“It’s economy, stupid”

Australian Greens

By Chris Johansen, Green Issue Co-editor

It looks like at least three more years of Federal Government policy and action to promote fossil fuels, obstruct transition to renewable energy and thwart any reduction of greenhouse gas emissions. A major factor in the Coalition win was their ability to portray action on climate change as an economic cost to society. But even worse than that, it seems that Labor has now effectively dumped its half-way promising platform on climate action to now actively promote coal and gas expansion in an attempt win back votes. So, The Greens find themselves in the political landscape as it was at the beginning of the century, being the only significant political party with a commitment to meaningful climate action. A formidable responsibility as the climate crisis deepens – but how best to meet that responsibility?

In his election loss speech on 18th May, Tony Abbott made perhaps his most profound statement since “climate science is crap”. He said words to the effect that the climate issue has two aspects – a moral one and an economic one. He admitted that he may have lost the moral one in Warringah but the Coalition have won the economic one, across the whole country. He’s dead right, the economic case for vigorous climate action and enhanced transition to renewable energy has not been effectively prosecuted, and certainly not by Labor. To do this requires detailed economic analysis over short- to long-term time scales, but honing down outcome scenarios to sound bites simple enough for the electorate to comprehend.

In election campaigns, political debates involving economics, and most other issues for that matter, focus on the period of the upcoming term of government. For Australian Federal elections, this is three years, a relatively short, and inadequate, timeframe in which to consider economic policy and its consequences. The Coalition very effectively confined its arguments about climate change, and the economics thereof, to this short term of within three years. They commissioned ‘modelling’ to show that the cost of Labor’s proposed climate policies would be outrageous – not so difficult if you feed in data inflating the costs of establishing renewables and minimizing returns from them. And totally ignoring the costs of not acting on climate change. Although this modelling was shown to be in error among renewable energy aficionados, this side of the story did not reach the wider media, and was deliberately excluded from the Murdoch and other conservative media.

Indeed, the Coalition and fellow travellers are dead right in claiming that the economics, i.e. costs and returns, of acting on climate change are highly negative when considering just a three-year timeframe. However, when a longer time frame is considered, say 10 years or longer, the picture changes somewhat. This is the case even if, for the purpose of this exercise, we completely ignore climate change and its costs and consequences. In the following, the short (3 years) and long (10 years) term economic consequences of actions to reduce greenhouse gas emissions are compared. In other words we are talking about the time span for return on investment, and hence profitability. Not surprisingly, the longer the time span considered, the greater the return on investment, within the normal lifespan of a product (i.e. before repair and maintenance costs escalate). We also need to be cautious about use of the word ‘cost’ – do we consider it as some penalty to be paid or an investment for some future advantage.

Stationary energy

Now, in Australia and other sunny and windy countries, the levelized cost of electricity (LCOE) generated from solar and wind is cheaper than can be generated from fossil fuel facilities. Recently, the Climate Council reported that in New South Wales and Queensland the LCOE of wind and solar is equal to or cheaper than keeping existing coal generators running. This is because of ongoing costs of coal and gas as fuel and increasing maintenance costs of aging coal-fired power stations, as compared to the free fuel of sunlight and wind. However, reliability of renewable electricity supply depends on strategic deployment of hydro power (including pumped hydro), big batteries (as in South Australia) and updated demand management systems. With solar, wind and batteries on a downward cost trajectory, due to mass production and continued innovation, it will not be long before fully self-sufficient renewable electricity generation will be cheaper than trying to maintain, let alone renew, fossil fuel energy generation, in most jurisdictions.

In a 3-year scenario it would indeed be cheaper to continue relying on existing fossil fuel generation than invest in renewable energy systems designed to replace it. That is, comparing costs of (fossil fuel + power station maintenance) with (new build renewable energy systems + costs of decommissioning fossil fuel facilities). But here the key word is invest – spending money now for payback in the future, a future going beyond 3 years.

In a 10-year scenario it becomes a no-brainer. Replacement of fossil fuel generation with completely renewable systems is economically most viable. With mass production and widespread deployment, costs of renewable energy installation, including batteries, are likely to continue to decline – the trend well underway. On the other hand, costs of fossil fuel generation in Australia are likely to increase due to increasing gas prices, increasing maintenance costs on aging power stations and new build gas- or coal-fired plants being uncompetitive with new build renewable systems. The quicker the transition to renewable energy the greater would be the return on that investment after 10 years (let alone a longer time frame).

It is beyond the scope of this article, and the economic prowess of this author, to actually crunch the numbers of renewables vs fossil fuels over various time scales, but this is now actually being done by the Australian Energy Market Operator (AEMO), presumably not with the blessing of the Coalition Government. And various scales of calculation can be done: at national level, at regional level (e.g. National Electricity Market [NEM] servicing Eastern Australia, South West Integrated System [SWIS] servicing SW WA), microgrids, business establishment or household. Ever expanding deployment of rooftop solar on homes (now on one in five Australian homes) and businesses, suggests that many people have done the calculations and concluded that they will be better off with respect to electricity costs a few years into the future. Even some big industries and mining operations are turning to solar and even requesting the Government to tweak policies in favour of renewable transition. It is clearly the capitalist thing to do – with dissent only coming from those with ideological beliefs (climate denial) and directly profiting from selling more fossil fuels.


In a 3-year scenario, it is probably not economically wise to buy an electric vehicle (EV). Although there would long term savings on fuel (i.e. electric charging) and maintenance costs, the current high upfront cost (compared to internal combustion engine [ICE] vehicles) would likely not reach payback within 3 years. It may reach payback over a longer period however, well within a 10-year scenario. But with declining upfront costs (with mass production) and innovations in battery design and charging convenience, in a few years it will, again, be a no brainer for anyone contemplating the economics of purchasing a new vehicle. Only ideological petrol heads would opt for an ICE one. As evidence for the future, over half the cars sold in Norway are now EVs and all of the major global vehicle manufacturers are now churning out EV models. Australia is a laggard when it comes to EVs; even in the regional town in Bangladesh where I worked 15 years ago autorickshaws were converting from ICE to battery powered.

As far as new rail transport in built up areas, most places in the world now go for electrified systems, rather than diesel. So that battle is won. The economics of electric or hydrogen powered bus fleets are becoming ever more attractive. Air and water transport, however, look like remaining reliant on fossil fuels well into the future, depending on developments in biofuels and electrification.

Fossil fuel exports

Exports of coal currently contribute significantly to Australia’s national income and stopping them (which I would like to do) would have immediate negative economic consequences. Exports of liquified natural gas (LNG) are also exponentially increasing, but the international companies doing so have cleverly worked out ways of minimizing royalty payments and taxes, and so the public purse would not suffer much by cessation of this export.

Most countries, with Australia being a blatant exception, have realized that burning of coal and gas will need to be phased out post-haste if we are to effectively tackle climate change. There are already signs that demand for Australian coal in India, China and SE Asia, and for LNG in Japan and Korea, are in retreat. East Asian countries are beginning to think in terms of a hydrogen economy. Australia is well placed to replace fossil fuel export with hydrogen fuel exports, considering its vast solar resources. Costs of such a transition would be high initially, especially within a 3-year scenario, but declining international demand for coal and LNG will eventually enforce this transition. It is in the longer term interests of Australia to set itself up with a comparative advantage in renewable energy (i.e. hydrogen or ammonia) exports.

Agriculture and environment

The more carbon that goes into the soil the better it is from all angles – water holding capacity, nutrient supply, sequestering it from the atmosphere. However, this seems to have been largely overlooked during the half century from 1950, with the widespread deployment of chemical fertilizers and broad-acre soil tillage capability. Nevertheless, remembered again this century with the development of ‘conservation agriculture’ techniques – minimum tillage, maximum return of crop residues to the soil and crop rotation. These techniques are now being widely applied in developed country agriculture and are expanding in developing countries, as their longer term economic value is realized. So we are on the right track there, especially in Australia where most broad acre cropping follows conservation agriculture measures thus contributing to a drawdown of atmospheric carbon.

However, we still have a big problem with the burps of ruminants. This comprises methane which is a greenhouse gas 20-80 times (depending on the atmospheric residence time considered) more potent that carbon dioxide. It is possible to reduce methane release through change of animals’ diet but this remains experimental and would not be widely deployed any time soon. The only way to effectively reduce this methane emission is to reduce ruminant numbers, which would be enthusiastically supported by vegans but vehemently opposed by omnivores (who grossly outnumber vegans). So, this emissions problem will be with us well into the foreseeable future.

However, Australia in particular has tremendous scope for sequestering atmospheric carbon. This can be achieved by allowing regrowth of natural vegetation, by limiting free grazing of natural landscape and confining it to improved pastures or fodder crops, and by increasing sustainable forestry.


A major argument posed against transitioning from fossil fuels is the loss of jobs, in mining and power stations. However, the jobs created in renewable energy generation are more than likely to adequately compensate this loss, provided adequate retraining is provided. It should be noted that mining operations are becoming increasingly automated, and an inevitable decreasing source of employment in any case.


At the beginning of any transition, costs are likely to exceed returns when compared with maintaining the status quo. However, with the passage of time, and if the transition is indeed worthwhile, the benefit:cost ratio increases. It is proposed that this will be the case in transitioning to renewable energy. Indeed, it is proposed that this would be the case even with ignoring the costs of climate change. Nevertheless, we should not expect that a rapid conversion to renewable energy, and a consequent reduction in greenhouse gas emissions, will improve the climate any time soon and thus alleviate adverse effects of climate change. The changes apparent now are the consequence of previous emissions. Further, there would need to be substantial emissions reduction on a global scale to halt or reverse the climate change trend now underway.

So why should Australia worry about emissions at all? Well, being a major global per capita and total emitter (including ultimate emissions from exported coal and gas) Australia needs to encourage global action by setting an example within an international effort. But, even if we don’t even consider emissions, it would be economically stupid not to transition to cheaper electricity and transport options and better manage agriculture and the natural environment. Thus, reductions in greenhouse gas emissions can be compatible with climate denying capitalism.

Header: A Gilded Age cartoon depicting monopolists intensely watching the activities of the United States Congress. This cartoon depicts the elites as bloated giants, resembling large money bags, almost suggesting that they run congress through financial means. Nashhinton, Creative Commons

[Opinions expressed are those of the author and not official policy of Greens WA]

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