Tuesday, June 18, 2013

Ross Garnaut launches Australia21 issues document

Last evening Monday 17 June 2013 Professor Ross Garnaut of the University of Melbourne launched the Australia21 book “Placing global change on the Australian election agenda: Essays on vital issues that are largely being ignored”.

Following is the text of his address to the invited audience.

For over a decade I have been talking about The Great Australian Complacency of the Early Twenty First Century. The book that we are here to launch today represents an uncomplacent and thoughtful effort to bring Australians closer to the large challenges that are part of their contemporary reality and of the reality within which Australians must make their lives in the years ahead. We and our successors face these challenges whether we are aware of them or not.

Australians over the past decade and now more than ever enjoy the highest incomes that they or their forebears have ever experienced, absolutely and relative to the main developed countries against which we have habitually compared ourselves. At the turn of the century, our average incomes converted into international currency were significantly below the average of the United States, the European Union and Japan. Now we are one quarter higher than the United States, one third higher than the European Union and one half higher than Japan. The proportion of work-age Australians in employment is now well above that of the United States, when two decades ago it was well below.

Our net exports of beverages were about zero when Australia embarked upon a great venture of economic reform thirty years ago. They rose steadily and strongly for nearly twenty years, reaching a peak at the remarkable level of 0.25 percent of GDP. Now in the Great Australian Complacency we are drinking the surplus ourselves. I have described this as a journey from Champagne to Coonawarra and back to Champagne.

When we embarked on that reform venture, about 50% more Australians travelled abroad for tourism than foreign tourists came to Australia. By the early years of this century, that ratio had been reversed: we were receiving 50% more visitors than Australians were travelling overseas. Now we are back to the old ratio.

Much the same story is told by total exports of manufactures and services.

These recent years have been good times, with Australians enjoying an abundance of consumption well beyond the experience of earlier Australians or by citizens of other substantial high-income countries.
And yet the conventional wisdom has it that Australians are doing it tough. Our political leaders have spent the past decade empathising with the pain and suffering of Australians, and doling out cash palliatives.

These last ten years were the best of times to accept a small fall in current consumption to begin the process of decarbonising our economy, and so to match part of the efforts that Chinese, Americans, Japanese, Koreans, Brazilians and Europeans are making to reduce greenhouse gas emissions and to reduce the risks from dangerous climate change to the welfare of future people in Australia and all over the world.

Just last year we put in place policies that allow a modest start on what will be a long journey to decarbonisation of our economy. The results of those modest efforts are showing up in a notable downward shift in the trajectory of our greenhouse gas emissions, albeit of smaller dimension than will prove to be necessary.

I will come back to that in a moment.

This volume brings to our attention many of the big issues that could blight the lives of future Australians if we do not deal effectively with them now; climate change; challenges to energy and food supplies; threats to ecosystems that are important and perhaps fatefully so to our civilisation; risks from short-sighted use of chemical processes; and unpredictable consequences from loss of senses of community and place.

As we read these thoughtful contributions to discussion of the big issues facing Australians, we should keep in mind that modern economic growth and all of the social, political and biophysical change that go with it are young and raw. The progress of modern economic growth frequently throws up surprises—sometimes pleasant and sometimes existential threats to economic growth and to our civilisation. Humans living today in Australia and also in much of the rest of the world are heirs to the investments that have been made by earlier generations in recognising and dealing with challenges before they overwhelmed societies, polities or economies.

Sometimes the foresight of our forbears was incomplete and the responses flawed. The consequences of those past errors are small compared with the consequences of our failing on some of the big issues that are brought to our attention in the work that we are launching this evening.
This is the thought that I hope that Australians will keep in their minds as they read the contributions to this important volume.

Australia 21 seeks to get us discussing the big questions rather than to give us the answers in a package.

Let me then add a couple of points to the discussion.

First, I suggest that we think hard about what we mean before we draw take a hard position against economic growth on the grounds that it damages ecosystems that are important to life. Sure, current patterns of economic growth have those effects. But economic growth is not inherently in conflict with conservation of the natural environment. Increases in human material well-being (and that is the proper definition of economic growth) derive from increases in population, in the amount of capital used by each worker, and increases in productivity (increases in output per unit of capital and labour applied).

Yes, inexorable increase in population is by definition in conflict with finite natural resources. In our experience so far, increase in material standards of living is the one reliable way of reducing fertility below replacement levels and ending population growth. This process has turned out to be stronger than the edicts of Imams as well as Popes.

Increases in capital per worker can be resource-saving or resource using. There are many examples of resource-using investment. But there are also resource-saving increases in the use of capital-Japan in the late seventies and early eighties is one example. Watch and you may likely to see another and larger example in China in the years immediately ahead.

The same goes for productivity growth deriving from technological change. Much technological improvement results in less pressure on natural systems per unit of economic value that is generated.

When we see economic growth in this light, we do not need to make enemies of the whole of the developing world’s people as they seek higher standards of living.

When we see economic growth in this light, we recognise that the important thing is to make sure that we put in place policies that encourage resource-conserving and discourage resource-using capital intensification and technological change.

That is what has Australia has done in a small but so far effective way with its carbon pricing and associated clean energy policies. The link of the carbon price to that in the European Union will probably lead to lower carbon prices for a while and diminished pressure for use of carbon-conserving investments and technologies. However, the presence of the carbon pricing causes firms to consider the likelihood that European prices will rise in future, and to think twice about the carbon intensity of future output from investments that they are making now..

To expect Australians to put the welfare of future Australians near the top of their priorities may be too much to ask as we live through what I hope are the later days of the great Australian Complacency. But surely it is not too much to expect that we will not make things worse, by retreating on the modest steps forward that we have made in addressing one of the great challenges facing our people.

Ian Dunlop has contributed much to Australian discussion of the issues for the future by drawing to our attention the need to reduce our use of fossil fuels. He has two good reasons for this: fossil fuels, first of all oil, are not finite, and would not always support human use at the current intensity, let alone the levels to which intensity would rise if recent trends were to continue. And climate change.

I myself would be less worried about our prospects for avoiding dangerous climate change if we were closer to peak fossil fuels. If the known reserves of oil and coal and gas were one tenth of current levels and the prospects for greatly expanding them were poor, the prices of the fossil fuels would be high and rising. Business would be getting on with the job of developing alternative sources of energy, supported by government support for innovation in new technologies. The commercialisation of known alternative technologies would be accelerating.

If peak fossil fuel were approaching, the world of energy would look a bit like it did for a while when the developed countries received a scare about the security of oil supplies in the 1970s. Even the great oil companies developed branches and subsidiaries directed at alternative sources of energy.

No-one would be talking about declining uses of fossil fuels being the end of economic growth, or the end of the historic convergence of many people in the developing countries towards the material standards of living of the developed world. We would celebrate the reduction in Chinese manufacturing costs for solar photovoltaic panels by 90% between 2008 and 2013. We would make sure that the progress in use of algae as a source of bio-fuel, reported by Julian Cribb, was amply funded. We would calculate that the development of an alternative energy system that did not depend on fossil fuels a few decades hence would take just a small proportion of the increment of incomes if we managed our economy well. We would take note of the Japanese and Chinese investments today in reducing the costs of batteries to drive electric cars, note the Chinese intention to have 5 million electric vehicles on the road by 2020, and calculate that the transition to cars without conventional fuel would be much cheaper in a few years than it would be today.

The transition to a low-carbon economy is difficult not because it is technologically complex or economically costly, but because, prior to the peak oil and peak fossil fuel crashing upon us, it depends on human foresight and sound policy.

This collection places a great deal of emphasis on climate change, as it should. It is a diabolical policy problem because of the way in which human frailty gets in the way of conversion of the science and the technology into a solution. 

Ross Garnaut
University of Melbourne
17 June 2013

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