The Clean Industrial Revolution

The Weekend Fin Review picks up my latest op-ed which shows companies from Google to Alcoa are looking for low carbon economies for there next multi-million dollar investments.  Since Australia has a carbon obese energy grid, we will fail to attract these new opportunities unless we cut carbon emissions…. and fast.

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Is Australia’s Carbon Obesity Locking Out New Foreign Investment?

Before Iceland’s banks exposed themselves to the US sub-prime meltdown, this tiny Nordic country was attracting the attention of new energy-intensive industries from aluminium smelters to technology data-centers. Why was Iceland attracting these job creating billion dollar foreign investments?

Iceland has a stable supply of low carbon energy fuelled by greenhouse neutral geothermal and hydropower.  These forms of energy eradicate any future carbon costs for Icelandic-based manufacturing industries, making Iceland particularly attractive to any long-lived industrial asset.

We hear a lot of talk from politicians how reducing carbon emissions will ‘destroy’ jobs in energy-intensive industries like aluminum or steel and shift jobs offshore.  Those politicians however, never talk about the new investments from energy-intensive industries that will be needed over the coming decades.  Those foreign investments will be on the lookout for stable, low carbon energy hubs for their long-lived assets.

Currently, Australia is the most carbon obese developed nation in the world with 680kg of carbon dioxide emitted for every $1000 produced in the economy. That’s up to double the obesity of other developed economies whether it’s the US, New Zealand or Japan.

Australia’s carbon obesity leaves a huge long-term carbon cost exposure for energy-intensive investments. Some visionary companies are already making investment decisions on future carbon risk and sends an omninous warning sign to future low carbon investment in Australia.

Microsoft, IBM, Google and Yahoo all spend billions each year on new massive energy-intensive data-centers filled with racks of hard-drives and computer equipment. Each data-centre is worth upwards of $500 million and employ hundreds of skilled technologists for operation. With movies, music and sports being streamed online nowadays, the largest data-center empire means a competitive advantage for each of these firms as the world moves deeper into the digital age.

Google has done something that no large company is yet doing. It has quietly self-imposed a carbon price on their investments – well before a formal carbon price is mandated by the developed world. Why? By self-imposing a carbon price, Google is getting rid of the future economic liabilities from a carbon price, which is inevitable.

In Google’s own words ‘Pricing carbon is an important tool to reducing the financial risk that our energy investments face’. Google, like the other large IT corporations, are continually on the look out for Asian investments, as that is where their future customer base will come from.

Given Australia’s carbon obesity, Google’s self-imposed carbon price would rule out investment in coal addicted energy grids like NSW, QLD and Victoria. It’s no coincidence that the last two massive data-centers built by Google are sourced by low carbon hydro-power in the remote western area of the United States, along the Columbia River.

Like the outer reaches of Oregon, Tasmania has low carbon, stable sources of energy (hydro coupled with wind) and would be the perfect place for Google’s next $500 million data-center for Asia.

Forseeably however, any region or state in Australia could create its own low carbon hub so as to attract these new energy-intensive investments. The race is on for Australia’s ‘Low Carbon State’ – but Tasmania has a big lead on this front.

A global price on carbon is already here and is shifting investment within innovative corporations.  Those who continue to spout about job cuts if Australia reduces carbon emissions are missing the next big economic boom as the world moves away from carbon emissions.

Adelaide’s daily newspaper (The Advertiser) has run an opinion piece of mine today where I talk about the immense economic opportunity for South Australia – particularly following Premier Rann’s 33% Clean energy target by 2020. Perfect timing given I will be speaking at an afternoon PB/CEDA forum from 3pm as part of the PB national tour and then Premier Rann will be launching the book at 5:30pm at an informal venue in the city.

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SA Poised for Clean Energy Boom

Being from New South Wales, I am very jealous of South Australia for two things: amazing wine and its immense clean energy opportunity.  In his budget, Premier Rann announced a renewable energy target of 33% by 2020 for South Australia.  Aside from South Australians feeling good that they are leading Australia in terms of reducing greenhouse gas emissions, this measure will also position the state for the huge economic and job growing potential in the global emerging low carbon economy.

Despite the lack of a coherent international political agreement on the level of carbon emissions cuts, a momentous global shift is underway towards renewable energy resources.  The United Nations Environment Program (UNEP) released a report this month that showed in 2008, for the first time ever, new investment in renewable energy (wind, solar, geothermal and biofuels) reached US$140 billion – far exceeding investment in old fossil-fuels (coal and gas) at US$110.

The global shift to a low carbon future is happening, and by South Australia taking on world-leading renewable energy targets, is positioning itself to maximise the economic opportunities that will flow from this.

The first way South Australia will benefit economically is through direct green jobs through the production and manufacturing of the new capacity in wind, solar and geothermal energy over the coming decades.  In Levittown for example, a small town in Pennsylvania in the United States, an old steel plant has recently been renewed into a wind turbine factory from Spanish wind producer Gamesa, employing 300.  Vestas, a leading Danish wind manufacturer opened its first US manufacturing plant in Colorado last year because of the local demand for wind power.

Suntech, the worlds largest solar manufacturer based in China is now expanding its manufacturing operations, not into China, but deep into the United States.   The company cited the increasing number of state-based renewable energy incentives and the federal government’s recent ‘green’ stimulus package important in making the decision.

The new South Australian renewable energy targets will drive similar potential for low carbon manufacturing growth whether in Whyalla, Port Augusta or Adelaide.

But arguably the largest potential economic windfall for South Australia will come from commercialising geothermal energy, whereby energy is generated from tapping into the ‘hot rocks’ from the earths interior.  The Australian Geothermal Energy Association estimate that tapping into just 1% of the easily accessible geothermal energy would  provide more than 26,000 times Australia’s annual energy consumption.

Globally the geothermal resource is just as immense, with every continent from Asia to Africa having enormous potential to tap into this baseload, carbon-neutral power supply. According to the UNEP report, investment in geothermal energy was the fastest growing global renewable technology in 2008.

Geothermal resources in South Australia are enormous and with 90% of Australian investment concentrated within the state, the government has also funded a Centre of Excellence for Geothermal Research at the University of Adelaide.  These measures could forseeably make South Australia the Saudia Arabia of geothermal energy – developing and ultimately exporting this technology to a world that will crave it.

South Australia is in a wonderful position since it has all of the renewable options available to tap into, from wind to solar to geothermal.  The new low carbon incentives are good for the planet, but even better in positioning the state for the new emerging global low carbon economy.

Dr Ben McNeil is a climate scientist and economist from the University of NSW and author of “The Clean Industrial Revolution: Growing Australian Prosperity in a Greenhouse Age”, to be launched by Premier Mike Rann on Wednesday.