007.

Canada, UK and USA Studies -

Bailie, A., Bernow, S., Castelli, B., O’Connor, P. and Romm, J. (2003) The Path to Carbon Dioxide-Free Power: Switching to Clean Energy in the Utility Sector, A study by Tellus Institute and Center for Energy and Climate Solutions for WWF, USA. Available at http://assets.panda.org/downloads/wwf_powerswitch_scenario_usa.pdf. Accessed 14 April 2007.

-

Department of Trade and Industry (2003) Our Energy Future – Creating a Low Carbon Economy, Energy White Paper, UK Department of Trade and Industry, Version 11. Available at http://www.dti.gov.uk/energy/energy-policy/energy-white-paper/page21223.html. Accessed 10 April 2007.

-

Interlaboratory Working Group (2000) Scenarios for a Clean Energy Future, Oak Ridge National Laboratory, Berkeley, CA; Lawrence Berkeley Laboratory; and Golden CO: National Renewable Energy Laboratory. Available at www.nrel.gov/docs/fy01osti/29379.pdf. Accessed 14 April 2007.

-

Mintzer, I., Leonard, J.A. and Schwartz, P. (2003) US Energy Scenarios for the 21st Century, Pew Center on Global Climate Change. Available at http://www.pewclimate.org/global-warming-indepth/all_reports/energy_scenarios/index.cfm. Accessed 14 April 2007, and http://www.pewclimate.org/docUploads/EnergyScenarios.pdf. Accessed 14 April 2007.

-

Pascala, S. and Socolow, R. (2004) ‘Stabalization Wedges: Solving the Climate Problem for the Next 50 years With Current Technology’, Science, vol. 305, p 968.

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Stern, N. (2006) The Stern Review: The Economics of Climate Change, Cambridge University Press, Cambridge. Available at www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_in dex.cfm . Accessed 13 February 2008

-

Torrie, R., Parfett, R. and Steenhof, P. (2002) Kyoto and Beyond: the low emission path to innovation and efficiency, Report for David Suzuki Foundation and Canadian Climate Action Network, Canada. Available at http://www.davidsuzuki.org/files/Kyoto_Beyond_LR.pdf. Accessed 14 April 2007.


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