The Australian
By: Giles Parkinson
The clean energy debate
The Rudd government's emissions trading scheme may have been deferred and international negotiations on climate change treaties may have stalled, but the global transition to a low-carbon economy is actually accelerating.
The shift is being driven as much by the need for energy security and the chance to win a share of the growing market for clean technology as by the desire to curb greenhouse gas emissions.
In this special report, a panel of experts convened by The Australian's the deal magazine discusses how companies here compare with their international peers and what governments should be doing to provide the right signals and incentives to allow our leading businesses to compete effectively at home and abroad.
With the ETS on hold till 2012, where else should the government focus – on energy efficiency, building codes and fuel regulations? Or should there be a grander vision for a clean energy network? And how do you create a sustainable economy in a world with limited resources? Perhaps it’s time to change the measuring stick.
Economic growth, our primary reference point for success or failure, is measured in terms of production and consumption. But even leading bankers think GDP and GNP data are missing a key part of the equation. They want new metrics to help ensure environmental, social and economic losses do not outweigh simple economic gains. Carbon might not be the only external value or commodity we need to factor in.
Present:
Giles Parkinson, News Ltd
Lyndall Crisp, the deal
Oliver Yates, Macquarie
Martijn Wilder, Baker and McKenzie.
Jonathon Jutsen, Energetics.
Brendan Bateman, Clayton Utz
Paul Simshauser, AGL.
David Caspari, HP
GILES PARKINSON: Thank you very much for joining us today. It's a fairly loose format. We're going to get everyone to introduce themselves, and then we'll set the thing rolling with a general question and then follow it up from there. Can we maybe start with David?
DAVID CASPARI: I run HP Enterprises Services business, which is responsible for delivering all of HP's IT services in Australia and New Zealand, about 10,000 people, one half billion dollar business.
OLIVER YATES: I'm Oliver Yates, I'm from Macquarie. I look after the renewable energy and climate change business at Macquarie. One of my key passions is obviously trying to get forest conservation into a workable commercial form and we have a joint venture with a large NGO to actually achieve that objective and that seems to be moving along well, regardless of the carbon markets.
MARTIJN WILDER: Martijn Wilder, I'm a partner of Baker and McKenzie running their global climate change practice. I've been working in the area since about 1997.
JONATHON JUTSEN: Jonathon Jutsen, I'm the founder and the director of Energetics. Been in the field for about thirty years, must be some sort of dinosaur in the field. Still doggedly pursuing energy efficiency and carbon mitigation for commercial and larger businesses.
BRENDAN BATEMAN: Brenton Bateman, partner of Clayton Utz, head up the climate change sustainability group of the firm. The basis is environmental planning. Just listening to Giles, acting for Macquarie generation Land and Environment Court is always interesting when you're getting a judgment from Pain.
PAUL SIMSHAUSER: Paul Simshauser. I'm the chief economist at AGL and Professor of Finance at Griffith University's business school. A big part of my job is carbon, carbon policy and renewable policy and so on.
GILES PARKINSON: Terrific. We're going to start off with a big question. People talk about the major drivers that we're all inevitably heading towards an economic and energy transformation. What do people think will be the main drivers of that? Will it be climate change? Will it be energy security or will it be a commercial race to seize the green tech/clean tech market? Perhaps we can start with you Oliver?
OLIVER YATES: I think it's going to be a combination of all of them. The question of sustainability is cutting in and sustainability includes the question of carbon. I think people are recognising that we have a limited global energy resource unless we can make it from renewable sources, so that's where the oil kind of debate comes in or energy security debate comes in.
People that are recognising that within a world of limited resources, we need to find a new way to power our economy and there will be a carbon price sooner or later, and that if you want to be part of what could potentially be the biggest industry transformation since the steam engine, then you want to position your economies appropriately now so that you can get ahead of the curve. So that's what I think is happening. I think people see this, China certainly sees it.
China's industry is moving rapidly towards developing massive production capabilities of green technology equipment and renewable energy equipment and there will be a sudden change in those who are positioning their economy appropriately will actually benefit from this change.
BRENDAN BATEMAN: I think Giles, just butting in there, it's different for different countries. There are different drivers for different countries and interesting to see that America is moving away from badging its legislation related to climate change, more of energy security. Whereas for Australia that driver is omnipresent. It's very much we've got plentiful resources of cheap coal and other forms of resources that we can use to power our economy, whereas in America it's not necessarily the case.
For Australia it's a different directive that's been pushing us in this direction. I think it has to be climate change. I think we are one of the countries most susceptible to the adverse impacts of climate change and very quickly, and it impacts on a lot of our industries such as tourism.
DAVID CASPARI: If I can just add on that, I think no doubt we're blessed in Australia with an abundance of natural resource which is driving our economy now, but at the same time we have to take a step back and ask some questions about what the next generation of our economy is post this resource oriented environment.
So clearly climate change is going to be key but there's a broader question about whether we can seize the opportunity to be a real innovator in this market and perhaps in a way that we might have missed in a couple of other real innovation opportunities over the last couple of decades. You look at solar power and various other things where we innovated but missed the opportunity.
GILES PARKINSON: Yes. I just want to redirect it back on to the international scene and what those drivers are. Do you think Martijn that it is a matter of climate change that is driving international movement now, or do you think it is this race to grab the green tech economy of the 21st century?
MARTIJN WILDER: I agree with Oliver. I though it's a combination of all of those and I think Brenton is right, you know, different drivers. I think it was Senator Graham, one of the US Republican Senators who said earlier this year that he was worried that with a cap on trades, US business would suffer under the cost of that, but he's now saying without a price on carbon, he's worried the US will fall way behind China in terms of its race for the green economy.
I think the other factors you've also got to put into the mix are the science. I think the science is fundamental. I think when we look throughout history, science has always driven regulatory changes. It's also driven a lot of risk policies of corporates. When you look for example at the material the CSIRO put out the week before last about how the science is getting worse and how climate change definitely is occurring, it's occurring because of human activity. The science will continue to drive policy in a way which companies assess risk.
Also I think population growth will have a significant impact. There's a limited amount of resources and if you combine what the CSIRO said last week about in areas like Sydney, Brisbane and Melbourne, decreasing rainfall, becoming drier, increasing population, you've got to basically find a way to manage that and I think that population and environmental degradation, together with all the other factors, will play a significant role.
JONATHON JUTSEN: I agree with Martijn. I think we're getting to a situation where in fact there is a huge challenge for mankind because we're having a simultaneous set of challenges. We've not only got a climate challenge, which I think is the big daddy, but alongside that we have got resource constraints and even Australia, I don't think we should underestimate the fact that we are becoming increasingly oil dependent on imports.
We've gone from being 95 percent self sufficient in 2000 to, by 2015, it will be about 60 percent importing of our oil requirements. Any alternative for manufacturing oil from other fossil fuels is going to be carbon intensive so there's definitely a resource constraint in terms of transport fuels in Australia.
On top of that there are other major sustainability issues. Water availability in many parts of the world is a big issue. We're looking at constraints on global fisheries and food supply. You combine that with population increases; I think we've got some simultaneous challenges that are coming together.
GILES PARKINSON: Paul, can I just bring you in because you haven't said anything yet?
PAUL SIMSHAUSER: I was just going to say pretty much the same as Martijn in many respects. I think he probably captured it pretty well. But one thing I would say though, if you stand back at look at pretty much any western government around the globe, when they're thinking about energy, so rather than looking at what's driving transformation, what the governments think of when they're thinking about energy, there's really three pronged drivers they look at.
The first and foremost is energy security and everything else is a very long distant second. As you all appreciate, when lights start going out in the economy, it's a huge economic disruption and it's politically very unpopular. If it's severe enough, it will really start to cause problems for any ruling government. So energy security is usually first and foremost.
Fortunately in our country we're blessed with vast resources. We've got something like 44 per cent of the known coal reserve in the OECD. I think we've probably got the better part of 20 per cent of the known gas reserves. We've got 30 odd per cent of the known uranium reserves. We've got some of the best wind farm sites in the globe and we're a sunburnt country. So from a resources perspective and an energy security perspective, I don't think anyone in Canberra or any state government actually sits there and panics about energy resources other than I think the point Jonathon made in relation to oil, that's obviously a sleeper and it all starts to become more prominent.
Second down the list, and it is a long list in the second but second will obviously be price and efficiency of that process, and there's just conflict with that where you get the climate overlap and sustainability of it. There's a bit of a clash between efficiency, price and climate because as we know coal is a very cheap here and abundant, but it also has quite material implications for climate going forward.
GILES PARKINSON: It's interesting what you say about energy security because that does seem to be driving a lot of what's happening overseas. To what extent does the lack or how important are international treaties, or even international specific climate change policies to what is happening over the world because it seems to be an awful lot happening in China, America and even in Europe, which are happening without those international treaties and without those climate change policies in place?
MARTIJN WILDER: I think a treaty like the Unilateral Sea Agreement is a framework agreement and a treaty like Kyoto; it was quite remarkable that they actually negotiated that agreement in many ways and it got binding targets. I think they are important as they set direction and they will continue to set direction. But the issue is the process itself and an adequate one in which to achieve an outcome in a reasonable timeframe. We're running out of time, that's the problem.
There are really only two other international agreements that deal with key economic issues. One is the WFO agreement and one is the really the Law of the Sea Convention. But I think trying to get agreement on climate going forward in an international sense is going to be a slow process. So what is more likely to happen is what we're seeing now, the sort of breakaway where we've got the Copenhagen Accord with just the major emitters have signed, well there's a lot of people have signed up to it now but 80 percent of emissions are now caught underneath that. Either the G20 though agreement with that.
So I think the international process is very important for getting consensus but ultimately the domestic action under those agreements, the real action will happen at a domestic level. The question is to what extent will those domestic frameworks stick to each other.
GILES PARKINSON: Indeed I think Copenhagen actually not being seen as the failure it was originally seen as, it's now actually seen as a fairly solid foundation to move forward. It will no doubt be the tortuous path of international treaties.
BRENDAN BATEMAN: I think that's right. I think what you'll find is the ambition of having a binding international agreement covering all aspects of it may well be too big an issue to deal with in the timeframe, as Martijn suggested. I think what we'll now find is more multi lateral and bilateral agreements to give effect and recognition to each country's commitment and demonstrated achievement of particular targets that we set ourselves and ambitions.
So I think from that point of view, we'll start seeing a lot of these more negotiated country agreements, based maybe around G20 or something like that. Even the EEU I think earlier this week were saying that they're looking at G20 as taking a leading role, in addition to the UN CCC processes. So I think you'll find that negotiations between these countries will take a more important role in achieving outcomes because what we have with the Copenhagen Accord is more in, because it's not binding, more in the way of a pledge and review.
Let's see what everyone puts on the table, work out whether or not it's going to get us where we need to go. If it doesn't, then we need to recalibrate and see what other incentives we can provide for countries to come on line.
GILES PARKINSON: You were at Copenhagen. Did you leave there with a sense of despair and has that modified from what's happened, what you've seen happen since?
BRENDAN BATEMAN: There was obviously a sense of despair because a lot of people went there with a degree of optimism as to what was going to be achieved, but I think it was fairly clear for those who had studied what was happening in the lead up that the ambition of getting a binding agreement to succeed Kyoto, or even Kyoto 2, was going to a bridge too far.
I think very much it was a real politic check point for us to say well how is the international community going to grapple with this issue going forward? In my respect the Copenhagen Accord was a great success because it brought together the key emitting countries into a general political agreement to achieve certain targets. At least objectives set to a maximum 2 degree increase and putting it in that framework.
So I think from that point of view, bringing US, China, India, Brazil into the negotiations and into agreement was a tremendous success.
GILES PARKINSON: Oliver, you mentioned in your introduction that you're focused on forests and forestry and international possibilities of that. How frustrating was Copenhagen, or results from Copenhagen for you, and how do you see that evolving over time and how important is that to get a concrete national agreement to do what you think should be done?
OLIVER YATES: Well I guess the clearest piece of legislation that was actually drafted and presented in Copenhagen was actually the red decree, and that's continued on from that path and I think we're seeing that now adopted and certainly proposed within the US legislation to bring that in, that you will be able to generate carbon credits through reducing the destruction of standing rain forests.
I think we left there, from a red point of view, disappointed nothing happened because that would have been a piece that would have easily been incorporated in whatever was done because it was actually negotiated. But it hasn't really changed the momentum and it's not changing anything that's happening on the ground.
I think the main thing is that the destruction on the ground is accelerating and more and more people are understanding that you cannot keep running up a natural credit card bill. I'm just trying to summarise this debate on what's going on in the globe. People are realising that we have run up a national international global debit of preposterous proportions on a natural credit card.
We have put this false economy into all of our minds that an increase in GNP is good, or an increase in GDP is good, and no one values the other side. If I go for example and slaughter a rain forest it Indonesia, it increases the Indonesian GNP, everybody claps, the economy is progressing. No one says that actually there is a debit to every credit. What is my net GNP growth? So what am I taking away? What is that cost of production?
Whenever there's a natural resource, no one values the cost of that production and it happens today. We're just seeing it from a carbon side. We're seeing if someone builds a smelter, everyone says fantastic, progress. They say progress because on a statistical numbers we use today, which is GNP and GDP, we don't include the externality costs in there. So there is no detriment to pollution, to the release of carbon, that's not included.
Until such time as we get a system whereby people can see if I do this activity am I net better off, both in terms of what I get and what I've destroyed? Am I net better off? Then we'll still continue down this path of an equation that actually doesn't make sense and we've been fooling ourselves for years. And I think just suddenly, the bank manager is ringing us up, the credit card debit is over the limit, everything's bleeping at us but we have to do something about bringing that balance together.
JONATHON JUTSEN: It's interesting, the Chinese did an analysis last year which was actually done at a senior level in the Chinese government which showed that they believed after taking into account environmental degradation in that year that they had had a net 2 percent growth.
OLIVER YATES: Isn't that fantastic that people are thinking about it?
JONATHON JUTSEN: Domestic product growth because they had about 11 percent growth in that year and about a 9 percent loss in view of natural services in that year.
GILES PARKINSON: So is carbon the only thing that we need to price? One, do we need to price carbon and what else do we need to price to get those externalities working within those equations that we want?
OLIVER YATES: Take it simply. Carbon is easy when you're looking at an industrial production because that's what we're concerned about. But you've got to look at, for example, if you're doing coal seam methane gas, the rise in salinity, the destruction of the aquifers. If you're talking about rain forest, you're talking about the loss of the water purification activity of the rain forest, the loss of habitat in which to retain biodiversity. Half the time we're don't even know what's in these things that we're slaughtering and they're irreplaceable.
Some of these things you can never actually change. It's the same if you bring all the salt up to the surface and if you don't deal with the surface out of coal seam methane, that salt will not go away. If you destroy a rain forest permanently, you cannot replace it. These are things that people need to somehow come up with a value on so that they can look at what is the net benefit from that economic activity before they start.
GILES PARKINSON: We've been talking for decades about the need for a carbon price, we haven't got there yet. How are we going to get to price these?
OLIVER YATES: Well that's what I'm saying, I think there is a realisation at this moment that the credit card is bust. It's bust for food, it's bust for oil, we've got massive population growth problems now getting bust for water and it's getting bust on the climate side. I don't think we are explaining to people that we have just been taking, taking, taking from the globe. It's like withdrawing, withdrawing from the bank and having a party and having a party. Sooner or later you have to pay and we're going to have to pay for this.
But at the same time what annoys me is we continue to claim we are progressing as an economy when there is still no value put on our economic activity. There isn't the negative side of that value. Until you get the natural value initiative underway and people understand what the natural values are, then we won't be able to get to that balance. But I think we're getting close. I think people are starting to understand that they've been having a good party but ultimately someone's going to have to pay and it's our turn.
MARTIJN WILDER: Don Henry for example has been talking about setting up a national environmental account for Australia. The same say you do GDP, what Oliver is talking about, you measure the value of our environment in national accounts. We saw that starting slowly but you've really got to start pretty quickly.
GILES PARKINSON: Should leadership on this issue come from governments or should it come from corporates? Or indeed just the general population? It seems there needs to be a trigger.
MARTIJN WILDER: All of the above.
OLIVER YATES: Government is not going to act unless people jump up and down but ultimately it's a national problem. If we can count the carbon that we're blowing up in the atmosphere, we should be able to count the natural destruction that we doing on the ground each time we do it. One is very physical, one is a bit more kind of floating and we're managing to do that, requiring everybody to do it.
BRENDAN BATEMAN: We do have certain tools at the moment to be able to do that. We've had the principles of ecological sustainable development around for some time and in a number of New South Wales acts, it's in there. Governments have to have regard to those principles when determining whether or not to approve a project.
But the mechanisms are there. It's about what information and the metrics that we use to be able to carry out and implement them to truly value the elements that we're looking at in the environment.
DAVID CASPARI: I'd add on that, and I think you've spoken about that market failure to price environmental cost into all of our economic models. Environmental sustainability is critically important and I think Oliver, you've described it better than anyone, I certainly could, but ultimately the right response needs to be holistic. It's going to require government. It's going to require the right economic pricing into the model. Then it's going to require the private sector to get on board.
I think there's a very strong role that the private sector and business needs to start taking now, not looking at this just in a negative way which is a lot of the way the private sector has been looking at it but actually looking at this as a tremendous opportunity because driving environmental and sustainable outcomes and driving profit to the bottom line and are mutually exclusive. In fact they're quite well aligned.
So to the extent that we can get the private sector, companies like ours, involved in driving some of that change, I think it's going to be a very strong catalyst.
MARTIJN WILDER: In my view it's naive to think that corporates will take any sort of leadership action without being required to. All the voluntary action programs have shown that corporates do not take action unless they're forced to by law and at the moment we're seeing a trend where corporates are disbanding social responsibility and sustainability within their firms. A couple of large Australian corporates in to the last two months have announced they're getting rid of all sustainability whatsoever in the business.
I think we need very strong political leadership. We need governments who are prepared to get legislation through and we need corporates then who comply with that.
The other area which I think will become very important is youth. 50 percent of the world's population are under 30 at the moment and I think the youth movement is starting to gain a lot of momentum in terms of the climate change issue. I think we'll see them continue around the world to gain some momentum and credibility. I think that is where a lot of hope for the drive for change will come. That's the generation that will be most affected by climate change, they've got the most to lose and their voice is important and it's growing.
JONATHON JUTSEN: I think too, I'm seeing a very big change in the tables that I'm talking at recently. Professionals in this business that have been in the business for the last 30 years are really angry now. People like us, we've been in this field for a long time and now we're starting to see that there's a link-up from all sorts of different professional areas.
Whether it be education, philosophy, psychology, whether it be natural resources in the energy area, environmental area, are just saying: Look, we need to change the metrics. We're measuring the wrong stuff. We're driving our society and economy in a perverse direction at an increasing rate and we're concerned about the one planet that we have to inhabit. With issues like climate change, there isn't a rewind button.
If we stuff up over the next 20 years and continue the way I've been in this field now for 30 years in the energy area and I got into it through being involved at the second oil shock and identifying that clearly humanity was going to recognise now that there was to be limits to unfettered and inefficient growth and that there was going to be a whole marketplace that was going to be established for much more efficient use of resources.
Thirty years later bugger all has happened, quite honestly. It's been a hard row to hoe for 30 years and we haven't got another 30 years to waste and this is the thing that concerns me. Again, people like us now having discussions and saying look, we've got to change things and got to change them bloody quickly because things are too slow.
GILES PARKINSON: Are we talking about a uniquely Australian situation here or is it global? I interviewed the global CFO of Siemens this morning and he's telling me a quarter of their $120 billion revenue now comes from green technology. He sees people like Wal-Mart making some big statements, you know, we're going to clean up the supply chain and that has effects down the supply chain.
We see other things. We see massive amounts of spending in Korea and China and Europe.
JONATHON JUTSEN: Well from the corporate side, you are seeing leading businesses that are taking a lead, and we do 90 percent of our business with the leading businesses. But the mass of businesses are still way behind in recognising both the risk and the opportunity.
The Wal-Mart story is a fascinating story because it shows a business that was on the slide, turning its business around, increasing its market capitalisation, improving its reputation enormously and putting the business back on the growth path through a sustainability program. But most companies can't see the brand value or the imperative from a corporate responsibility point of view for taking initiative in this area.
DAVID CASPARI: Just very quickly, as sort of a business person here and I accept all of the views, I consider HP to be a leading business; it's a $130 billion business globally. Just last week the CSR magazine in the US put us in the top spot as a corporation that was really taking an affirmative view on this. But locally, we set ourselves some goals back in 2007 to cut our carbon emissions by 25 percent. In the first two years we've cut it by 20 percent and there's a bunch of things we did to do that, consolidating work places, through some of the technology initiatives that were driving it, data centres and other IT outcomes like that.
But you know, these actions and the reduction of those greenhouse emissions generated economic benefit for us. This was not in conflict and it didn't drive a short term cost to our business, it drove a short term outcome.
So legislation is important but businesses really taking an affirmative view and actually getting on with it and understanding what the economics look like started to change it.
OLIVER YATES: I hear that speech a lot and we have it that the only reason why people are doing is because they can economically justify it in the existing flawed economic model that we currently have. We know that you're still, regardless of the fact that you've reduced carbon emissions by 20 percent, are not fully costing the damage to the environment.
DAVID CASPARI: Right.
OLIVER YATES: You're not doing it at the moment and all the companies come up with this great big statement that, you know, they've done this and they've actually managed to reduce their emissions by 20 percent and actually they've done it efficiently. The only reason they've done it is because they were able to sit within the old economic model and prove that even in the old world, which is going to be extinct, that I can make money by actually reducing my emissions.
They're still not doing one thing positive to actually say this model is wrong. Even if I reduce my emissions by 20 percent, I am not paying for the environmental degradation or the cost of my business activities. They're not being costed; businesses are not running net neutral. We need businesses to run in a fashion where they are net neutral.
People ought to think about it a little bit more from a macro perspective here Giles because it's all very well to sit here in our lifestyle where we are at the moment but if we think in a reasonable period of time that a Chinese person living in China should have half the lifestyle as to what we have today, we need four times the current global world's resources.
Now people just need to understand that that's an improbable position so the only alternative is, if we want to retain our lifestyle, we have to find more resources that are renewable. That's period. Otherwise, our lifestyle has to go down a very long way if they're even going to get towards half of the same level as our lifestyle and people just don't seem to understand that. They imagine that you can drive around and live in big houses and have a nice lifestyle, nice houses on the beach and all what we have, and somehow deny all of the other people and all the other countries even a quarter of the lifestyle that we have.
If they have one quarter and we don't change the current model that we operate, our lifestyle has to plummet.
JONATHON JUTSEN: Let me give you a more optimistic view. One of the great benefits that we have with our current economic model is that we have about 90 percent loss of energy from the source to the end use. So we have great advantage through the enormous inefficiencies that are built into our system. If you have a look at an input/output diagram for the UK or the Australian economy, I've seen one just done for the UK economy, there hasn't been one done for the Australian economy, it shows there's about a 12 percent conversion of energy into useful outcomes in that economy.
So you put 100 units of fossil fuel energy in at one end and you get 12 units of motor power or cold beer or warm house or light out the other end and you know, we've forgotten that what we're actually after is energy services. We're not after electricity from a central coal fired power station.
So we need to look at new models and one of the opportunities is, in terms of maintaining a very comfortable lifestyle, I'm not saying necessarily everybody living in McMansions but a comfortable lifestyle, we don't have to go the hair shirt in caves to achieve a dramatic reduction in our resource use, but we have to look at different models for delivering the services that we need.
GILES PARKINSON: We're starting to see those too, aren't we? We're starting to see that same thinking towards energy, about a service model. We're starting to see that in perhaps electric vehicles and provision of transport services, and I guess we'll see that flowing through the economy more.
JONATHON JUTSEN: Also using simple things like using solar hot water to put warm water in the bath straight off your roof instead of generating central coal fired power at 30 percent thermal efficiency. Releasing the rest to the atmosphere as low grade heat, then losing another 7 to 10 percent of what's left in transmission distribution, and then putting it in a storage water tank where you lose more and then put it through uninsulated lines into your bath and finally get about 10 percent off the energy out in warm water.
The models are just wrong. They had an economic value fifty years ago when we didn't measure and didn't value the efficiency of the resource use and the cost of the greenhouse emissions, but going forward those models don't work. But the opportunity is we can still have the services if we do it efficiently with a small proportion of the total resource use.
GILES PARKINSON: Paul, are Australian companies falling behind international counterparts and how will they be able to cope with this new model that Oliver is talking about?
PAUL SIMSHAUSER: I think it probably depends on what section of the economy you're talking about. I know from a carbon disclosure project, AGL ranked third in the world out of 110 global utilities. So we don't feel like we're lagging behind despite the uncertain policy environment.
The one thing that probably stops us from getting to number one is the uncertainty in the policy environment. I think we all felt like we were closing in on the gap late last year and for better or worse it seems to have taken a different tack. But I guess the important thing from here on in, from our looking through the lens we look through anyway, we really do need to see bipartisan support for something that is going to try and remove the air of uncertainty that currently exists.
If you leave the air of uncertainty around, sooner or later it is going to catch up because our power systems across the eastern seaboard, and Western Australia is no different, they're stretched. Enormous amounts of resources are going in to keep up with peak loads in the network businesses and from a power generating point of view that's probably not too bad. It's a pretty simple decision in terms of what to do in peak period generation, it's just a combination of renewables and gas fired turbines which happen to be the lowest cost and the most environmentally optimal solutions at this point in time for bulk power.
Where it starts to become tricky is in about five years time when we start needing more base plant capacity. When you start to see the first of the coal machines winding down and continuing low growth. Right now that's a pretty tough proposition for anyone to go and buy it off because there really is no certainty.
The one thing that you will hear from the Resources Energy and Tourism Minister and the shadow Resources Energy and Tourism Minister right now is the biggest or most adverse impact of not having a policy environment, certainly have a policy environment, is actually the energy sector. They know that, they understand it really well. It's the sector that will always be most adversely impacted by policy uncertainty around a carbon emissions price and so on.
So I guess the absolute priority for our country I think at this point in time, as soon as you get through the next election, obviously you need to keep this quite limited politicisation of it but get to some sort bipartisan position that actually does have the support of both parties, that envisages if we're not going to jump into a CPRS right now, then whatever we do put in place at that transition path, be it a direct form of regulation or setting emission intensity caps, any range of things, they need to envisage transitioning into a CPRS or equivalent in at some later point in time.
JONATHON JUTSEN: Actually I think we should come back to the carbon price issue because I think it's fundamental, but just because you mentioned the electricity industry, one thing I think should be thrown into the mix. It just shows again the insanity of the on going processes that we use to design our energy systems. We're just in the process of approving, through our regulatory structure, $40 billion of investment in transmission and distribution infrastructure, which is probably the largest five year investment in the system that's ever been made, and the result of that is up to 50 percent price increases for the network charges for consumers.
That's being done in the absence of any serious investigation of whether efficiency improvements and demand management to shift peak loads and to manage those air-conditioning loads that Paul mentioned could have been done at a significantly lower cost to the economy and also in a way that was compatible with reducing carbon emissions. So what we're doing now is a piece of economic insanity but also conflicts totally with our carbon mitigation plans.
We're doing that at a cost to the consumers and I think as soon as consumers recognise what they're going to be slugged with, I suspect there is going to be substantial backlash just from a pure wallet issue.
If you have a look at what's going on in places like California, they've proved that investments in consumer side of efficiency and shifting loads can be done at less than half the cost of those network investments, and yet we're not even seriously looking at those opportunities. We're turning our back on them through a regulatory structure that needs to be changed now.
PAUL SIMSHAUSER: You can't help thinking that $40 billion would have bought a lot of smart meters. If you think about it pragmatically, let me give you some stats. In fact I noticed that Keith Orchison, one of the Oz journos reported this recently and the data itself comes from south east Queensland. Over the twelve years to 2009, the population in that part of the world, south east Queensland had grown by about 33 percent and energy demand at its peak had actually increased by 99 percent.
It's not obvious that the amount of energy consumption is rising. So in terms of energy consumed it's increasing a little bit, but the peak period which is driving all this capacity increase is in the $40 billion worth of augmentation across the east coast being driven by the time of day and the types appliances we're using.
If you look at the electricity pilot studies that have been done in the US and Australia using integral meters, time of use pricing with critical peak pricing where you really get stung for turning on an air conditioner in a very hot time of the year, and in home displays we're actually starting to get feedback, the evidence from all of those pilots all seems to be pretty clear that you actually clip somewhere between 5 and 12 percent out of that peak demand. Now peak demand is growing, I guess, on average about 3, 4 percent so I wonder what would have happened if we'd spent $40 billion in homes on smart meters, in home displays and wiring up to the switches that knock all of our appliances out, I guess that would just about account for five years worth of growth.
JONATHON JUTSEN: Again it's a failure of economics because no consumer that bought a low efficiency air conditioner and put it in a house with no instance insulation, paid the cost of the infrastructure investment that that was going to deliver.
PAUL SIMSHAUSER: But they are going to, you are right.
JONATHON JUTSEN: In retrospect without having a choice of whether there's another way of doing it, resolving the problem
PAUL SIMSHAUSER: It's coming. If you actually stack and rack the power price, just year use the base year of 2008 as a starting point. The base year of 2008 a household in Sydney or Brisbane would have been paying around about $135 a megawatt hour, give or take, that's on a 7.8 megawatts a unit, somewhere between 1,000 and 1,100. Now if you dial the clock forward to the year 2015 and take into account just these two states I'm referring to, Queensland and New South Wales, they alone are going to be investing $32 billion in their transmission distribution networks, you'll also by that time presumably start to see a little bit of L&G popping overseas, that may stiffen the gas price a bit, may not too, there's all sorts of theories on that. But either way if you tack that on and then look at the cost of plant and we all know that's been rising very sharply in all industries and power generation is no different. The cost of money is up a bit to relative to what it has.
If you compound all of this you can actually see a scenario where power price has increased in the order of 80 and 100 percent of that base result. So somewhere around the 250 to $300 a megawatt hour mark. Now for the first time in our economy, there's a very strong propensity to actually see fuel poverty emerge, defined as 10 percent of disposable income.
Just on a rough calculation, if numbers do get to those levels, you're actually talking about 200,000 households in New South Wales and 100,000 households in Queensland that will actually have electricity costs that are more than 10 percent of their disposable income. That's an entirely new problem for our economy caused by this very low cost power, mispriced as it has been for a very long time, plunging appliance costs. We're sort of being handed out this illicit drug that's been very nice and we're about to start.
OLIVER YATES: Giving you an air conditioner that costs you $300 and it's going to cost you 700 a year to run.
PAUL SIMSHAUSER: As a country we need to be going back and looking at things like credit policies, allowing air conditioners that aren't top of the range, highly efficient to even have a credit facility associated with them. There's all sorts of things we can do as a country to try and stem the tide.
JONATHON JUTSEN: I'll throw in a bit of positive for the government's insulation program. Mismanaged as it may have been, the fact that we've got places like south east Queensland where 70 percent plus of the houses have got no ceiling insulation and the air conditioning costs are a factor partially at least of the fact of the uninsulated houses, that will correct a lot of the problems in Australia in terms of air conditioning loads.
I mean a lot of houses in relatively mild climates like south east Queensland, New South Wales, won't need to turn their air conditioners on if they insulate their houses properly.
OLIVER YATES: I don't know where we're up to in terms of building standards but in most European countries can't build the stuff we're still currently building, you can't transfer a house unless it's got all the right energy, you can't transfer it unless it's got the right energy saving things.
BRENDAN BATEMAN: The building code of Australia is being updated every two years with the objective of achieving certain minimum energy efficiency, water efficiency standards as well.
OLIVER YATES: Where are we in comparison to say London for example? In Europe you can't build a house unless it's largely climate carbon neutral?
MARTIJN WILDER: In the UK they're putting in policy measures that are far more than us. It's interesting.
JONATHON JUTSEN: In fact by 2016 all houses have got to be energy neutral.
MARTIJN WILDER: There was a talk by Lend Lease saying recently in their view, efficient buildings will become the norm and that will be the normal rental market, and inefficient buildings will be the low rental market in effect. So normal will become high six star type buildings, but that's still a way off.
OLIVER YATES: The problem is that buildings don't go out of existence. It's a bit like aircraft, for example. They bring in a new noise restriction, which they can do because they say you can't fly them in that country, but those buildings are just going to be used by lower value tenants. Sure, the rent might be lower but you're going to have this building stock which just sits there and degrades and degrades and degrades.
We've still got 1930 buildings, 1920 buildings that people that are still operating, that are tremendously inefficient. Sure the rent might be lower but they're not going to be put out of service. Somehow someone needs to not put them out of service but actually needs to recognise something has to happen. They're going to have to bear the full economic burden of still sitting in the system.
PAUL SIMSHAUSER: One of the ways of doing that, it's an emerging part of the energy policy fabric, has been these energy efficiency schemes where effectively a liability is placed on electricity retailers to achieve a certain amount of energy efficiency credits so to speak. For example, they've got a scheme in South Australia, there's one in Victoria, there's one recently popped up in New South Wales.
The idea there is where you can find an old fridge, turf it out, take a photo of it, plug a new one in, take a photo of it and there will be a set of metrics you can pile them up against and that will contribute to acquitting your overall energy efficiency targets. Obviously every time you have these schemes and they start popping up on a state by state basis, that becomes very inefficient.
To be fair about it, the one thing about State Governments and State Governments policies, and they're an excellent laboratory. I think these energy efficiency schemes have been up and running for 12, 18 months in Victoria and South Australia in six months in New South Wales, and they seem to be working so it's high time that the government picks it up and gets on board with a national equivalent. It really goes back to that McKinsey Goss curve, doesn't it? We've all seen these positive opportunities to increase the energy efficiency so why doesn't it happen? With a whole range of transactions across the region, it will create a bit of incentive and a liability and an opportunity and watch enterprise go. They'll always make a buck out of something like that.
MARTIJN WILDER: But still a lot of what we're talking is tinkering around the edges. To finish your story, the bloke then goes home and plugs back in his old fridge and flogs his new fridge, or with energy efficiency, people come and put in energy efficient light bulbs, or your efficient shower heads, and five minutes later the old ones go back in.
All this stuff is important but it is still difficult for someone a better placed to unroll the vehicle network in Australia. The federal government has not just implemented an easy way to make the transformation happen. There is no vision about major infrastructure policy, major long term energy policy, and major long term planning for the future. You talk about the big bang. That policy framework and that sort of vision to make it happen just isn't there.
PAUL SIMSHAUSER: Actually it was and it was very close to surfacing and then of course we had the issues with seed galleries which set that process back. To be fair to Minister Ferguson, he did have a big group of people working long and hard in his department and a bunch of people from industry actively trying to help to shape that and set policy parameters and we know the energy White Paper process.
MARTIJN WILDER: Even if you say our last big scheme was the Snowy, there should be doing like that electric vehicles around the country or for solar power on every house in the country.
OLIVER YATES: In South Australia, if you do the analysis and if you brought a transmission line from South Australia and you brought it up and you picked up the geothermal resource and you brought that over to bring in the solar resource and put a decent transmission line in, South Australia has enough renewable energy to feed the whole of Australia. That is a strong competitive advantage that Australia would have.
In the UK they're spending bucket loads more doing offshore wind which is heaps more expensive to actually produce than what we can produce on land in Australia. So clearly if you're trying to look at it from a global perspective and say does Australia want to compete globally, you can see that there's a number of positions in Australia that can set a path now to say I know where my renewable energy is best and we can work out where the sun is best and we know where wind is best and we know where we have geothermal resources.
Do we need to be able to access those resources? It doesn't say Einstein to say yes, we need to activate those resources. All we need is a path to access those resources.
PAUL SIMSHAUSER: We do have that path, we've got a 20 percent renewable target, that's a pretty steep target and if they're there, it will flush them out, there's no doubt about that.
OLIVER YATES: Well you can't miss. The question of transmission, it's a big issue with those type of projects at the moment. Obviously we haven't been able to do because the rec price has been too low so there's another couple of years down the drain. If you want to put a transmission line in it's going to take you three to five years to get a decent transmission line in. It's all about putting in direction.
This is a known almost requirement that we're going to need to be able to tap these kind of resources. I look at it from again a wind side and I see poor old greenies who are not arguing about a wind farm that's maybe in a nice place along the eastern seaboard on the coast because they're feeling they shouldn't complain about it because it's good for the environment that we have a wind farm. But they don't really know that actually we've got massive wind resources in land which are not going to disturb anybody's sleep and are available in large volumes and large quantities but there isn't a road to go and get it.
PAUL SIMSHAUSER: It's the issue of who pays.
OLIVER YATES: The problem is when you look at the way that the mechanism works is that the paying, which is a bit like this debit versus credit, when you're paying nobody considers the externalities of having that wind farm in that place. It's not part of the economic equation that goes into that decision as to whether you actually put the transmission grid in or not.
JONATHON JUTSEN: Just going back to where Martijn was saying, I agree very much. We need a vision of the transformation of Australia to a carbon economy. That includes an integration of energy and carbon policies. It includes a concept of a transformation of Australian businesses to a low carbon future, which we haven't got the Button plan for transforming our industry to a low carbon economy because we're talking about an integrated policy there for assisting a transformation.
I'm looking for that big vision and the policy tools that go along with implementing that vision. That requires more than just some hastily thought up policy metrics. We've got to have a carbon price; we've got to have an investment incentive program for transforming businesses. We've got to have a big view of what's going to happen with our energy infrastructure and energy supply, including supply security issues for transport fuels. All of those things have got to be part of an integrated plan that delivers a vision of a low carbon economy.
This is not that difficult to do. I mean we've seen pieces of it through cost of mitigation curves and we've seen pieces of it through the White Paper which is now being delayed in terms of its release. We've seen pieces of it from the renewable energy targets but there is no integration. What we need is some set of metrics and a rationale for the roll out of programs over a period to deliver that vision, instead of just we pulled another one out and here's another one.
BRENDAN BATEMAN: It's interesting to see how the debate has unfolded over the years because the focus was all on the CPRS. It's seems to be all consuming. Now once the CPRS has difficulty getting up, we're now focusing on energy efficiency and looking at how energy efficiency can deliver so much abatement. Then we have a national strategy on energy efficiency. It creates an additional layer of green tape, for want of a better expression. This strategy involved ten farms, you have to go through eight different departments to try and get the funding or it has to be managed by so many review committees. Something like 16 review committees constituted by that energy strategy.
So there's bureaucracy that's coming up that is not dealing with it at a much higher level and providing that direction, bogged down in the minutiae.
PAUL SIMSHAUSER: If you stand back and look at what most economies that are going down this path are actually doing, you can generally distill it down to four key policy plans. The first one is sort a price on carbon or some variant of that, be that an emissions trading scheme or carbon tax.
The second one is renewable energy targets. Most countries seem to be popping those out in one way shape or another.
The third will be energy efficiency and standards associated with use of energy and the fourth one is inevitably R and D biased or investment biased and so on.
If you look at what the Australian government set out to do, they had certainly the price on carbon in their sights and for a whole range of reasons it ended up where it is. They managed to get the 20 percent renewable targets over the line which is a sizeable increase over what we once had. Energy efficiency I guess you do that when you're sort of frustrated with not getting carbon up, I presume. That would always be the third on your list I think.
JONATHON JUTSEN: Most countries are doing it first and we're getting around to it now because we got stymied on the carbon price. I think it always had to be part of an integrated policy.
OLIVER YATES: You're going to get there when the carbon price bid, people are going to turn to you and say how do I actually deal with my energy efficiency.
JONATHON JUTSEN: As long as you don't put a cap on the carbon price, I agree.
PAUL SIMSHAUSER: The carbon price, you're actually going to get a much better energy efficiency outcome if you get the carbon price right.
JONATHON JUTSEN: Not alone.
PAUL SIMSHAUSER: I agree with that but if you were trying to work out where are we going to have the biggest impact, I would have done exactly what the government did, and go straight to it and what the Howard government is going to do, straight to emission trading. Take out the BPs first, then you deal with your renewable energy target and then you drill down to your energy efficiency and then you start to get a good playing deck.
MARTIJN WILDER: This does bring us back to where we began. I mean the science is underlying here. It's saying climate change; environmental issues are a major problem. We're committed to an international target of 5 to 25 percent, we committed to that a while ago, we've committed to that again. We're locked into the Kyoto target, which we will meet. It's arguable that the pre conditions for our 15 percent target have now been met so the Australian government says I have to meet this target. So for businesses in Australia, you think the government is committed to a target it's going to hit, it's either 5, 15 or 25 and how is it going to do it.
The CPRS was designed to be an all encompassing economy wide measure to deliver that reduction. If it doesn't do it, we fall lack to ad hoc individual national and state based programs which all overlap and interconnect and inflict without any vision. So the importance here is that politicians have got to get together and stop playing politics and actually get some vision around this and actually forward, and that's a real problem that we have at the moment.
GILES PARKINSON: If and when the federal Government brings in the ETS, what will you be recommending to boards of directors and will they do it?
JONATHON JUTSEN: Really what we're saying is they should be doing now and we've been saying it for the last five years. Change is on the way. There's going to be a fundamental change in the carbon scheme in Australia and in energy and carbon pricing. But there are going to be huge opportunities for companies that are on in the front of the car and can see the road ahead, and for people dragging along behind the car they're going to just feel the pain.
OLIVER YATES: I think that's right. I think you can only just look outside, even if there's a policy vacuum here, it is impossible to believe that Australia will remain in a policy vacuum for very long. The other countries are going to move and Australia will find itself dragged down a policy path. So if companies are not currently saying it is realistic to believe that there will be a carbon price of $30 or $40 and I factor that into my economic models, that price will be there in five years and it will continue to rise, then they are fundamentally deluded.
How you get to that price I think is all wonderful and we can talk about fifty different policies, but ultimately if corporates today are making business decisions without using in their economic model an assumed carbon price, which I don't know what we would agree is a reasonable carbon price , they they're deluded.
PAUL SIMSHAUSER: Everyone uses the treasury model.
OLIVER YATES: But a lot of people still don't use it. They are factoring it in.
PAUL SIMSHAUSER: I think in the majority of organisations that I speak to, be they colleagues or have any sort of involvement with, I think everyone includes it as a shadow cost and it's a little bit harder to determine when you're putting it in a revenue stream. That's the reality. You're not going to go out and spend the money right now and have the carbon price be the thing that actually gets the investment over the line because you'd be making a very big call on when that number is going to turn up.
I don't know anyone who is looking at any sort of cost stream forecast that doesn't have some sort of number sitting there.
MARTIJN WILDER: That's interesting, I think as the science and physical evidence becomes more concrete, then businesses will be forced to make a decision. If you looking at investing on some of those areas in northern New South Wales that are being pounded and the land's given away, would you actually invest in a development in that area? You know it's being subject to serious problems.
Not only that, if you look at that CSIRO report, there are areas in New South Wales where the rainfall is going to decrease dramatically so is it really worth investing in that large agriculture plain in that particular area of New South Wales? The Victorian government has done a whole assessment of Victoria. I think it was Southern Hydro who used to have a significant number of run the river facilities, no longer have a lot of run the rivers because it just doesn't rain in those areas.
There is a lot of evidence which is being done by State Governments. As they've moved away from focusing on emissions trading because the federal government took that up, they've looked at adaptation. In doing that they've looked at the impact of climate change in Australia and there's a lot of significant material out there which would influence investment decisions, if you took the effort to look at it.
I think those sort of things are also pretty critical, as well as just the opportunities and investing in the cost of carbon.
OLIVER YATES: Paul, can I jump back to your comment because I think what you're saying is right, but what I find is that the companies then that do assume a carbon price, if they're a high carbon emitter, assume miraculously that they're going to have a massive government subsidy and massive piles of permits. They don't tend to assume that actually it's going to be a real cost. They're still assuming that somehow there is going to be no real cost to them for a period of time because they're going to be compensated. That's where I think they're deluded.
PAUL SIMSHAUSER: I think that's probably right. If we open up this argument we'll go for a couple of hours, but what I would say on that is that this is just like any other policy and when you're rolling out policies there's a general body of economic theory that sort of goes something along the lines of your base case is you don't make good for anyone. That's your starting point. You put in policies and there are always going to be winners and losers.
But when you got to a situation where there are industries or individuals that are very materially and heavily impacted, with really high intensity, the reality is there is a case on first structural adjustment assistance and the reason for that actually becomes pretty clear. If you've got a whole bunch of, in a country like ours where if you just take the last three years, think of every bit of investment that was ever made in our country, 60 percent of that money came from overseas in the form of either, 26 percent of it was foreign equity and 74 percent of it was foreign debt because we don't save a whole lot of money. We're pretty good at investing in the share market; we're all share junkies, the highest participation rate of adults with equity. So we're good at raising equity but we're dreadful savers so we're very structurally reliant on foreign debt.
Now if we bring in a policy and it tanks of business and it tanks not only the equity but starts to actually chisel into the debt facilities associated with, be it a smelter or a power station or whatever it is that has a real high intensity, then that label is the definition of sovereign risk. And new policies being brought in and it's had a very, very adverse impact and disproportionately on one part of the economic system.
The way to neutralise that is to try and make good and get them out. The funding, if you stand back pragmatically and look at the structural adjustment process that Senators Wong and Macfarlane sort of negotiated out, it wasn't about giving life support to businesses to linger on and continue spewing noxious CO2 emissions into the atmosphere in perpetuity, it was about allowing those businesses to basically exit themselves out of the market place.
You could stand back and say well, isn't this just a case of someone's lucked out and the next person will come in and buy it next to nothing and it will peter it till it's gone? In some cases it was actually negative equity, no one was going to do that and there were actually going to be dislocations across our economic system.
Now I understand all of your points and I agree with them, but sustainability is actually about doing it in a sustainable way too. It is actually doing it on a path that you can actually digest rather than completely imploding.
JONATHON JUTSEN: I have no problem with structural adjustment programs as long as they assist the companies to structurally adjust.
OLIVER YATES: Or the message they send home that their shareholders.
PAUL SIMSHAUSER: I understand that Oliver, and that was certainly an issue and a big criticism of the EU ETS, but that was where you were seeing power stations getting 90 percent of their
OLIVER YATES: What are they proposing in Australia?
PAUL SIMSHAUSER: I think it's 15 percent.
JONATHON JUTSEN: Up to 95 percent.
BRENDAN BATEMAN: 90 percent and a 5 percent global recession model
PAUL SIMSHAUSER: That's not right.
OLIVER YATES: Not for power stations.
PAUL SIMSHAUSER: I can't answer to the trade exposure. That's a different market altogether. Carbon linkage, but that 95 percent assistance and that's on the basis of carbon leakage. As I understood the policy, and I must confess I'm not an expert in the ET side of things, but the moment you see a carbon prices starting to pop up places where you'd expect the leakage to occur, that's disappeared instantaneously. That was the policy, that's what it said.
OLIVER YATES: Wasn't Neville Jones the Minister in 1985 in cabinet I think raised the fact that carbon was going to be an issue and needed to be priced and we needed to reduce it. It's not as if it hasn't been flagged. To say that industry does not know, people are making investment decisions today with the assumption that there is not a carbon price, then a sovereign risk issue?
PAUL SIMSHAUSER: I understand the argument about the 85 and again in 92, so it's a little bit like, well what if someone had invested on the basis of that turning up? They'd be bankrupt, they would be. If they invested on it being a benefit.
OLIVER YATES: You will find people in roof top solar at the moment who are bankrupt. People who are filling in roofs are bankrupt. A lot of people have made enormous aggregators at the moment, who be aggregating solar wrecks are now bankrupt. Do they all get sovereign risk compensation? Unfortunately when you're dealing in business you get a risk return for the risk that you're taking.
PAUL SIMSHAUSER: Agreed.
OLIVER YATES: The question is, is this a huge risk and the answer is it is a known risk. It's not as if power stations shut down overnight, they're not going to suddenly disappear. Ultimately they can't be replaced very quickly so ultimately what will happen is the energy prices will rise and this cost will wash its way through the system.
Business gets a reward and people bought these assets on the assumption that they were going to get a risk return which includes a whole variety of risks, whether they be
PAUL SIMSHAUSER: You made a statement before that anyone who is not putting carbon into modelling right now is off the planet , in fact I'd say they're smoking crack. I think if you go back, and it was actually one of the federal government bureaucrats that said this statement to me one day, there's been lots of points in time where you've seen the emissions flag run up the pole. The reality is the official statements by our federal government, there would be no ETS.
Up until it was around about, 2007 when all of a sudden it started to have that bilateral feeling about it. If you then go back and look at the
MARTIJN WILDER: Actually in '97 they said they would commit to an emissions trading scheme and then in 1999 they designed a scheme to commit to an emissions trading scheme.
PAUL SIMSHAUSER: And then it got booted out, as you know. There was a period of time there where the evidence from every equity investor, every debt lender is that no one was putting in a carbon price. Just to be clear about it, when people did put carbon prices in, because I've seen the sensitivity studies, you would all know it was probably five or $10 a tonne and when you go back and look at the something like the IPCC peer review, lit review of all the peer reviewed studies up until that point, the medium point of a carbon price forecast was $10 a tonne.
Why? Because there was no Nicholas Stern report to wake everyone up and find just how serious it was. So if you did those analyses
OLIVER YATES: Paul, there's a question here of Justice Stern. The farming community owns property; they've owned property which they thought they would be able to develop. They woke up one day and were told regardless of you having freehold interest in property, you're not allowed to clear the trees and put that into agricultural activity. I'm taking all of that value out of you and you get nothing.
So I don't understand the equality here. We have big business which can lobby big time and says I wants compensation. In a very similar scenario local farmers who bought property, which they thought they would develop and clear the land and be able to provide wheat, woke up one morning and told no more clearing because we need to meet our Kyoto targets and that's not fair.
PAUL SIMSHAUSER: I understand your argument but the problem is this a policy judgment and our politicians have made a call. You think it was the wrong one; I actually think it was the right one because I see the damage that would be done through capital markets by getting that piece wrong. I understand you arguments.
GILES PARKINSON: This argument can go on for a long time. I'd like to finish it and I have to combine the last two questions all at once and I'll get you to go around the table and maybe you have thirty seconds or a minute each.
One is I'd like you to say what you think the several things that must happen now, be it policy or what companies need to do, and maybe if you can come up with one great prediction of where we'll be in five to ten years. If you've got something that's a bit out of the box about the size of your business world that we live in or whatever.
We'll go around each person. Who would like to start?
JONATHON JUTSEN: I'm happy to. I'll have to go with something around energy efficiency because that what's I've been doing for thirty years. The PM's taskforce has currently been formed to come up with an energy efficiency policy so my one wish for the day is that we end up getting a robust policy which helps businesses transform and is a serious policy to achieve a 25 percent reduction in carbon emissions by 2020, with efficiency delivering at least half of that benefit.
If the Taskforce is looking at all of the measures that are required to achieve that sort of outcome, then I'll be very satisfied with the new policy settings that come out of it.
MARTIJN WILDER: I think for me the most important thing is that we have a very comprehensive vision for Australia, for where we want Australia to get to in terms of all of these issues. To take into account the things Oliver talked about, environmental value and that, in the same way that when we talk about environmental regulation in Australia, everyone said we couldn't have that, business would be destroyed. We get well past that and carbon costs and costing of environmental externalities becomes part of the norm.
In terms of long term transformation, I would hope that you can look here in ten years and you can see most of the cars in the street are electric vehicles, all the homes have solar paneling on them, we've got smart meters and our coal fired power stations have been decommissioned.
GILES PARKINSON: Are you dreaming?
MARTIJN WILDER: You have to, have to be an optimist.
OLIVER YATES: I'd like to see some policy clarity. Whether they put in a carbon tax at the moment and return 100 percent of it to the consumer and stick on a border adjustment so that we can just get on with getting carbon costs within our economy would be a fantastic achievement and I don't understand why that's objectionable to anybody. It doesn't hurt industry, it spins the money around. It's not regressive; it's progressive as a tax if it's to be put in place.
The thing that I hope is that this wonderful world of the GNP and GDP definition is actual removed and it's changed so that we include the full environmental costs when we're looking at is our economy progressing or is it not progressing? We need to do it, the Chinese are doing it and saying well they've got 11 percent GDP but actually it's only 2 percent real growth because of the environmental costs. We need to get to that change.
I think the globe is at that stage and I think people need to realise that their credit card in terms of take, take, take from the environment is well overdrawn and they're going to start hitting all the interests
MARTIJN WILDER: You asked me the question am I dreaming, that's China said and that's exactly what China's doing. In the next ten years the major transformation on renewables because they're going to dominate the world. It's really a choice, it's not a dream, it's a choice. Do we choose to be part of this transformation or do we just watch it unfold in other countries before us?
DAVID CASPARI: Similar, I dream of a place where we have an integrated vision of a low carbon economy, that we've got clarify around that. I also think about the role of IT in that and IT is one of the culprits in producing carbon emissions. We produce 2 percent of global carbon emissions and we've got a role to play in both reducing it but also using information technology to better understand what corporations are doing in their carbon emissions because information is the first step in understanding it, putting metrics in place and ultimately getting some of that out of the system. Technology plays a role in also providing more energy efficient technology as well.
My dream five years from now is that we don't miss, as corporates and as business, this opportunity out here to be a global innovator and to bring technology, R &D and other capability to market. It doesn't only benefit Australia but we can take globally to market and can become a driver, a new chapter and a new phase in Australia.
PAUL SIMSHAUSER: So what I'd like to see, I think it doesn't matter what side of politics you come from, right now there is a shadow price of carbon. All businesses are looking at it and they're somehow trying to work out how to factor it in. So to get the policy certainly right it really does take a bipartisan approach. Somehow or another I'd like to see the two parties get together and work out what that road map is, getting to an ETS.
I'm not overly concerned when the ETS starts but as long as there is something in there that actually starts to send the right signals to make the investment in the clean tech rather than leaving it in the laps of the gods.
In terms of the whiz bang technology, I think back to when I first started out in the workforce and I remember walking proudly down the street with my boss's brick of a mobile phone, you remember those great big phones with the battery packs underneath it? Quite proud walking down the street with one because you were probably the only person within three blocks with one. Now we've got these tiny little gadgets that include your emails and all that sort of stuff.
I keep thinking the same thing is going to happen inside the household. We've had accumulation meters and if you think about our meters, and there's this great analogy I read recently, there's a family. The father goes and fills up his car and doesn't pay for the petrol, he drives for miles. His wife does the same thing, fills up her car, they don't have any fuel gauges, they don't know whether their fuel tank is full or empty, they can't see how far they've gone, and at the end of the month they get a bill for their petrol. Sounds weird, right? Well that's exactly what we do with electricity.
We have no idea who's using it, when we're using it or what the cause of it was; we just know we get a bill every three months telling us that we consumed this amount. You can see the technology is out there now and I'd just liken to it to the mobile phone. I see a future where we've got these integral meters with in home displays actually forecasting what your bill will be for the three month interval if you keep doing what you're doing and gadgets that are turning things on and off for you, your dishwasher going on late at night.
JONATHON JUTSEN: To give an optimist's view of the last two points joining together, I'll seen that you little graph. The whole IT revolution occurred over a forty year period and given the fact that we've got forty years to revolutionise and decarbonise our economy, for the no says who think this is not doable, then I think we should look at where we've come from over forty years in the technology revolution.
MARTIJN WILDER: And the great irony, it all needs energy.
JONATHON JUTSEN: Absolutely. We apply that going forward to the carbon revolution and I think we can expect the same rate and style of change. Radically different models in forty years.
BRENDAN BATEMAN: To get the type of change and the change that we need, you need to mobilise private investment. It's simple as that. So you need obviously vision, you need to provide a clear policy frameworks upon which people can investment decisions. We need to encourage businesses to think more sustainably, as Oliver has said. They need to incorporate, as part of their business plans, the sustainability of their business. Look at the sustainability model for their business, and true cost.
So I think it's not just political leadership but also leadership from the corporate level as well that we need. We're getting some of that but we need it to be more pronounced and we need it to be all encompassing. So engaging at various levels with industry to ensure that they're looking at this as a sustainability issue as well.
In terms of whiz bang, I also was thinking in the taxi on the way here about the technology and I think one thing that we've been talking about here and energy efficiency and inefficiency is we're not thinking about storage. Our ability to actually harness and store energy to use as and when we need it and there really hasn't been any significant discussion or investment about what type of models of storage, energy storage are readily available, could be developed and deployed so as to help communities to break down the large transmission infrastructure that we currently are dependant. Why aren't are we thinking about storage and opportunities for that?
GILES PARKINSON: Gentlemen, thank you very much for your time. We've gone to 5.30 and I think we probably could have gone for much longer and I thank you for giving your time and your input and your ideas and your passion about the subject. I think it's now time for a drink.