Sometimes I fear Australia has decided to go backwards just as the rest
of the world has decided to go forwards. Take climate change. If the
repeal of the carbon tax gets through the Senate this week there will
probably be celebrations in the boardrooms of all the business groups
that lobbied so hard for its removal.
But if they imagine the lifting
of this supposedly great burden on them and the economy will mean it's
back to business as usual, they'll soon find out differently.
They
may have rolled back the economic cost of doing something about climate
change, but now they'll face the increasing cost of not doing something
about it. As Martijn Wilder, an environmental lawyer with the Baker
& McKenzie law firm, finds in a new report for the Committee for Economic Development of Australia, we're going to be hit from all
sides.
There are the costly physical effects of climate change
we've already started experiencing, there are the consequences for us of
measures our trading partners are starting to take to limit their
emissions, there's the growing reluctance of foreign institutions to
fund new coalmines and power stations and there's the threat to our
fossil fuel industries from ever-cheaper renewable energy.
In case
anyone's forgotten, Wilder reminds us that the physical effects of
climate change include a rise in the sea level, acidification of the
ocean, change in rainfall patterns and an increase in the frequency of
natural disasters, including droughts. Extreme weather may lead to more
bushfires, while heavy rainfall and cyclones may lead to flooding.
Do
you think all that generates no costs to business, no disruption to the
economy? Take the Queensland floods in 2011, Wilder says. They not only
hit insurance company earnings, they also halted production at various
coalmines. This forced up world coal prices, with adverse effects for
industries reliant on coal.
Since we've always had cyclones and
floods, no one can say climate change caused this particular disaster.
But the scientists tell us events such as these will become more
frequent. And the insurance industry's records tell us the number of
catastrophic weather events is already increasing, with the economic
losses associated with weather rising.
As for the idea there's no
hurry in preparing for problems that may not become acute until later
this century, consider this. Had a levee to protect Roma, in Queensland,
been built in 2005, it would have cost $20 million. Since it wasn't
built, $100 million has been paid out in insurance claims since 2008 and
a repair bill of more than $500 million incurred by the public and
private sectors since 2005.
This sort of thing is happening in
other countries, too. Hurricane Sandy, in October 2012, caused
widespread damage in New York, crippling electricity infrastructure and
leaving downtown Manhattan without power for four days. The
record-breaking storm surge alone cost the local electricity company
$500 million and New York businesses $6 billion.
Perhaps such
events explain why many other countries are moving forwards rather than
backwards in their efforts to combat climate change. Australia's coal
and natural gas industries won't escape being affected by tougher
regulation of the use of fossil fuels in the countries to which they
export.
While Europe has had a weak emissions trading scheme since
2005, the Chinese are trialling such schemes in six provinces. South
Korea, one of our main trading partners, is to introduce a scheme next
year. The US is taking direct action to cut power station emissions.
China
is moving to limit coal to 65 per cent of energy consumption by next
year and has banned new coal power generation in Beijing, Shanghai and
Guangzhou. Wilder says this will cut demand from the largest importer of
Australian coal and thus affect the value of big mining and loading
assets in Australia.
The more the rest of the world seeks to
reduce its use of coal and other fossil fuels, the more Australian
businesses need to contemplate the possibility of their mines becoming
"stranded assets" - assets that suddenly become unprofitable and so lose
their value.
Until recently, foreign investors and financiers
haven't taken climate-change risk into account. Now they're starting to
worry not just about the morality of emitting more greenhouse gas, but
the risk that investments in new mines and power stations will lose
their value before they reach the end of their useful lives. The change
started with international agencies such as the World Bank, but is
spreading to pension-fund investors.
Then there's the threat from
the rise of renewable energy. China's goal of becoming a world leader in
renewable energy has made it the world's largest maker of renewable
energy equipment and the single largest destination for investment in
renewables.
Wilder says renewables are reaching a "point of
disruption" and will displace coal and gas power stations in many parts
of the world. In Australia, the sharply rising price of gas is
increasing the cost-competitiveness of renewables.
"Unlike natural
gas and coal, the input for renewable energy is not subject to the
volatility of global energy markets and with renewable costs continuing
to decline, renewable generation represents a safer long-term
investment," he says.
I know, let's get the government to put the kybosh on renewables. That would be a smart move.
