Economic gains from climate change adaptation and innovations
Without a doubt climate change is one of the most contentious social, economic and political issues of our time. The negative effects of climate change can be seen all around us, but addressing them does not fit easily into the current political arena of most of the developed economies, where the message has generally been – leave everything to the market and it will sort itself out and the market will get rid of unwanted elements. In general this approach has delivered us great wealth over the last few decades, but it also has had nasty side effects, such as an escalation of social inequality, environmental degradation, pollution, a high level of political interference from vested interests – which is hampering competition and innovation, and silo thinking.
This market-driven approach makes it very difficult for the governments in neoliberal economies to address the issue, as addressing calamities such as climate change requires direct intervention from these governments.
Over the last 30 years governments have increasingly reduced their direct involvement in the market, and consequently their expertise in these areas has dwindled. A reduction in the bureaucracy has been compensated for by advice and activities from private enterprises who, over those years, have increased their involvement in the market. But in a capitalistic economy these private experts are there primarily to look after the interests of their shareholders, and with problems like climate change they are confronted with a range of measures that will be needed to address these problem, but which will have a negative effect on their businesses; they are therefore unlikely to address this is any serious way without very clear national and international government policies. Unfortunately for the Australia industry the political messages are confusing and contradicting each other.
We have seen fabulous economic growth over the last 70 years. The first 30 years of this period saw a more guided economy, which delivered the national wealth for all, and which we are still enjoying. Since then the move has been more towards individual wealth. Now, it seems, a rebalancing is needed, but the necessary measures will have a direct, and unwelcome, impact on individual wealth and on the incumbent companies that are required to change.
The resources industry is an extremely important part of the Australian economy and this makes rebalancing in the wake of climate change more difficult here than elsewhere. This is further hampered by the fact that there is increased lobbying power of the vested interests against more serious action.
Despite all of that the COP20 conference in Lima (the Conference of the Parties meeting of the United Nations Framework Convention on Climate Change) agreed on the phasing out of fossil fuels by 2050. True, there are no binding agreements around this, but from now on we will see more and more changes happening that will lead to that goal. The Paris conference will be the next focal point for this, in one year’s time. Very importantly, the Lima declaration – perhaps kick-started by the announcement by the USA and China at the G20 – send out a clear message to investors in these sectors that there will be more risks attached to investments in the fossil fuel sectors in the future.
This is particularly worrying for a country such as Australia, which relies heavily on commodities such as coal and oil. What that means for the economy has become very clear in December 2014 Mini Budget. Significant drops in commodities exports have delivered a disturbing blow-out of the government’s budget, so it is not hard to see what the effects will be for Australia of COP20 and follow-up developments.
As with so many issues the world is facing at the moment, transformation is the key word, and again this is very difficult for the vested interests, who have more to gain by maintaining the market dominance they have created in the ‘old’ economy. Changing their business models to be better positioned for the ‘new’ economy is risky, costs money, might increase competition, and could decrease revenues.
However, as with all major economic changes, a whole range of new opportunities, new business models and new money will become available once the change is embraced.
While many countries are feeling the effects of climate change, Australia will be one of the most affected, not just by climate changes, but by the economic changes that this will bring with it.
The longer the country waits to embrace the change the more economic damage will occur. It will need all of the next 30 years to build the transition, and no time should be wasted. Unfortunately, however, the current political climate points in the opposite direction. If the country continues to drag its feet and be forced into the transition kicking and screaming it will cost the economy dearly.
At Lima the reality of climate change bit in. The delegates were no longer talking about climate change mitigation; they were talking about adaptation. Furthermore, at the last minute innovation was added as a tool that will be counted in relation to how countries implement the changes.
This would be an opportunity for Australia to plan its transition. How can we become the technology leader on managing the change? Our energy industries have much to lose, but equally a lot to gain if they embrace technologies to their advantage.
We have great expertise in energy but can we change our approach – from fossil fuel energy to sustainable energy? With our abundance of solar and wind we should use these forms of energy to move forward. We need to link the digital economy to the green economy. By doing this we will create a whole new range of opportunities and new jobs that will increase the sustainability of our economy and safeguard the lifestyles of our citizens. The energy sector is too important to Australia for us not to be more strategic about it. We simply cannot afford that.
We need a nationwide discussion on how Australia can maintain its leading position in this sector within the context of climate change adaptation.
Electricity companies and COP20
At the COP 20 also The Global Electricity Initiative’s 2014 report was presented to the delegates. Interestingly this was based on the views of CEOs of utilities from countries which together account for about 80% of the global installed generating capacity, emphasises that a meaningful price for CO2 is crucial in facilitating significant change in the fuel mix of the global electricity sector.
The report highlights the ability to make sound investment choices in the electricity sector is heavily dependent upon the existence of long-term stability in policies and regulation. This stability is direly needed. The European Council’s climate agreement and the historic accord between the US and China to reduce their CO2 emissions have sent encouraging signals. Now, it is crucial to build on the momentum in Lima in reaching a focused and comprehensive agreement for Paris next year and to kick-start the action to provide sustainable energy for all.
Other key issues addressed by the report:
- 96% of the utilities see new advanced energy storage technologies as crucial success factor to growing the share of renewable energy.
- they are also working on other advanced technologies such as smart grids and carbon capture and storage (CCS).
- utilities support the objective of bringing energy to all by 2030. However, they express concerns that universal access to energy, in particular in Africa and Asia, will not be achieved unless governments, industry and the international community take immediate concerted action.