Climate Change and the Economy: Australia

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Climate Change and the EconomyAustralias
Threats and OpportunitiesBen
McNeilUniversity of NSW
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The Importance of Greenhouse Gases
Predict the temperature on Venus?
470C
-63C
15C
167C
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Climate Change is Beyond the Science!
Stroeve et al. GRL 2007
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Climate Change is Beyond Polar Bears!
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Climate Change is about the economy.
Climate Change, Cutting Carbon Emissions
Economic Growth, Jobs
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The Myth of Climate/Carbon Versus the
Economy

• Australias Economy is Climate-sensitive
  (Garnaut)
• Australias biggest export has the highest carbon
  exposure to the world
• Carbon obesity will shut out low carbon foreign
  investment
• Protecting Australias high carbon economy shuts
  out the fastest growing area for new export
  wealth and opportunity - clean technology

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Australias Economic Threats and Opportunites
1) Climate Sensitivity
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Direct Economic Impact

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

• 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??

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

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Australias Climate Sensitivity
IPCC, 2007
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Australias Economic Threats and Opportunities
2) Low Carbon Energy Trade
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The Inevitable Clean Industrial Revolution
New Clean Industrial Revolution
Old Industrial Revolution
Global Economic Growth
Global Greenhouse Emissions
Today
1800
2050
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Why is a future low carbon economy inevitable?

1. Oil - Finite and Costly
2. Energy Nationalism (particularly in the US)
3. Climate Change
4. China Diversification from Coal
5. Energy Efficiency

Any indicators that the shift is on?

• 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.

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Australian Energy Trade in a Low-Carbon World?
Coal
25billion

• The Future of Australian Coal Adapt or Die?

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Australias Economic Threats and Opportunities
3) Low Carbon Foreign Investment
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Australia is Coal Addicted for Energy
Installed capacity by fuel type - 2000
Source Electricity Australia 2001, ESAA
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Australian Economy is Carbon Obese
Carbon Intensity of Economy
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Example Would Google invest in Australia?

• Data centers (500m, employing hundreds)
• Extremely Energy-Intensive long lived assets

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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 Australias high carbon grid exposed

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Australias Economic Threats and Opportunities
4) Clean Technology Export Opportunites
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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

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One example Oil-free Transport Network and Job
Potential
Production and manufacturing of car itself,
battery technology, the smart energy grid,
building exchange stations and use 10000s of
new green jobs
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Economic Opportunity in the Clean Industrial
Revolution
Optimistic Case

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

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)

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How Should Australia Respond to the Inevitable
Global Low Carbon Economy
At least 1 of GDP (10billion) annually into
low carbon/clean RD/ infrastructure
How?

• Clean Energy Targets to spur private investment
• Upscale in Public RD
• Government incentives for local clean technology
  innovation and manufacturing
• A meaningful carbon price to boost low carbon
  private innovation

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Isnt a carbon price going to hurt industry?
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Early Carbon Price Economic Advantage
3.3 /gallon
3.0 /gallon
2.0 /gallon
1.4 /gallon

• Japanese government fuel efficiency standards and
  RD led to competitive advantage

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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
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The Need for A Meaningful Carbon Price
It will boost the level of clean technology
private capital investment
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Historical Nuclear Costs in the USA

• Analysis of 100 Nuclear Power Reactors in the US

Levelised Electricity Costs in 2004 (US/MWh)
Koomey and Hultman, 2007
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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
• Government imposing a Mandatory Nuclear Energy
  Target (MNET)
• Government underwriting of loans/accident/terroris
  t/waste liabilities
• Overcome EXTREME NIMBY