Decarbonising Australia is going to take decades. It should raise Australian living standards, compared to doing nothing. But unlike many prior policies that lifted living standards, it will not show up directly in GDP. And that’s a problem.
One of the biggest risks to decarbonisation is economic. Change is costly. If we see falls in GDP per capita — if people feel they are getting worse off — then decarbonisation will swiftly become a live political issue. Australia lost its carbon tax once. We must learn from that.
We’ve seen in recent years just how furious a populace can get when prices rise and wages stagnate. Rising electricity bills are often the herald of populist politics. When people are angry, Australia’s contribution to a great global project to reduce emissions will be an easy scapegoat.
To maintain the decarbonisation project for 30 years we need to accept that some of the necessary changes will be costly. How do we create public acceptance of some cost?
Part of the answer is to challenge the expectation that living standards are only supported by increasing GDP. The events of recent months make this clear. Australia’s incinerated landscape and hazardous air quality are not directly measured in GDP, but they matter enormously for quality of life.
But that is not the only answer. Not everyone will accept that removing the risk of climate change is worth regression in living standards. We must also unleash productivity gains that permit the economy to thrive while we decarbonise.
The costs of change
The sooner we act, the better it will be for the climate. But, because prices of greener solutions are falling, the sooner we act, the more costly change will be. It’s a cruel fact.
The dollar cost of energy from wind is still higher than the dollar cost of energy from brown coal, for example. A battery for a car still costs more than a petrol engine. Decommissioning power plants that still have life in them means spending a lot of money on their replacements that we would not otherwise have had to spend. And so on.
Electric vehicles are relatively advanced as far as low carbon technology goes, but simply building the electricity infrastructure to support electric vehicles, for example, will be a multibillion-dollar project.
The cost of reconfiguring electricity grids for electric vehicles is estimated at $2500 to $8500 per vehicle, according to research by Boston Consulting Group.
If 1 million cars a year are sold in Australia over the next 10 years, and 10% of them are electric vehicles, that’s 1 million vehicles and a potential cost of at least $2.5 billion — just to create the very beginning of the EV revolution.
There are a lot of headlines about the economic upsides of acting on climate change. The upsides are real. The costs of not acting are huge. But the costs of acting are real too, and no intelligent person can deny them.
Cost estimates
How big are the costs of decarbonisation at an economy-wide scale? This is a hotly debated question, with some absurd answers being thrown around. Less than zero, claim some people who want to decarbonise. Many trillions, claim others with a stake in the status quo.
One recent article in The Australian Financial Review set the price of climate action at $5 trillion or $100,000 per household, covering the cost of new appliances, solar, batteries for storage, batteries for two electric cars per household etc.
Trillions are always awe-inspiring. In this case they should also inspire a little mental arithmetic. Australia has around 10 million households, so even at the extremely generous price of $100,000 per household we can only get to $1 trillion.
What’s more, such accounting fails to acknowledge that much spending would be required anyway. Eventually we all replace our cars, our light-globes etc. And the country replaces its electricity generation systems. If we make low-carbon choices at those points the marginal extra cost is minimised.
But dubious estimates are not only on one side. People fighting what is essentially a good fight — to reduce emissions — are prone to distortions too.
The Melbourne Sustainable Society Institute estimates costs of $35 billion over 2019 to 2030. Put another way, that’s $300 per household per year. Diving into the details reveals that this modelling assumes a carbon price –a policy which would make emissions reductions cheaper, but a policy that Australia does not have.
Much of the cheaper ways to reduce net carbon emissions rely heavily on the idea of “net”. They use offsets — things like increased forestation. But planting trees while still burning fossil fuels doesn’t lock in decarbonisation — those trees could be cleared (or could burn) in the future. The solutions that work best — leaving fossil fuels in the ground — are also the most expensive.
How do we manage this?
In some industries, change will be cheap. In others, it will be awfully expensive. The amazing falling price of solar power generation means energy is at the cheaper end of the scale.
The new Darlington Point solar farm, in rural NSW, will cost just $450 million to provide enough power to supply the equivalent of 115,000 NSW households — or a bit under 5% of the state’s total. (Although solar alone can’t provide power at night without investing in storage too.)
Making steel without emitting carbon, however, is going to be much harder. And aviation is tricky too. Batteries are so heavy that planes are likely to be the last vehicles to give up using fossil fuels.
To avoid damaging living standards, we should first harvest low-hanging fruit. Australia should, for example, work on solar power first and move on to reducing emissions from aviation later, when technology is more advanced. We’re aiming for net zero emissions by 2050, not tomorrow.
It’s been very helpful recently that green power has got cheaper. But we can’t rely on prices to decarbonise for us. They don’t only move in ways that are helpful. Indeed, as demand for oil and coal ebbs, only the cheapest producers will be left in the market, and great cost savings may be on offer from the carbon-intensive side of the economy.
At these times, it’s vital to remember that GDP is not living standards. We could easily add to GDP by increasing fossil fuel use, but in doing so indirectly damage our living standards.
Tomorrow: the productivity challenge inside the move to decarbonise the economy.
I think those estimates of re-configuring the electricity grid in order to accommodate electric vehicles are off the planet. An EV can be charged whenever it suits you, and for most people that’s in the middle of the day while it’s parked at work for 8 hours. This conveniently absorbs the excess solar energy at midday, representing the belly of the infamous duck curve. The vast majority of charging will be done at under 3 kW – well manageable by existing household and commercial wiring. Only long distance inter-city travellers will need to use high powered charging, and they represent a fraction of the mobile vehicle fleet at any point in time.
It’s not like air conditioners which load the grid at the same time, at peak demand, when it’s hot.
Maybe if the lower estimate simply included a home charging unit (unnecessary, but convenient) and most of that price was the electrician’s hourly fee, sure. but at least that’s money circulating in the economy.
I’m glad to see someone else picked up on this. It’s a ridiculous number that doesn’t reflect reality. Most cars will recharge overnight when demand is low and the prices are also, and since most cars don’t do more than 40-50km each day the load on the grid won’t be massive.
Sure, if everyone went an put in a 22kW charger at home and everyone started charging at exactly the same time then we’d have a problem. For most people a home charger between 3 and 8kW is about the same as an air conditioner – except running at night when air conditioning isn’t.
Most of these issues can easily be managed with some intelligence in the home chargers for demand management, combined with appropriate tariffs.
Are “we” prepared to not pay for it – to wear the consequences of studied ignorance?
I agree, I kept waiting for at least some mentioning of the cost for not acting. It would be a far higher cost than not to act , as we have just seen.
A flaky start but the article improves. It’s all about the agenda and framing. Sure the electricity and gas pricing rorts are a big deal for many, but it hasn’t translated into any action – despite the methods to reduce prices being clearly stated many times but getting little media traction. After all when was the last Crikey article that dealt in length and detail about it ? I understand it’s beyond most of your regular staff but you rarely reprint articles by acknowledged experts.
You also need to keep up in a rapidly changing world. “The dollar cost of energy from wind is still higher than the dollar cost of energy from brown coal…” was true, but in a like for like new build LCOE it no longer is and it’s even doubtful comparing new build renewables with fully written down plant brown coal.
I await now the usual calls for disastrously expensive nuclear.
How about an article on the politicised AEMC doing more than anyone to stymie renewables. Or an article about the collective government abrogation of proper planning. There will be plenty available from elsewhere and it’s better you let experts in this complex field write directly rather than you mangling their thoughts.
What price the world? The current benchmark for nth-of-a-kind reactors is USD 100/MWh, or ten cents per kilowatt-hour, less than what we pay all up here. Ask instead, what should we do to drive the price down even further?
Lol Roger right on time. Benchmark for either existing or wishlist reactors is a poor indicator going by the bespoke nature of these devices. You also know as well as I do saying 10c a kWh is less than here is spurious. Total cost is generation, distribution and billing/admin (or retailing in our local weasel parlance). We suffer here from poor competition and market rigging in generation, ridiculous allowances for capital cost and depreciation and more in the fixed rate regulated monopoly distribution and a totally anti competitive retail component.
As per your other comment and previous ones there are all sorts of ways to get real. As I and others so often say if nuclear was a good option we’d support it. But it remains one the great disappointments of modern tech. No movement down the cost curve, no advance on disposal and remediation and still too dangerous. Remember how it was going to be so cheap they wouldn’t even need to meter it.
Right on cue, yes, but you would have to admit that my cue is the word “decarbonisation”. There is a spectacular lack of vigilance for total decarbonisation here in Australia, not now, not by 2030, not by 2050 and not even by 2100. However the science says that any rate of emissions whatsoever continuously increases the level of greenhouse gas, and as the greenhouse continues to thicken, so also must the eventual equilibrium temperature continue to creep disastrously upwards.
While solar and wind are < $50/MWh, pumped hydro storage is <$100/MWh and batteries will soon be there.
Meanwhile, in parallel (hopefully) we have to tackle emissions from agriculture. Yes, farting, belching animals and diesel powered equipment etc etc. None of it easy, all of it costly, but entirely necessary.
Sorry – disagree with the basic premise of this article.
If we are to have any hope of dealing with climate change, some of the basic assumptions that have underpinned Western industrial capitalism over the last 250 years need to be challenged and rejected. Our system for producing goods and services is broken at its foundations. We CANNOT continue the way we have been, no matter how well we tweak a few factors around the edges.
We need to use far less than we do today. That’s what it boils down to. On the plus side, using less usually saves money. It generally costs nothing to not buy stuff.
Australians currently generate, on average, around 20 tonnes of CO2 emissions per capita per year. Environmental scientists have calculated that a planet of 10 billion people (the expected global population in 2050) can generate on average 4 tonnes of CO2 per capita per year. The IPCC says we have about a decade to get our carbon emissions under control.
So that’s the challenge we all face. We need to reduce our carbon footprint by around 1.5 tonnes per capita per year for each of the next ten years.
While this might be difficult to achieve for years 9 and 10, there’s certainly some ‘low hanging fruit’ that we can all look at initially that can achieve big reductions with relatively little impact on our personal happiness. To give some context: burning a litre of petrol generates about 2.3kg of carbon byproducts. If your car’s fuel use is 10km/litre, then 1.5 tonnes of carbon is equivalent to around 6,600 km of driving – so if you can avoid driving this distance on an on-going basis (by catching public transport more often, for example) then you’ve achieved your aim.
There’s heaps of other things that can be done, too. It’s not a matter of taking us all back to living in caves. It’s a challenge to be both more aware and more creative in using our carbon allotment to best effect.
Best of all, each of us can start taking responsibility and actively contributing today. We don’t need to wait for Scott Morrison or anyone else in parliament before making a contribution.
“…so our bourgeois socialist takes us from the economic sphere into the moral sphere. And nothing is more natural. Whoever declares that the capitalist mode of production, the “iron laws” of present-day bourgeois society, are inviolable, and yet at the same time would like to abolish their unpleasant but necessary consequences, has no other resource but to deliver moral sermons to the capitalists, moral sermons whose emotional effects immediately evaporate under the influence of private interests and, if necessary, of competition”
Well done, Draco. You have unwittingly managed to articulate the precise reason why a rational approach to the threat of climate change has proved impossible to achieve for at least the past twenty years.
For too many on the right, there are only two options: capitalism or socialism. A person can only be on one side and if they are not on that side, they must perforce be on the other.
That is why, when someone raises the issue of climate change at times of crisis such as the current fires, right-wing commentators immediately denounce them for taking advantage of the situation to push their ‘ideology’. So what should be purely a matter of science, data and modelling is transfigured into a literal battle to the death between political views. It’s politics, politics, politics and
God forbid that any staunch manly right winger should give an inch of ground to any latte-sipping leftie.
The truth is that, although capitalism as we now understand it needs to be dismantled, socialism is not the answer either. In fact, I suspect its environmental credentials might be even worse.
I’m not sure there’s a name for the new economics we need to deal with climate change yet. It worries me, though, that we seem to be locked into the old Cold War mindset of seventy years ago while the world goes up in flames around us.