What could be a more reasonable basis for public policy than striking a “balance” between protecting the economy and the environment?
Our government must do something about climate change (we don’t want to look bad at the Climate Change Conference in Paris later this year), but in these times of economic uncertainty, with a possible recession looming, we cannot afford any more misadventures like a carbon tax and we must protect jobs in our local industries. That’s how the story goes.
Underlying that presentation of “balance” is the idea that there is some inevitable tradeoff between “the economy” and “the environment”. Under Tony Abbott, that’s how the Government framed it, and the Labor Opposition. Many who would call themselves “environmentalists” buy into the same idea, asserting that economic growth is the path towards destruction of the planet.
The idea of “balance” seems so reasonable, so appealing to those who want to come across as non-partisan, but it is a poor substitute for clear thinking. Is there inevitably such a tradeoff?
At first sight, there is. As Naomi Klein and many others point out, economic growth based on indiscriminate depletion of non-renewable natural resources (particularly the capacity of our atmosphere to shield the planet from global warming) is not sustainable.
But that’s only one pattern of economic growth – a pattern exemplified by Australia’s economic model as an Asian quarry. In fact, it’s only a quirk of national accounting that allows such an economy to record strong “growth”, because the cost of resource depletion is not brought into account.
We can have a strong and growing economy based on sustainable resource use. In fact the investment in making the transition to such an economic structure may be just the sort of measure we need to get us out of our current doldrums.
The Future Business Council shows us what that new economic structure may look like in its report The Next Boom – a surprise new hope for Australia’s economy?
It’s an optimistic but realistic work, helping us not only to re-shape our imagination of a future economy, but also to see that environmentally sustainable industries are already on a strong growth path.
We need only to wander around the suburbs to see the proliferation of rooftop photovoltaic installations and to drive in the countryside to see the wind turbines feeding into the grid. As the report shows, with hard figures and graphs, this growth has been from virtually a zero base at the beginning of this century.
Less obvious are energy-saving and water-conserving developments. Our dishwashers and refrigerators have become much more energy-efficient. The cars we buy in 2015 emit 25 per cent less CO2 per kilometre than the cars we bought in 2000. Our toilets, showers and washing machines use much less water than they did in earlier times.
And that’s all without any loss in our enjoyment of a hot shower, clean clothes or other comforts. Of course we have to go a lot further than we have come so far, but the message to draw from the FBC’s work is that saving the planet doesn’t require us to revert to a Palaeolithic life style.
Even less obvious are developments in production efficiencies. To take one industry as an example, steel production now uses just over half the amount of water per tonne that it required in 2001, and its use of recycled content has risen from 8 per cent to 33 per cent over the same period.
The report goes into explanations for these developments. The tumbling cost of photovoltaic panels is one obvious factor. Consumer demand is another. For example we pay attention to energy star ratings and similar information.
It’s not clear whether this simply reflects a rational concern to save utility bills or a strong concern for the environment, but some evidence for the latter has emerged with the Volkswagen scandal (which emerged after the FBC’s report was completed). Owners of VW diesel vehicles have suffered no personal cost as a result of the deception, but they have learned that they have been causing much more pollution than they had believed. If we were members of the species homo economicus, indifferent to all but our self-interest, that wouldn’t matter to us. But owners of VW diesel cars are understandably furious because they do care. There is support for the FBC idea that a sizeable number of consumers are willing to pay a premium for environmentally friendly goods.
The strongest explanations for these developments lie in government policies. A number of graphs in the report show dramatic turning points associated with policy initiatives, such as renewable energy targets. One of the most telling graphs shows rapid build-up in investment in large-scale clean energy following the introduction of carbon pricing and the 88 per cent drop when carbon pricing was abolished in 2014.
Of course some will say government intervention interferes with market forces, but that argument ignores the ways markets actually operate. Markets often need a nudge – sometimes a very strong nudge – to get them operating well.
For example, the decision whether one should buy an incandescent or an LED lightbulb should be a no-brainer, because, viewed as an investment decision, the relative return on an LED is around 80 to 150 per cent – it would be better to get a payday loan than to buy an incandescent bulb. But people needed the nudge in the form of Minimum Energy Performance Standards and eventually prohibitions to push them in that direction. Similarly the National Australian Built Environment Rating System has helped building owners and tenants alike become more conscious of the financial benefits of energy-efficient buildings.
As an engineer and industry analyst I found the FBC’s work convincing, but I wanted to return to the central question about action on climate change and economic growth. What has been the experience of other countries?
It is heartening to read in Tim Flannery’s Atmosphere of Hope (Text Publishing 2015), for example, that greenhouse gas emissions are decoupling from economic growth. But I was curious to see what’s been happening over the 25 years since 1990, when the IPCC made its First Assessment Report on Climate Change. What has been the experience of industrialised “developed” countries? Were there countries that had grown while reducing CO2 emissions?
Using the 18 OECD countries with per capita incomes above $US35,000 (the same set as Miriam Lyons and I used in our work Governomics), I was somewhat disappointed. Those countries with higher emissions also enjoyed higher economic growth.
But there is an intervening variable – population growth. When I look at the relationship on a per capita basis, all that remains is a broad scatter diagram (see chart below). With the exception of Japan and Ireland, outliers on the low and high side, all countries have enjoyed per-capita growth between 1.0 and 2.5 per cent a year, and there is no evidence of a relationship between emissions and growth. A majority of countries – 11 out of the 18 – have enjoyed growth without increasing emissions. And, at the top of the pack for increasing emissions, but not for economic growth, is Australia.
The FBC policy agenda is about shifting us down to the other side of the axis, to sit alongside industrialised countries like Switzerland and Germany. They point out that there are opportunities waiting to be exploited, but will we miss the boom? They write:
“Australia has a once in a lifetime opportunity to not just catch the boom but lead it, however we need to implement the right incentives for business now.
Catching the boom will require a step change in Australia. Sustainable innovation was once seen as primarily a Corporate Social Responsibility (CSR) compliance consideration. No longer. In light of the clear trends here and overseas, it must now be seen for what it is – a growth opportunity and a magnet for investment.
Government has a critical role to play in creating the right market conditions for the growth of innovative sustainable business in Australia.”
Critics may accuse the FBC of “picking winners” (as if that’s a public policy atrocity). In fact, in its emphasis on establishing the right market conditions, its approach is quite the opposite. The market is there, and it’s up to governments to make sure they don’t get in the way.
Rhetoric aside, government policy, sometimes by design, sometimes by accident, has always favoured particular industries over others. Our decision to discontinue carbon pricing, I (and many others) argue, is no less an industry subsidy than a tariff or direct budgetary payment, for it gives firms free access to a scarce commodity, to the disadvantage of competing firms. Our decision to give concessionary capital gains tax treatment to short-term speculation while penalizing long-term investment has been to the benefit of the finance sector and at a cost to long-term investment (such as renewable energy).
The report makes a number of recommendations, many of which are about setting standards so as to provide certainty to producers and consumers, and others on the side of reducing red tape impediments to new industry development. The general theme of the report is about getting prices right (for example of greenhouse gas emissions and waste materials) and making sure nothing stands in the way of new markets developing.
Most notably, when we have been so conditioned to reading submissions from business organisations seeking extension of some unjustifiable privilege, or proposing that the path to prosperity lies in cutting wages and removing all regulations (other than those that protect economic rents), it’s refreshing to hear from a business organisation with a positive, optimistic vision.
Ian McAuley is a CPD fellow, and co-author of Governomics: Can we afford small government?