This Love Affair Will End Badly

I want you to imagine that it is now 2030.

Climate change is ubiquitous. Inland Australian temperatures have hit the coast, severe weather events are increasingly deadly and routine, and when Barrier Reef tourism operators say their "offer won’t last", they really mean it.

Against expectations, the global community did thrash out a climate change agreement to succeed the Kyoto Protocol, but it is not what many had hoped. If all goes well, atmospheric greenhouse gas concentrations should stabilise at a level equivalent to 575 parts per million CO2 later this century. That’s roughly double the range seen over the past 650,000 years.

Perhaps our greatest folly as a nation was falling for the PR campaign around "clean coal". We were constantly assured that it was just around the corner, and barely a week went by without a senior minister announcing a new clean coal "milestone" or funding commitment. Few people knew that the biggest coal mining union was also the biggest external donor to the ALP federally. And even fewer were aware that Kevin Rudd’s Resources and Energy Minister had told a gathering of climate skeptics at parliament house that Labor wouldn’t touch the coal industry until clean coal arrived.

Despite the billions invested in it, the reality never lived up to the hype. Today, a handful of "clean coal" plants — mostly in developed countries — capture and bury less than 5 per cent of the emissions generated from coal. Almost none of the more than 1000 conventional coal-fired power stations built in developing countries since 2010 capture and store their emissions.

In 2030, commentators shake their heads and pine bitterly: what happened to the "economic transformation", the "low pollution future", and the "green jobs" we were promised?

With the benefit of hindsight, it’s now obvious that Australia was blinded by "quarry vision" — the rose-coloured glasses through which we viewed the importance of the resources sector, particularly the coal industry. Too many of us uncritically accepted that the resources sector was Australia’s economic backbone.

We weren’t alone.

TV news directors routinely imagined that Australia wouldn’t sleep soundly without knowing the closing price of BHP Billiton and Rio Tinto every night. Successive prime ministers called Australia an "energy superpower". Some political leaders actually assured us that resources accounted for over one third of Australia’s GDP.

So we imagined millions of fellow Australians employed in the mines. We thought that government coffers were only ever awash with cash thanks to the quarry. We assumed that our stock market and a comfortable retirement depended on the ongoing success of digging and drilling.

Believing that coal — our biggest quarry export — would soon be burned cleanly, we dared not imagine a future without it.

Looking back, almost all our assumptions about the quarry were wrong. It was worth less than 15 per cent of GDP at the height of the resources boom, even with mining, services to mining, minerals processing, metal production and all fossil fuel energy included. For many years, the black economy was worth roughly as much as our precious black coal exports.

Too few of us realised that back in 2009, the quarry contributed less than one job in 20. Twice as many people worked for McDonald’s as there were coal miners, and Bunnings employed 50 per cent more people than the entire aluminium industry.

And, far from underwriting our retirement, more than 90 per cent of our superannuation holdings were not tied up in quarry industries. Indeed, resources went from being the largest sector on the ASX in 1992 to being the smallest by 2006. Yet as its real importance diminished, in our minds it was still our great strength.

We wrongly assumed the quarry was mostly Australian-owned, not realising that Australian-sounding companies like Cement Australia, for instance, were owned by UK, Swiss and Mexican interests. Even the "Big Australian" was mostly foreign owned, as were all the other coal mining giants: Rio Tinto, Xstrata, Anglo, and Peabody. Across the resources sector, the profits mainly went offshore.

We were too focused on digging deeper to notice that the resources sector paid a fraction of the taxes we imagined – back in 2009, just four in every 100 tax dollars federally. The quarry was important, but not our economic backbone. In reality, we were service-providers — services generated 75 per cent of GDP and jobs. (As a former sugar farming client of mine once sneered at me suspiciously, "Australia is a nation of backscratchers". And we still are today.)

Looking back, we failed to learn from history, squandering the proceeds of the boom when history suggested that the windfall would be temporary. After all, we hadn’t been doing it for long. As recently as the 1970s, Australia wasn’t a very big coal exporter. After that decade’s oil shocks, however, the world increased its demand for coal, and it’s well known that Australia cut tariffs, relaxed foreign investment restrictions, and floated the currency – all in a bid to turn Australia’s economy outward, to become more trade-oriented and internationally competitive.

What’s less well appreciated is that we deliberately increased energy consumption by using cheap coal to make Australia the international destination of choice for footloose investment in energy-intensive industries, like aluminium.

Government knew full well this would increase greenhouse emissions — the addition of just one new aluminium smelter is the emissions equivalent of a million cars — but they went ahead anyway, fencing off energy policy from rising concerns about global warming. Whole chapters relating to climate change were cut out of official energy policies before publication because, as one long time carbon lobbyist told me: "Senior public servants perceived it as their patriotic duty to prevent the coal industry from being undermined by an untoward focus on something that, in their thinking, was a load of cobblers."

We chose to become the developed world’s greenhouse ghetto, and we’ve been defending that decision ever since.

When the prospect of pricing carbon became real in Australia in 2008-09, we were completely spooked by a few industries that were "emissions intensive" or "trade exposed": E-I-T-Es as they were known at the time. "YETIs", I prefer to call them, for their legendary capacity to use scary myth to frighten policymakers and the general public.

Our YETIs threatened to plunge Australia into a new dark age by shutting coal fired power stations in four states, shedding up to a million jobs, shrinking whole industries, and fleeing Australia, all just to avoid a carbon price. Perhaps the most abominable YETI, Woodside Petroleum, even threatened to float one project to East Timorese waters just to avoid paying for its pollution. The head of the minerals council claimed that even a 5 per cent cut in emissions would mean moving to "a candles economy, riding horses and (shutting) down your transport sector and your power generation".

If only more of us noticed the evidence at the time debunking the YETI mythology. Modelling by the Treasury confirmed in late 2008 that there was almost no evidence to support claims that carbon and jobs would leak offshore en-masse if Australia made polluters pay for their emissions; the economy would nearly treble by 2050 even if Australia made 60 per cent emission cuts; and almost every industry — including the resources sector — would grow strongly rather than shrink, compared with today. Treasury also found that giving free permits to industries like aluminium didn’t significantly alter their long-term output in Australia. But for some reason, we didn’t believe them. We were too afraid of the YETIs.

And then there was Ross Garnaut. After 11 years of denial and delay under John Howard, Garnaut’s early comments suggested that perhaps he might just stand up to the carbon lobby. However, our hopes were dashed in the fine print of his reports.

Garnaut made clear that there was nothing wrong with Australia paying other countries to make its emissions cuts to offset our polluting lifestyle. He singled out Indonesian and Papua New Guinean rainforests as the perfect place to hide greenhouse pollution on the cheap and avoid emission cuts in Australia. Annual emissions from deforestation in these two countries alone were three times Australia’s total emissions, so paying landholders not to log could effectively offset pollution in Australia. Various estimates suggested the price might be between US$1 and $3 — perhaps less than one tenth of what a tonne of CO2 was expected to cost otherwise.

As Garnaut’s work concluded, a worrying sense of déjà vu emerged. Reduced deforestation in Australia since 1990 had enabled John Howard to argue for years that we were on track to meet Kyoto targets. Meanwhile, actual greenhouse pollution had increased by over one third. Garnaut now offered Australia a similar way out of any future commitment, only on a much grander scale. Australia could achieve any target it took home from Copenhagen in 2009 without making any cuts in actual pollution at home.

Meanwhile, Kevin Rudd, who had been elected on a promise of making deep cuts in Australia’s emissions, delivered the Carbon Pollution Reduction Scheme, which did not reduce carbon pollution in Australia, as was promised.

In its 2008 projections, Treasury assumed that only half of Australia’s obligations might be met by buying emission permits and credits from offshore, but Rudd set no limit. This rendered much of the debate over the size of Australia’s 2020 emissions target somewhat redundant; 5 per cent or 40, it wasn’t going to making any tangible changes at home.

And, as long as we could outsource our emission cuts, there was no need to change our ways or transform our economy. So we dug deeper.

Now, in 2030, it is coming back to bite.

Our economy is still one of the dirtiest and the cost of outsourcing carbon liabilities is increasing. As we’ve postponed the day of reckoning, other countries have decarbonised. But we’ve missed those opportunities.

If only we could return to 2009 and make better choices.

If our children’s generation could be granted three wishes, what might they have had our governments do differently?

Well first, they might have placed a tight limit on outsourcing so the vast majority of the emissions cuts made by Australia were actually made in Australia. That would have plugged the biggest hole in Australia’s response. They’d have stipulated that polluters can meet, say, 10 per cent of their emissions trading obligations at most through permits and credits sourced from abroad. This would have made the global effort more cost-effective, while still transferring funds and technology to developing countries, and helping them to industrialise more cleanly than we have. But it should never have been allowed to take the place of emission reduction at home.

Secondly, government should have simplified and greatly abbreviated the compensation for YETIs. Instead, the government proposed a complex set of arrangements that cost more overall with each passing year. In practice, it entrenched a new system of corporate welfare from which it became impossible to extricate the taxpayer. It also provoked our trade competitors into adopting similar carbon subsidies, something that will take decades to unravel. This could have been avoided if the government set aside an overall percentage of emission trading revenue to help such industries through the transition, and phased down the assistance entirely by 2015. That would have addressed their transitional difficulties without defeating the purpose of emissions trading — and it would have left us with a whole lot more money to spend on everything from energy efficiency programs here to rainforest protection offshore.

Finally, Australia should have announced a timetable to phase-out its coal industry. As recently as 1939, the United States had contingency plans for war with Great Britain. Yet, Australia chose not to have a contingency plan for something much more conceivable — the dismantling of its coal industry. Writing an exit strategy from coal was so unthinkable we didn’t even put pen to paper. Instead we doubled our coal exports, believing clean coal "had to work" because coal was "too big to fail". We abandoned the precautionary principle, and neglected to recognise the environmental necessity to make coal a sunset industry.

Of course, Kevin Rudd would probably have dubbed it as another "radical plan to shut down the coal industry by next Thursday", and others would have crowed about the needless impoverishment of Australia. But it would have been none of these things. Far from impoverishing Australia, the economy would hardly have missed a beat. Without coal exports, Australia’s economy would have doubled in size in 2031 instead of 2030

It’s true that the removal of one third of the world’s traded coal would not have magically undone the world’s coal addiction; only one sixth of the world’s coal was traded in 2010, so countries with large reserves would have been relatively unaffected in the short term. But that doesn’t mean action by Australia would have been futile. Over time, the price of coal would have risen, and no country would have been impervious to the odium generated by an Australian coal phase-down. Countries would rightly have started wondering: Who’s next after Australia?

If government had taken these three steps, in 2030 the vast majority of our emission cuts would be Australian-made, not just Australian-paid; our emissions trading scheme would have become more effective much sooner; and the taxpayer would have stopped paying out carbon subsidies to polluters long ago. By announcing a timetable for an Australian sunset on coal we would have finally dealt with Australia’s greatest contribution to climate change – its black coal exports. And we would have done our very best to give the world a chance of returning the climate to a safe state.

This an edited version of a speech given by Guy on the launch of his Quarterly Essay — Quarry Vision: Coal, Climate Change & the End of the Resources Boom.