Cut carbon emissions unilaterally, and boost the economy

It is almost universally believed that reducing Australia�s carbon emissions will be very expensive and therefore our economy will be disadvantaged if our emission reductions get ahead of the rest of the world, but it is not true.

The misperception is largely due to a disinformation campaign by the big polluters.� They proclaim regularly that substantial emission reductions would created massive unemployment and our exports would be crippled.� However that is just the squealing of vested-interests, which has been well documented by Guy Pearse in his book High and Dry1, and in his recent Quarterly Essay Quarry Vision2.

Certainly there will be job and export losses in the coal industry, but they will be more than offset by gains from new, clean industries.� For example, there is a multi-billion dollar photovoltaic industry in China that uses Australian technology.� If we had developed that industry in Australia, those jobs and exports would be ours.� And they would be growing rapidly.

Estimates of the cost of reducing greenhouse gas emissions vary widely, but according to Frank Ackerman3, the estimates fall clearly into two separate groups.� Those predicting very high costs come from industry groups, and they use pessimistic assumptions.� Many others come from independent groups and estimate much lower costs.� Nicholas Stern4 argued in 2006 that the cost of emission reductions would be small, around 1% of GDP, and far less than the cost of doing nothing.� Since then more mainstream economists, notably Ross Garnaut4 in Australia, have also been saying the cost would only be a small reduction, around 1%, in the rate of growth of GDP.

More informed economists, such as Steve Hatfield-Dodds5,6, put the cost for Australia even lower, such as a reduction in economic growth from 2.2% to 2.1%.� This reduction would mean that instead of the economy doubling by 2042, it would take about seven months longer to double.� This really is a trivial cost, essentially zero given the many unknown factors that might intervene.� Although household energy costs would rise in Hatfield-Dodds� models, so would household income, and energy would remain about as affordable as today.

However none of these modellers takes full account of the huge inefficiency with which we use energy.� Such inefficiency is demonstrated by counter-example when, for example, houses are built that reduce energy use by 80-90% compared with conventional housing.� Such improvements in efficiency do not involve a large additional investment, they come about through good design.� And such good designs have existed for decades.� When done carefully, any additional cost is paid back quickly, meaning efficiency is an excellent investment, quite apart from reducing greenhouse gas emissions.

There are already many examples of big, cost-effective improvements in energy efficiency.� Chemical giant DuPont cut its greenhouse gas emissions by over seventy percent, and saved two billion dollars in the process.� Five other large corporations cut their emissions by at least sixty percent and saved another two billion dollars between them, as reported by The Climate Group7.� A study last year by consultants McKinsey Australia identified motor systems, commercial air handling and residential water heating as being among many areas in which emissions and costs could be saved simultaneously8.� They conclude Australia could reduce emissions by 20% by 2020 at no net cost to the economy.� If we made some net investment and promoted the widespread adoption of existing knowledge and techniques our greenhouse gas emissions would almost immediately begin to reduce rapidly.

More recently, The Climate Group released a study9 that concludes collaborative global action to cut CO2 emissions can significantly lower the cost of climate change mitigation and increase both GDP and employment in all major economies.� The study was presented to UN Secretary General Ban Ki Moon by former British Prime Minister Tony Blair.� This study concludes that global GDP and employment could actually be enhanced by strong collaborative action to cut emissions.� The cost of reducing emissions by 30% by 2020 could fall from $65/GtCO2 to as little as $4/GtCO2.� Such dramatic results are achieved through carbon pricing and progressive fiscal and taxation policies combined with other direct regulation.� This combined approach, they say, is essential for addressing the twin market failures of global warming and insufficient technological innovation and development.� The reductions are enhanced by greater global cooperation, which makes available bigger markets for new technologies and gives access to more low-hanging fruit.

The Climate Group�s requirement for direct regulation is necessary because our economy is full of market failures that promote waste.� Some take the form of perverse incentives, either deliberate or inadvertent, whereas others are institutional blocks.� The opportunities are probably considerably greater than is accounted for in their models.

An outstanding example of a deliberate perverse incentive is the multi-billion dollar annual subsidies to fossil fuel industries, set to increase dramatically under the deceitful Rudd emissions trading scheme.� Examples of inadvertent perverse incentives can be found in the building industry, because their interest is to reduce the up-front cost of a building, rather than its medium- or long-term cost, which includes the cost of heating and cooling it.� A contract that gave the builder a share of energy savings over several years, relative to an agreed benchmark, could shift the builder�s incentive to providing an energy-efficient building10.

Amory Lovins, energy expert and Director of the Rocky Mountain Institute, says �Increasing energy end-use efficiency … is generally the largest, least expensive, most benign, most quickly deployable, least visible, least understood, and most neglected way to provide energy services�.� By �end-use efficiency�, he means not only eliminating obvious waste, but also reducing generation and transmission costs and using different forms of energy appropriate to the end use.� Space heating requires only low-grade energy that direct sunshine can provide.� An electric motor requires electricity, which is very high grade form of energy.� Using electricity for space heating is extremely wasteful.

Examples of institutional inertias are planning laws and safety regulations that rigidify inefficient practices.� If air conditioning ducts and electrical wiring were required to be twice as large, both energy use and long-terms costs would be cut.� Electrical wiring regulations are intended to prevent fires, not to promote optimal efficiency.� One of the greatest medium-term opportunities for energy savings is to re-organise our cities so people can live closer to their employment and to shops.� This requires present zoning philosophies to be revised, it requires town planning to be taken back from developers, and it requires the encouragement of local shops instead of giant malls and big-box stores that people have to drive long distances to reach.

With a serious effort to address technical, market and institutional inefficiencies throughout the economy we could reduce emissions much faster than is usually envisaged, perhaps by 40% or more by 2020.� Rather than being a burdensome or ruinous undertaking, it could streamline our economy, save a lot of money and effort, maintain or increase employment and make Australia more internationally competitive.

For reasons that are hard to fathom, these opportunities get very little notice, yet they are not theoretical, they are not developments expected or hoped for in the future, they have been happening for years, even decades.� Obviously the coal industry doesn�t want us to know about energy efficiency, because that would reduce their profits.� However many economists are still stuck in their theoretical fantasy that the economy is close to optimal efficiency, in which case great inefficiencies could not exist.� However great inefficiencies do exist.� They are the product of cheap energy and of distorted markets that include huge subsidies to� fossil fuels.

Undoubtedly there will be those who will look for reasons why none of this will work, or why it will be much less effective that portrayed here.� Well, if we just sit around saying it can�t be done, we�ll be right.� Rather than continuing to wring our hands, bicker, knock and whinge about this or any other prospect, the opportunity is there for us to take this as a challenge, to exercise our initiative and creativity, and to figure out how to make it work at least as well as seems possible.

Yet there is still another compelling reason to pursue the energy efficiency option.� It is that it will simultaneously reduce many of our other assaults on planet Earth.� These are causeing soil degradation and destruction, fresh water shortages, forest destruction and carbon loss, biodiversity loss and threatened ecosystem degradation or collapse, pervasive over-exploitation of fisheries and chemical and bio-active pollutants from pole to pole.� Furthermore, as we learn to use energy efficiently we will be opening the way to using all our resources efficiently.� Ultimately, we may aspire to recycle all the materials we use, either through industrial processes or through the biosphere.� This prospect has been called the Second Industrial Revolution11, and its early stages are well under way12.

1 Pearse, G., High and Dry. 2007: Viking

2 Pearse, G., Quarry Vision: Coal, Climate Change and the End of the Resources Boom. Quarterly Essay.� http://www.quarterlyessay.com, 2009. 33 (19 March).

3 Ackerman, F., The economic case for slashing carbon emissions. On Line Opinion, 2009 (30 Oct 2009): p. http://www.onlineopinion.com.au/print.asp?article=9623.

4 Stern, N., The Stern Review on the Economics of Climate Change, http://en.wikipedia.org/wiki/Stern_Review. 2006.

5 Hatfield-Dodds, S., The economic impacts of deep cuts to Australia�s greenhouse emissions. Ecos. http://www.csiro.au/news/ps2pr.html, 2007.

6 Hatfield-Dodds, S. and P. Adams, Beyond the double dividend, in AARES 2007. 2007.

7 ClimateGroup, Carbon Down, Profits Up.� http://www.theclimategroup.org/news_and_events/more_companies_make_link_between_climate_change_and_increased_profit/. 2007.

8 McKinsey&Company, An Australian Cost Curve for Greenhouse Gas Reduction. 2008, McKinsey & Company. Available from: www.mckinsey.com/locations/australia_newzealand/knowledge/.

9 ClimateGroup, Cutting the Cost:� the economic benefits of collaborative climate action.� http://www.theclimategroup.org/news_and_events/btcd_macroeconomics_report_release/. 2009.

10 Lovins, A.B., Energy End-Use Efficiency.� www.interacademycouncil.net. 2005: InterAcademy Council, Amsterdam

11 McDonough, W. and M. Braungart, The next industrial revolution. Atlantic Monthly, 1998. 282 (October).

12 McDonough, W. and M. Braungart, Cradle to Cradle. 2002, New York: North Point Press. 193

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2 responses to “Cut carbon emissions unilaterally, and boost the economy

  1. Pingback: Visionless Rudd Doesn’t Want to Reduce Greenhouse Emissions « Better Nature: commentary by Geoff Davies

  2. Pingback: The Durban Roadmap to Extreme Climate Danger | Better Nature: commentary by Geoff Davies

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