Climate Change and the Economy:Australia’s Threats and Opportunities

Ben McNeilUniversity of NSW

The Importance of Greenhouse Gases

167C -63C15C470C

Predict the temperature on Venus?

Extreme Greenhouse Effect

Climate Change is Beyond the Science!

2007

Stroeve et al. GRL 2007

2008

Climate Change is Beyond Polar Bears!

Climate Change is about the economy.

Economic Growth, Jobs…

Climate Change, Cutting Carbon Emissions…

The Myth of Climate/Carbon Versus the Economy

1.Australia’s Economy is Climate-sensitive (Garnaut)2.Australia’s biggest export has the highest carbon

exposure to the world3.Carbon obesity will shut out low carbon foreign

investment4.Protecting Australia’s high carbon economy shuts out

the fastest growing area for new export wealth and opportunity - clean technology

Australia’s Economic Threats and Opportunites :

1) Climate Sensitivity

Direct Economic Impact

• Extreme Events, Water Security, Droughts, Tourism (Great Barrier Reef and Kakadu), Sea-level rise, infrastructure and real estate damages, agricultural productivity ….

• Ross Garnaut ~5-7% of Australian GDP by end of century, indirect costs??

• Civilization was geographically built on relatively stable climate patterns - a changing climate will reorganize human settlements and where civilization can live.

• Australia is one of the most economically vulnerable to climate change

Australia’s Climate Sensitivity

IPCC, 2007

Australia’s Economic Threats and Opportunities :

2) Low Carbon Energy Trade

The Inevitable Clean Industrial Revolution

Global Economic Growth

Global Greenhouse Emissions

Old Industrial Revolution

New Clean Industrial Revolution

Today1800 2050

Why is a future low carbon economy inevitable?

1.Oil - Finite and Costly2.Energy Nationalism (particularly in the US)3.Climate Change4.China Diversification from Coal5.Energy Efficiency

• In 2008 Global Investment in Clean technology 30% Higher than Fossil Fuels (UNEP,2009)

• Shadow Price of Carbon Already in Place in Developed World (TXU, Australian investment 98% gas/renewable)

• Many regional examples: eg. Ontario example of phasing out 14 coal-fired power stations, China $200 billion in clean-tech, UAE $500m clean tech and Masdar city….

Any indicators that the shift is on?

Australian Energy Trade in a Low-Carbon World?

• The Future of Australian Coal : Adapt or Die?

$25billion

Coal

Australia’s Economic Threats and Opportunities :

3) Low Carbon Foreign Investment

Australia is Coal Addicted for Energy

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Installed capacity by fuel type - 2000

Source: Electricity Australia 2001, ESAA

0 200 400 600 800 1000 1200Switzerland

NorwaySwedenFranceBrazil

IrelandUnited Kingdom

DenmarkItaly

IcelandMexicoJapanSpain

GermanyNew Zealand

IndonesiaUnited States

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CanadaAustralia

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Higher carbon exposure from global low carbon trade shifts

Carbon Intensity of Economy

Australian Economy is Carbon Obese

Example: Would Google invest in Australia?

• Data centers ($500m, employing hundreds)

• Extremely Energy-Intensive long lived assets

Google is going Carbon Neutral • Google have self-imposed a carbon price for their investments

REASONING: A ‘shadow carbon price’ “will enable us to calculate a more accurate cost of power as one of the key criteria in site selection for our data centers. The cost of carbon is not yet recognized by the U.S. market, but may soon become so through legislation. Pricing carbon is an important tool to reducing the financial risk that our energy investments face.”• Last two data-centers were positioned along the

Columbia River for access to low carbon stable energy• That leaves Australia’s high carbon grid exposed

Australia’s Economic Threats and Opportunities :

4) Clean Technology Export Opportunites

The Clean Technology and Jobs Revolution

Global Needs for a Low-carbon Economy

• Low carbon materials/plastics/carbon fibre, low carbon steel• Biofuels, waste recycling, efficient home design, • Clean energy (biomass, geothermal, wind, solar thermal) • Energy storage technology, advanced battery technology• Infrastructure for low carbon economy (rail, roads, gas networks,

transmission grids..) • Water purification technology, energy efficiency/automated systems/IT

software/carbon financial markets……

One example: Oil-free Transport Network and Job

PotentialElectric Vehicles

Production and manufacturing of car itself, battery technology, the smart energy grid, building exchange stations and use

=10000’s of new green jobs

Economic Opportunity in the Clean Industrial Revolution

• 600 billion tonnes of carbon avoided until 2050 (limit 2degC)– $25/tonne = $15trillion opportunity (~$375 billion/year)– $40/tonne = $24trillion opportunity (~$600 billion /year)

Optimistic Case

Pessimistic Case• 100 billion tonnes of carbon avoided until 2050

– $25/tonne = $2.5trillion opportunity (~$60 billion/year)– $40/tonne = $4trillion opportunity (~$100 trillion

/year)

How Should Australia Respond to the Inevitable Global Low

Carbon Economy

• Clean Energy Targets to spur private investment• Upscale in Public R&D• Government incentives for local clean technology innovation and

manufacturing• A meaningful carbon price to boost low carbon private innovation

At least 1% of GDP (~$10billion) annually into low carbon/clean R&D/ infrastructure

How?

Isn’t a carbon price going to hurt industry?

Early Carbon Price = Economic Advantage

• Japanese government fuel efficiency standards and R&D led to competitive advantage

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$1.4 /gallon

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Conclusion: Big economic danger in

locking in high-carbon interests

** Australia is Climate Sensitive and Carbon Intensive which means we must be a global leader in decarbonising our economy to ensure the immense opportunities and job creation are created locally

The Accidental Environmentalist

The Need for A Meaningful Carbon Price

It will boost the level of clean technology private capital investment

Clean Technology Investment?

Historical Nuclear Costs in the USA

• ~Analysis of 100 Nuclear Power Reactors in the US

Koomey and Hultman, 2007

UMPNER Review Costs

Levelised Electricity Costs in 2004 (US$/MWh)

Summary of Nuclear Costs• Overseas historical experience suggests the first fleet of nuclear reactors to be at least

$90-100/MWh

• Irrespective of these costs a liberalised energy market in a western democracy face huge hurdles for nuclear power:– construction cost blowouts and delays – cumbersome regulations– accident liability– long time for investor returns– Non-existent skills/industrial base– NIMBY– new terrorist threat– water-use and coastal site constraints– ultimately a high risk premium for investors

• The only way nuclear power could potentially be introduced into the Australian energy market would be :1. Government imposing a Mandatory Nuclear Energy Target (MNET)2. Government underwriting of loans/accident/terrorist/waste liabilities3. Overcome EXTREME NIMBY