Australia’s sliding doors moment: COP26 is a country-changing economic opportunity – or a major threat

Just in the nick of time for the 26th United Nations Climate Change Conference (COP26) in Glasgow, the Australian federal government has announced a plan to reach net zero emissions by 2050.

While there’s been a great deal of focus on the acute threat that the emissions number represents, there’s another threat to Australia’s future that’s been largely overlooked.

If Australia acts, we will reap economic benefits from being at the forefront of a massive global revolution.

If we don’t, the price will be economic punishment.

“The consequences of such a weak climate policy will be felt by all Australians as we are left out of the global shift … and suffer stunted economic growth from a combination of lost opportunities,” says Murdoch University environmental scientist Dr Joe Fontaine.

What economic opportunities are we missing out on?

The federal government’s new net zero plan – titled “The Australian Way” – is heavily reliant on emerging technologies, such as low-cost solar, “clean” hydrogen, negative emissions, and projected tech that has not yet been developed.

But we’re not planning on developing any of it ourselves.

According to Professor Richard Holden, the plan suggests that we’re going to sit back and hitch a “free ride” on global technological development.

“It does basically put us out of the running to be a serious part of developing any of those technologies,” says Holden, an economist at the University of New South Wales.

“I read it as an admission that we are not going to be a serious player in green tech. This government, at least, isn’t even going to try.

“That means that we won’t be a player in the decarbonisation opportunities that are going to exist.”

“We are not going to be a serious player in green tech. This government, at least, isn’t even going to try.”

The green tech industry is exploding with ideas, from carbon capture to renewed interest in fusion to green hydrogen. Some of these are already receiving private investment, including the Australian green energy transmission project Sun Cable, which is the world’s biggest solar PV and battery storage project and is funded by billionaires Mike Cannon-Brookes and Andrew Forrest.

The smart move, Holden says, would be to back a range of these emerging technologies.

“You want a diversified portfolio of these things because we don’t know what technologies are going to work,” Holden explains. “But there’s a difference between saying ‘we don’t know what technology is going to work and we in Australia are going to make investments in a diversified portfolio of green energy bets’, and saying ‘we’re just going to wait and see what the world develops, and we’ll adopt it in due course’.”

Most other countries in the OECD are already placing a series of green tech bets, he says.

“Some have more emphasis on their potential comparative advantage – certain countries in Europe are more likely to be into new-generation nuclear or wind, and others into different technologies that are more suited to their local conditions.”

While companies are driving innovations forward, the federal government is in neutral.

“By not being part of the development, we’re always going to be an adopter rather than being at the real technological frontier,” Holden says. “And being an adopter always puts you behind.”

No carrot; very big stick

It’s not just what we’ll miss out on: there’s also the looming likelihood of global economic retaliation against Australia for not doing our bit.

“A big motivation for Australia adopting this net zero target has been global capital markets,” Holden says.

Global capital markets are exemplified by the world’s largest fund manager, Blackrock. This year it has upped the ante on climate change by incorporating the impact of a warming world into its capital market assumptions.

At the Middle East Green Initiative Summit in Saudi Arabia this week, Blackrock CEO Larry Fink said: “It is my belief that the next 1,000 unicorns — companies that have a market valuation over a billion dollars — won’t be a search engine, won’t be a media company, they’ll be businesses developing green hydrogen, green agriculture, green steel, and green cement.”

This, he adds, is “going to require a large amount of investment, a large amount of ingenuity and a large amount of innovation.”

The next 1,000 companies that have a market valuation over a billion dollars will be businesses developing green hydrogen, green agriculture, green steel, and green cement.

Global capital markets, Holden says, “are basically fed up with countries and companies that aren’t willing to take serious steps … Will they be happy to still invest in Australia in the way that they have in the past? I think there’s a real question mark against that.”

Other economic retaliation may come in the form of carbon border adjustment taxes.

“A carbon border adjustment tax will basically say, if a country is not being seen by the world community to take serious action on climate, then any exports of theirs will be subject to a carbon border adjustment tax,” Holden explains.

For example, a group of countries may agree on a carbon border adjustment tax scheme that allows them to exempt certain countries that have a solid plan to act on climate.

But if Australia isn’t seen to be doing enough, our exports could be hit hard by this tax.

“That would be phenomenally damaging to many of our exporting industries – everything from coal, iron ore to a degree, and even things like Wagyu beef and high-end agricultural products,” Holden says.

“There’s a real risk in this free-riding strategy that the global community says, ‘no, that doesn’t count as legitimate, serious climate action, and there are going to be economic consequences.’”

“Irresistible forces”

Prime Minister Scott Morrison has only recently decided to attend the COP26 climate summit, which begins on Sunday 31 October.

“[The fact] that the Prime Minister is attending Glasgow just reflects that there’s an almost irresistible set of forces that are piling up,” says Mark Howden, Director of the Institute for Climate, Energy & Disaster Solutions at The Australian National University (ANU).

“There are irresistible forces from the politics in Australia, because the Australian public wants action on climate change.”

There is also pressure from the business community, he adds, citing the recently released Business Council Australia report that calls for a more ambitious 2030 emissions reduction target of 50% below 2005 levels, and emphasises the commercial opportunities of a green transition.

“The purpose of our work is to move forward, not engage in an endless debate about issues the nation and the world has moved past,” Business Council President Tim Reed said in a statement.

“Our biggest trading partners are already making this transition and Australian businesses are taking action, as are global capital markets.

“The best thing we can do for workers and for regional communities is to avoid playing costly and damaging catchup with a plan to prepare for inevitable change.”

Along with pressures from the business community both here and around the world, Howden says that COP26 will highlight the “diplomatic and economic pressures, which are being exerted increasingly by other countries towards Australia, including the potential for carbon border adjustment mechanisms to essentially force Australia into a position where we adopt carbon pricing.”

COP26 will also highlight the diplomatic and economic pressures, which are being exerted increasingly by other countries towards Australia.

COP26 is a chance for Australia to demonstrate to the international community that we want to be part of the emerging economic opportunities.

But Holden says he expects Australia’s net zero plan to be met with disapproval.

“The Prime Minister saying, ‘We’re going to do this but we’re going to do this in a uniquely Australian way’, as he said this week – I’m not sure that’s going to play very well with the rest of the world at COP26,” he says. “I don’t think that some sort of cry of Australian exceptionalism is going to go down very well there.”

Holden notes, however, that Morrison is likely to play his cards differently on the international stage.

Griffith University’s Professor Ian Lowe points out that even treasurer Josh Frydenberg is well aware that Australia has a lot to lose.

“Frydenberg recently warned there would be economic consequences if the world were to get a false impression that the Australian government is not taking responsible action,” Lowe says.

“This [net zero] statement will avoid that, but achieve the worse outcome of giving the world an accurate impression that the government is not acting responsibly.

“We will be accurately perceived at the Glasgow COP as an irresponsible nation.”

Will all of Australia be left behind?

The federal government’s announcement this week has been widely panned by climate scientists.  

The net zero plan has “all the strength of a wet paper bag”, says Murdoch University’s Fontaine.

“There are many unanswered questions,” says Associate Professor Helen McGregor, from the School of Earth and Environmental Sciences at the University of Wollongong. “How will net zero be achieved? What is the goal for 2030? The changes in climate we anticipate will create winners and losers right across the nation.”

The plan notes that we will meet a target of 26–28% emissions reductions by 2030, but Lowe says that this “is a combination of creative accounting and taking credit for what has been done by the states, by large corporations and individual householders”.

Even if the federal government is lagging, some states are determined not to be left behind.

In September, New South Wales committed to a 50% reduction in emissions by 2030, and just this week South Australia announced the same goal.

“We need policies such as those in New South Wales, which set out clear, transparent goals and steps for decarbonisation of the energy sector,” Fontaine says.

This transformation will include strategies such as the new hydrogen plans recently announced by both NSW and Queensland.

“To the degree that there is an economic benefit from decarbonisation, it’s the states that will be taking the lead.”

This is not just a demonstration of climate leadership from these states, but it also shows that they are more forward-thinking in terms of the economic benefits, Holden says.

“To the degree that there is an economic benefit from decarbonisation, from developing and applying the technologies of decarbonisation, it’s the states that will be taking the lead.”

He notes it might be beneficial to have a green-tech race between New South Wales and South Australia, or other states.

“The degree of competition is good, but of course, it’s rather disappointing that we don’t have a coordinated national effort to do that,” he says. “Economic coordination is also profoundly important. I think it’s very telling that the federal government is … leaving a lot of this to the states.”

“We’re lagging, not leading,” concludes ANU’s Howden. “And in that process, we’re missing out on massive opportunities.”