Business in a Post Carbon Economy
An essay on business in a post carbon economy by Mark O'Brien.
Is business as usual compatible with a post carbon economy? When the taxpayers' bill for reducing emissions arising from business is greater than the economic benefits of such business, is it viable?
Every year we hear of the latest great deal that the Government has facilitated to sell something or other to China, and how it is going to ‘ensure the prosperity of our nation’ well into the future. Last year we have heard of several large projects involving natural gas, one for $50billion and the other for $70billion, in partnerships with China and Japan respectively. We are told that the earnings from these two projects will provide prosperity for Australians into the next 20 years. The question that nobody ever asks about this kind of announcement is that, in these days of emissions targets, is this true?
How Australia manages to do reduce its emissions is unclear, but what is clear is that Australians will have to foot the bill, whether via increased energy charges that reflect increased taxes on polluting technology or subsidies for emerging clean technology. To reduce our emissions even back to 1990 levels would entail approximately a 50% reduction in emissions, a massive undertaking requiring huge amounts of money and a virtual retooling of the Australian energy economy.
So there is going to be a cost to each and every Australian to meet whatever targets our government commits to, which it appears most people are willing to accept if it means they are helping in reducing global warming.
Consider then these two projects in the Kimberleys. Each project will necessitate the construction of vast infrastructure, including towns, airports, gas compression facilities, ports capable of loading monster ships, and, coal-fired power stations, one for each project. These coal fired power stations will need rail links to bring the coal in, they will also need large scale water piping to bring in the million or so litres of water that a power station uses every hour.
Constructing and running such projects uses massive amounts of energy producing massive amounts of emissions. Together, these two projects are expected to cause an increase in Australia’s emissions by 1.8%, at a very minimum (this figure is from the Dept of Climate Change in a letter to the author, but does not address the emissions produced in the construction of these projects. The letter also claimed that these projects would generate their own power, a slightly disingenuous proposition as it neglects the energy required for construction, which is going to come from ...?)
Any conversation about reducing emissions has always come down to the prohibitive nature of its cost. How much money it costs to reduce our emissions by 1% has never really been calculated, but going from the scare campaign of big business and miners it is certainly more than $2billion a year/percentage point reduction. For the sake of this discussion let’s accept $2billion/year/percentage point as being the base cost of reducing emissions. (If only it were $2billion Australia would have already made huge inroads so this is clearly an underestimation.)
Now let’s go back to the Kimberley projects. If they add 1.8% onto Australia’s annual emissions, it will cost Australians $3.6billion/year, or $72billion over the 20 year project life, to ‘clean’ those emissions, or for that company to trade them. Given that these projects are valued at $120billion, the economic benefit for Australia as a whole, when the cost of ‘cleaning’ emissions is considered, starts to look very wobbly. It may well be that these projects were announced deliberately before the government has signed off on any binding emissions scheme.
Similar climate cost scenarios are involved in the Olympic Dam uranium project, except there, as well as the water usage for the coalfired power station that is required to run the mine and its processing facility, there is also massive water use for tailings dams and for keeping dust wet so it does not blow across to Sydney in the next dust storm. The water supply also needs to be available long after the mine has closed and the mining company has changed its identity and distanced itself from its obligations by any of a number of tried and tested methods. The water requirements of this mine amount to 40% of the toal water supply of South Australia.
This water currently comes from the great underground water reserves, depleting this resource much faster than it is being replenished. Already it is scandalous that such a national resource is being squandered, with very little by way of compensation being paid, in this fashion. Again, it is yet another example of the nuclear industry’s hidden taxpayer-funded subsidies. Alternatively desalination plants can be constructed 100s of ks away by the sea with water piped in, again at a large emissions cost for both the pipe and the power station to run the desalination plant.
Even the profit margins inherent in the uranium industry would have trouble absorbing the cost of cleaning its own emissions, and if the taxpayer has to subsidise it then surely the whole viability of the nuclear industry needs to be examined closely and without prejudice.
Very few mining or resource projects will ever get off the ground if this kind of environmentally rational blowtorch is applied, so how does Australia proceed from here? Clearly, if Australia has to bear the emissions cost of producing materials for export then we may as well shut up shop now because any cursory analysis will show it is not viable. China and Japan will not be able to access relatively clean energy from LNG and will be forced to go the coal or the even dirtier nuclear option.
Can we afford the aluminium industry?
The aluminium industry provides a great example of the international nature of the problem of and solutions to emissions. The aluminium industry uses approximately 15% (see footnote) of Australia’s electricity (for which it receives massive subsidies, adding up to 10% onto the average electricity bill in states like Victoria.) It also employs some 12,000 people in an industry with exports of approx $10billion/year. If it uses 15% of Australia’s electricity production, it roughly causes the production of 7-8% of our emissions. At $2billion/1% of emissions, that means a minimum cost of $16billion/year, (or $1,330,000 per job/year!) to clean these emissions.
Clearly then it will not longer be viable for Australia to host the aluminium industry. Nor will it be viable for Alcoa etc to carbon trade their way out of this, unless the aluminium price doubles or even triples. Which may not be a bad thing.
(Currently the aluminium industry receives some $1.5 billion in electricity subsidies each year, which pans out at roughly $125,000 per year per job, paid for directly by consumers' electricity bills. While the economics are not quite as simple as theat, and there are lots of ancillary jobs that arise from those 12,000 directly employed people, it still remains a massive contradiction in a country that refuses to subsidise via tariffs shoe or clothing production.)
Here lies the rub. We can close down our aluminium industry today and immediately reduce our emissions by 7-8%, but as the smelters would go elsewhere their global emissions would remain but on someone else’s carbon account sheet, with perhaps lower enviro safeguards in place, workers protection etc.
So what is the alternative?
Exclude all export industry emissions from Australia’s emissions targets, and pass them on to the end user, a la a carbon GST. The end consumer will then pay for the emissions produced in the manufacture of the product they buy. Apply this to China and India who receive much flak from Europe for increasing emissions when in reality Europe (and the rest of the West) has simply moved its polluting and energy intensive factories to India and China, and can now relax in largely white collar, services industry-based clean economies while importing all of their goods with embedded emissions.
In an intelligent carbon-valuing economic system China pays an emissions fee to Australia (or to some UN body responsible for reducing global emissions who spend this tax where they see fit) for the embedded greenhouse emissions in imported gas, iron ore, whatever, and in turn charges its customers. This of course would only work if every country signed up and policed it, but given the international agreement on climate change and the acknowledged need for concerted action it is possible.
Emissions trading schemes have been touted as the answer, where we can save the planet and the same people that have always made money (Wall St and its mimics) can continue to do so. However, it appears that this is just another scam from the people that brought us the great financial crisis, the derivative market and every other wealth creation scheme that does not make anything!!! Have a read of The Story of Cap and Trade and follow the link to the short little film of the same title.
Also in a carbon valuing society, it would not longer be cheaper to buy a new printer than replace the ink or toner. It would also be not so cheap to spontaneously jump on a plane, or buy apples flown all over the world, or buy French cheese or Italian water (???). A true carbon valuing economy would be very different than the current model, like the water valuing society of the fictitious sci-fi classic Dune was totally different.
Then those Chinese made goods we love to buy at Bunnings may have a price more reflective of what their real cost is. So a metal camping chair will have the carbon costs of the mining of the metal, of transport to China, smelting, of manufacture, of shipping back to Australia and then being shipped to the store, and certainly will not be $7 anymore, and will not be something that gets used once then thrown away. It will then have value.
Perhaps it is also time to apply a carbon value to water. In the Olympic Dam example above the great underground water sources are being depleted. Perhaps the value of national water resources should be set at the carbon and dollar cost of getting that water from a desalination plant, or in a high rainfall area, the carbon cost of building a dam.
As the water supply for the Olympic Dam project (or most other projects) is finite, then at some point water will need to be sourced from elsewhere and its cost will need to be absorbed, so in a carbon sustainable economy that carbon cost will need to be included. This way when a project such as Olympic Dam uses a national resource then the value of that appears on the books, and is not simply another hidden subsidy,
Another option in these days of transnational corporations, is to make corporations deal with their own emissions. Give them the verifiable targets they have to achieve, and fine them if they don’t. Given that there exists the possibility for clever carbon accounting, it may wel be that it ough to be required of corporations to clean their own carbon.
As we can see the road to reducing our emissions is littered with politically difficult though economically simple decisions with one overarching question: Are politicians interested in finding a solution or is kowtowing to big business and big labour (Unions putting the jobs of their members before the environment are perhaps as great an enemy of a rational discussion of climate change as big business: coalminers and forestry workers put their employment number one their main interest, of not upsetting the status quo?).
As we are seeing in the Federal election (August 10) politicians of both the main persuasions are bending over backwards to make big business feel comfortable, so it is littl ewonder there have been no inroads of substance made in the reduction of our carbon footprint.
By Mark O'Brien