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| Solar power generation is experiencing rapid growth. Alexandra Wey/EPA/AAP |
This has the potential to establish a coherent national energy policy for Australia and to fix on firm national targets on emissions reductions to meet Australia’s commitments to the Paris climate change agreement.
The independent panel chaired by chief scientist Alan Finkel will begin this work with a plan to ensure security of energy supply as more renewable energy comes into the grid, and more coal fired power stations close.
Despite Prime Minister Malcolm Turnbull’s misgivings about the “aggressive” renewable energy targets of South Australia, Victoria and Queensland, renewable energy could be considered a central part of his innovation “ideas boom”.
As former US Vice President Al Gore has said, the US$391 billion invested in 2014 in clean energy and low carbon development makes it “the biggest new business opportunity in the history of the world”.
Why the urgency on the switch to renewable energy?
Economist Nicholas Stern has called climate change “the greatest market failure the world has ever seen”. He insists the choice we face is taking mitigation action now, or very expensive adaptation in the future. Stern says “there is still time to avoid the worst impacts of climate change, if we take strong action now”.
In the same vein in a speech to Lloyds insurers, Bank of England Governor Mark Carney, who is also Chairman of the Financial Stability Board, said while a classical problem of environmental economics is the “tragedy of the commons”, climate change is a “tragedy of the horizon”. This is because the catastrophic impact of climate change is beyond the traditional horizon of most people. It is imposed as a cost on future generations as the current generations has little direct incentive to fix this.
As the critical dilemma of our time climate change is now considered worthy of concern by the G20 finance ministers. They asked the Financial Stability Board to consider the risks climate change poses for the financial system.
In 2015 the FSB launched the task force on Climate Related Disclosure (TFDC) applying to financial and non-financial companies, chaired by former New York Mayor Michael Bloomberg. Mark Carney identifies three channels through which climate change can impact on financial stability:
Physical risks: the impact today on insurance liabilities and the value of financial assets arising from climate-related events such as floods and storms that damage property and disrupt trade.
Liability risks: the impacts that could arise if parties suffering loss or damage from the effects of climate change seek compensation from those they hold responsible. These claims could come decades into the future, but could potentially hit carbon resources companies and emitters hard, and if they have liability cover would hit their insurers the hardest.
Transition risks: the financial risks resulting from the process of adjusting towards a low carbon economy as changes in policy, technology, and physical risks prompt a reassessment of the value of a large range of assets as costs and opportunities become apparent.
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| If renewable energy is our future, then all that’s left to discuss is the transition. Nic Bothma/EPA/AAP |
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| CarbonTracker |
Aside from the risk to financial stability, there’s also a threat inherent in the way economies are dealing with carbon emissions.
A terrifying thought is that we have created a carbon bubble in financial markets as large and threatening as the toxic securities that delivered the global financial crisis.
CarbonTracker calculates the bubble of unusable carbon assets, using research by the Potsdam Institute. It suggests that to reduce the chance of exceeding 2°C warming to 20%, the global carbon budget for 2000-2050 is 886 billion tonnes of CO₂.
With the emissions that have already occurred since 2000 this leaves a carbon budget until 2050 of 565 billion tonnes of CO₂. However the total carbon potential of the earth’s known fossil fuel reserves of 2,795 billion tonnes of CO₂ exceeds the carbon budget by five times (65% from coal, 22% from oil, and 13% from gas).
According to CarbonTracker: “This means that governments and global financial markets are currently treating as assets, reserves equivalent to nearly 5 times the carbon budget for the next 40 years. The investment consequences of using only 20% of these reserves have not yet been assessed.”
Judged by their recent investment activity in carbon relative to renewable energy (see chart below) it is possible the Australian banks have not yet quite realised the scale of the challenge confronting them in withdrawing from carbon investments.
Big four bank investment in fossil fuels and renewables (A$)
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The combination of the 2015 Paris climate agreement, the UN Sustainable Development Goals, and the prospect of tens of trillions in stranded assets in fossil fuels, is a heady mix for business which might occasion some real traction in the drive for sustainability.
In 2003 just 253 companies reported their greenhouse gas emissions, water management and climate change strategies to the Carbon Disclosure Project (CDP). In 2014 it was 5,003. Companies including Bank of Montreal, Google, Microsoft and Marks and Spencer are now disclosing and some are pursuing zero emissions into their value chain.
The shift to renewable energy is advancing globally. As Clean Energy Council chairman Miles George puts it:
You can follow the money. In 2015 US$286 billion (A$380 billion) was invested in renewable energy worldwide, compared to only US$130 billion in fossil fuel generation. For the first time more than half of all new electricity generation investment is in renewable energy. Global forces at play now mean that renewable energy is our future, and all that’s left to debate is the rate of transition.Google alone is committed to purchasing 2.5 gigawatts of renewable energy – making it the largest non-utility purchaser of renewable energy in the world. It is also investing in nearly US$2.5 billion in renewable energy projects, producing enough electricity to power more than one million US homes. Not to be outdone, Amazon is building a huge wind farm in Texas.
Wind energy is now experiencing exponential growth in production and sales. Solar energy is exceeding it with 68 times the projected output of solar predicted ten years ago.
We are on the cusp of a revolutionary global paradigm shift towards renewable energy, one that Malcolm Turnbull will find it difficult to ignore.
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