Superpower: Australia's Low-Carbon Opportunity

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Copyright © Ross Garnaut 2019

Ross Garnaut asserts his right to be known as the author of this work.

ALL RIGHTS RESERVED.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the publishers.

9781760642099 (paperback)

9781743821176 (ebook)

Cover design by Akiko Chan

Text design by Dennis Grauel

Typesetting by Akiko Chan

CONTENTS

1A Personal Reflection on Australia’s Climate Change Odyssey

2Exorcising the Diabolical Policy Problem

Climate change and economic development

Our shared scientific understanding

The ethics of climate change

Developments in global action

The Australian policy tangle

3Risk, Reward and the Economics of Climate Change

Decisions by one country in a many-country world

Comparing costs and benefits

Introducing the fish

What has changed?

Regulation and funding as an alternative to carbon pricing

International trade in emissions entitlements

Australian policy after Abbott

The contemporary fish

Appendix to Chapter 3

4The Electricity Transformation

Difficult politics

The energy transition in 2008 and 2011

Spurs to decarbonisation

The trilemma trainwreck: emissions, prices, security

Reliability, transmission and storage

Electricity as the foundation of the energy superpower

5The Industrial Transformation

Recent developments

Australia’s competitiveness in a zero-carbon world

An advantage lost and gained

Manufacturing aluminium metal competitively

Manufacturing clean iron competitively

Other energy-intensive manufacturing

Biomass as a base for industry

Locations of zero-emissions industries

Fugitive emissions

6The Transport Transformation

A follower, not a leader

Transport and the grid

The rise of the electric car

7Earthing Carbon

Landscape and emissions

The food challenge

Carbon farming and the international rules

Growing the future

8Embracing Australia’s Low-Carbon Opportunity

A new framework

Australia as the superpower of the post-carbon world economy

Acknowledgements

Notes and Sources

Index

To the Mutthi Mutthi, Paakantiji and Ngyimpaa people, and to Tom, in whose country this story begins.

To Kai, Harvey, Leila, Luis, Eza, Sam and Isla, who close this story.

And to Indigenous Business Australia and its big role in the next.

1

A PERSONAL REFLECTION ON AUSTRALIA’S CLIMATE CHANGE ODYSSEY

In the first half of August 2019, my wife Jayne and I took a journey through the Murray–Darling Basin. We spent a couple of days at Lake Mungo, where the ice age overflow from the Lachlan once filled lakes and supported communities that left us with what may be the oldest record on earth of complex human mind and spirit. Then we turned up the Darling to Menindee, where Harrison made his pile when Pardon won the cup. Once the source of Broken Hill’s water, and of renowned grapes and fruit, in the past year the Menindee Lakes have been famous only for a plague of dead fish. They are mainly dry. A new pipeline is raiding the Murray to supply Broken Hill. We cut across to Wilcannia, once a bustling port collecting wool and copper ores brought in by camels and bullocks for shipping down the river to Goolwa and Port Adelaide. Here was a little water, held back by the barrages, low and still. Finally, we crossed the Lachlan at Hillston and the Murrumbidgee near Griffith, and returned to the magnificent but weakening Murray once more. This was beautiful Australian country, rich with the human heritage of 50,000 years and 200 years.

For many Australians, their personal heritage lies in the Basin. Jayne’s father, Tom, lived in Wentworth and the lower Darling until he and many others in the bush rode to Melbourne on the news of war in 1914. That ride led him to a beach in Turkey, as the rising sun lit the coastal hills on 25 April 1915. A decade ago, a board in the Wentworth RSL club remembered Tom and his brother. This building without its memorabilia is now empty beside the Darling.

What value do we place on Australian heritage? The question kept coming back as we travelled the Darling. For about 30 kilometres the bottom of the riverbed is wet from the flowback from the Murray. But beyond that, the sand between the rows of grand old river gums is dry, except for scattered stagnant pools. By one of these lay the skeletal head of a Murray cod, its mouth gaping wide enough to swallow the largest carp whole. The dried flesh on the cod’s back had been gnawed by wild pigs, which had waded into the shallow pond and dragged out the helpless survivor of eighty summers and a dozen droughts. Around a fire on the riverbank one night, we were told of plans for a quad bike ride along the Darling bed from just north of Wentworth to the arid Menindee Lakes.

Mike Sandiford, professor of geology at the University of Melbourne, is using new, satellite-based remote-sensing techniques to map the water contained in the structures below the surface in the Darling Basin. For millennia, water in occasional floods has filled porous sands and cavities and seeped out to maintain the life of plants and animals through the long dries. But now these occasional floods are treated as surplus, and held back for irrigation in the northern Darling and its tributary, the Barwon. Professor Sandiford foresees lower run-off from higher temperatures, reduced average rainfall and more insistent demands of irrigation interacting to contrive the desertification of the Basin. These factors are reproducing the fate of the Tigris and the Euphrates several thousand years ago, when the riverways that nurtured the beginnings of agriculture and human civilisation evaporated into today’s Iraqi deserts.

But in one way, this tragedy is different from that of the original Garden of Eden. The Adams and Eves of Mesopotamia had not eaten of the tree of scientific knowledge; they knew not what they did.

But we do. The tragedy of the Murray–Darling is a consequence of denial, and of knowledge not being applied to public policy.

This was not always the Australian way. In June 2019, I spoke at Bob Hawke’s memorial service of the great Australian prime minister’s conviction that broadly shared knowledge was the foundation of good policy in a democracy. And just one day after returning from the Darling, I presented a memorial lecture for one of Australia’s greatest public servants. John Crawford’s essential contribution to Australian public life was his commitment to knowledge based on research as the starting point for sound policy development. It was through Crawford that I met Hawke in the late 1970s, while working on a report for Prime Minister Malcolm Fraser on the future of Australian industry. I was inducted into a great Australian tradition, of which Hawke and Crawford were the most accomplished proponents in their respective spheres.

But today, public policy based on marshalling knowledge through research and analysis, and then nurturing public understanding of the issues, seems a distant dream. That it is not contemporary reality is the essential problem behind the tragedies of the Murray–Darling Basin and of policy on climate change and the energy transition. (At an international level, that is also the fundamental problem of global trade and development.)

In the 2008 Garnaut Climate Change Review, I drew attention to the historic increase in world food prices in the first decade of the new century. And I highlighted that improving living standards in the populous countries of Asia would make this a great opportunity over a long period for Australian farmers and therefore all Australians – unless climate change at home damaged Australia’s supply capacity. Global climate change mitigation was needed, or Australia’s farm capacity would be reduced. The atmospheric physics was showing that climate change would see the movement south of climate systems, and therefore the drying as well as warming of the southern latitudes where most of Australia’s agricultural value lies. The irrigation output in the Murray–Darling could decline by 90 per cent if the world failed to act.

By 2019, new knowledge has reduced uncertainty without much changing these predicted consequences. We can now see the effects anticipated in 2008. Average temperatures across Australia so far this century are over a degree higher than in the first half of the twentieth century. We have reliable records of inflows into the Murray since 1892. After taking out the Snowy and inter-valley transfers, and the highly variable (currently absent) flows from the Darling, the average inflow in the past seven years has been a quarter below the first century of observation.

The controversial Murray–Darling Basin Plan does not take into account declining inflows as a result of climate change. It is unsettling now to read a CSIRO panel’s description from 2011 of how the original Basin Plan dealt with climate change:

MDBA [Murray–Darling Basin Authority] has modelled the likely impacts of climate change to 2030 on water availability and this modelling is robust. MDBA has not used this information in the determination of SDLs [sustainable diversion limits] for the proposed Basin Plan but rather has determined SDLs using only the historical climate and inflow sequences. The panel understands that this reflects a policy decision by MDBA …¹

After public outcry about the fish kills in the Darling below Menindee in 2018, the MDBA published a report in February 2019 on the effects of climate change. It noted that there had been five major blue-green algal bloom events in the past thirteen years. There had been four in the preceding sixty-five years. The report stated that lower rainfall in the southern areas of the Basin and higher temperatures were reducing stream flows into the rivers. After 48 millimetres per annum average run-off from 1961 to 1990, it was 27 millimetres in 1999 to 2008. ‘The timing and magnitude of long-term climate changes remain uncertain and difficult to identify and measure separately from natural variability,’ the MDBA wrote.²

Maybe. But maybe it’s imprudent to use historical data without regard for climate change in calculating the amount of water available for allocation.

The Murray–Darling Basin Plan on which Commonwealth and state ministers agreed in 2012 was built, at best, on hope. At worst, on obfuscation. Either way, it contradicted scientific reality. And even this plan – for all its inadequacy – has not been implemented as designed. The Murray–Darling would be in better health if it had been honoured.

Yet the damage that climate change has wrought so far is of modest dimension compared with what will follow – even if the world takes decisive action immediately. And it is utterly trivial compared with what is to come if we fail to take decisive action. My 2008 Review demonstrated that we are the most vulnerable of the developed countries to damage from climate change.

In Paris in December 2015, all members of the United Nations agreed to hold temperature increases below 2°C and as close as possible to 1.5°C. The best that we can hope for now is holding increases globally to around 1.75°C. This could be achieved if the world moves decisively towards zero net emissions by 2050.

But temperatures over land will increase by more than the average over land and sea. An increase of 1.75°C for the whole world would mean more than 2°C for Australia – twice the increase that this year helped to bring bushfires in August to New South Wales and Queensland.

Such temperature increases would present Australia with a massive adaptation task. The internal disruption would be hard enough – with the Murray–Darling Basin just one of a hundred fateful challenges. The changes in our neighbourhood would probably be even harder for us to manage. The problems our neighbours in south and southeast Asia and the southwest Pacific would face would certainly and quickly become shared problems. The geostrategic own goal scored by Australia at the Pacific Island Forum leaders’ meeting in August 2019 was a response to one of the smaller problems, but reminded us of our vulnerability.

A failure to act in Australia, accompanied by similar paralysis in other countries, would see our grandchildren living with temperature increases of around 4°C this century – and more beyond.

I have spent my life on the positive end of the Australian discussion of many international and domestic policy and development issues. That positive approach to what was possible in our democratic polity was mostly vindicated by the unfolding of history during the Australian reform era from 1983 to the beginnings of this century. But if the nation were to experience the consequences of a failure of effective global action on climate change, I fear that the challenge would be beyond contemporary Australian society. I fear that things would fall apart.

So is it all bad news? What we now know about the effect of increased concentrations of greenhouse gases in the atmosphere has broadly confirmed the conclusions I drew from the scientific research available for my 2008 and 2011 Reviews. But on the other hand, these Reviews greatly overestimated the cost of meeting ambitious reduction targets.

The good news is very good indeed for Australia, and especially for rural and provincial Australia. If we are wise, we can change the political story of climate policy in this nation. Quite a few Australians once argued that atmospheric physics is bunkum; or that there is no point in reducing greenhouse-gas emissions because others will not; or that it is too costly to reduce emissions, no matter how expensive the result of a failure to act. To those Australians, I can say: circumstances have changed.

It took me some years to realise the extent of that change. The Reviews from eight and eleven years ago touched upon the unusually high quality of Australian solar and wind energy and other renewable resources. They noted exceptional opportunities for growing biomass and capturing carbon in the landscape. They mentioned the possibility of great advantage. A chapter in each was devoted to carbon farming. But the references to exceptional opportunities were almost in passing.

After completing my official reports, I continued to take a close interest in Australian renewable resources and clever inventions that would help the transition to a low-carbon economy. I introduced leaders of many established Australian businesses to promising proposals for profitable investment in reducing emissions. Australian business is generally slow in innovation. Established non-competitive and anti-competitive arrangements are unusually rich by global standards, and disruption of them is unattractive. So I started to take up some of the proposals privately. I worked with partners in South Australia to develop ZEN Energy. Later we brought in British businessman Sanjeev Gupta as a partner after his purchase of the Whyalla Steelworks. ZEN and SIMEC ZEN Energy built acceptance in South Australia of the use of utility scale batteries to stabilise the power system; completed the development work on Australia’s largest solar farm; and now supply the power needs of the South Australian government and the South Australian Chamber of Mines & Energy buyers’ group. With old colleagues, I am working on some transformative power system developments beyond South Australia through Sunshot Energy.

Meanwhile, my work as an economist was tracking the rapid fall in costs of new technologies for reducing emissions in industry. By mid-2015, I was convinced that what in 2008 and 2011 I had perceived to be a possibility of modest dimension had become a high probability of immense economic gains. I gave a public lecture in June that year at the University of Adelaide: ‘Australia as the Energy Superpower of the Low-Carbon World’.

In this book, I explain how my thinking has evolved from the earlier reviews – and why I now believe that if Australia rises to the challenge of climate change it will emerge as a global superpower in energy, low-carbon industry and absorption of carbon in the landscape.

I begin, in Chapter 2, by outlining recent developments in scientific knowledge on climate change.

In Chapter 3, I discuss how to assess the costs and benefits of Australia doing its fair share in a strong global effort. Here, changes in economic realities have altered earlier conclusions, although my methodology remains unchanged.

Chapters 4 to 7 explore the many benefits and opportunities of the good news about the lower cost of cutting emissions. Australia is richly endowed with resources that allow it to prosper from a global movement to zero net emissions. If we take early and strong action in ways that build upon our natural advantages, we will not suffer a decline in living standards in the near future in conventional economic