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 havent 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) – Netherlandshouse meets their regulations but is evaluated in Melbourne climate.

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

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

Australias Energy-related Greenhouse Gas Emissions (Kyoto accounting) ( Source: ) NOTE: * Stationary energy includes fugitive emissionswww.ageis.greenhouse.gov.au

Approx Trends in Greenhouse Gas Emissions from Aust Commercial Sector Energy Use (ABARE energy data multiplied by greenhouse coefficients from Wilkenfeld).

Trends in CO 2 Emissions from Australian Industry (manufacturing plus mining)

Trends in new vehicle fuel consumption (BTRE 2002)

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.

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 theyre 15% or less of Australias 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

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

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

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

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