Climate change and the economy
The IPCC on climate change
Two years ago bushfires ravaged our east coast. Now we have floods. Some are amazed that the “hundred-year flood” now seems to come around every few years.
Where did all that come from?
That’s because “human-induced climate change, including more frequent and intense extreme events, has caused widespread adverse impacts and related losses and damages to nature and people, beyond natural climate variability” to quote from the Intergovernmental Panel on Climate Change report. Climate Change 2022: Impacts, Adaptation and Vulnerability. [Emphasis added]
For some Australians the report tells us what we already know: “Climate impacts, such as stronger heat waves, longer droughts, more frequent floods, accelerating sea-level rise, and storm surges, are already being observed in some regions” and “Risk of wildfires increases with global temperature.” The report details many areas where Australia has borne particularly severe consequences of climate change, including fires.
Backed by scientific evidence and expert opinion the IPCC presents the near-term (to 2040) risks if global warming reaches 1.5 degrees: these are serious enough. The longer-term risks of warming beyond that point pose “numerous risks to natural and human systems”.
The chapter on Australia and New Zealand goes into detail about the damage Australia is suffering as a result of climate change. It notes the CSIRO’s finding that Australia has already warmed by 1.4 degrees. Unsurprisingly it covers bushfires, drought, damage to the Great Barrier Reef, loss of species, damage to ecosystems, floods and storms. It goes on to system-wide effects including estimates of the economic costs of climate change, for example annual property damage of $90 billion a year by 2050. (That may be an understatement – see the next section.) By 2090 the “accumulated loss of wealth due to reduced agricultural productivity and labour productivity” is estimated to be $4.2 trillion. Yes, trillions, or 3 years’ GDP.
We ain’t seen nothing yet.
The cost of the floods: missed opportunities to do something useful with a fiscal stimulus
Those Queensland and New South Wales floods will probably cost the economy somewhere in the order of $30 billion. That’s a rough but conservative estimate made by economist Nicki Hutley, speaking on the ABC’s The Money program: The cost of increasing climate disasters and the economic warfare against Russia.
Public investments in flood mitigation, and in related investments to protect against the effects of climate change, have very high benefit/cost ratios, she explains.
But we’re not making those investments. She notes that other “developed” countries have devoted large slices of their Covid-19 fiscal stimulus to investments to strengthen their economics to withstand the adverse consequences of climate change – Germany 50 percent, Canada 75 percent – but we have spent only 2 percent of our fiscal stimulus for such purposes. (Our stimulus payments have been mainly in the form of transfer payments to firms and individuals, with little to show at the end other than swollen personal and corporate cash balances, and unaffordable housing.)
Most commentary on the cost of the floods tends to be about the immediate cost of rectifying property damage through insurance or out-of-pocket expenses, but these costs are tiny compared with cost of lost production and income not earned.
Hutley’s 9-minute segment is followed by another 9-minute segment by Mehmet Ulubasoglu of Deakin University, who goes into more detail about the ways economists estimate the cost of disasters. He also explains the equity effects of disasters: the costs are borne disproportionately by the poor.
The Insurance Council report to which Hutley refers is Building a resilient Australia. It urges us to make a $2 billion public investment to realize $19 billion in economic savings. (Beats car parks and change rooms in marginal electorates.)
Transforming our electricity system
Bruce Mountain of the Victorian Energy Policy Centre has given some more explanation of the Cannon-Brookes-Brookfield bid for AGL. In a 10-minute session on last weekend’s Saturday Extra, he explained the economics of the bid, and why it’s a sound proposition, financially and economically. It is based not only on the established fact that electricity from renewable resources is cheaper than power from coal, but also on the falling price of electricity storage. The financial argument for keeping old coal-fired stations operating used to lie in their capacity to provide power “when the sun doesn’t shine and the wind doesn’t blow”, but cheaper storage options have removed that advantage.
It’s a watershed moment for the sector because the bid comes just a few days after the announcement that Origin’s Eraring power station is to close in 2025, helped by the New South Wales government’s decision to build transmission lines to bring power from the central-west renewable zone. If these developments go through, about 80 percent of New South Wales and 50 percent of Victorian coal-fired power capacity will be on track for early de-commissioning, and Victoria’s remaining 50 percent coal-fired capacity may not be long for this world. That would leave Queensland as the only part of the national energy market heavily reliant on coal.
Writing in the Saturday Paper – The case for buying AGL – power entrepreneur Saul Griffith explains what the bidders see in AGL. It’s certainly not a few ancient coal-fired stations. Rather, it’s the company’s customer base, not as passive “consumers” but as co-generators.
He dispels the myth that renewables are intrinsically unreliable, by giving a few figures on the dubious reliability of coal-fired stations.
What he describes as “the kicker” for a transformed AGL is rooftop solar: that’s where all those customers have a role. So far power companies have tended to see rooftop solar as a nuisance, suppressing prices and destabilising the grid, but Griffith sees rooftop solar in terms of charging batteries, including batteries on wheels known as “electric cars”. He sees a future of cheap and plentiful electricity.
In response to the bid, AGL has written to its shareholders, stating that “the unsolicited proposal materially undervalues AGL Energy” adding paternalistically that it “is not in the best interests of AGL Energy shareholders”, presumably assuming that its shareholders have no interest in long-term investment in clean energy, but would rather have a few years of dividends before the whole dirty business shuts down.
Perhaps the only good consequence of Russia’s warmongering: higher gasoline prices
Writing in The Conversation, Peter Martin asks as petrol prices rise, will carbon emissions come down?. He mentions research on consumers’ immediate and long-term responses to gasoline price increases (price elasticity in economists’ terminology). In the short-term people don’t have much flexibility, but in the longer term they can change their behaviour significantly (switching to an electric vehicle for example).
He reminds us that Australia has close to the lowest gasoline prices among all 33 OECD countries. In all countries the pre-tax price is much the same, but there is a big variation in the level of taxes.
As an economist Martin states that there are good reasons for higher gasoline taxes in Australia. As we make headway in the electricity sector the transport sector is the next area where we need to reduce greenhouse gas emissions.
He doesn’t mention the possibility of the government slowly raising the excise on gasoline and diesoline (presently 44.2 cents a litre) while wholesale prices fall, as they will some time. It would be an easy way to raise revenue for roads and public transport in the short-term, and to encourage the uptake of electric vehicles in the medium term, while blaming Putin for any inconvenience.
Population, immigration and climate change
On the ABC’s Science Show Robyn William interviews Ian Lowe on human population, the driver of greenhouse emissions and all environmental woes.
The 14-minute discussion ranges over three areas.
One is a reminder of the stress on global resources resulting from high rates of global population growth, as warned in Paul Ehrlich’s 1968 work The population bomb. In 1968 the planet’s population was 3.5 billion; it is now 7.9 billion. The most effective way to slow down climate change is for everybody to stop having so many children.
The second is about Australia, and the stress on our resources resulting from high rates of immigration. Immigration boosts GDP, but it does not boost per-capita material living standards. (That’s the simple mathematics that most policymakers overlook.) And because of stress on our resources, and a failure to invest in infrastructure to accommodate higher population, our quality of life has probably gone backwards.
The third is a simple but often overlooked message: climate change is not the only environmental threat resulting from population growth. There is also the serious and irreversible problem of loss of species diversity.
Lowe is one of the authors of Population and climate change published by Sustainable Population Australia.
(The session is a little confusing. Lowe points out, correctly, that if Australia reduces its level of immigration our contribution to greenhouse gases will reduce. But climate change is a global problem: will the people who move from another country make a worse contribution to greenhouse gases than they would have in their original countries, particularly if they have come from a “developing” country where they might have had very large families had they not emigrated?)