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Climate Change and the Economy: Australia’s Threats and Opportunities Ben McNeil University of NSW The Importance of Greenhouse Gases Predict the temperature on Venus? 167°C 470° 15°C C Extreme Greenhouse Effect -63°C Climate Change is Beyond the Science! 2008 2007 Stroeve et al. GRL 2007 Climate Change is Beyond Polar Bears! Climate Change is about the economy. Climate Change, Cutting Carbon Emissions… Economic Growth, Jobs… 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 world 3. Carbon obesity will shut out low carbon foreign investment 4. 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 • • • • 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 Australia’s Climate Sensitivity IPCC, 2007 Australia’s Economic Threats and Opportunities : 2) Low Carbon Energy Trade The Inevitable Clean Industrial Revolution Old Industrial Revolution Global Economic Growth New Clean Industrial Revolution Global Greenhouse Emissions 1800 Today 2050 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…. Australian Energy Trade in a Low-Carbon World? Coal $25billion • The Future of Australian Coal : Adapt or Die? Australia’s Economic Threats and Opportunities : 3) Low Carbon Foreign Investment Australia is Coal Addicted for Energy Installed capacity by fuel type - 2000 Non-grid Dual fuel Hydro Oil Gas Coal 12 10 8 6 4 2 Source: Electricity Australia 2001, ESAA SMA NT TAS WA SA QLD VIC 0 NSW '000 MW Installed 14 Australian Economy is Carbon Obese China Saudi Arabia Australia Canada World Average India United States Indonesia New Zealand Germany Spain Japan Mexico Iceland Italy Denmark United Kingdom Ireland Brazil France Sweden Norway Switzerland Higher carbon exposure from global low carbon trade shifts 0 200 400 600 800 Carbon Intensity of Economy 1000 1200 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 Potential Electric 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 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) How Should Australia Respond to the Inevitable Global Low Carbon Economy At least 1% of GDP (~$10billion) annually into low carbon/clean R&D/ infrastructure How? • • • • 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 Isn’t a carbon price going to hurt industry? 23 /1 2/ 23 02 /2 / 23 03 /4 / 23 03 /6 / 23 03 /8 23 /03 /1 0 23 /03 /1 2/ 23 03 /2 / 23 04 /4 / 23 04 /6 / 23 04 /8 23 /04 /1 0 23 /04 /1 2/ 23 04 /2 / 23 05 /4 / 23 05 /6 / 23 05 /8 23 /05 /1 0 23 /05 /1 2/ 23 05 /2 / 23 06 /4 / 23 06 /6 / 23 06 /8 23 /06 /1 0 23 /06 /1 2/ 23 06 /2 / 23 07 /4 /0 7 Stock Price Index (%) Early Carbon Price = Economic Advantage 140 120 • 20 $3.3 /gallon 100 80 $3.0 /gallon 60 $2.0 /gallon 40 Japan USA $1.4 /gallon 0 -20 -40 Date Japanese government fuel efficiency standards and R&D led to competitive advantage Conclusion: Big economic danger in locking in high-carbon interests ** Australia is Climate Sensitive and Carbon Intensive which means we must be a global leader in decarbonising our economy to ensure the immense opportunities and job creation are created locally The Need for A Meaningful Carbon Price It will boost the level of clean technology private capital investment Clean Technology Investment? The Accidental Environmentalist Historical Nuclear Costs in the USA • ~Analysis of 100 Nuclear Power Reactors in the US Levelised Electricity Costs in 2004 (US$/MWh) UMPNER Review Costs Koomey and Hultman, 2007 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 liabilities 3. Overcome EXTREME NIMBY