a game of cat and mouse

The Australian government is flirting with the actual policy settings it will use for emissions trading at the moment and it struck me that a game of cat and mouse, and 'double dare' is going on right now.

Looking at the challenge of decoupling economic and emissions growth, the Government has prepared its modelling for the economic impact of climate policies under four scenarios which all assume we reduce emissions by 60% of year 2000 levels by 2050. Essentially the only difference between the scenarios (especially given the marginal differences by 2050) is how quickly we start taking action. This prompted one Australian Senator to ask why we can't go further given the small differences, and it also supports my idea that dealing with climate change won't be that hard: it's just a matter of what we lose, and the increased risks we will face, between now and when we start to take action. And this is where the game of cat and mouse begins.

If reducing emissions is easy, then the urgency to do so is less. So in order to create the urgency for action, governments have to talk tough. On the other side, business does not want this urgency so it ramps up its rhetoric even further, daring the government to make decisions that will cause supposed untold damage, hoping it will take decisions that reduce the urgency.

Ultimately I think in this instance the government needs to call the bluff: despite what CEOs and other Executive's claim to know, one thing they are not very good at predicting is the next crisis (just look at the state of finances at the moment!). And the problem with the climate crisis is that we actually don't know what will eventuate if it takes hold, nor how much worse it will be if we don't take action sooner rather than later.

The other side of the modelling that I found intriguing was an implicit assumption which arguably underlines the report's conclusions and simplicity: how business will actually respond.

Given the long term nature of the modelling it is largely based on trend averages which only consider if a sector is going to grow or decline, and at what rate. The basic assumption was that a carbon price will start the decline for high energy industries relative to their ability to introduce new technology or achieve energy efficiencies.

To that end, the assumption was that high energy industries - all industries for that matter - do not want to decline and thus will make changes to prevent this. What will be interesting to observe as time plays out will be how accurate the implicit assumption is: that changes will be driven more by technology than location change. Under the technology driven assumption the economy can continue to grow without producing carbon, and therefore the report concludes that the government’s climate policies will have little negative impact on the economy in the long-term.

The dare, however, is that high-emitting industries are arguing that they will move their operations first, and take other actions second.

Personally I am not sure who will call the bluff - the government or business - but I am inclined to think that for business to call the bluff and move it operations offshore is a knee-jerk reaction that could have longer term implications as the climate issue extends across the world.

Unlike the free-trade movement or global institutions which try to create a better world, global climate change policies have the chance to actually take effect quickly and grow if the burning platform of the very climate we live in, starts to burn quicker and hotter.

And if (when?) that happens, what will be the benefit of being a company that moved its operations to avoid climate change legislation? Very quickly those extra dollars might seem quite small as the increased PR and other promotional activities add up to convince consumers that the company takes its global responsibility seriously.

And if this happens, then the cost of climate change to business will be higher still. And no one wants this.

Does action on climate change make a company sustainable?

Less than three years ago climate change was still a relatively small issue for Australian businesses and the Federal Government. At that stage only a small group of public servants were starting to develop a public discussion paper on how the State Labor governments – independent of the Federal Coalition Government – could develop a National Emissions Trading Scheme.

I remember going to one of the very first public forums on the issue. Although the general Australian business community wasn’t really awake or alert to the issue of climate change, it was obvious that a number of small businesses and consultants could see the emerging issue and wanted to be part of the solution.

Most of the consultants I met that afternoon had a background in sustainability and had personal passion to help increase the sustainability of the business sector. With all respect to those people I met, I don’t think they actually realised how action on climate change and action on sustainability were actually different things.

Action on climate change and action on sustainability are different. Fundamentally, action on climate change is a sub-set of the sustainability agenda that attempts to improve the energy efficiency of processes and reduce the negative by-products of energy consumption. Sustainability, on the other hand, attempts to increase the longevity of business and decrease the negative by-products business can have on itself, society and the environment through short-term thinking and self-interest.

Despite what many people believe, action on sustainability is not about donating to charities, volunteering, or community service. Rather, it is an attempt to create a local environment where business can continue to grow. For example, a community which does not have enough skilled people leads to a business that cannot make or sell its product. Likewise, a community without businesses does not have enough income to create a quality of life that keeps people happy, healthy and living locally.

As such, while action on climate change might reduce our carbon footprints, it does nothing to ensure we have the skilled people to make and lay our bricks, or create a situation where people want to improve their living circumstances by building new homes.

As such, despite the looming threat of higher manufacturing costs and a massive effort to reduce this, it is imperative that businesses don’t forget that they still need to engage and nurture their local communities to ensure prosperity beyond the climate change threat.

Furthermore, action on climate change will become the norm and all businesses will learn how to reduce their costs through manufacturing efficiency improvements. Conversely, action on sustainability will continue to provide a competitive edge that increase real value within the company, not just efficiency dividends.

Climate change ignorance

Last year the Australian Coal Association agreed to develop a clean coal technology fund through a 20c/tonne levy which was expected to raise over $1billion. It did that, easily, because amoung other things the price for coal actually increased by between 130-250% thus dramatically increasing the coal company profits.

Now I am not fussed that they got the extra profits or that they didn't choose to increase the size of their contribution to the clean coal technology fund; what I am surprised about, however, is the ignorance of their comment when asked by green groups why they don't contribute more...

"The fund is regarded as a great contribution for the industry and adequate for the purpose"

The ignorance of this comment is astounding for two reasons: First, "...a great contribution"?? Umm, hello, clean coal is not something they should be merely 'contributing' to... it is something they should be betting their lives on! If the renewables sector (which is supported in Australia and world-wide by the academic sector, multi-nationals and Government) get the answer first then they are out of business. It's as simple as that!

Secondly, "...adequate for the purpose"?? What purpose? The purpose of deflecting criticism or buying good PR? Maybe they think the purpose is to buy them favour with the Government so that they will be protected from actually having to do anything?

Either way, I think this demonstrates their complete lack of understanding of this issue. Irrespective of how it started, a new movement has started at both national and international levels of politics which will eventually change the way the we use energy forever. One day (and sooner than we think) we will all have solar cells on our roofs, buildings will be self-sufficient, products and materials will be designed properly and will actually break down rather than just becoming landfill.

It will be this way because although the human race is incapable of changing its wasteful ways, it is more than capable of developing goods and services that mean we don't have to think about it.

And that is where the problem with this comment lies; they still think dealing with climate change is about giving money, buy off-sets or writing sustainability reports. It's not, its about developing new and better products and services: ironically, those companies that get to this first will make a CRAP load of money doing it.

Is geosequestration really an option?

There was an article in The Age this morning talking about the potential health hazards of a carbon waste dump as compared to a nuclear waste dump. The basic argument was the author would prefer to live on a nuclear waste dump because at it could be monitored.

The carbon waste dump he was referring to was a site that was used for carbon geosequestration, and his conclusion was that all the investment in 'clean coal technology' could amount to nothing because the technology is not proven and it could create other problems over the long term. In his mind, it was better to go with nuclear.

Putting aside the issue of nuclear and if it is an alternative or not, I too have issues with carbon geosequestration. In a nut shell, my issues pivot on the reason we are seeking geosequestration as a solution: when we started producing more carbon dioxide we never thought that a natural chemical could create a problem, let alone a problem of this scale.

About a 100 years ago we realised that by burning fossil fuels (coal) we could create large amounts of energy and produce goods on a much larger and cheaper scale. In our not-so-infinite wisdom we have done this in increasing volumes ever since and pumped layer upon layer of carbon into the atmosphere. In over 100 years, it has only been in the last 30, and in particular the last 10, that we realised this created a problem. So now, to fix the problem we are proposing pumping carbon dioxide underground where C02 is also a natural chemical.

Is it just me, or does it seem like we haven't learned the lesson of why we are in this mess to begin with? How long will it be before the sequested C02 gathers in such a quantity that it starts to change the formation of rock, alters the properties of soil or does something to our table water? To be honest, I think the issue of 'leaking' is our least concern.

And in all this, I can't help but remember a Simpsons episode where Homer is Mayor and he has a problem with all the trash being generated by Springfield; in his infinite wisdom, he decides to dump all the trash in the volcano. Of course everyone loved him, it was a great idea, until there was too much trash and the volcano erupted, spitting all the trash back onto Springfield...

How long do we really think it will it be before our 'great idea' becomes another problem and Mother Nature spews our trash back at us?

Does greater density create greater sustainability outcomes?

To the outsider (and dare I say, for the insider), most urban planning pivots around the central assumption that greater density creates greater sustainability outcomes. Even without having any urban planning background, this assumption does intuitively make sense because with density you can minimise the amount of land cleared for housing, roads and infrastructure, and furthermore, get greater economies of scale for these and other investments, particularly public transport. Despite this intuitively making sense, after attending a number of recent forums and conferences, I get the feeling that environmental reasons and not economies of scale are driving the push for greater density.

Interestingly, however, the emphasis may be one-sided because despite the numerous planning guides limiting land release and promoting density, according to the Australian Bureau of Statistics (ABS) “… current homes (have) more bedrooms on average than homes ten years ago. At the same time, households are getting smaller on average with decreasing proportions of couple families with children and increasing couple only and lone person households.”

Other data doesn’t necessarily support the density assumption either. According to research conducted by the Australian Conservation Foundation (ACF) in conjunction with the University of NSW, suburbs that typically have a higher density of population are actually less sustainable than those suburbs on the fringes of cities. According to Australia’s Consumption Atlas report, “…on average, single-person and small households have greater environmental impacts than larger households… (suburbs) with higher average household size also tend to have markedly lower levels of greenhouse gas pollution per capita, and smaller but still clearly lower levels of water use per capita.” ACF proposes that this is the case because wealth is higher in the inner suburbs and by extension, consumption is also higher. The primary argument of the ACF is that consumption is the key sustainability metric rather than location.

So where does the assumption that greater density produces greater sustainability outcomes emerge from? Especially if we look at some of perverse implications that urban growth boundaries have created.

Restricting land supply on the urban fringes of cities has created the situation where demand is massively outstripping supply. When combined with a prolonged period of economic growth that has provided the type of certainty individuals look for before making significant housing decisions, we now see people making decisions to have children or upgrade their homes (building their castles!). These individuals are then competing for the limited supply of land and what is interesting is that whereas once there may have been a greater sense of caution, currently we are seeing these competing individuals and families taking on greater mortgages and other debt because economic conditions are so good.

This is dangerous territory because while we may have environmental sustainability by virtue of reducing the amount of land cleared for housing, it is arguably at the cost of economic, and in particular social, sustainability outcomes. And while I agree that we should never understate the interconnected nature of the environmental system we live in, it seems that our current planning assumptions are not providing sustainable outcomes.

At the end of the day I think sustainability is a product of design because as the ACF’s research pointed out, the higher environmental impact caused by higher density suburbs is a product of consumption rather than location. If the products being consumed were designed better so that they used less electricity and water, and produced less waste, and likewise if fringes were better designed to take advantage of solar-passive design, used smarter materials (like brick!), and overall made less of an impact, then urban planning and environmental management would require a fundamentally different set of assumptions.

Because unfortunately I think that planners have occasionally lost touch with the very reason they exist, just as environmentalists have forgotten that individuals do have aspirations that are greater than their concern for the environment, and equally as business has forgotten that if there is no stable environment, then they will constantly lose money because of ‘acts of nature’ such as drought, flood, hail, etc etc.

Which brings us back to the question; does density create greater sustainability outcomes? Ironically, I think the planners had it partly right by imposing certain restrictions on developers. These restrictions, in the forms of land releases, environmental impact statements, infrastructure development etc have seen the rise of master planned estates that actually emphasis the benefits of good design. Things like recycled water, renewable power generation, tree planting, river and land regeneration, public transport, schools, and perhaps most importantly, partnerships with local businesses (to ensure jobs and services exist so the community can be self-sufficient) have become increasingly sophisticated and common.

So let’s not throw the baby out with the bath water; perhaps our best bet is to go to these developers and ask them questions about how they could do more of the good things they do, and likewise, what regulations should be in place to stop the ‘cowboys’ giving an entire industry a bad reputation! Because I think its fair assumption that leading developers would like anything which lifted their reputation in the community!

EU Climate change plans

The EU released their draft bills on how they will tackle climate change and reach their goals of greenhouse reduction over the next 50 odd years. This is a good thing because it gives all the other countries a chance to refine (and dare I say it, improve) the laws before they are introduced in their respective countries.

I found two things to be interesting in the bills: the first was the decision to set a 30 per cent reduction target on 1990 levels if other developed countries come on board to match the EUs 20 per cent by 2020, the second was the biofuels target. I think the first decision is a good thing, the second, not so much. This is because as with any new thing, there always needs to be someone to 'test the water' and if the Europeans are brave enough to do this by extending their 20 per cent target, then the rest of us should all appulade them because they will make our lives easier for it.

Regarding the biofuels and the intention to have 10 per cent of all vehicle fuel coming from biofuels by 2020, I am not so sure it is a good move. While the dependance on oil and the by-products it creates are definitely a problem, there would hardly appear to be enough farming land to actually support a large-scale take up of biofuels as serious alternative.

With all things like this, I think some longer term thinking is needed; what would actually be the impact of wide-spread use of biofuels especially given motor vehicle use is going up, not down (and China and India are really starting to purchase cars!). In my mind, it just can't work based on the infrastructure requirements to support people needing to fill their cars, let alone trying to find the land to grow the crops! Even biofuels for the aviation idustry seems a bit of a stretch, but at least it seems a little more realistic given that infrastructure requirements are more condensed.

The problem with these types of targets is that they potentially divert resources from other initiatives that may actually be much better in the long-run. Most major car manufacturers - lead by Toyota - have already announced desire to completely do away with the internal combustion engine. If they do this, what's the point of having a biofuel industry when it is based on the premise of an internal combustion engine?

There are many other examples of this, and in Australia, nuclear subsidies - while not quite as silly as biofuel targets - are a good example. According the previous Prime Minister Howard's own report, nuclear power is 10-15 years away, would need to be subsidised by government and benefit from a carbon price in order to compete with coal and gas electricity generation. Bringing in the concept of long-term thinking, surely the existence of solar power in 10 - 15 years has to be factored in. Again, thinking about the long-term, isn't solar energy development a much better prospect than any other source given it's readily available, wont present us with a problem at some point down the line where we 'run out' of uranium, and what's more is a more envrionmentally friendly solution?

And with that in mind, if the Government subsidies nuclear - espeically the development of a large scale nuclear power capacity in Australia - isn't this just diverting resources that might go to solar which is probably a much better long-term solution anyway. Government subsidies for nuclear seem even more ridiculous when you think that in 10 years solar technology will probably look vastly different than it does today...!

The economics of sustainability

Interesting times; we have a US market staring down the barrel of recession and Australian commentators debating the impact this will have on Australia, while, ironically, talking about inflation and interest rate increases... go figure.

So with all this going on, it is possible that businesses might start to look more at economics than sustainability. Likewise, the new Australian Government, with all its hopes to kick start an education and renewable energy revolution, will be forced (by the Opposition at the very least) to look more closely at their spending (something the Opposition, while in Government, never had to do...).

Seriously examining spending is a good thing, but to do so now - when things are looking pretty shaky to say the least - is too late. For a long time I have argued that sustainability should be more about economics than the environment; more specifically, sustainability is about opportunity cost and long-term decision making.

If we leave aside the new Australian Government (because, let's be fair, they have not really contributed to any of the current financial or economic issues the country is currently facing), and look only at businesses, the successful businesses in the next two years will be those that made long-term decisions to save (or invest) their good fortune over the past two years, so that it could begin to deliver returns when the cycle dipped. At the end of the day, I fundamentally believe, that is sustainability.

Investment in new technology, processes or training that reduce waste, on-going costs or dependence on something else (ie the electricity grid, water supplies, or - dare I say it - people) will be critical now. Not only will it reduce costs over the coming two years when things aren't as good, but it will also better position companies to deal with the new global expectations arising from concerns about climate change.

Likewise, those companies that invested in their people, spent the extra money to refine, extend and enhance the skills of their people will also be better off during the coming two years. Now more than ever companies need smart people to develop really smart ideas about everything from the business model, to marketing and technology. Without these people, many companies may find themselves losing the good people thus creating a double negative feedback loop: productivity decreases and costs increases. And when the cycle starts to dip, these are the last two feedback loops a company wants to feel.