It's cheap to tackle climate change – but that isn't the reason to do it
by Richard Denniss
[Originally published on Guardian Australia, 12 June 2019]
If renewables weren’t getting cheaper, would Australia still want to tackle climate change? And if world demand for coal wasn’t declining, would we still want to stop the Adani coalmine being built? After 30 years of democratic failures to reduce greenhouse gas emissions, in the last five we’ve witnessed technological leaps succeed where elections could not. But what does it say about Australia if we are only willing to save ourselves, and our kids, if we can get a good deal on the price of renewables?
Imagine if the Australian and UK governments declined to participate in the war in Iraq because the price of bombs was a bit high. Imagine if the US waited for the price of nuclear missiles to fall before participating in an arms race with Russia. Or imagine if we criticised people for spending more on their cars, clothes or food than was “necessary”.
The idea that we need to weigh the costs of reducing greenhouse gas emissions with the benefits of doing so is so widespread in Australia that it’s difficult to see how absurd – and uncommon – such an approach is. While economics textbooks suggest that we should solve all problems in such a manner, the simple fact is we solve almost no problems that way. Take cars for example.
Cars are a very expensive way to move around a city. The private costs of buying, fuelling and maintaining a car are relatively high, and then there are the social costs. Without massive public investment in roads, tunnels and bridges, cars are virtually worthless. And then there are the costs of noise pollution, air pollution and congestion that car drivers impose on other citizens.
Cars do not provide anything close to “least cost transport”, and the fact that most people who buy cars don’t simply buy the cheapest available car makes a mockery of textbook economic descriptions of rational decision making. But strangely, I have never heard the oil industry demand that countries pursue least cost transport policy. Indeed, I’ve never seen a car company determined to only sell the cheapest possible cars.
Imagine if the airline industry pursued “least cost travel”. No more high prices, high-margin business class seats. That would be irrational and inefficient. Let’s just pack people in the plane three high, coffin-style, and feed them with tubes. It’s not hard to see why the airline industry doesn’t push harder for all this least cost, economically efficient stuff that we keep hearing is so important when it comes to electricity.
Australians spend far more on superannuation fees each year than they do on electricity. In fact, the average Australian household spends more on coffee and takeaway but, for reasons that make no sense to me, we are told that we must minimise the cost of producing electricity, and that to do otherwise would be economically inefficient or harmful to Australia’s competitiveness.
Is Australians’ desire to spend billions of dollars per year on bottled water harmful to the economy? Or our desire to drive large 4WD vehicles around in our crowded cities? Or our fascination with ripping out perfectly good bathrooms and replacing them with slightly different ones? Why is it “good for the economy” for people to spend $100,000 on a big car, but “virtue signalling” to spend $20,000 on a big solar array?
“But what about the competitiveness of our manufacturing industry?” I hear the Twitter trolls ask. “Why should we drive up the cost of energy for Australian manufacturing?” Why indeed!
Leaving aside that it was the Abbott government that scrapped assistance to the car industry and (successfully) taunted them into leaving our shores, the biggest threat to our manufacturing industry’s energy costs comes from the decision by the gas industry to spend $70bn building three gas export facilities, right next to each other in Gladstone, Queensland. The whole point of that enormously expensive exercise was to lift the domestic gas price from the $3 per gigajoule it once was to the $11 per gigajoule it is today.
Many of the same business and political groups that say we need to ignore climate change in order to keep energy prices low, enthusiastically support the fact that we now export huge amounts of gas at high prices rather than supply it to local manufacturers at low prices. It’s as if they’re having a laugh when they talk about competitiveness.
Australia is one of the richest countries in the world. Many Australians seem to be too rich to care about the fact they pay the big banks much higher interest rates than they could get at a credit union or building society. We seem to be too rich to care that we pay more to download Australian music from iTunes than a US citizen pays for the same song. And millions of Australians think that spending $10 per litre for bottled water is part of their “healthy lifestyle”. How good is Australia?
But when it comes to avoiding dangerous climate change, we get told again and again that we need to watch our pennies and focus on “least cost abatement”. Apparently our Defence Department can afford 12 new submarines to replace the six we never used and our treasurer believes we can afford to give away $300bn worth of tax cuts – but we can’t afford to invest heavily in renewable energy. Yeah, right.
I know, I know – I’m falling into the “trap” of accepting that there is a trade-off between the economy and the environment. And yes, I know that renewables are cheaper than coal and that building renewables will push energy prices down, not up.
I know that it’s cheap to tackle climate change, but I’d be willing to do so even if it was expensive. The fact that it is cheap isn’t the reason to do it. Offal is cheap, and I haven’t eaten it in 40 years.
Australia’s national income is about the same size as Russia’s, a country that can afford one of the world’s largest military forces. We don’t have a fleet of nuclear submarines, but we do have one of the lowest tax rates in the developed world. If we wanted to reduce emissions, we could. And if we wanted Australian industries to have cheap gas, they would have it.
But we don’t. Our elected governments want to subsidise new coalmines and coal-fired power stations, and they don’t ever claim that doing so will be “efficient” or “least cost”. They just want to do it, so they do. It’s only progressives that fall for the least cost claptrap.
Richard Denniss is chief economist at the Australia Institute @RDNS_TAI