KEY INSIGHTS TO HELP ACHIEVE DEEP CUTS IN GREENHOUSE GAS EMISSIONS, WHILST CREATING JOBS AND A STRONGER ECONOMY Alan Pears Adjunct Professor RMIT University.

KEY INSIGHTS TO HELP ACHIEVE DEEP

CUTS IN GREENHOUSE GAS

EMISSIONS, WHILST CREATING JOBS AND

A STRONGER ECONOMY

Alan Pears

Adjunct Professor RMIT University

Director Sustainable Solutions Pty Ltd

with the Natural Edge Project Secretariat

Slide about TNEP

TNEP team: Cheryl Paten, Charlie Hargroves, Nick Palousis and Mike Smith

“Are Greenhouse-friendly Energy Strategies Lifestyle-friendly?” A Pears in Greenhouse and Energy CSIRO 1990

• “The impacts of well managed greenhouse-friendly energy strategies are likely to enhance, rather than detract from lifestyle quality….”

• “Successful greenhouse response will involve consideration of equity issues, and management of transitional impacts on the workforce and in the market place. Institutional action is required to complement and support individual response. This will involve shaping new industrial directions, restructuring financial and taxation signals, reallocating financial and physical resources to strategic activities, and empowering individuals to act.”

• My views haven’t changed…..

Since then, some successes• Appliance energy efficiency:

– labels since late 1980s, standards from late 1990s

• Residential building envelope improvement:– Victorian insulation regulations 1991, 5 Star

regulations 2005; ACT 4 star mid 1990s; national regulations (3-4 star) 2003, 5 star 2006

• Commercial buildings:– Demonstration high performance buildings– Proposed national building regulations 2006

• Industry:– Energy Efficiency Best Practice (Commonwealth)– EPA Victoria Greenhouse Program

Impact of Energy Labelling and Minimum Performance Standards

Source: Aust Greenhouse Office

Annual heating and cooling energy requirement for Melbourne houses (FirstRate) – ‘Netherlands’house meets

their regulations but is evaluated in Melbourne climate.

0 100 200 300 400 500

Average stock (1 star)

Average 1991 regs 2.2 star

4 star (2004)

5 star (2005)

6+ star

Netherlands Mandated

Megajoules/ square metre/ year

85% saving

65% saving

Annual office building energy consumption, Melbourne (kWh/square metre)

0

50

100

150

200

250

300

Heating Cooling Lighting Equipment TOTAL

Good new design 60L Green bldg design 60L actual Average Melb

70% saving

Some worrying areas

• Overall energy growth trends

• Residential sector energy

• Commercial sector energy

• Some industry sectors

• Transport sector

• Energy market reform: incentives to sell more energy+ loss of support for DSM

Australia’s Energy-related Greenhouse Gas Emissions (Kyoto accounting) (Source: www.ageis.greenhouse.gov.au)NOTE: * Stationary energy includes fugitive emissions

0

50

100

150

200

250

300

350

1990 1992 1994 1996 1998 2000 2002

Stationaryenergy*

Transportenergy

Mt CO2e p.a.

Approx Trends in Greenhouse Gas Emissions from Aust Commercial Sector Energy Use (ABARE energy data

multiplied by greenhouse coefficients from Wilkenfeld).

0

5

10

15

20

25

30

35

40

45

50

Mill

ion

to

nn

es o

f C

O2

equ

iv p

er a

nn

um

Div. H,P,Q Accomodation,cultural and personal

Div. N,O Education, healthand community services

Div. M Governmentadministration and defence

Div. K,L Finance,insurance, property andbusines

Div. J Communication

Div.F,G Wholesale andRetail Trade

37 Water, sewerage anddrainage

Trends in CO2 Emissions from Australian Industry (manufacturing plus mining)

0

20

40

60

80

100

120

140

1601

973

-74

19

75-7

6

19

77-7

8

19

79-8

0

19

81-8

2

19

83-8

4

19

85-8

6

19

87-8

8

19

89-9

0

19

91-9

2

19

93-9

4

19

95-9

6

19

97-9

8

Mill

ion

ton

nes

CO

2e

pe

r a

nnu

m

29 Other manufacturing

28 Machinery andequipment 27 Metal products

26 Non-metallic mineralproducts 25 Petroleum, coal andchemical 23-24 Wood, paper andprinting 22 Textile, clothing,footwear and leather 21 Food, beverages,tobacco Div. B Mining

Trends in new vehicle fuel consumption (BTRE 2002)

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

Lit

res/

100

km

Cars Total Passenger vehicles

To summarise:

• We know how to cost-effectively make large cuts in greenhouse emissions in every sector, and we have some practical successes

• In several major areas, significant initiatives are finally being introduced

• Progress is being slowed by a combination of powerful vested interest groups, narrow economic theorists and nervous politicians

• So why is action so difficult?

My interpretation of the situation

• People embrace change if they believe it will offer them benefits, but resist it if they fear adverse impacts

• Some industries concluded by 1990 that greenhouse action would hurt them

• They (helped by some misinterpretation of economic modelling results and ill-informed media) convinced most businesses that all business and the economy will be hurt by greenhouse response

• Economic policy people in government have generally accepted and promoted this view

• And the community is confused and disempowered

So future response is tied to beliefs about the relative costs and benefits of action

• Beliefs that response will hurt the economy are based on economic modelling and reinforced by preconceptions that helping the environment must hurt the economy

• There is increasing concern that the costs and impacts of failing to act could be large – but Australian economic modelling studies have not included the cost of failing to respond

• We need to resolve this tension

Economic modelling• Widespread misinterpretation of results• Most studies had limited scope:

– Cost of failure to respond set to zero

– Limited energy efficiency potential and expensive renewables

– Blanket carbon price applied – no sector-specific transition strategies

– No targeted ‘recycling’ of revenue

• Inclusion of non-CO2 gases cuts response cost• More trading cuts costs• Smart policy cuts costs• Including lower cost energy efficiency options cuts

costs

Example of ‘Worst case’ greenhouse response economic impact from early modelling: a cumulative 2% reduction in GDP over 12 years – many still believe it is 2% each

year. More recent studies tend to show lower costs.

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012

Year

Gro

wth

in G

DP

Base case GDP

Greenhousescenario GDP

2% difference in GDP after 12 years - reach same GDP level a few

months later

Why is the economic impact of massive carbon prices so small?

• Energy a fairly small cost to the economy• Revenue from carbon price flows back through economy

via tax reductions, government investment• ‘winners’ gain increased demand for their products and

services• ‘losers’ are high greenhouse intensity industries and

suppliers of high greenhouse impact product (assuming no adjustment support and high C price) – but they’re 15% or less of Australia’s economy

Estimated change in Aust sectoral output at 2010 relative to BAU with large carbon tax for stabilisation of CO2 at 1990

level (ABARE 1997) by 2010

-60 -40 -20 0 20

CoalOilGasOther minsPetroleumChem, plasticsNon met minsIron and steelNonferrous metalsFabric metalsElectricityAgricProc agricCapital goodsManufServices

Percentage change as a percentage of each sector's BAU output

Note zero net impact on services sector - 2/3 of economy

Estimated change in Aust sectoral output at 2010 relative to BAU with large carbon tax for stabilisation of CO2 at 1990

level (ABARE 1997) by 2010

-1 -0.5 0 0.5 1 1.5

CoalOilGasOther minsPetroleumChem, plasticsNon met minsIron and steelNonferrous metalsFabric metalsElectricityAgricProc agricCapital goodsManufServices

Percentage change in total GDP due to impacts on each sector

note zero impact on services sector - 2/3 of economy

Impact of various greenhouse response policies, 2011-12 (Allen Consulting, 2000) Note most of economy impact <+/-1%

-60 -40 -20 0 20 40 60 80 100

Gas fired elect

Forestry

Black coal elect

Alumin

Brown coal elect

Oil

Black coal

Agriculture

Electricity supply

Natural gas

% change from base case by 2011-12

Dom ET Dom ET energy only, grandfathering Policy package

Greenhouse gas emissions and Value Added by Business Council of Aust members (Grady 2003)

0100002000030000400005000060000700008000090000

100000110000

Emissions (kt) Value Added ($m)

To conclude:

• Costs of greenhouse response have been overstated while benefits have been ignored or understated, particularly in 1990s economic modelling

• Smart response policy and creative programs can reduce costs and impacts, and create benefits

• Much stronger and more comprehensive action is needed – but it can deliver

• We know what to do, but we need political will, resources and an informed community

(www.naturaledgeproject.net)

THE END