By MILLIE MUROI, Economics Writer
Very few people would agree if I were to say our energy bills should be higher. But what if I told you you’re already paying more than the number you see written on your bills every quarter?
Those relying entirely on renewable energy sources such as the sun to power their homes might think they’re spared. But even the most environmentally conscious among us are paying a higher price than what we see on paper.
Of course, as Rod Sims, former chair of the country’s competition watchdog and Superpower Institute director, said in a speech last month, we couldn’t have gotten where we are without fossil fuels. Coal, oil and gas have helped propel us from city to city, country to country, and even earth to moon. Most of our day-to-day activities would be much harder – if not impossible – without them.
But Sims points out there is no contradiction between enjoying what we have and wanting the world to move away from fossil fuels as fast as possible.
The problem is, humans are generally quite good at procrastinating. Despite the deadline to hit net zero emissions looming closer and clearer, we seem better at ignoring the threat of irreversible climate change than acting on it.
But as economics professor Ross Garnaut puts it, we did not move from the Stone Age because we ran out of stones. We have something to learn from our ancestors’ drive to do things better.
There are a handful of people who still deny the science behind climate change. But there are also plenty of sensible people with reasonable concerns about the best way forward for Australia. Sims outlines several of these worries and why we shouldn’t let them get in our way.
First, the concern that the rest of the world is not moving to net zero, so Australia taking action is pointless.
But just because everyone else is sleepwalking towards a cliff, it doesn’t mean we should follow. In fact, it’s a good time to walk in another direction. It’s also a myth to say no one else is trying or that we’re all lacking in ambition.
As Sims points out, we often hear about China building coal-fired and nuclear electricity generation facilities at a mind-boggling scale. But last year, about 80 per cent of China’s 429 gigawatts of new electricity-generating capacity (roughly enough to power 322 million homes) was solar and wind powered.
And the European Union has had enough appetite (or perhaps courage) to introduce a price on carbon.
Second, some people claim Australia only accounts for about 1 per cent of world emissions, so it doesn’t matter what we do.
The clear moral argument is that we should still play our part. But Sims also points out that when we include exports (Australia is the biggest supplier of coal and gas combined in the world), our contribution to emission is more than three times higher.
From an economic perspective, we’re also throwing away what’s called our “comparative advantage”. That is, because of our nearly bottomless supply of solar and wind, and our relatively small population, we’re actually able to generate clean energy at a lower cost than most other countries – and sacrifice far less in terms of other things we could be doing with our time and resources.
Countries such as China, Japan, South Korea and India face a growing shortage of low-cost green energy to run their economies, meaning there’s a big opportunity for Australia to step in as a supplier.
But Australia also has a chance to step up as a maker and exporter of goods such as iron and steel.
Right now, despite Australia having the ingredients – huge amounts of iron ore, the coking coal needed to turn the iron ore into iron (the metal), and the thermal coal and gas to power the whole process – most of our iron ore is shipped out to, and turned into iron and steel in, north-east Asia.
That’s because all these ingredients are fairly cheap to ship and north-east Asia can produce things at a scale – and therefore low cost – we can’t match.
But as green iron becomes more crucial in the quest for a net zero world, the costs of producing the stuff will change.
The renewable energy needed to create green hydrogen (the replacement for coking coal), and to power the process (instead of thermal coal) are expensive to export – as is green hydrogen. Sims notes exporting coking coal only adds about 10 per cent to the cost of producing iron, while exporting hydrogen instead would just about double the cost.
Rather than sending off all the ingredients, Australians could (and it will make more sense to) make the entire green product here ourselves. What we do now to build this capability will matter hugely – for ourselves, and for the world. By some estimates, Australia producing intensive green exports could slash world emissions by up to 10 per cent.
Third, some people ask why Australia can’t use nuclear energy or carbon capture and storage rather than renewables such as solar and wind power.
The Liberal Party’s resounding defeat, while not purely down to their nuclear policy, was a sign the political appetite is just not there for nuclear. But nuclear and carbon-capture techniques are also very costly.
“Of all the nuclear plants built since 2000 in countries such as the USA, the UK and France, projects have been much delayed and costs have around tripled those first estimated,” Sims points out. “Nuclear energy costs are now three to five times that of firmed renewable energy.”
The possible exceptions to this trend – South Korea and China – have more opaque costings for nuclear and have been helped along by heavy government subsidies.
While carbon-capture costs haven’t yet fallen enough to be a realistic option in most circumstances, and nuclear costs have continued rising, the cost of solar, wind and batteries has fallen rapidly. Solar power in particular could, over the next decade, offer electricity at half the cost of the cheapest available today.
The fourth issue people raise is that green products are expensive. But that is only if you ignore the cost of climate change. The harm to our environment and the possibly irreversible change to our planet are costs that are not reflected in the price we pay for products and energy generated using fossil fuels.
People living in floodplains and farmers facing longer and worse droughts might see these costs most directly, but many of us don’t see it in our everyday lives.
Putting a price on carbon helps to capture this cost. It might drive up the price of some of our goods and services – especially over the short term – but it helps reflect the full consequences and guides businesses and customers to push for cleaner alternatives.
The government providing subsidies – such as payments or grants – to generators of renewable energy and makers of green products could also achieve a similar aim.
Just as gas and minerals have played a huge role in Australia’s economic development, so can exporting green energy-intensive goods. Research by the Superpower Institute’s research lead Reuben Finighan shows the potential export revenue from these goods could amount to roughly the same size as all Australia’s current exports put together, and six to eight times larger than the country’s combined coal and liquefied natural gas export revenue.
That’s if we invest about 5 per cent of our economic output – or gross domestic product – every year for the next few decades. It’s another bill to foot, but as Sims points out, about the same level of investment as when Australia leapt on the Chinese minerals boom two decades ago. We’ve done it before so we can do it again.
