Making it last

Facing our limits

4 Comments 08 July 2010

“The greatest shortcoming of the human race is our inability to understand the exponential function”

- Professor Albert A. Bartlett, University of Colorado

A Full World

by Ian Dunlop

As population rises from 6.8 billion today towards 9 billion by 2050, the inevitable logic of exponential growth in both population and consumption is now hitting the limits of global ecosystems and resource availability. The immediate pressure points are energy security, climate change, biodiversity loss, water and food availability, issues which are converging rapidly in a manner never previously experienced. These are only the tip of the broader global sustainability iceberg.1 Further constraints and limits are fast becoming evident as major developing countries, particularly China and India move up the growth escalator.

This situation is not unexpected; it has been anticipated for decades going back before the 1972 publication of “The Limits to Growth”.2 In the meantime the developed world has created a political and capitalist system which has proved incapable, so far, of recognising that the most important factor for its own survival is the preservation of a biosphere fit for human habitation.

The aftermath of WWII bred statesmen and women in both government and business intent upon creating a better world, re-building society, avoiding further conflict and genuinely prepared to take a long-term view. The results were far from perfect, but that vision did provide the foundations for the increasing prosperity the West has enjoyed ever since.

With prosperity came complacency; the assumption that growth within a finite system can continue indefinitely. This is hardly surprising, given that power and influence accrue to those who prosper under capitalism, and that technology until recently has enabled us to push back or ignore any physical constraints. Enormous political and personal capital is now vested in preserving the status quo. As a result, our institutions have become predominantly short-term focused; politically due to electoral cycles and corruption of the democratic process; corporately due to perverse subsidies and incentives, particularly the bonus culture which became the norm through the 1990s. Managerialism3 replaced leadership, statesmen all but disappeared, ethical standards deteriorated, so that we now find ourselves uniquely ill-equipped to handle the long-term challenges which lie ahead. The upshot is a series of escalating crises, most recently the Global Financial Crisis (GFC).

The developing world was intent on slavishly following our example. However in the last decade that began to change as the reality of pollution, resource scarcity and increasing inequity hit home, and it became obvious that the developed world model has serious flaws.4

What was workable in a relatively empty world of two-three billion people post-WWII is not workable in today’s full world of 6.8 billion, let alone the nine billion to come. Our ideological preoccupation with a market economy, based on political expediency and short-term profit maximisation, is rapidly leading toward an uninhabitable planet, as sustainability issues of theoretical concern for decades manifest themselves physically, particularly in regard to climate and energy:

Climate change

There is now unprecedented evidence that human carbon emissions from fossil-fuel consumption and land degradation are, on the balance of probabilities, warming the planet at an accelerating rate.5 6 7 Despite two decades of negotiation, virtually nothing has been done to address the problem, with human emissions accelerating in excess of the worst predictions8. The impact is clearly seen in record global surface and ocean temperatures9, rapid Arctic and Antarctic ice volume loss 10 11 12 13,  increasing permafrost methane emissions14 15, ocean acidification16 17 and escalating extreme weather events.18 19 20 These major changes are happening at the 0.8oC temperature increase we have already experienced relative to pre-industrial conditions, let alone the additional 0.6oC to 3.5oC21 to which we may already be committed as the full effect of historic emissions is felt.

The inertia of the climate system, particularly the slow warming of the oceans, means that the results of our emissions today only become evident decades hence. Thus unless we take rapid action now, we may well be locking in irreversible climate change of catastrophic proportions for future generations; indeed we may have already done so. A difficulty in gaining acceptance of this thesis is that conventional economics heavily discounts such possibilities.

The appropriate method of handling high impact, low probability events, the so-called “fat tail” conundrum, has been well explored by Harvard’s Martin Weitzman22, arguing that conventional cost benefit analysis is entirely inappropriate in such circumstances. The validity of this argument is beginning to be accepted by mainstream economists such as Paul Krugman.23

Unfortunately the latest science suggests that the supposed low probability of these events has increased significantly. Given the serious implications for future generations, we should base solutions far more on ethical and moral values than on economics.

The inexorable conclusion is that the global response to climate change has to be moved to a genuine emergency basis, rather than being seen as incremental change to “business-as-usual” which is still the focus of most current debate.

There will always be scientific uncertainties on an issue this complex, with year-to-year climatic variations continuing to be used selectively by deniers to discredit the mainstream science; but the overall trends are clear and they are all moving in the wrong direction. It is tempting to believe the deniers are right, but faced with the mounting empirical evidence, prudent risk management dictates we should not take the risk that they are wrong.

The Copenhagen COP15 meeting was not the failure generally portrayed in the media, albeit the outcome was not what many had hoped for. For the first time the real issues came on to the negotiating table:

  • the impossibility of getting agreement among 193 countries via the UN process,
  • the necessity for the top 6-12 emitting countries to take the lead in framing solutions; but based on current, not outdated, science.
  • The prospect that the real objective must be to limit temperature increase to 1.5oC or less, relative to pre-industrial levels, rather than the “official” 2o C,
  • the beginnings of a technology transfer and financing package for the developing world

Certainly, legal binding undertakings were missing, but this was a forgone conclusion given that the developed world has yet to put forward any serious proposals to encourage developing country action, and that their own targets and policies are hopelessly inadequate and compromised.

There is a long way to go, but it is dawning on global leaders that the size of the challenge is far greater and more urgent than is being officially acknowledged. Unfortunately it may take some further natural disasters to drive the point home; although that may occur more rapidly than expected if the latest evidence can be believed.

Gradually, the world is starting to understand that, if catastrophic outcomes and climatic tipping points24 are to be avoided, the real target for a safe climate is to reduce atmospheric carbon concentrations back to the pre-industrial levels of around 300ppm CO2 from the current 392 ppm CO2.  This will require emission reductions in the order of 40-50 per cent by 2020, almost complete de-carbonisation by 2050 and continuing efforts to draw down legacy carbon from the atmosphere.25 26 27 28

Looked at from a total carbon budget perspective, to have a less than 25 per cent chance of exceeding the 2oC temperature increase relative to pre-industrial levels, which is still the official political objective, the world can only emit a further 800 Gigatonnes CO2 in toto from today, a budget which would be used up in less than 20 years. Accepting a 50/50 chance allows the budget to increase to 1,200 GtCO2, used up in less than 30 years. (The Australian budget runs out in around five – eight years).29 If the temperature target has to be less than 2oC, the budgets are considerably lower.

The global constraint would only allow around 27 – 47 per cent respectively of existing fossil-fuel reserves (reserves recoverable with existing technology and prices) to be consumed.30 Why then do we continue to pour investment into expanding reserves of oil, gas and coal with increasingly risky and environmentally damaging ventures such as deepwater oil exploration and tar sands if we can only afford to burn a less than half of existing reserves?

Energy security

Cheap energy has been the cornerstone of successful societies for centuries. Take it away and societies historically, if they were sufficiently resilient, have broken down, re-organised at a lower energy level and moved on. If they were not resilient, they collapsed and disappeared. Today, just as economic growth for the bulk of the world’s population is accelerating, the days of cheap fossil–fuel energy are ending, triggered by the peaking of global oil supply and the need to reduce carbon emissions to combat climate change. After years of denial, these realities are finally being acknowledged by official bodies such as the International Energy Agency (IEA)31 and some industry leaders.32 33 34 35 36 Unfortunately the full implications of the message have yet to penetrated the “official future” of many national governments, particularly Australia.

The alternatives to our traditional energy mainstays of oil and coal range from natural gas, unconventional gas from coal seams and shale and new generation nuclear power to numerous renewable energy options, each of which have advantages and disadvantages. On the demand side, enormous opportunities exist for improvements in energy conservation and efficiency.

There is no “silver bullet” to solve escalating energy security concerns, but much “silver buckshot” whose development must be accelerated, ideally by a combination of regulatory and market mechanisms, to meet future needs. The critical policy requirement is that each option is assessed in the light of its true cost, benefits and risks, as discussed in Ian McAuley’s chapter.  Externalities such as carbon pollution must be fully internalised, inter alia removing the enormous subsidy the fossil-fuel industries have enjoyed since the Industrial Revolution. The competitive ranking of the new alternatives will only emerge gradually, hence the need to accelerate the overall innovation process but avoid picking winners. Each option will take a decade or more to make much impact, so time is of the essence. Whether other forms of cheap energy will emerge, or energy will remain expensive, is unclear, but there is little doubt that energy prices in the medium term will be volatile as the new order unfolds.

Peak oil

Peak oil is not just an economic issue, but a reflection of the physical barriers to energy supply we now face. We are not running out of either oil, gas or coal resources. The issue is how to convert those resources in the ground into flows to the market in an environmentally and economically acceptable manner.

Peak oil is the point at which it is no longer possible to increase oil production to meet demand, notwithstanding increasing prices, as evidenced by the stagnation of global oil supply since 2005.37 It results from the discovery rate of new oilfields falling far behind our escalating use of oil, and the fact that production from long established oilfields is depleting at faster rates than anticipated. As a result, we are forced to explore in more difficult conditions, with ever increasing risk and cost, as witnessed by the BP oil blowout in the Gulf of Mexico and controversy over tar sands production in Canada.38

A critical metric is the “Energy Return on Energy Invested” – how many energy units are produced for the energy invested in producing it. Historically, from an energy production perspective, this ratio has been 100:1 or more for large onshore oilfields; it is now declining below 5:1 in many new offshore oil provinces and tar sands operations, and may fall below 1:1 when the true environmental impact is internalised, at which stage there is little point in continuing operations.39 40

Peak oil, due to the immediacy of its impact, is likely to be the trigger that forces serious action on climate and energy security. The oil price spike to US$147 per barrel in July 2008 warned us of the tightrope we are walking, probably triggering the GFC as it broke the financial back of debt-laden, gasoline-dependent consumers in the US  Prices subsequently dropped as the GFC destroyed oil demand, but have currently recovered to around US$80 per barrel. A further rebound can be expected if economic activity strengthens.

Opinions vary widely on the evolution of global oil supply, and much will depend on the speed of recovery.41 It may well be that global supply by 2030 is 20-30 per cent below current levels42 a traumatic change for a world wedded to oil, particularly in sectors where substitution options are limited, for example for private transport and aviation.43


Coal is the most critical factor in solving the energy security and climate change dilemma. It is the largest, cheapest and most widely-available fossil-fuel resource, but has the worst environmental impact, with emissions double that of gas per unit of energy. Unless means can be found to capture and store those emissions securely, the coal industry worldwide must shut down rapidly if catastrophic climate change is to be avoided. Clean Coal Technology (CCT) and geological Carbon Capture and Storage (CCS) are seen as the means of securing coal’s long-term future, to the point where they have become unquestioned articles of faith on the part of industry and government. Substantial investments are being made in research and development of both CCT and CCS, with high emission facilities, such as power stations, being built “carbon-ready” so that CCS technology can, in theory, be added as soon as it is available.

Unfortunately that faith looks increasingly misplaced. CCS is established technology in the oil and gas industry where it has been practiced safely for decades by storing carbon dioxide in the reservoirs from which it was originally extracted with the oil and gas. However, sequestering carbon emissions on the scale now required by the climate science means the establishment of an industry the size of the world oil industry, storage in geological formations that have never demonstrated the security and stability of oil and gas reservoirs, solving substantial reservoir engineering problems and, unlike oil and gas practice, transporting the material large distances from source to storage. This has to be done at scale in less than two decades to have any real impact on the climate problem. At present there are only five commercial scale projects worldwide, none in the critical power generation area, and technical progress is painfully slow. The IEA have highlighted the need for 100 projects by 2020, 800 projects by 2030, and 3,400 projects by 205044; an extremely demanding target representing an investment to 2050 of around US$5.8 trillion.

CCT refers to a range of technologies, such as Integrated Combined Cycle Gasification and Supercritical Pulverised Coal Plants, aimed at reducing the environmental impact of coal. However, it is an oxymoron in that coal does not become clean, rather emissions are reduced typically by 20-40 per cent and efficiency is increased;  which is valuable, but does not solve the fundamental problem of coal’s high emissions.

Hence the need for objectivity in developing these proposed solutions. Whilst research on CCS and CCT should continue, it is doubtful they will provide the hoped-for panacea. Given the climate change risks now emerging, it is an extremely dangerous strategy to place most of our eggs in these baskets as Australia is doing, and to lock-in the construction of new high-emission facilities, CCS-ready or not, before the viability of the technology is assured. As The Economist put it:

“Politicians should indeed encourage investment in clean technologies, but direct subsidies are not the way to do it. A carbon price or tax, which raises the cost of emitting carbon dioxide while leaving it up to the private sector to pick technologies, is the better approach. CCS is not just a potential waste of money. It might also create a false sense of security about climate change, while depriving potentially cheaper methods of cutting emissions of cash and attention—all for the sake of placating the coal lobby.”45


Much store is placed on the future role of Liquified Natural Gas (LNG), Coal Seam Gas (CSG) or unconventional gas from shale beds, as a transition fuel to the low-carbon economy in replacing coal, due to gas having roughly half the carbon emissions of coal. However gas is not without its problems in the context of a climate change emergency response – even halving emissions is inadequate, but gas also has some unexpected consequences.

Coal burning emits not just carbon, but also aerosols, tiny particles which are suspended in the atmosphere and have a cooling effect. Cleaner-burning gas does not emit aerosols, so if coal use drops, to be replaced by gas, the level of aerosols drops correspondingly and hence the cooling effect reduces. One unintended consequence therefore of the use of gas may be a relative increase in global temperature due to the removal of cooling aerosols. This is not a reason to delay the reduction in coal burning, but it is a factor which has to be considered in developing a transition plan to a low-carbon future.

CSG and unconventional shale-gas also have complications. They rely on fracturing geological formations with fluids to release gas trapped in the coal seam or rock pores. Depending on the geological strata, this may result in a rapid production build-up, but an equally rapid production decline, necessitating many wells being drilled over an extensive area using large amounts of water, with potential risks to acquifers and land use. All of which requires high standards of regulation and compliance, with associated costs, if these new industries are to operate responsibly. A very different operation from conventional oil and gas production, which is relatively localised.

A further factor is the leakage of gas prior to combustion. Whilst gas when burnt has roughly half the emissions of coal, if gas is leaked to atmosphere pre-combustion, it has a warming potential around 25 times that of CO2. Hence a leakage rate of around 3 per cent negates the advantage gas has over coal from an equivalent warming perspective. Typical leakage rates appear to be in the 1.5 – 2.5 per cent range, so gas may not have the advantage over coal which is generally assumed. It also emphasises the need for high standards of performance to prevent leakage as the use of gas increases.


The renaissance of the nuclear industry engenders strong emotion, both for and against, in the light of historical accidents such as Chernobyl and Three Mile Island, the risk of nuclear terrorism and weapons proliferation and the legacy implications of nuclear waste. Nonetheless major investments in new nuclear plants are being made particularly in the developing world.

New nuclear technologies promise much safer standards than existing plants, including possibly the ability to use up existing nuclear waste. However these technologies are still in the embryonic stage and far from commercial application.

Given the scale of the climate challenge ahead, it would be unwise, a priori, to exclude nuclear options from the possible solutions. They should be considered, provided the full life-cycle environmental costs and risks are taken into account.

Global discontinuity

Other key factors, such as biodiversity, water and food are also reaching global limits, particularly biodiversity loss which is proceeding 100 to 1000 thousand times faster than the natural level46, and at great economic cost.47 48

The overall impact through the 20th Century is that humanity now requires the biocapacity of almost 1.5 planets to survive.49 Unless action is taken to change our ways, by 2030 we will require two planets. So we are rapidly eating up our natural capital and creating the conditions for escalating global conflict as we squabble over increasing scarcity.

There is much discussion on the technical dimensions of this challenge such as climate, energy, food and water, but these are only symptoms. The underlying drivers are population and economic growth which are creating the great discontinuity between the 20th and 21st Century as we are forced to address what is, in essence, a global sustainability emergency.

The key question for individual nations now is their preparedness to face up to this challenge realistically. Whether they will lead, prepare themselves and seize the enormous opportunities ahead as energy systems, societal and economic values are re-booted, and the world moves on to a low-carbon, sustainable footing, or allow vested interests to dominate, deny and delay, facing straightened circumstances as the impact of climate change and scarcity takes an increasing toll on their environment, economy and society.

Further, will they acknowledge that the capitalist model as we know it, and the economic growth that goes with it, is no longer sustainable. Capitalism is arguably the most effective mechanism the world has so far known for providing goods and services and creating financial wealth, but as the GFC demonstrated only too well, it is now under attack from itself and its lack of underlying principle. Capitalism should have a major role to play in achieving global sustainability – but what form should it take?

Some nations, and businesses, clearly have got the message – China, South Korea, the US and some European countries for example, are positioning themselves to be world leaders in making the transition.50 51 Others, generally the resource-rich countries, continue to drag the chain in the hope that their conventional business models can continue indefinitely, ironically on the back of Chinese growth!

The debate is invariably pitched in the context of the problems and costs of moving away from our comfort zone of business-as-usual. What it ignores is first that business-as-usual is no longer an option, and second the enormous opportunities ahead, as the world is re-jigged for a genuinely sustainable future.

“The 21st Century will, in fact, be the Age of Nature.  We’ll learn, probably the hard way, that nature matters: we’re not separate from it, we’re dependent on it, and when there’s trouble in nature, there’s trouble in society.”52

Whither Australia?

So how is Australia placed to negotiate this discontinuity?

We have had a dream run since the end of World War II, built on our natural wealth. Despite the occasional hiccup, our economy has expanded year after year, with increasing prosperity.  Much of our success has been built around supplying agricultural products and raw materials to the expanding economies of the world, particularly in Asia – initially Japan, then Korea and South East Asia, now China and India.  Understandably we are proud of being world leaders in agriculture, mining and processing, but we have also created a strong and vibrant society in many other areas, all built around a capitalist, market economy model.

Our resource base is formidable and expanding.  Not only do we have substantial energy resources of gas and coal, but we have the world’s largest uranium and thorium resources and enormous untapped renewable energy – solar, wind, ocean, geothermal and bioenergy.53 Beyond that, iron ore, other metalliferous minerals and agricultural assets abound

However as McAuley points out, as the discontinuity unfolds, that bounty may well become our Achilles heel unless carefully managed. Much of our exports are carbon-intensive – thermal and coking coal, alumina, natural gas, with coal being the largest export earner of around $36 billion in 2009-10.54 Our domestic energy system is highly carbon-intensive, largely a result of readily available and inexpensive coal.55 Our carbon emissions are correspondingly high, around 19 tonnes CO2 per capita in 200756 amongst the highest in the world.

A weak point is oil, where Australia has a particular vulnerability. We are around 50 per cent self-sufficient in oil, declining rapidly unless new discoveries save the day which seems unlikely. We rely on long supply lines from Asian refineries for around 85 per cent of our daily product use, offset by high exports. We do not comply with the requirements of IEA membership to maintain a 90 day net import strategic petroleum reserve, relying instead on operational stocks and just-in-time delivery. With a small, geographically dispersed population in a large land mass, we are heavily dependent on transport fuels. The cost of our oil and gas imports is now close to twice our oil and gas exports, with high coal exports saving the day. This will represent an increasing burden on our current account deficit as our level of self-sufficiency declines.

Despite this vulnerability, peak oil is not on the Federal Government agenda. While some state governments have taken it seriously57, studies at the Federal level have been dismissive58, even though it may have far more impact in the short term than climate change.

If the world now moves rapidly to a low-carbon footing due to climate change, whilst facing increasing oil scarcity due to peak oil, many of our traditional advantages turn into major strategic risks – that is risks beyond our control which have the potential to fundamentally change our way of life, and undermine our economic strength.

Whilst our raw material exports will not cease overnight given likely strong demand from the developing world, a shift toward low-carbon alternatives will seriously disadvantage Australia if carbon sequestration technologies fail. Similarly, we may not find it that easy to secure the oil imports we require. Domestic alternatives, based on our coal and gas resources, such as Coal-to-Liquids (CTL) and, to a lesser extent, Gas-to-Liquids (GTL) technologies are likely to be expensive and environmentally damaging.

In agriculture, Australia is already experiencing the impact of changing temperature and rainfall patterns, which may well be the result of human-induced climate change, with serious drought in many areas and overabundance of rainfall in others fundamentally altering farming patterns and water supply. As the Garnaut Review pointed out:

“Australia has a larger interest in a strong mitigation outcome than other developed countries. We are already a hot dry country; small variations in climate are more damaging to us than to other developed countries”59

On the positive side, we have enormous undeveloped renewable energy resources, and there is great potential for the biological as opposed to geological sequestration of carbon, which has substantial benefits for agriculture60, and possibly for our coal industry.

A Janus nation

The scenario, of rapid climate change combined with the onset of peak oil, while becoming part of mainstream thinking overseas, is still regarded as extremism in Australia, and not as part of the “official future”.

Ironically, we have some of the best scientific and analytical advice in the world on the implications of climate change and energy supply, in studies such as the Garnaut Climate Change Review and extensive work by the CSIRO and other bodies.61 62 They indicate the need for rapid change – advice which is blithely ignored.

On the other hand, the vested interests defending the status quo, particularly those linked to some sections of the resource industries, are amongst the strongest in the world, not surprisingly given the importance of those industries historically to the development of Australia and the resulting power they have accrued.

The resistance to accepting the implications of climate change is well documented63 64, as McAuley points out. At virtually every turn in the tortuous path of climate reform over the last two decades, the vested interests have dominated, determined to slow reform, maximising compensation and escape clauses, without regard to the longer-term implications. Gradually, as the evidence has mounted, outright denial has given way publicly to grudging lip service to the need for action, whilst privately delaying tactics continue.

Successive governments have either not believed the science, or have been brow-beaten into adopting minimalist reform agendas, which are largely meaningless in the context of the real problem. Statesmanship and leadership are notably absent.

Environmental NGOs have, in the main, opted to work “in the government tent” in finessing a minimalist reform agenda, rather than insist on meaningful reform, on the basis that it is better to get something started and then modify it, than nothing at all. That the history of major reform in Australia is that, once implemented, it takes at least a decade to make significant change – a decade we no longer have. The abject failure of that strategy has been demonstrated by the backsliding of the Federal government post-Copenhagen in shelving their emissions trading scheme, whilst other countries move forward.65 66

Other sectors of business are taking a far more positive approach to the changes and opportunities ahead67 and are acknowledging the risks of inaction.68 From all sides though, comes the demand for certainty to facilitate investment decisions. But “certainty” if based on the wrong definition of the problem, is bound to unravel rapidly.

Meanwhile the resource sector, buoyed up by bullish forecasts of coal and gas demand from organisations like the IEA69, are forging ahead with fossil fuel developments. These include the doubling coal exports over the next 20 years, the expansion of LNG exports and the establishment of a coal seam gas industry with major investment in mines, railways, ports and processing facilities. There are however no proven means of sequestering the associated carbon emissions.

The investment in alternative clean energy is miniscule in comparison. The strong research capability which Australia developed in many renewable energy areas has departed to more fertile investment climates overseas.

Our great strategic error

So Australia ends up in the worst of all possible worlds. The science is clearly indicating the need for radical emission reductions. The vested interests ignore these calls, continue to undermine any sensible reform and, by special pleading render ineffective even the minimalist reform proposed in the interests of short-term advantage. In the process, as McAuley discusses, sound policy instruments such as emissions trading are discredited due to the political horse-trading as governments bow to vested interest pressure. Lack of certainty on a carbon price stunts the growth of fledgling alternative energy industries, stifles consumer behavioural change and, combined with conflicting regulatory measures, leads to non-optimal short-term investment decisions.

Business demands leadership from government whilst, with a few notable exceptions, showing none itself, and both main political parties lack the stomach to take on the vested interests. So we fall back into the comfort zone of our dig-it-up and ship-it-out high carbon mindset. In so doing, we are making arguably the greatest strategic error in Australia’s history.

For while Australia is moving backwards on climate change reform, the rest of the world is accelerating. The Chinese, other Asian countries, Europe and the US are all now vying for leadership in the low carbon economy. A decade hence, with the climate science better understood, it is likely that the incremental demand for our high carbon products will evaporate and the bullish IEA demand forecasts, yet again, will never eventuate. Australia at that point will be left with a large inventory of stranded assets, minimal investment in low carbon alternative energy and little resilience to weather the impact of both climate change and peak oil.

The irony is that Australia has some of the best low carbon resources and opportunities in the world70 71, which we seem determined to ignore.

The time has come for a radical re-think of our strategy for the 21st Century. However it is not good enough just to tinker at the edges of current discredited environmental and energy policies – root and branch surgery is needed. Furthermore, this must be done on an integrated, sustainable basis – what is the realistic carrying capacity of Australia given the societal, environmental and economic pressures likely to confront us?

The pre-requisite is vision and an honest acceptance of the challenge we face.

Re-thinking Australia’s 21st Century strategy: Key policy settings for a new Government

1. Recognise that population and economic growth have created a sustainability emergency unique in world history. As a result, we are in the midst of a global discontinuity in which societal values, growth, economic and business concepts have to be restructured urgently. In this context, while the day-to-day business of government will continue, serious effort must be allocated to a fundamental review of short and long-term national strategy as “business-as-usual” is no longer an option. Ideally this should be done with bi-partisan support, separate from adversarial politics.

2. Initiate debate on a comprehensive sustainability strategy for Australia, encompassing inter alia climate, population, energy, biodiversity, resource scarcities, economic, tax and business concepts.  McAuley argues for the focus to be on integrated policy, rather than treating issues in separate silos as at present. The objective is for Australia to prosper within realistic national and global carrying capacities, with an emergency plan to achieve the transition to a sustainable future effectively and equitably.

3. Climate change must be treated as a priority as it directly affects Australia’s future even in the short term. The lag effect means that we may well be locking in irreversible changes today which will have catastrophic implications for future generations. The formulation of the climate “problematique”, on which current global and national policy is based, is almost a decade old. In the interim, scientific understanding and the empirical evidence for anthropogenic climate change have progressed markedly, to the point where it is clear that the climate challenge is far greater and more urgent than we assumed. The gulf between current science and policy is widening dramatically. In short, we are trying to solve the wrong problem with the wrong policies.  Until we honestly define the problem, with the appropriate caveats on risk and uncertainty, realistic policy and solutions will not be forthcoming.

Current science suggests that, if catastrophic outcomes and climatic tipping points are to be avoided, the real target for a safe climate is to reduce atmospheric carbon concentrations back to the pre-industrial levels of around 300ppm CO2 from the current 392 ppm CO2. This requires the emission reductions and timeframe discussed earlier in this article.  The “climate problematique” should be re-defined in these terms.

4. To maintain the currency of this definition, initiate a regular, objective, statement on the latest climate science and implications, free from political spin, published by authoritative bodies (Chief Scientist, CSIRO, international linkages) which is ongoing, not just in response to events such as Copenhagen or denialist campaigns.

5. Be prepared to challenge conventional thinking and to adopt radical solutions as appropriate. The entire tenor of the climate debate, and energy security, revolves around incremental change to “business-as-usual”, whereas the evidence indicates climate change must be treated as a genuine emergency. Many will argue that this is unnecessary extremism and that change of the extent indicated above is impossible, but that is only so when viewed with current mindsets. We have the solutions, given the will to honestly face the size of the challenge, but they are currently being ignored. Our preparedness and ability to take emergency action was demonstrated with the GFC; there is even more reason to apply the same rationale to climate change.

6. Given the warning of catastrophic irreversible tipping point scenarios, based our response more on moral and ethical values than on quantitative economics. Economic analysis is valuable in charting the most efficient pathway to reach the targets, but it should not be the prime consideration in determining those targets. Far more attention should be given to the “fat tail” conundrum of handling high impact, low probability events where conventional cost benefit analysis is inappropriate.

7. Re-frame climate policy accordingly. The CPRS is a disaster which cuts across all sensible design concepts for effective emissions trading. If implemented, it would impose a major cost on the economy for minimal reduction in emissions; it should be dropped forthwith. We need a “root-and-branch” redesign of climate policy built around the “problematique” set out above, with a balance of market and regulatory mechanisms. The rapid introduction of a carbon price is essential, to provide investment certainty and initiate behavioural change; ideally via a simplified and efficient emissions trading mechanism with minimum compensation and escape clauses. This should incorporate both a realistic short-term starting price and a long-term objective. If this proves impossible due to the historic baggage of recent negotiations, it should be abandoned in favour of a simple “fee and dividend” mechanism to minimise rent-seeking and retain public credibility.

8. Develop a balanced portfolio of solutions, with fair transition arrangements but focusing on the opportunities and benefits of creating new industries rather than the problems and costs of moving away from the old. At present the vast bulk of climate policy is aimed at protecting our traditional carbon-intensive industries, with token gestures toward the low-carbon alternatives which represent our future. This must be re-balanced to direct more seed funding to serious alternative technologies, including consideration of new generation nuclear options.

9. No carbon-intensive projects should be approved forthwith, either for domestic or export use, unless they incorporate proven, secure carbon sequestration technologies. In the absence of demonstrable research progress, funding for CCS and CCT should be cut back.

10. Take genuine global leadership. In addition to rapid, deep domestic emission reductions, actively promote concrete proposals to involve the developing world. Moving toward equal per capita emissions globally, as suggested by the Garnaut Review and others before.  Dispense with the conditional, “we’ll drop ours if you drop yours” approach to emissions reduction.

11. Review Australia’s vulnerability to peak oil based on the latest information. Design integrated climate/peak oil strategies accordingly. Global climate constraints only allow around 27 – 47 per cent respectively of existing fossil-fuel reserves to be consumed. Continuing investment into high risk, low efficiency and low EROEI options, such as deepwater exploration, shale and tar sands, and Coal-to-Liquids should be discouraged in favour of low-carbon alternatives.

12. Explain honestly to the community the sustainability emergency and potentially catastrophic climate risks we now face, but equally the enormous opportunities the solutions open up, with education to develop the platform for commitment to the major changes ahead.

13. Take rapid, decisive action to implement a low-carbon economy.

‘It is no use saying, “We are doing our best”. You have got to succeed in doing what is necessary.’72


  1. “Meeting the needs of the present without compromising the ability of future generations to meet their own needs” United Nations World Commission on Environment and Development (1987), Our Common Future. “The idea is inspired by the belief that the current pattern of human activity cannot be sustained indefinitely.  It postulates that there can be a future design of society in which environmental degradation and extremes of social inequity are avoided on an ongoing basis”, Tibbs, H. (1999)
  2. Meadows, D. et al (1972) “The Limits to Growth”, A Report to the Club of Rome
  3. Managerialism – the incremental improvement of the status quo, oblivious to the fact that the status quo is unsustainable
  4. Nair, C. (2010) “It is time for Asia to rewrite the rules of capitalism” Financial Times, 16th June 2010:
  5. Richardson et al (2009) “Synthesis Report” for Copenhagen Climate Conference
  6. Climate Change Research Centre, UNSW (2009) “The Copenhagen Diagnosis”
  7.  Steffen, W. (2009) “Climate Change 2009 – Faster Change & More Serious Risks” for ANU Climate Change Institute:
  8. Global Carbon Project (2009) “Global Carbon Budget 2008”,
  9. NASA Goddard Institute for Space Science (2010).
  10. NASA (2010) “Is Antarctica Melting?”
  11. Polar Science Centre (2010)
  12. Ljunngren, J. (2010) “Multi-year Artic ice is effectively gone: expert” Reuters
  13. Velicogn, I. and J. Hansen (2010) Ice-Sheet Disintegration.
  14. Nikolsky, D.J. and N. Shakhova (2010) “Modelling Permafrost on the East Siberian Arctic Shelf”.
  15. Climate progress (2010) “East Siberian Arctic Shelf De-stabilising and Venting.
  16. EPOCA Project.
  17. Ridgwell, A. and D.N. Schmidt (2010) “Effects of Ocean Acidification”, environment360.
  18. Vellinga, P. and W. J. Versefeld (2000) “Climate Change and Extreme Weather Events”
  19.  Swiss Re (2000) “The Effects of Climate Change”.
  20. Economics of Climate Adaptation (2009) “Shaping Climate-Resilient Development”
  21. Ramanathan, V. and Y. Feng (2008) “On Avoiding Dangerous Anthropogenic Interference with the Climate System”
  22. Weitzman, M. (2008) “On Modeling and Interpreting the Economics of Catastrophic Climate Change”, Harvard University.
  23. Krugman, P. (2010) “Building a Green Economy”, New York Times.
  24. Lenton, T. M. et al (2008) “Tipping Elements in the Earth’s Climate System”, Proceedings of the National Academy of Sciences of the United States of America.
  25. NASA (2008) “Target Atmospheric CO2 – Where Should Humanity Aim?, Goddard Institute for Space Studies.
  26. Schellnhuber, H. N. (2008) The Guardian.
  27. Climate Code Red (2008)
  28. Safe Climate Australia (2009) “Transition Plan Strategic Framework”.
  29. Spratt, D. (2009) “Forget about 2050, we’re blowing the carbon budget right now”.
  30. Meinhausen et al (2009) “Greenhouse gas emission targets for limiting global warming to 2oC” Nature.
  31. International Energy Agency (2008 & 2009) “World Energy Outlook” OECD, Paris
  32. Association for the Study of Peak Oil (ASPO).
  33. “Status of Conventional World Oil Reserves – Hype or cause for concern?”, Owen/Inderwildi/King, Smith School, University of Oxford. March 2010.
  34. UK Industry Task Force on Peak Oil & Energy Security (2010) “The Oil Crunch”
  35. Macquarie Bank (2009) “The Big Oil Picture”.
  36. van de Veer, J. (2008) “The End of Easy Oil” Council for Foreign Relations.
  37. ibid “The Oil Crunch”, P16
  38. Podesta, J. (2010) “The Dirty Truth About Tar Sands”, Centre for American Progress.
  39. “Ten Fundamental Principles of  Net Energy”, The Encyclopedia of Earth, 2008.
  40. Kunnes, H. (2009) “Economic Scenarios for an Age of Declining EROEI’s”, ASPO-USA.
  41. ibid “The Oil Crunch”, P31
  42. ASPO Base Case (2009), Australian Association for the Study of Peak Oil.
  43. Korowicz, D. Feasta & the Risk/ Resilience Network (2010) “Tipping Point. Near-Term Systemic Implications of a Peak in Global Oil Production”.
  44. International Energy Agency (2009) “Technology Roadmap – Carbon Capture & Storage”.
  45. The Economist (2009) “The Illusion of Clean Coal”, 5th March 2009.
  46. Rockstrom et al (2009) “A Safe Operating Space for Humanity”, for Stockholm Resilience Centre.
  47. UNEP et al “The Economics of Ecosystems and Biodiversity” et al.
  49. Global Footprint Network (2010) “The Ecological Wealth of Nations”.
  50. HSBC (2009) “A Climate for Recovery”.
  51. World Business Council for Sustainable Development (2010) “Vision 2050 – The New Agenda for Business”.
  52. Homer-Dixon, T. “The Upside of Down”, P13
  53. Geoscience Australia/ABARE/DRET (2010) “Australian Energy Resource Assessment”. Available online:
  54. ABARE (2010) “Australian Commodities”. Available online:
  55. ABARE (2009) “Energy in Australia 2009”.
  56. IEA (2010) “Key World Energy Statistics 2009”.
  57. Queensland Government (2007) “Queensland Oil Vulnerability Task Force Report”,
  58. ACIL Tasman for DRET (2008) “An Assessment of Australia’s Liquid Fuel Vulnerability”:
  59. “Garnaut Climate Change Review”, P xix.
  60. CSIRO (2009) “An Analysis of Greenhouse Gas Mitigation and Carbon Biosequestration Opportunities from Rural Land Use”.
  61. Foran & Poldy (2002) “Future Dilemmas for Australia’s population, technology, resources and environment” for CSIRO Sustainable Ecosystems:
  62. Hajkowicz and Moody (2010) “Our Future World” for the CSIRO Development Group:
  63. Pearse, G. (2007) “High & Dry”. Available online:
  64. Hamilton, C. (2007) “Scorcher”
  65. Parkinson, M. (2010) “Climate Change and the Australian Reform Agenda”, Sir Leslie Melville Lecture, ANU.
  66. Jotzo, F. (2010) “Comparing the Copenhagen climate targets”, Crawford Seminar, ANU.
  67. Caspari, D. (2010) “Sailing Toward a Green Economy”, Hewlett Packard Enterprise Services, Speech to American Chamber of Commerce, Melbourne, 10th June 2010:
  68. Australian Davos Connection/KPMG (2010) “Australia Report 2010 – Risks & Opportunities”.
  69. ibid World Energy Outlook (2009), IEA
  70. See Beyond Zero Emissions (2010) “Zero Carbon Australia 2020” report.
  71. Desertec Australia (2010):
  72. Winston S. Churchill, Lord Mayor’s Banquet, 1954

AUTHORS(S): Ian Dunlop

Making it last

Sustainable cities

2 Comments 05 July 2010

by Peter Newman

The need for a federal response to sustainability has been growing and should a be critical part of the Gillard Government’s new term. The bipartisan House of Representatives Environment Committee wrote an exceptional report in 2005 called Sustainable Cities.1 It had a series of very good strategies and policy suggestions – most of which have not been implemented.

The issues covered in the 2005 report have moved on somewhat although the core idea remains that Australian cities need to reduce their ecological footprint from their resource consumption whilst improving their liveability.2 Australian cities like all cities have been improving their liveability for centuries but at the expense of their ecological footprint. Now is a global imperative and economic opportunity to reduce their carbon emissions, their oil vulnerability and their water usage whilst making better communities, better housing, better transport and better businesses. That is the global challenge and we have an important responsibility to help lead this process.3

This chapter will provide some suggestions for ten ways to proceed.

Policy context

The constitution makes it quite clear that management of land and cities is a state responsibility and through states this has been devolved to a partnership with local governments. It is a bipartisan policy in all our states and territories to plan and provide infrastructure to shape the economy, the environment and the community in our cities. However at federal level, this policy arena has been less bipartisan and the ALP has been more active at intervening to assist in this agenda. The Department of Urban and Regional Development (DURD) experiment under Whitlam and Better Cities under Hawke-Keating were the main results. This was until the 2005 House of Representatives Report that was supported by all parties on the Committee and continues to have bipartisan support, at least in theory, as the Coalition has a spokesperson on Sustainable Cities.

The Rudd-Gillard Government’s main response has been to establish Infrastructure Australia with a mandate to include the ‘transformation of our cities’.4 This independent body with half of its Council from the private sector has established a new way of doing infrastructure planning in Australia. The requirements to access federal funding now include the need to show how infrastructure will impact on the city (in other words infrastructure bids must include full strategic plans for the city) and they must also show how they are going to reduce carbon. The result has been an historic allocation of over half of the Infrastructure Australia funds to urban rail with the goal of doubling the capacity of each city’s urban rail capacity. Infrastructure Australia is now accepted on a bipartisan basis as the authority on how to assess and evaluate infrastructure proposals and internally the biggest shift has been to see Treasury officials recognise the need for planning.

There are three main elements to development of sustainability at a federal level.

Infrastructure Australia

Since the 2005 report we have seen the remarkable rise in concern over climate change sparked by Al Gore’s global campaign, the growing awareness from the IPCC that the science was now irrevocably pointing to the need for global action and from Nicholas Stern that the economic time for action was now.5 This issue clearly spelled the need for a federal response and both Kevin Rudd and Malcolm Turnbull focused on how to make a carbon trading scheme that could make it through the Senate. Both have now gone as they couldn’t find a way through the political morass to deliver on this difficult task.

Price on carbon

A price on carbon is obviously needed and is a federal responsibility at the front end of the economy. However, the majority of the carbon is used in our cities and hence there also needs to be an end-user approach that simultaneously attempts to produce more sustainable, less carbon-intensive cities. Both are needed in the long term as prices can’t be responded to without structural changes such as better urban public transport to enable people to use cars less. This raises the question of the extent to which federal governments can get involved in the planning and delivery of infrastructure in cities.


In the past year, the population issue and the need for more affordable housing that is well located to avoid excessive travel, have also focused the need for our cities to be better planned. Over 70 per cent of Australians still want to see action on climate change, peak oil demands we do something about fuel consumption, and we all want to see better infrastructure in our cities if we are to accommodate the kind of growth in population we are facing.

Policy recommendations

1.       Use the Resource Tax to help fund infrastructure


The importance of tax as a way of achieving common good outcomes is always contentious but there are some clear and obvious deficiencies in Australia’s infrastructure that are not contentious at all – they just need money to fix them. The big cities, especially Sydney, have a big deficiency in public transport capacity. Infrastructure Australia has ploughed $4.6 billion into urban rail in an historic set of infrastructure decisions. However this is just the start and Sydney and Brisbane missed out as their plans were not ready. The private sector will help with partnership funding, as will state and local governments but the foundation needs to be Federal funding.


Sixty per cent of the Resource Tax should be hypothecated (40 per cent in cities and 20 per cent in regions) evaluated by Infrastructure Australia to produce the most economic and sustainable outcomes. Hypothecated infrastructure funding is needed for our cities and for our regions. Just as Sydney needs urban rail, the Pilbara and other mining-related towns such as Mackay and Gladstone also need fundamental infrastructure to enable them to survive and thrive under enormous growth pressures. Infrastructure Australia should continue to be the source of advice on all these projects.

2.       Integrate regional infrastructure and land use


The Infrastructure Australia approach has been to say ‘no plans – no money’ when it comes to infrastructure decisions. No more are lists of infrastructure distributed on the basis of political need, they are assessed and evaluated on a ‘needs basis’ with a set of criteria which include the need to demonstrate reduced carbon as well as improved productivity and liveability. These processes have led to a sea change in state and local government planning as there can be no simple lobbying to determine need, it must be set out in a plan.


Federal government involvement in planning begins with the need to demonstrate how its money will solve issues in our cities and regions in the long term. This needs to be properly mainstreamed in the strategic and statutory planning schemes developed in each state for their cities and regions, especially how to deliver Transit Oriented Developments.6 For this we need to see how the outcomes of the plan from the infrastructure investment will be delivered. That is, the governance of our cities and regions needs to be overhauled to show how it can provide solutions to these needs. Regional governance is still not as obvious as it should be in Australian cities and regions.

3.       Base Federal funding to the States and Local governments on reducing carbon and oil


The principle of not releasing money to states and local government unless particular national agendas are being met should be expanded into all federal money. It should include the need to demonstrate reduced carbon and especially reduced oil. Kevin Rudd announced this in his powerful speech given to the Australian Business Council in October 2008.7


This needs to be translated into mainstream delivery. Climate change and peak oil are not going away, they are based in geophysical reality. We must address them in every level of government, beginning with the federal process of funding. The most significant policy implication is that the federal government needs to require state and local government Climate Change and Peak Oil Strategies.8 All federal funding to states needs to be contingent on demonstrating reduced carbon and oil in its outcomes, particularly local government funding.

4.       Develop a national system of accrediting carbon neutral or low carbon buildings and urban development


The carbon efficiency of our building stock is now one of the worst in the world. The assessment of buildings for their energy efficiency has been a focus of much government activity at all levels in recent decades.  The New South Wales system of BASIX with its requirement to reduce carbon and water by 40 per cent over average household levels was a public policy breakthrough. It is effective because it requires real numbers to be reached in the designs of every new building. Moreover, it is an online process that did away with excessive documentation and bureaucratic planning processes. However the housing industry has not been happy with such radical treatment (though the New South Wales industry did adjust quite quickly and is producing a much better product now than the other states) so they lobbied for the Victorian green star system. This has no strong data requirements, adopting instead a check list approach. This has become the national standard and although it can be ramped up it has not led to significant improvements in the carbon efficiency of our building stock. Similar issues now surround how we plan precincts. Is it possible to assess carbon reductions in subdivisions and redevelopment projects that involve more than single buildings and require infrastructure assessments?


There are a number of competing models but they again fall into the same public policy dilemma – do you enforce a standard such as reduction in carbon of 40 per cent or even carbon neutrality as they are about to do in the UK, or do you have a check list that requires very little? The New South Wales Government has developed PRECINX as a data-oriented model like BASIX and there are a range of other check-list based programs like Precinct from the Green Building Council. We should aim higher and see our global response to carbon by adopting a model such as PRECINX nationally.

5.       Develop a Sustainable Cities demonstration program


There is no federal program to enable demonstration of productivity, sustainability and liveability in the same way that Better Cities did in the 1980s and 1990s. This program transformed our old inner cities, trapped in brownfield decay. Now we need to focus on greening the grey fields to help regenerate declining middle suburbs.9


The best demonstrations of sustainability in our cities have been collected globally in our books ‘Resilient Cities’ and ‘Green Urbanism Down Under’, and the next phase of sustainable cities worldwide is unfolding every day in new opportunities and competitions between green cities.10 These areas are redeveloping using market approaches that subdivide each house and yard with three or four units, but with no broad benefits in infrastructure or services. New models are needed for planning including spatial tools for determining the best places for precinct scale redevelopment, low carbon designs, engaging the community and visualising the benefits of the project. A Sustainable Cities Demonstration program needs to be established between Innovation, Infrastructure and Climate Change and Energy Efficiency that can provide an opportunity for global best practice innovations in sustainable cities, especially regenerating the middle suburbs.

6.       Establish a carbon credits scheme


The establishment of the Carbon Trust enables us to now seek how low carbon designs for buildings and for precincts could become eligible for carbon credits. An accreditation process needs to be established to enable this ‘direct action’ form of carbon trading to be facilitated. This process will require data through models like BASIX and PRECINX, so the sooner these are made into national standards the better.


A carbon credits scheme needs to be established by the Carbon Trust to enable any carbon neutral or low carbon building or urban development to claim these credits.

7.      Policy review of renewable energy obstacles


The need for renewable energy to rapidly become the basis of our economy is demanding a range of policies such as the 20 per cent by 2020 regulation. There are however many simple barriers that continue to prevent renewable energy from being as easily rolled out as it should be. A national approach is needed, with a set of guidelines generated from the COAG-Federal Government process.


A policy review needs to be conducted of all barriers to small and large scale renewable energy in local and State planning and energy systems, especially in urban areas. Introducing a requirement for strategic environmental assessments to inform the siting of wind farms in regions could help clear away problems and help communities see their public and private benefits. In cities, the banning of solar water heaters and PV arrays in some local areas should not be allowed based on aesthetic grounds.

8.       Review barriers to facilitation


There is a need for more high-level policy review that can clarify the many issues that confront the utilities, households, business, local and state government regulators.


Al Gore’s so-called ‘moonshot’ for achieving rapid deployment of renewable energy is to use plug-in electric vehicles and smart grids to enable efficient and clever storage of fluctuating renewable energy loads and changing demand curves.11 The technology is becoming clearer and the federal government ‘Smart Grid Smart City’ project in Newcastle as well as the ‘Solar Cities’ projects are all providing valuable information on how to proceed.

9.       Promotion of more active transport modes


The need to reduce car dependence and carbon dependence in our households and businesses is not just a matter of infrastructure, pricing and regulation, it is also a matter of education and lifestyle choices. The first signs of a decline in car use per person have begun to set in to all Australian (and US) cities as well as booming public transport and increasing densities – thus reversing at least five decades of increasing car dependence.12


A special fund for the promotion of active transport modes and sustainable lifestyles in general needs to be established, including the provisions of TravelSmart and LivingSmart type behaviour programs.

a) Expansion of TravelSmart

The TravelSmart program, first started in Perth, has now spread across all states, the UK and six US cities. It has been universally finding that 15 per cent of motorised travel can be shifted to more sustainable modes, especially short trips by walking and cycling.13 With additional funding, more households and more businesses can be part of this process that enables them to find assistance to change. It creates benefits in terms of infrastructure cost savings but also in generating hope for the future. TravelSmart should have a Federal program supporting it across all cities and regions, especially as peak oil appears to have happened and households will experience significant hardship unless they can begin to reduce their car and fuel use.

b) Expansion of LivingSmart

LivingSmart is a translation of TravelSmart into a household program for reducing carbon emissions from using energy and water, generating waste and travelling. It is an integrated program where households in the trial have achieved savings of around one tonne of greenhouse gas.14 The project is based on individualised approaches that can enable households (and workplaces) to make informed choices on their options for appliances, materials, and lifestyle choices. It needs to become a federal program to enable the 600,000 households that have had Household Sustainability Assessments to receive more personalised follow-up.

10.   Remote Indigenous Settlements programs


The moral dilemma of the 21st Century is probably climate change but the moral dilemma of the past few centuries was slavery and Indigenous rights. We have a chance to be a leader on climate change but we certainly have not led on indigenous policy issues. This remains part of our unfinished business. Several initiatives have been taken to Close the Gap and invariably feature housing and local services but never address the problem of poor road access to remote Indigenous settlements.


A Remote Indigenous Settlements program would integrate the need for better access and better housing and local infrastructure should be established with an emphasis on the training of Indigenous people. It is time to develop an Indigenous Infrastructure Fund that can link Indigenous settlements on a core and spoke model and enable them to have the same services as other local government areas. A governance arrangement that can assist Indigenous corporations to apply for funds in a way that can improve productivity (through training) and environmental and social goals, should be developed (similar to the way that Infrastructure Australia works in partnership with state government agencies to improve their applications).


Sustainable cities will remain unfinished business for the next 20-30 years as we respond to the wicked problems of climate change and peak oil as well as to the ongoing issues of population growth and affordable housing. Governments will come and go in this time but it is necessary to establish a clear role for the federal government in the planning of our cities. This cannot be an on-again/off-again policy arena as the issues demand a long term approach with many new approaches and demonstrations. The need for federal government commitment in policy and resources to sustainable cities programs will become a bigger and bigger political issue as the scenarios of the IPCC, Stern and the peak oil pundits begin to work out in every day life.

Photo Credit: Homayon Zeary,


  1. House of Representatives Committee on the Environment (2005) Sustainable Cities, Parliament House, Canberra.
  2. This definition is from Newman, P. and J. Kenworthy (1999) Sustainability and Cities, Island Press, Washington DC and was used in all recent State of the Environment Reports.
  3. The opportunity now appearing globally is set out in Newman, P., T. Beatley and H. Boyer (2009) Resilient Cities: Responding to Peak Oil and Climate Change, Island Press.
  4. Department of Infrastructure, Transport, Regional Development and Local Government (2010). Available online:
  5. The Al Gore book and film, An Inconvenient Truth, and the UN’s Intergovernmental Panel on Climate Change produced a series of reports on climate science and the potential consequences of different pathways to the future – together they were awarded the 2007 Nobel Peace Prize and in many ways Kevin Rudd and Barack Obama were catapulted to their historic wins based on the global sentiment generated around the need for climate action; Nicholas Stern’s report to the British Government from Treasury was also historic in that it was the first to show how government finances needed to enable a true cost of carbon to become a global priority.
  6. Newman, P, M. Bachels and B. McMahon (2010) Delivering TODs, PB-CUSP Discussion Paper. Available online:
  7. Rudd, K. (2008) Speech to the Australian Business Council of Australia, available online:
  8. The Queensland Government now requires that both climate change and peak oil are addressed in all local government strategic and statutory plans. The Gold Coast Council are the first to produce both.
  9. Newton, P. (2010) Beyond Greenfields and Brownfields: The Challenge of Regenerating Australia’s Greyfield Suburbs, Built Environment
  10. Newman, P, T. Beatley and H. Boyer (2009) Resilient Cities: Responding to Peak Oil and Climate Change, Island Press, Washington DC; Beatley, T. and P. Newman (2009) Green Urbanism Down Under, Island Press, Washington DC.
  11. A set of papers and powerpoints on this subject are included on transport
  12. The decline in car use and increase in public transport are outlined in Stanley, J. (2010) Moving People, Australian Railways Association and Bus Confederation of Australia, Canberra; the density data are from Kenworthy, J’s the Global Cities Database but are not yet published
  13. Australian Greenhouse Office (2005) Evaluation of Australian TravelSmart Projects in the ACT, SA, Qld, Vic and WA, 2001-2005. Department of Environment and Heritage, Canberra.
  14. West Australian Department of Transport (2009) LivingSmart Delivery Report Social data. Available online:

AUTHORS(S): Peter Newman

Making it last

Shifting from fear to hope

1 Comment 05 July 2010

Australia’s abundant energy and opportunities for future wealth and health

by Fiona Armstrong


Unlike many other countries, Australia has no significant climate policy. Efforts to introduce a lacklustre emissions trading scheme have failed, and apart from some minor policies, Australia has no significant policy agenda to contribute to the global effort of stemming our relentless rise in greenhouse gas emissions, or to draw down our legacy of excess carbon dioxide (CO2), as we are warned we must.1

Australia’s history is closely linked with a reliance on natural resources. We have been encouraged to think that the ‘lucky country’ is dependent on its natural assets for wealth and prosperity and that their exploitation is our only key to a stable economy and flourishing society. The bad news is that the way we are using some of those resources is damaging not only the ecosystems on which we depend, but also our economic security and our nation’s reputation as a good global citizen.

The good news is that our abundant natural resources can continue to dominate Australia’s future. But we must begin to transform our economy now to capitalise on this continent’s natural advantages of sun, wind, and soil and the opportunities they afford for a secure future.

The fossil fuel lobby’s claims that renewable energy can’t do the job, or that cutting emissions will harm Australian’s job prospects, are simply unfounded – in fact the reverse is true.2 Wind and solar data tells us that we have massive energy resources available and technology exists to provide us with renewable energy day and night.3 Detailed reports indicate there is huge potential for the creation of jobs in constructing and operating new renewable energy infrastructure.4 Further studies suggest that a failure to engage with new global markets that are being created by action on climate change means Australia is missing out on opportunities to develop innovative intellectual property and on growth in profitable new industries.5

Unless Australia supports the development of an economy powered by renewable energy sources, we risk a loss of competitiveness internationally. Our reliance on coal looks increasingly reckless economically as well environmentally as other countries begin to look at imposing border taxes on carbon intensive imports.6 We need to begin our clean energy transformation now, or Australia will lose out on the jobs and economic benefits from what is predicted to be the ‘biggest high technology market of the 21st Century’.7

It is time to link climate with policy across the sectors (energy, transport and agriculture in particular) and to develop strategies to ensure Australia is able to meet its fair share of the global obligation to reduce greenhouse gas emissions and reduce atmospheric CO2 to a safe level. This will require a considerable shift away from the current focus on propping up ‘sunset industries’ in the face of inevitable change.

The scale of transition is enormous, but as Sir Nicolas Stern, Professor Garnaut and others have identified, the costs of not acting far outweigh the costs of action.8

Repositioning Australia now to capitalise on its natural advantages by building industries based on sustainable resources will enable us to lower our emissions and draw down carbon dioxide – with the additional benefits of more jobs (and more secure jobs), cleaner air, economic prosperity and energy security.

Addressing climate change is both a matter of domestic policy and international obligation. Australia cannot have any credibility in global discussions on climate change if it takes no effective action itself. Effective international action depends on emission reductions being undertaken by industrialised nations, not just promised. It is the implementation of effective policies to reduce each nation’s emissions that is the key to international agreements, not the other way around.

The development of a comprehensive policy suite to address the challenge of climate change for Australia is well overdue. Action is needed to reduce emissions, draw down excess carbon dioxide from the atmosphere, and to adapt and prepare for further changes to the climate. This will not only assist in eliciting cooperation from other global partners in the task of restoring a safe climate, it will also:

  • help position Australia in the increasingly competitive global marketplace of clean, sustainable industries
  • improve our energy and national security, and
  • provide considerable health and social benefits.

The story so far

During the past decade, Australian governments have been slow to respond to the global effort to reduce emissions and act on climate change. This reflected the scepticism (and later, denial) on the part of some of the senior members of the Howard government on the scientific evidence on global warming. Concerns about Australia’s reliance on fossil fuels (for electricity generation, transport and export revenue) led to that government’s refusal to ratify the Kyoto Protocol (an international agreement effective since 1997 between 190 countries) despite being only one of two industrialised countries not to do so.

Under pressure from shifting popular opinion however, Prime Minister Howard pledged to develop an emissions trading scheme to reduce green house gas emissions in 2006, and commitments were made by the then Rudd Opposition to address the issue. Elected on a wave of popular support and desire for change, the Rudd Government adopted the Howard policy of emissions trading in 2007, and during 2007-08, developed a ‘cap and trade’ model, known as the Carbon Pollution Reduction Scheme (CPRS). The Opposition changed position (and leadership) on the issue, and the legislation was rejected twice in the Senate, amid widespread criticism of the scheme.

With growing community concern about its inadequate targets, excessive use of offsetting, unnecessary compensation to polluters, and the setting of both a ‘cap’ and a ‘floor’ beyond which emissions reductions could not fall or rise, by early 2010 the CPRS had become a liability for the Government, and it was shelved (to be reconsidered, we are told, in 2013).

This decision offers a fresh opportunity to look at climate policy options in Australia and provides an open space for the development of innovative and effective policy ideas. Such ideas must necessarily reflect actions being taken globally as well as position Australia for leadership in the global effort to address the challenge of climate change.

Why does climate policy matter?

Climate change poses profound threats to the natural ecosystems and biodiversity on which humans depend, and is altering the previously stable climatic conditions that have existed over the past 10,000 years – allowing human civilisation to flourish. Overwhelming scientific evidence over several decades demonstrates human activity (in particular, the burning of fossil fuels for power, heat and transport as well as widespread deforestation) has led to an accumulation of carbon dioxide and other greenhouse gases in the Earth’s atmosphere above pre-industrial levels. This is causing increases in average global temperature, changes to the Earth’s climate, and severely compromising the ability of the Earth’s oceans to absorb carbon dioxide. Ocean acidification is threatening the viability of marine ecosystems, 9 with significant implications for food production for millions of people. 10

The most recent scientific evidence confirms these effects and demonstrates a rapid increase in the rate of warming due to dramatic increases in global emissions. The timeframe for effective action to reduce emissions and prevent the collapse of major ecosystems (and thus our food chain, among other things) is very short – global emissions must peak within this decade and then rapidly decline.11

Carbon dioxide isn’t the only problem

Climate change is only one of three ‘planetary boundaries’ (identified by Earth system scientists as quantified boundaries within which humanity can safely exist) that have already been transgressed. The others are the nitrogen cycle and biodiversity. Nitrous oxide requires special attention, as it is a significant climate forcing agent, with a global warming factor 300 times that of CO2.12 The profligate use of nitrogen by humans (mainly in agricultural fertilisers) is also responsible for the pollution of waterways and damage to marine ecosystems,13 and is implicated in outdated fossil fuel energy production.14

Biodiversity is often overlooked in policy discussions and efforts to reduce emissions. However there are compelling reasons to act to prevent further global warming on biodiversity grounds alone, and to place a value on the services afforded to us by the ecosystem. We need to recognise the vital connection between the choices we make on resource use, the status of the ecological system and the wellbeing of people.15 There are profound economic consequences for failing to do so: from a total of over $US 33 trillion (the 1997 estimated annual value of global ecosystem services), conservative estimates put the annual global loss of land based ecosystem services at €50 billion, and potentially equivalent to seven per cent of GDP by 2050.16

Protecting nature’s grey matterProtecting biodiversity means maintaining the irreplaceable intellectual property that is created by millions of years of evolutionary design – as memorably put by Ian McBurney from live·ecological: “We could also be losing the chance to study nature’s 3.8 billion years of design perfection and find cures for diseases or bio-mimetic glues, organic solar cells, structural designs, super fast computer hardware, self cleaning paints, truly biodegradable packaging, ‘photosynthetic’ hydrogen splitting for fuel cells, stronger and self assembling ceramics, more effective trains and aeroplanes, colour through shape, rather than pigments, bacteria that mine metals from waste streams, collision avoidance circuitry from locusts and lots more.”17

A diverse ecosystem is a resilient one, but the capacity of biodiversity to cope with climate change is not infinite: as the 2009 Australian Government report on biodiversity and climate change stated:

“Australia’s biodiversity has only so much capacity to adapt to climate change, and we are approaching that limit. Therefore, strong emissions mitigation action globally and in Australia is vital – but this must be carried out in ways that deliver both adaptation and mitigation benefits.” 18 Prompt and effective action on climate change is therefore an essential act of risk management.19 This action will also confer many more immediate benefits to Australia’s health, wellbeing, and national and economic security.

There is good news for jobs: studies show there are significant opportunities for ‘green’ jobs growth, since the renewable energy industry creates more jobs per unit of energy generated than the fossil fuel industry.20 It is also a safer industry: the risk of death or injury from workplace hazards is greatly reduced in the renewables sector compared with those working in coal mining and fossil fuel extraction.21

And there is good news for health: improvements to the transport system and powering it with clean renewable energy will reduce air pollution and (if carefully planned, promoted and maintained) stimulate greater physical activity, reducing the risks of some chronic diseases, such as respiratory disease, obesity, diabetes, and cardiovascular disease.22 Modifying our food choices away from high emissions livestock production can reduce cardiovascular disease,23 and reducing our dependence on industrial scale farming practices will improve soil and water quality.24

Shifting from the burning of fossils fuels, such as coal, for our energy supply will bring significant benefits for those living and working nearby, with developmental disorders, cancers, heart disease and respiratory problems all implicated in proximity to the mining, transportation and burning of coal.25

Fast facts The annual health costs of coal-fired power generation in Australia are estimated at $2.6 billion.26 Coupled with costs from traffic pollution (a 2003 estimate put annual health costs at $3.3 billion), the health costs to the Australian community from burning fossil fuels is around $6 billion annually.27

Fast facts If the currently externalised total climate and health costs for Australian power stations were accounted for, the costs of energy generated by fossil fuels would be considerably higher. If total climate and health costs were included, costs are estimated at: $A19/MWh for natural gas, $A42/MWh for black coal and $A52/MWh for brown coal.28 In contrast, wind power installations are around $A1.50/MWh, while solar thermal and solar PV are equivalent to around $A5/MWh.29

Values and principles

There are both self-interested and moral reasons to act on climate change. We should act to protect ourselves from current and future risks, and we should act to prevent others being affected. Fundamentally, however, the principle that overwhelmingly demands a shift in our approach to economics, our use of natural resources, and our response to climate change, is simply the principle of the ‘interconnectedness’ of ecology and human society. Too little understood by economists, policymakers and overwhelmingly urbanised global populations, the awareness that we are intrinsically part of and totally reliant on a complex interconnected ecological system (whose equilibrium is currently disrupted and increasingly threatened by our current activities) is what should drive our responses to climate and environmental challenges. There are other important issues that should also underpin our response, such as our obligation to intergenerational equity (we don’t leave a mess behind for our kids), global justice (we don’t further damage the wellbeing of people in poorer nations by selfishly insisting we have a right to pollute, and alter the climate), and finally the precautionary principle – because reducing the risk of dangerous climate change is the most profound act of risk management that we can take.

Fear of these risks and consequences may not be what drives us. Psychological studies reveal that, influenced by those with vested interests in the status quo, humans have demonstrated an extraordinary ability to deny the evidence on climate change and its imperative for action.30 A new national ‘narrative’ is needed that will enable people to feel optimistic about the future, confident in the solutions, and convinced that change will not only address current and future risk, but will actively contribute to the establishment of future societies that are better for all of us. As many organisations are beginning to appreciate, changing the way we do business is necessary to ensure that we continue to have access to the ecosystem services on which we depend. Shifting Australia’s economy from one that depends on exploitation of finite natural resources to one that is underpinned by infinite and clean resources is both a challenge and an opportunity. But the emerging evidence is that, not only is it possible, it will bring with it unparalleled economic gains – with the creation of jobs and industries that will make us internationally competitive and economically secure, with better health and more connected communities.31

How do we do it? Transforming energy, transport and land use to make Australia cleaner, healthier, safer, wealthier and more responsible

There is a great need to considerably broaden the policy discussion in Australia on climate change. To date, policies and programs have been developed that are inadequate in scale (Solar Flagships); ill-conceived (the Renewable Energy Target, otherwise known as RET and net feed-in tariff); fail to take account of the science (low emissions reduction targets); illogical (inclusion of native forest biomass and coal mine waste gas as eligible renewable energy sources in the RET); and poorly administered (insulation). Other policies, also insufficient in magnitude but nonetheless effective (Remote Renewables Program), have been abandoned.

Many of these policies have been developed in isolation from one another, when in reality, comprehensive, whole-of-government (let’s face it, whole-of-society) responses are needed.

There are three main strategies necessary to effectively address climate change. These are:

  • reducing the production and emission of greenhouse gases from all sources – starting our New Industrial Revolution
  • removing excess CO2 from the atmosphere – restoring the balance for land, air and sea, and
  • providing for the review and monitoring of a range of techniques for direct cooling of the climate – ensuring safety in climate interventions.

Starting our New Industrial Revolution. Reducing emissions and removing CO2 from the atmosphere requires moving away from the use of fossil fuels in the energy and transport sectors. The changes needed are technically possible, economically feasible and will lead to significant long-term reductions in future energy costs, improvements to population health, and increased agricultural productivity. This will bring about substantial changes to the way we use natural resources but we will be healthier, safer, and facing a more secure economic and foreign policy future as a result. Policy options must include strategies that will achieve a rapid transition to zero emissions technologies, reduction in energy demand and reduced emissions from non-energy related sources.32

Restoring the balance – for land, air and sea. The drawing down of legacy emissions (those already in the atmosphere) is also needed to restore a safe climate zone of atmospheric CO2. At present the main option for this is that of biosequestration. Australia has enormous potential to sequester large quantities (potentially billions of tonnes) of CO2 in soils and forests.33 We need to begin to account for our ‘natural capital’ and stop cutting down our native forests, degrading our waterways and, mindful of the need to secure quality land for food production, increase the use of biochar and undertake substantial reafforestation of our ‘wide brown’ land. Where possible, policy makers must take into account the value of ecosystem services and reflect that value in the establishment of price signals and regulatory measures.34

Ensuring safety in planned climate interventions. Providing for the review and monitoring of a range of techniques for direct cooling of the climate in legislation is necessary to ensure that Australia is aware of, and remains engaged in developing governance frameworks for any technologies being explored to directly alter global or regional climates. This approach acknowledges that while the utmost priority should be placed on eliminating emissions and drawing down excess, should the Earth’s climate suddenly deteriorate, it may be necessary to consider a range of options to protect the Earth’s systems while natural safe climate conditions are restored.

The Policy ToolboxAustralia’s next term climate policy goal: Smarter, greener, fairer, healthier

Implementation of the strategies above requires the development of broad national climate change legislation encompassing a suite of policy responses35 to reduce emissions, draw down carbon and ensure sound governance of climate cooling techniques. This should be accompanied by commitments at the COAG level for state and territory legislation that supports and assists the goals of national initiatives.

The legislation must include the following key elements:

  1. Specific targets for emissions reductions and draw down of emissions – these must have a timeframe attached for regular review (e.g. annually, according to advice from an expert climate scientific advisory committee)
  2. Meaningful financial incentives e.g. a price on carbon that is set at a level that will prevent financing of any new coal fired power generation (unless it can safely capture and store 100 per cent of its GHG emissions) and make clean renewable energy cost competitive with fossil fuels
  3. Energy efficiency standards, fuel consumption standards and greenhouse gas emissions standards that encourage significant reductions in energy use (of fossil fuels in particular) and create disincentives for inefficient energy use in building, transport, and appliance technologies 36
  4. Programs and incentives to discourage deforestation, encourage reafforestation and improve land use to deliver emissions reductions and promote biosequestration 37
  5. Investment in: national energy transmission infrastructure, zero emissions energy technology development and deployment, and zero emissions transport infrastructure 38 and
  6. Removal of the perverse incentives that exist in current policy, such as the current subsidies to fossil fuel industries.39

The legislation must make use of these top climate tools:

  1. Carbon tax - the revenue from which should be used to offset the increase in energy costs for low income and disadvantaged households, assist workers who are disadvantaged during the transition, and to fund the renewable energy transformation
  2. Gross feed-in tariff, for a guaranteed period and tiered according to technology – this is needed to expand renewable energy technologies that are not currently cost competitive under the RET e.g. solar thermal with storage, wave, geothermal; it should be established initially to operate alongside the RET but over time the RET should be phased out
  3. Mandatory standards for emissions and energy efficiency – to drive emissions abatement and to reduce energy use
  4. Progressive taxation policies that encourage the rapid deployment of zero emissions technologies and conservation of natural capital – e.g. tax relief for renewable energy technologies through accelerated depreciation rates; tax breaks and other incentives for landholders/communities to undertake reafforestation projects/reduce deforestation and improve biosequestration
  5. Public financing to upgrade and expand national energy transmission and public transport infrastructure;
  6. Funding to support capital investment for renewable energy technology and the development and deployment of technologies for biosequestration and improving soil quality e.g. biochar – through the provision of low interest loans or loan guarantees
  7. Removal of subsidies for those industries that cause us harm e.g. fossil fuels and intensive agriculture – these should then be applied to renewables and organic farming
  8. Transition and adaptation support for communities – undertaking comprehensive regional climate risk assessments that evaluate economic, health, social and environmental risk and developing action plans to address risk;
  9. Comprehensive education programs to improve climate literacy in all communities;
  10. Investing in research – this is needed to monitor climate change in order to respond effectively; for further development of zero emissions technologies; to improve our understanding and capability for drawdown and transition strategies; and to improve our understanding of climate cooling techniques
  11. Investment in education and training of the skilled workforce needed to manufacture, install, operate and maintain new technologies; and retraining of workers in high emissions industries to enable them to participate in the new green economy, and
  12. A sustainable population policy – recognising the environmental impact of our high per capita emissions and the effect of the human population on our fragile ecosystem.

Why choose these tools?


In his landmark report on the economics of climate change back in 2006, Sir Nicholas Stern identified a price on carbon as a key element to cutting emissions. Nothing has changed; only the urgency of its application has increased. A carbon tax provides a better choice than emissions trading because it:

  • creates an economy-wide incentive to reduce emissions 40
  • is simpler and more transparent than emissions trading 41
  • provides a reward for more long-term (and higher cost) structural changes, while an ETS just encourages low-cost reductions 42
  • provides a steady flow of revenue for governments to direct towards emissions abatement 43
  • provides more price certainty for business than the volatile market of emissions trading 44
  • can be adjusted according to a jurisdiction’s emissions profile 45
  • sets no upper limit on emissions, unlike an ETS, which creates a ceiling (beyond which emissions will not occur) and a floor for emissions reductions 46
  • doesn’t discourage voluntary action 47 and
  • since there are no “rights to pollute” with a carbon tax, it is less likely to generate the compensation claims and buyback costs associated with an emissions trading scheme.48

And a tax will be more efficient economically. A 2008 study from the US Congressional Budget Office found that on economic efficiency measures, the net benefits of a tax were roughly five times that of a cap-and-trade (emissions trading scheme), with reductions achieved at a fraction of the cost.49

Feed-in tariffs

The choice to implement net, rather than gross, feed-in tariffs in some Australian jurisdictions has been a mistake; the rewards for net feed-in tariffs are minimal and quite insufficient to drive investment in large scale renewable energy technology.50 In contrast, a gross feed-in tariff has been used effectively in Germany, where it provides investment security, has created hundreds of thousands of jobs and saved billions of Euros in avoided expenditure on fossil fuels.51

The story is similar in Spain where, in addition to an EU renewable energy target of 20 per cent by 2020, a gross feed-in tariff is responsible for delivering the Government’s 2010 target of 20 GW of installed wind capacity,52 and driving a surge in investment in the cheapest form of solar power – concentrated solar thermal (CST).53 A guaranteed long term tariff rate at a high enough level to cover costs, coupled with a specific target for CST is responsible for Spain currently boasting the largest global share of solar thermal projects under construction.54

Standards and targets

It’s time to move beyond voluntary standards – these have been in place in some jurisdictions for decades and emissions have continued to rise. Relentless increases in energy consumption in Australia (predicted to rise 35 per cent by 2030),55 need to be addressed through aggressive and continually improving mandatory standards and targets for energy efficiency to reduce energy demand. There is huge potential for emissions reductions from improving energy efficiency: according to a 2008 McKinsey and Co report, about 25 per cent of potential emission reductions could be achieved through energy efficiency measures alone, and what’s more, they are cost-positive (i.e. they save money). To make these standards effective, it is also vital to increase the incentive for emissions reductions by electricity and gas utilities through decoupling the link between revenue and volume of energy sold – in other words, to shift from the current incentive to sell more energy, to less.56 Australian transport emission standards also require considerable strengthening if the health costs (see above) and emissions abatement needed are to be achieved. The transition away from fossil fuels will also require direct investment in the production of clean renewable energy powered vehicles.


Immediate and major investment in zero emissions public transport is necessary to encourage a shift away from private cars to public transport and bicycles in metropolitan areas, increased use of and investment in electrified rail to replace much of the heavy haulage of road transport, and development of a national fast electric rail network to reduce emissions from domestic aviation. To facilitate the contribution of decentralised renewable power generation, a nationally integrated ‘intelligent’ grid for electricity distribution is needed – for which public investment is required.

Removal of fossil fuel subsidies

Achieving effective emissions reductions requires the removal of existing perverse incentives that work in opposition to this goal. Around $10 billion is currently provided in public subsidies to the fossil fuel industries in Australia every year via a range of state, territory and federal programs.57 Decarbonising the economy requires that these subsidies are instead applied to the development and deployment of zero emission technologies.

These policies and others listed above are not an exhaustive list of all the options available for inclusion in a comprehensive climate ‘policy suite’, but are certainly some of the key ingredients. Other important options include, for example, the establishment of a national climate change commission to oversee, monitor and report on the implementation of policy. It is clear, however, in the time remaining to effectively act on climate change, no single policy will be enough, and a range of options must be urgently employed.

What is the evidence that the New Industrial Revolution is possible?

It is not only possible – it can be achieved in relatively short time frames, as the technology is already available and resources are abundant. All that is missing is political will.

A new report from Melbourne consultancy Beyond Zero Emissions (BZE) supports the findings of international studies which demonstrate that the world’s energy requirements could be met from renewables within 10-30 years – with aggressive policy action.58 The BZE report (released July 2010) suggests it is possible for Australia to undergo an energy transformation and move to 100 per cent renewable energy for its stationary energy supply by 2020. This could be achieved using fully scaled commercially available technology (wind and solar thermal power with storage) to provide 24 hour dispatchable power from geographically dispersed energy-rich sites across the country.59

The use of these two technologies directly addresses the claims of naysayers who assert that renewable technology is not yet up to the task of large-scale national power generation. The distribution of generating systems overcomes the variability of wind and, combined with the availability of power storage with solar thermal (up to 16 hours), also lays waste to the argument that only fossil fuel and nuclear sources can provide baseload power. Combined with energy efficiency gains, the use of biofuels from agricultural waste, and upgrades to transmission infrastructure, the rollout of these two technologies could achieve massive emissions reductions from the single largest source of greenhouse gas emissions in Australia – fossil fuel power generation. It would also generate 75,000 jobs during construction and 80,000 ongoing jobs in operations, maintenance and manufacturing – well in excess of those currently employed in the fossil fuel energy supply workforce.60 The required investment for the implementation of this plan is estimated at around 3-3.5 per cent of gross domestic product over 10 years, or AU$35-40 billion per year for 10 years. When the loss of irreplaceable natural capital (i.e. currently unaccounted for ‘externalities’) is accounted for, this may seem like a very prudent investment indeed.

Other recent modelling supports these predictions of national jobs growth from strong policy action through investments in renewable energy, with regional areas in particular set to gain from an energy transformation.61 The National Institute of Economic and Industry Research estimates 770,000 extra jobs could be created by 2030 across Australia if a suite of policy measures to reduce emissions is implemented.62 As well as contributing to Australia’s competitive advantages by creating a strong and resilient domestic renewable energy industry, this type of action will also help to reduce our long term energy costs, build national capital and improve health outcomes.63

The renewable energy revolution is not only possible – it’s happening already. Investment in renewable energy is generating more jobs per dollar invested and more jobs per megawatt hour than fossil fuel generation.64 Global employment in renewable energy is already outstripping direct employment in the oil and gas industries.65 Since 2005, global investment in renewable energy has increased 230 per cent,66 and is expected to total A$185 billion in 2010.67 And, far from being a laggard, China is leading the world, with investments in renewable energy of $US34 billion in 2009.68


It is both possible and necessary for Australia to develop effective climate policy to contribute its fair share to the global task of emissions reduction and to ensure its own secure economic future, while protecting the wellbeing of its citizens.

Policy makers must realise that by taking responsibility for effective action, Australian leadership and action would send a strong signal and influence the response of other nations. As a ‘middle power’, the most effective act of diplomacy open to us is to prove by our own example that it’s possible to go from heavy polluter to climate problem-solver. Australia urgently needs other countries to believe in that possibility, because as a ‘land of droughts and flooding rains’ we have more to lose from climate change than most.

To build public support for effective policy, it is vital that policy makers communicate the scale and urgency of the problem to the community. Voters cannot be expected to support policies they don’t understand or comprehend the need for. The demonstrable disrespect for science that has pervaded political discussions in Australia threatens us all. It is time our political leaders defended climate scientists and made it clear that we do face grave risks, and that it is therefore necessary to develop policies that reflect the scientific evidence. It is also important that the benefits of taking action are made clear to ensure there is a sense of optimism about the future and to encourage innovation in the development of solutions. Overcoming domestic resistance by those with vested interests requires that governments enlist the support of the ordinary citizens – by communicating the benefits of actions as well as the risks. Many people may be unaware that effective mitigation is possible – and entreating the community to join in a national exercise that offers optimism and hope for the future may just be a successful political act.

Ultimately, whether or not we respond effectively will be a test of democracy that will determine our future as a species. Right now, it’s not going so well. Major corporations have greater sovereign power (and bigger balance sheets in some cases) than many nations – and this is reflected in global, and in particular Australian, responses to climate change. At present it is those who have a vested interest in the status quo who are dictating policy. If, as citizens, we choose to deny them this influence, we will need to make our voices much, much louder than they are at present. The time is ripe for a revitalisation of democracy to ensure our political leaders respond. This may be the most important project we can ever undertake.

The risks of not acting are enormous, but the benefits, if we are successful, may be profound. As Al Gore said: “We have at our fingertips all of the tools we need to solve the climate crisis.” Here in Australia we have abundant energy sources, relative wealth, an educated population, and a history of good global citizenry. It’s time we applied all these to a new national project – addressing climate change.

Photo Credit, Michael Gorey,


  1. Hansen, J. et al. (2008) ‘Target Atmospheric CO2: Where should humanity aim?’ The Open Atmospheric Science Journal, 2: 217-231; The Royal Society (2009) ‘The Coral Reef Crisis: Scientific justification for critical CO threshold levels of < 350ppm’, Output of the technical working group meeting, London; Rockström, J. et al. (2009) ‘Planetary Boundaries: Exploring the safe operating space for humanity’, Ecology and Society, 14; Safe Climate Australia (2009), ‘The Australian Safe Climate Transition Plan Strategic Framework’. Available online:
  2. Beyond Zero Emissions (2010) Zero Carbon Australia 2020 – Stationary Energy Plan. Available online:
  3. ibid.
  4. . Zero Carbon Britain (2010) Zero Carbon Britain 2030: A New Energy Strategy. Available online:
  5. Vivid Economics (2009) G20 low carbon competitiveness, Report for The Climate Institute and E3G. Available online:
  6. McNeil, B. (2009) The Clean Industrial Revolution, Sydney, Allen & Unwin; Kamalick, J. (2010) ‘New climate bill set in US Senate, draws fire and support’, ICIS News. Available online:; Honk Kong Trade Development Council (2010) ‘Italy joins France in calls for carbon border tax on imports entering EU’, World Energy Media. Available online:
  7. Wit, E. et. al. (2010) ‘From known unknowns to unknown unknowns – the postponement of the CPRS’, Norton Rose. Available online:; Vivid Economics, op. cit.
  8. Stern, N. (2006) Stern Review on the Economics of Climate Change, London, HM Treasury UK; Garnaut, R. (2008) The Garnaut Climate Change Review, Melbourne, Cambridge University Press; Vivid Economics, op. cit.
  9. See Hardt, M.J. and C. Safina (2010) ‘Threatening Ocean Life’, Scientific American, 52-59.
  10. The Royal Society, op. cit.
  11. German Advisory Council on Global Change (WBGU) (2009) Solving the climate dilemma: The budget approach, Summary for policy-makers. Available online:; Brahic, C. (2009) ‘Humanity’s carbon budget set at one trillion tonnes’, New Scientist. Available online:; Hansen, et al., op. cit.; Copenhagen Climate Congress (2009) Climate Change: Global risks, challenges and decisions, Synthesis Report, Denmark. Available online:
  12. Melbourne School of Land and Environment (2008) ‘Reducing greenhouse gas emissions from agriculture’, The University of Melbourne. Available online:
  13. Rockström, J. et al., op. cit.
  14. Townsend, A. R. & Howarth, R. W. (2010) ‘Fixing the global nitrogen problem’, Scientific American, pp.64-71.
  15. Bennett, J. (2003) The economic value of biodiversity: a scoping paper, Asia Pacific School of Economics and Government, The Australian National University. Available online:
  16. The Economics of Ecosystems and Biodiversity (TEEB) (2009) The Economics of Ecosystems and Biodiversity for National and International Policy Makers – Summary: Responding to the Value of Nature, Part iv. Available online:
  17. McBurney, I. (2008) ‘State of the planet’, Live Ecological. Available online:
  18. Department of Climate Change (2009) Australia’s biodiversity and climate change, Summary of a report to the Natural Resource Management Ministerial Council, Australian Government. Available online:
  19. Garnaut, R., op. cit.
  20. Centre for Full Employment and Equity (2008) A just transition to a renewable energy economy in the Hunter region, Australia, The University of Newcastle. Available online:; The Climate Institute (2009) Clean Energy Jobs and Investment in Regional Australia. Available online:; Kammen, D., Patadia, S. & Wei, M. (2010) Putting renewables and energy efficiency to work: How many jobs can the clean energy industry generate in the U. S.? , Energy Policy, 38, 919-931.
  21. Greenpeace (2008) The True Cost of Coal. Available online:
  22. Selvey, L. and Sheridan, J. (2002) The Health Benefits of Mitigating Global Warming in Australia, Climate Action Network Australia. Available online:
  23. Friel, S. et al. (2009) ‘Public health benefits of strategies to reduce greenhouse gas emissions: food and agriculture’, The Lancet, 374: 2016-2025.
  24. Rockström, J. et al., op. cit.; United Nations Environment Program (2010) Assessing the Environmental Impacts of Consumption and Production: Priority Products and Materials. Available online:
  25. Physicians for Social Responsibility (2009) Coal’s Assault on Human Health. Available online:
  26. Biegler, T. (2009) The hidden costs of electricity: Externalities of power generation in Australia, Report for the Australian Academy of Technological Sciences and Engineering (ATSE). Available online:
  27. ibid.
  28. ibid.
  29. ibid.
  30. Frantz, C. and Mayer, F.S. (2009) ‘The Emergency of Climate Change: Why are we failing to take action?’, Analyses of Social Issues and Public Policy, 9(1): 205-222.
  31. Australians Conservation Foundation (ACF) and the Australian Council of Trade Unions (ACTU) (2010) Creating Jobs – Cutting Pollution: the roadmap for a cleaner, stronger economy. Available online:; Selvey, L. and Sheridan, J., op. cit.
  32. Diesendorf, M. (2009) Climate action: A campaign manual for climate solutions, Sydney, UNSW Press; Mallon, K., Hughes, M. and Kidney, S. (2009) Climate Solutions 2: Low-Carbon Re-Industrialisation, WWF Australia. Available online:; Friedman, T. (2008) Hot, Flat and Crowded, London, Allen Lane; Beyond Zero Emissions, op. cit.
  33. Wentworth Group of Concerned Scientists (2009) Optimising Carbon in the Australian Landscape. Available online:
  34. The Economics of Ecosystems and Biodiversity, op. cit.
  35. Stern, N., op. cit.; Garnaut, R., op. cit.; Friedman, T., op. cit.
  36. McKinsey and Company (2008) An Australian cost curve for green house gas reduction. Available online:
  37. Diesendorf, M. op. cit.; Mallon, K., Hughes, M. and Kidney, S., op. cit.
  38. ClientEarth (2009) p.42; Diesendorf, M. op. cit.; Friedman, T. op. cit.
  39. Diesendorf, M. op. cit.
  40. Kelly, T. and Brook, B. (2009) Submission to the Senate Select Committee on Climate Policy, Submission No. 552, p.47. Available online:
  41. Humphreys, J. (2007) Exploring a Carbon Tax for Australia, Policy Monograph, Perspectives on Tax Reform (14), Centre for Independent Studies. Available online:
  42. Wittneben, B. (2009) ‘Exxon is right: Let us re-examine our choice for a cap and trade system over a carbon tax’, Energy Policy, 37.
  43. Karmarck, E. (2009) Addressing the risks of climate change: The politics of the policy options, Paper for the US Climate Taskforce. Available online:
  44. Garnaut, R., op. cit., p.309.
  45. Wittneben, B., op. cit.
  46. Wittneben, B., op. cit.
  47. Kelly, T. and Brook, B., op. cit.
  48. Kelly, T. and Brook, B., op. cit.
  49. Congressional Budget Office (CBO) (2008) Policy Options for Reducing CO2 Emissions. Available online:
  50. Diesendorf, M., op. cit.
  51. Beyond Zero Emissions, op. cit.
  52. Global Wind Energy Council (2010) Outlook for 2009 and beyond. Available online:
  53. World Future Council (2009) Feed-In Tariffs Support Solar Thermal Power in Spain. Available online:
  54. Renewable Energy Focus (2009) ‘Concentrated solar thermal power (CSP) market could reach 24 GW by 2020’. Available online:
  55. Australian Bureau of Agricultural and Resource Economics (2010) ‘More gas and renewables in Australian energy mix’, Media release. Available online:
  56. Schwartz, L. (2009) ‘The Role Of Decoupling where Energy Efficiency is Required By Law’, Regulatory Assistance Project – Issues letter. Available online:
  57. Greenpeace, op. cit.; Riedy, C. (2003) ‘Subsidies that Encourage Fossil Fuel Use in Australia’, Working Paper CR2003/0, Institute for Sustainable Futures, Sydney, University of Technology. Available online:
  58. Brown, L. et al. ibid; Jacobson, M. and Delucchi, M. (2009) ‘A path to sustainable energy by 2030’, Scientific American. Available online:; European Renewable Energy Council (2010) RE-thinking 2050: Making the EU 100% renewables-based. Available online:; World Future Council, op. cit.
  59. Beyond Zero Emissions, op. cit.
  60. Beyond Zero Emissions, op. cit.
  61. The Climate Institute, op. cit.
  62. Australians Conservation Foundation (ACF) and the Australian Council of Trade Unions (ACTU), op. cit.
  63. Australians Conservation Foundation (ACF) and the Australian Council of Trade Unions (ACTU), op. cit.
  64. United Nations Environment Program (2008) Background Paper on Green Jobs, p.10. Available online:
  65. Kammen, D., Patadia, S. and Wei, M., op. cit.; United Nations Environment Program and SEF Alliance (2009) Why Clean Energy Public Investment Makes Economic Sense – The Evidence Base, p.79. Available online:
  66. Pew Charitable Trust (2010) Who’s Winning the Clean Energy Race?. Available online:
  67. Bloomberg New Energy Finance (2010) Renewable energy investment opportunities and abatement in Australia, Report for the Climate Institute & Westpac. Available online:
  68. Pew Charitable Trust, op. cit.

AUTHORS(S): Fiona Armstrong

Making it last

Living off our resources

1 Comment 28 June 2010

How we frame policy choices — the conflict model

by Ian McAuley

Will an emissions trading scheme or a carbon tax harm our economy? What economic sacrifices must we make if we are to protect the Murray-Darling Basin?

Such presentations of policy choices, implying tradeoffs between social, environmental and economic objectives, are commonplace. Governments and corporations are urged to adopt “triple bottom line accounting”, reporting separately on social, environmental and economic performance. Government departments are structured around such classifications, with public policy (or campaign manifestos) emerging through compromises between conflicting social, environmental and economic objectives. The 2010-11 Budget, for example, with its tight fiscal discipline and its cutbacks for environmental programs, could be seen as a win for the economy and a loss for the environment.

However convenient as such classifications may be, they contribute to a way of thinking which can lead to poor policy, because realistically there is no such separation.

If economic policies do not contribute to the people’s welfare, what is their point? There will always be debate about whose welfare should have priority – children, working families, the aged – and about how we trade present costs and benefits for future costs and benefits. To suggest however that economic activity has some virtue in its own right is to seriously confuse means and ends. The notion of some trade-off between “social” and “economic” objectives makes no more sense than the (apocryphal) statement attributed to an officer in the Vietnam War: “we had to destroy the village in order to save it”.

Similarly, the notion of a trade-off between economic and environmental policy overlooks the nature of economic choices. Economics is concerned with how we use scarce resources. The scarcest resources of all are what we call “environmental” resources — our atmosphere, oceans, water, soils, and ecological systems.1

Unfortunately, the political conflicts over the Rudd Government’s proposed Emissions Trading Scheme (ETS) were about trade-offs: opposition to the ETS focused on its economic cost.

One can blame political opportunism or sloppy thinking in Opposition ranks, but the point is that the idea of a trade-off is so embedded in our thinking that the Rudd Government felt it was unable to turn the debate around.

We have become conditioned to thinking about economics in terms of a few simple indicators, the main ones being Gross Domestic Product (GDP), inflation, employment, interest rates and public debt, while ignoring other economic indicators such as poverty, ignoring what is not easily measured, such as human happiness or the state of environmental assets, and ignoring the great complexity of the way people interact with one another and with nature.

James Scott of Yale University calls this process “thin simplification”. The policy advisor seizes on a few simple indicators, forgetting that these indicators are mere abstractions incapable of capturing the complex reality of the systems to which they refer, and, in time, comes to see nothing else.2 The policy advisor, the politician, and the journalist believe that any policy which detracts from the performance of these indicators is poor policy. Simon Kuznets, who, 80 years ago, developed the conventions of national accounting that we still use today, warned that the welfare of a nation cannot be inferred from such measures. Today there are people like Joseph Stiglitz working on more inclusive indicators of economic progress, but in our policy development we are still locked into limited ways of thinking.

We have come to see our prosperity as a by-product of economic good fortune, and have come to believe that attending to environmental concerns is a luxury we can afford only if we put the economy first. Capturing this spirit, in moment of unguarded candour, referring to the Government’s proposed ETS, the Opposition Leader Tony Abbott said:

‘Basically this is a tax on the way we live because the way we live depends on energy, electricity, petrol – this is the ultimate lifestyle tax.’3

The reality is that we are living off our (and the planet’s) capital. We need a fundamentally different economic structure that will make best use of all our resources.

The lucky country — Greece with minerals

By the human development index, a UN indicator combining life expectancy, GDP per capita, education and living standards, Australia does well: out of 182 countries it is second only to Norway.4 Australia can also boast of being one of the very few OECD countries to have escaped a recession during the Global Financial Crisis (GFC).5

But is such economic performance sustainable?

Australia is an unusual country, once described as a third world country temporarily enjoying a first world living standard. Throughout our post-1788 history, there have been bouts of good fortune—the opportunity to supply world markets with wool, gold, beef, wheat and, for the past 40 years, coal, iron ore and other minerals. As we have depleted one resource, we have turned to another just as it has been needed by other countries. Donald Horne dubbed Australia as “The Lucky Country” in 1964, even before most Australians had heard about the Pilbara and when Roxby Downs was only an isolated and dusty cattle station.6 While most other prosperous countries have built their economies on efficient use of human capital, Australia’s prosperity, from the time the Macarthurs started exporting wool, has owed much to the exploitation of non-renewable resources. We have exported our resources with minimal processing, and have imported our needs from countries with more developed industrial structures.

To illustrate, Table 1, drawn from OECD data, shows exports of the products of high technology industries as a percentage of imports of those same products. Australia is near the bottom of the table, just above Turkey and Greece.

Table 1. Exports as a percentage of imports, high technology industries, 2008
Ireland 231
Switzerland 201
Korea 182
Sweden 126
Japan 125
Finland 123
Hungary 118
Germany 115
Denmark 110
France 109
Mexico 108
Netherlands 106
Belgium 102
Czech Republic 90
Austria 88
United Kingdom 84
United States 83
Slovak Republic 83
Iceland 77
Italy 72
Canada 62
Norway 49
Poland 49
Portugal 47
Luxembourg 45
Spain 44
New Zealand 27
Australia 25
Turkey 21
Greece 19

Source: OECD in Figures 2009, “High technology” defined as aerospace; office and computing equipment; drugs and medicines; radio, TV and communication equipment; medical, precision and optical instruments.

One indicator cannot paint a full picture, and to suggest that Australia is devoid of a high technology sector does an injustice to those few firms which have succeeded in world markets. Furthermore, it is unreasonable to paint our mining sector as purely extractive; in fact most modern mining operations involve complex technologies, and some mining firms have an element of downstream processing. Other indicators, such as patent activity, however, tell a similar story: Australia’s industrial structure is not that of a developed country. Greece is in trouble because it has been living beyond its means; we are yet to realise that we too are living beyond our means.

Of course, as became evident in the debate about a resource super profits tax, there is a view that because Australia has very large reserves of certain minerals, including coal, iron ore, copper and uranium, we can continue indefinitely with our current resource dependence.

Even if such resources are in abundant long-term supply, however, there are costs of such dependence. Those costs include economic volatility, a loss of control, and a lopsided economic structure.

Economic volatility arises because of the nature of world commodity markets. As the world goes through inevitable business cycles, and as some countries have rapid growth spurts as has been happening in China, prices of finished goods – eg, ships, cars, whitegoods and computers – fluctuate. The fluctuations in the prices of raw materials that go into these goods are much more marked, however. Figure 1 shows the wild ride taken by world metal prices over the past 25 years.

As the Australian currency has been more volatile than most other currencies (another consequence of commodity dependence), the Australian dollar prices of commodities have fluctuated even more widely. Figure 2 shows long-term prices of iron ore, in Australian and US terms.

Due to this commodity dependence, Australia’s economy is heavily reliant on the fortunes of the world economy. It used to be said that when America sneezes, Australia catches a severe cold. The same could now be said about our dependence on China’s health. Australia’s luck to date has been that as certain markets have matured, new ones have arisen, but there is no guarantee such luck will hold. Even if our luck holds, commodity dependence always results in exchange rate volatility. This means businesses in other trade-exposed industries, ranging from education to tourism, have fluctuating fortunes, making long-term planning and investment difficult. Individuals find their lives disrupted, having to move to find employment as regional economies rise and fall. Similarly demand for skills fluctuates, which means it becomes risky for people to become too specialised. The Reserve Bank finds that interest rates have to respond to international currency markets rather than to domestic conditions, with obvious consequences for house buyers and builders.

Another consequence, which became evident in 2010, is that commodity firms which have accumulated huge surpluses in the good times can use their financial reserves to exert political leverage. The whole economy can become hostage to a few firms.

Examples of extreme commodity dependence are provided by countries such as Saudi Arabia and Kuwait, where small numbers of people gain meaningful employment in the oil industry, while everyone else maintains material comfort through forms of welfare dependence. These countries struggle to develop the individual and investor incentives that apply in more developed countries. Their currencies rise to the level whereby non-resource industries have no hope of achieving international competitiveness; their economies become hollowed out. They cannot offer a range of employment to match the natural range of human skills. They do not have manufacturing sectors, where many people learn useful trades and skills. Australia has some similar problems, as identified in Treasury Secretary Ken Henry’s description of a “three speed economy” — a resource sector in the fast lane, a naturally-protected domestic service sector in the slow lane, and a trade-exposed sector in the breakdown lane.7

Just as labour markets become distorted, so too do capital markets. Investors in resource-intense sectors become conditioned to expect high returns. In economic terms, what is known as the opportunity cost of capital rises for the whole economy. Other sectors of the economy find it hard to get funding, because investors expect high returns. The consequence is generally an under-capitalised economy. Both public sector investors seeking funds for infrastructure and private sector investors seeking funds for industrial plant, where returns are more modest, are starved for funds. A consequence of such under-capitalisation is low labour productivity in that large part of the economy which is not directly linked to the resource sector.8

The well-respected development economist Jeffrey Sachs, Director of the Earth Institute at Columbia University, points out that being resource rich probably uses up one to two per cent per year of economic growth potential compared with being resource poor. [9. Sachs, J. (1996) Globalization and Employment Public Lecture to the ILO, Geneva.] The effects of resource dependence are pervasive; not only are there the exchange-rate effects (the “Dutch disease”) but also there are distortions in rewards and incentives.

The “economically pure” or neoliberal belief, however, is that we should let global economic forces play their part. If that means Australia’s economy becomes lopsided, with an overdeveloped resource sector while other sectors remain undeveloped, then just so long as income can be reasonably re-distributed so as to avoid social tension, then we should accept it: any interference in this process is inevitably at the expense of economic growth.

Encapsulated in this belief is the notion that society is subservient to an anonymous, inanimate market, driven by its own rules. Just as we must accept the laws of planetary motion, so too we must abide by the rules of the market.

This notion of market dominance, now entrenched in our way of thinking, is a modern phenomenon. Fearing an emergence of dysfunctional economic dogmas in the post-war period, in 1945 Karl Polanyi pointed out that markets have traditionally been embedded within societies, subject to society’s norms and rules. In other words, markets should serve social ends. Just as he feared the economic determinism of communism, so too did he anticipate and fear the rise of neoliberal philosophies which would place society as subservient to market forces.9 (He would have been only partially comforted by triple bottom line thinking, because it still fails to place markets within society.)

Polanyi’s thinking has no place in our brave new world, in which we are so conditioned to believe that any departure from pure market-based thinking is poor policy. Admittedly, mainstream economic thinking does acknowledge the limits of markets, with theories of externalities, natural monopolies, public goods and other market failures, but any extension of thinking to suggest that we should try to shape our national economies beyond that determined by the theory of Smith’s “invisible hand” is heresy. The greatest insult that can be made of an economist is that he or she advocates “picking winners”.

We do shape markets, however. We privilege the financial sector immensely, with measures such as compulsory superannuation and subsidies for private health insurance. We have privileged the resource sector with infrastructure and with low charges for extracting resources. We leave sectors of the economy, ranging from newspaper shops and taxis through to health professions, exempt from competition policy. We privilege housing with grants to owners and through maintaining a high level of immigration. By contrast we load labour-intensive industries with the burden of payroll tax. We do shape our economic structure, but not in a purposeful way.

There is a legitimate point that many of our past interventions to shape our economy have been ineffective, have led to unforeseen inefficiencies, and have created privilege for the few at the expense of many. For example, protective tariffs and quotas may have been appropriate instruments a hundred years ago, but by the time the Hawke Government was in office they had become serious impediments to our prosperity. Authorisation of retail price maintenance as a means of assisting retailing, imposed huge costs on consumers.

The fault with these interventions was not their intent, but their design. If we are to intervene in markets, we should do so in ways that do not impede innovation and which do not encourage monopoly profits. That means, where possible, harnessing the power of markets through using market-based instruments: for example, a tax on undesirable activities may be superior to a ban, because a tax sends a price signal, while a ban can spurn a black market. A measure which applies widely is superior to one which favours particular industries or firms; for example supporting general transport infrastructure or basic research is generally preferable to privileging railroads for a particular industry or supporting private research.

We can use our taxes and other public policy interventions to shape our economic destiny to ensure that we have a more resilient structure, so that we are not so buffeted by the commodity cycle.

The foregoing, of course, is based on a model in which we have plentiful resources. In reality, Australia is bumping up against resource constraints.

When luck runs out — policies for resource limits

Even if we have resource abundance, there is a strong case for shaping our economic structure towards a more balanced set of activities. If, as is now obvious, we have binding resource limits, the case is even stronger.

Through a combination of excess demand (aggravated by irresponsible pricing) and the early effects of global warming, we are facing severe water shortages. As stated by the International Panel on Climate Change ‘By 2030, water security problems are projected to intensify in southern and eastern Australia.’10 When we wrecked our soils through grazing sheep we were able to move on to other crops, but when we run out of water we won’t have anywhere else to turn.

More seriously, in terms of greenhouse gas emissions per capita, Australia is up there with the worst contributors, as shown in Table 2.11 The main culprit is coal, particularly brown coal.

Table 2. CO2 emissions, tonnes per capita
Luxembourg 22.35
United States 19.10
Australia 18.75
Canada 17.67
Finland 12.19
Czech Republic 11.83
Netherlands 11.13
Ireland 10.13
Korea 10.09
Belgium 9.97
Germany 9.71
Japan 9.68
Denmark 9.24
Greece 8.74
United Kingdom 8.60
New Zealand 8.48
Austria 8.38
Poland 7.99
Norway 7.85
Spain 7.68
Iceland 7.53
Italy 7.38
Slovak Republic 6.82
France 5.81
Switzerland 5.62
Hungary 5.36
Portugal 5.20
Sweden 5.05
Mexico 4.14
Turkey 3.59

Source: OECD in Figures 2009.

Greenhouse gas intensity is not an inevitable by-product of industrialisation, or of private transport. For example, Germany, which is much more industrialised than Australia and with similar high car ownership, has half our CO2 intensity per head and per unit of GDP.

If (or more rightly when) our energy resources are priced at a level which reflects their true cost – a cost which accounts for their environmental damage – we will realise their scarcity and be forced to adapt. That price may arise from a carbon tax or from a cap and trade scheme. Economists will say that it is sound economics, environmentalists will say that it is sound environmentalism; both are concerned with better allocation of scarce resources, and both agree that dirty energy producers should not be subsidised by exempting them from paying for their environmental externalities.

The notion that investments required to make the adaptation will hurt our economic growth does not stand up. If there has to be heavy investment in modernising our energy-intensive industries, then there may be a short-term diversion from consumption to investment, but it is better to make that small sacrifice early. For example, the longer we live with the illusion of cheap transport and domestic fuels, the more large houses we will build on our urban fringes. It is a cruel hoax on house owners to shield them from the unsustainability of our settlement patterns.

Modelling commissioned by the Australian Conservation Foundation and the Australian Council of Trade Unions, undertaken by the National Institute of Economic and Industry Research, shows that strong action to cut greenhouse gas pollution by 25 per cent will make households better off by 2030 than if we were to continue with “business as usual”, and, in the meantime, will have positive employment consequences.12 Farsighted industry leaders, such as Origin Energy Managing Director Grant King, has called for carbon pricing to remove the present relative price penalty applying to clean power.[14. Fraser. A (2010) “ETS collapse to boost coal-fired plants” The Australian 19 May 2010. Available online: ]

If Australia acts now we have an opportunity for an early start in new energy technologies, for which there will be world-wide demand. Australia’s expertise in mineral exploration and drilling, for example, should provide a head start in geothermal power development, but that opportunity will not be realised while clean energy has to subsidise dirty energy. We once had a world lead in solar technology, but we lost that when we failed to see its value.

One point, though, is that investment in new technologies and in new plants requires patient capital. The assets involved are long-lived but do not show spectacular early returns. Geothermal and wind power will require new transmission lines. Metropolitan subway systems require extensive tunnelling. Stormwater catchment requires re-design of our urban infrastructure. In contrast, incremental expansion of an existing coal fired power station, already privileged by having access to long-established transmission lines, shows earlier returns.

In that respect, we need to keep the cost of capital down, and to reform our investment taxes which, at present, reward short term speculation at the expense of long term investments.13 It is important, too that we come to accept more modest expectations about long term profits. As pointed out by Elroy Dimson and his colleagues at Princeton University, compared with other countries Australia enjoyed abnormally high investment returns over the 20th Century, thanks largely to commodity dependence.14 The hysterical reaction to the resource super profits tax confirms that Australian businesspeople, conditioned by a run of high profits, are living in a fantasy world of high and enduring investment returns.

Public policies towards sustainability

We need policies to re-structure our economy. Specific policies should be developed carefully, backed up by research and proper benefit-cost studies. In a document of this nature it would be premature to suggest, say, that we should have carbon quota of X tonnes (a carbon tax may be far better), or a specific depreciation allowance for renewable energy (it may be better to have different types of capital incentives).

It is possible, however, to articulate some general policy principles.

First, we should recognise the interaction of all policies. Compartmentalisation of policies leads to poor thinking and poor decisions, generally resulting in the elevation of a rarefied and abstract notion of “the economy”. We need to restore a “public service”, so that government employees do not confine their concerns to particular portfolios, and agencies do not see themselves in combative relationships.

Second, we should recognise that the purpose of economic policy is to serve society. This idea is hardly radical; it is to be found in mainstream economics texts. It does not emerge in public policy debates, however.

That may mean we sacrifice some headline growth (e.g. measured GDP) to ensure we live in a more harmonious society. It does not mean some utopian levelling, but it does mean that we restore equality of opportunity, for example through access to education and health care, and ensure that our economic incentives align with people’s contributions. As Wilkinson and Pickett point out, unfairness, and perceptions of unfairness, sap societies of their strength and resilience.[17. Wilkinson, R. and K. Pickett (2009) The spirit level: why greater equality makes societies stronger, Bloomsbury Press.]

Third, we need stop thinking of tradeoffs between “environmental” and “economic” policies. Environmental assessment should not sit alongside economic assessment: all consideration of allocation of scarce resources should be integrated. The externalities associated with consumption of environmental assets should be brought fully to account.

Fourth, we need policies which re-shape our economy to restore balance between resource extractive industries and other industries. That will generally be through harnessing the power of markets through prices, rather than through direct interventions (not the regulatory approach favoured by the present Coalition Opposition). Practical policy outcomes will include:

  • the full pricing of carbon and other greenhouse sources, full pricing of water and of other scarce resources;
  • the reform of taxation to remove penalties applying to long term patient investment, to remove the incentives for speculative investment in housing, and to encourage investment in human capital. The Henry Review has drawn attention to many distortions in our present arrangements, but much work is needed on means to achieve reform
  • the reform of the financial sector to shift investment funds from financial speculation to wealth creation. Reforms should aim to ensure the financial sector is the servant, not the master, of the real economy
  • adjustment assistance, where necessary, to firms and individuals, bearing in mind that if the government can hold a steady course on economic reform, there should be few surprises needing compensation. A carbon tax or auctioned permits will raise revenue to provide adjustment assistance, but there is no reason why all such revenue should be directed to adjustment assistance or compensation to households. For the most part firms and individuals should have time to adjust without needing assistance; and,
  • the provision of necessary public goods to allow re-shaping of the economy. Depletion of natural capital should be balanced by investment in public capital, including physical infrastructure in transport, water, and energy transmission, investment in research and human capital, and investment in public education. Such investment should be guided by rigorous and transparent benefit-cost analysis. Investment in education is necessary not only to provide the skills for an internationally competitive economy, but also to forestall opposition to change.

To clear the way for such policies, however, we need to dispel the myth that we are a developed country; living off natural assets has led us into complacency. We need to become a real developed country, earning our keep through our (renewable) human capital and entrepreneurship.

Such re-shaping involves a fundamental transformation of our economy, no less dramatic than the transformation that took place during the Hawke-Keating years. We have demonstrated that we can undertake economic transformation, and, although it will involve difficulty, the alternative path of stagnation, with a small extractive sector and a large low productivity sector, subject to the swings of world commodity prices, is not attractive to contemplate.

Photo Credit: Puddles,


  1. There will be some who hold the view that human values should not be applied to environmental resources – that there are legitimate interests beyond human interests. An anthropocentric view which has regard to option values and which applies a very low discount rate to long-term costs and benefits is unlikely to assign significantly different values to environmental resources than a more encompassing view.
  2. Scott, J.C (1998) Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed, Yale University Press
  3. Lewis, S. (2009) “Emissions Trading Scheme killed by elevation of new Liberal leader Tony Abbott” Herald Sun December 2nd 2009. Available online:
  4. UNDP (1999) Human Development Report Available online:
  5. Australia’s escape from recession was a stroke of definitional luck. By convention a “recession” is defined as two successive quarters of falling GDP. Australia had only one quarter of falling GDP; had that fall been averaged over two quarters, Australia would have been in recession. Also, because Australia has high population growth, there can be falling GDP per capita while there is rising GDP.
  6. Horne, D. (1964) The Lucky Country Penguin Books
  7. Henry, K. (2010) “Fiscal Policy and the Current Environment” Post‑Budget Address to the Australian Business Economists, 18 May 2010.
  8. Formally this phenomenon is described by the Stolper-Samuelson Theorem, originally applied to the economics of industry protection, and more recently by proponents of a resource rent tax. See Stolper, W.  and P. Samuelson (1941) “Protection and Real Wages,” Review of Economic Studies, 1.
  9. Polanyi, K. (1957) The Great Transformation: The Political and Economic Origins of Our Time 1945, Beacon Press edition.
  10. IPCC (2007) Climate Change 2007 Synthesis Report.
  11. The figures for Luxembourg are an artefact of energy reporting. Luxembourg has much lower gasoline taxes than its populous neighbours. Most of its emissions should be recorded against Germany, France and Belgium.
  12. ACF and ACTU (2010) Creating jobs – cutting pollution. Available online:
  13. ibid.
  14. Dimson, E, P. Marsh and M. Staunton (2002)  Triumph of the Optimists: 101 years of Global Investment Returns Princeton University Press.

AUTHORS(S): Ian McAuley