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Regional communities have the most to benefit from transitioning to a low carbon economy

Posted February 18, 2020

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Thomas Walker low res

Transitioning to a low carbon economy and regional economic growth are not opposite objectives. This article aims to reframe the debate from using regional economic development as a reason not to transition, to a reason why we should.

The catastrophic bushfires this summer brought international attention to Australia’s efforts to reduce emissions and mitigate climate change. Many regional communities are home to high-emitting industries which over time will need to close or dramatically change for Australia to reduce its carbon emissions. And these communities are also at increased risk from climate-change-induced hazards such as drought, fire and flood.

Regional Australia’s economic future is closely tied to how Australia’s public leaders plan for and mitigate against climate change. Emission reduction targets are in place in Australia, but the Australian Government is not pursuing steeper cuts through a belief that reducing Australia’s emissions will have negative consequences for the economy and jobs, particularly for regional Australia. In an address to the Press Club on 29 January 2020, Prime Minister Scott Morrison said that he’s “not going to sell out Australians” and tell them they are collateral damage of a global movement.

It's natural that public leaders want to try and protect existing jobs and industry, but a transition to a low carbon economy and regional economic growth are not opposite objectives. Many economists believe that the transition to a low carbon economy is a golden economic opportunity for regional communities.

SGS Economics and Planning Bushfires in Victorias East Jan 2020
Catastrophic bushfires in regional NSW and VIC January 2020

Growing economic hardship and inequality

Jobs, particularly well-paid ones, are critical for communities in regional Australia. Alongside climate change, economic inequality is one of the most significant policy issues facing governments in Australia. While the economy still expanding, economic inequality across regions and within communities is growing.

— Thomas Walker

Many Australians are struggling with insecure work, a lack of opportunity, minimal wage growth, and increasing costs of living. For example, for the first time in statistical history, more than half of employed Australians work in jobs that are insecure and not full-time (Carney & Stanford, 2018) and there has been a major wage growth slowdown in the past five years (Gilfillan, 2019).

From a geographic perspective, a recent report by the SGS Economics and Planning (SGS) team on the economic performance of Australia’s cities and regions found that the economic performance of regional areas is dramatically falling behind Australia’s major cities. In the 1990s and 2000s regional areas of Australia contributed around a third to Australia’s Gross Domestic Product (GDP). This contribution fell steeply in the 2010s, with Sydney and Melbourne surging (Table 1). In the most recent year (2018/19), the contribution of regional areas to Australia’s GDP was only 3.3 per cent. The regional areas of NSW, Victoria, South Australia are all in an economic recession, buffeted by drought, industry restructuring and a lack of new economic opportunity in the growing knowledge-intensive industries.

TABLE 1: CONTRIBUTION TO GDP GROWTH – VOLUME MEASURE

Region1990 (%)2000 (%)2010 (%)Most recent year (%)
Sydney31.716.826.332.9
Regional NSW9.25.75.2-1.2
Melbourne13.919.123.839.8
Regional VIC9.22.61.3-3.0
Brisbane9.712.69.012.7
Regional QLD9.513.68.80.8
Adelaide5.04.13.27.5
Regional SA1.01.6-0.1-1.9
Perth5.910.88.00.5
Regional WA4.17.79.46.6
Tasmania0.11.61.13.1
Northern Territory-0.51.61.5-1.1
Canberra1.12.42.53.4
Australia100100100100
Regional (incl NT & TAS)32.634.127.2
3.3
Cities (incl. Canberra)67.465.972.896.7

Adding to the challenge for regional Australia is climate change, with droughts, fires, floods and other hazards becoming more severe. The Australian Bureau of Agricultural and Resource Economics and Sciences has already found that changes in climate since 2000 have reduced average annual broadacre farm profits by 22 per cent in Australia (ABARES, 2019). Many of the power plants and carbon-intensive industries that will inevitably close are located in regional communities. Given these pressures, it’s no wonder there is a strong desire to protect existing jobs and industry, even if that delays mitigating against climate change.

There is an inevitability that the transformation to a low carbon economy needs to occur and the economic future of regional Australia is closely tied to how Australia’s public leaders plan for and mitigate against climate change.

— Thomas Walker

Australia as a post-carbon economic superpower

As local regional economies stagnate and decline, the fears for the economic future of regional Australia are justified, but the situation is not a zero-sum game where decarbonisation efforts must lead to the loss of jobs and industry.

While the need to support regional economic development has become a proxy argument against climate change mitigation, the transition to a low carbon economy is an opportunity to grow employment and incomes.

In Australia, this is the message most prominently championed by economist Ross Garnaut. Garnaut argues that Australia should be advocating strongly for the global transition to a zero-emission economy as Australia has the most to gain economically.

Australia’s advantage lies with its abundant natural resources, used for the generation of carbon-free renewable electricity. Unlike fossil fuels, this energy cannot easily be exported. This means that Australia would have a comparative advantage, in the form of cheap domestic renewable energy, over every other nation. This advantage can be leveraged to expand the mineral processing and manufacturing sectors, producing carbon-free goods and materials in high demand by the rest of the world.

Garnaut outlines how processing one-quarter of Australian iron oxide and half of the aluminium oxide that is currently exported overseas in Australia, using cheap renewable energy, will create more jobs and economic value than the coal and gas industries do at present. Many energy-intensive industries that are currently threatened by high electricity prices will see revival and expansion in a low carbon economy.

Excitingly for regional communities, the economic opportunities disproportionately fall in rural and regional Australia. Regions set to benefit first include old industrial areas with existing infrastructure and skills including Port Augusta (SA), southwest Western Australia, Victoria’s Latrobe Valley and Portland, Newcastle (NSW), Gladstone (QLD) and Northern Tasmania, with others to follow.

Another advantage Australia has is an abundant ability to sequester carbon in the landscape. Garnaut (2019) has argued that the sequestration of carbon in Australia’s rural landscapes could be as big an industry as wool, while also generating significant environmental benefits. More broadly, there will be an increased global demand for high-quality and safe food, another area of natural advantage for regional Australia.

Garnaut argues that if Australia can take advantage of these opportunities, it could be the global superpower of the post-carbon world economy.

Gladstone Powerhouse QLD
Regions such as Gladstone are set to benefit from a transition to a low carbon economy. Image: Gladstone Powerhouse, Queensland

To do nothing will cost Australia more

Even with the opportunities outlined by Garnaut, the Australian Government's policy is to protect and grow the fossil fuel industry in Australia, both for local power generation and for export.

Recent analysis by PWC provides impartial, fact-based outputs on the financial, economic and environmental impacts of four different energy scenarios for Australia through to 2040 – including a renewable energy scenario, continued use of coal scenario and an accelerated renewable scenario.

The analysis found that a power generation mix dominated by renewables can deliver reliable and affordable electricity, as well as drive an increase in Australia’s economic welfare. Conversely, replacing a retired coal-fuelled thermal plant with new low emission coal plants would result in a comparatively poorer economic outcome. If Australia’s public leaders were to accelerate the transition to renewables, moving to a 90 per cent renewable power system in 2040, instead of reducing Australia’s GDP it would add $15 billion to GDP compared to a business as usual scenario, creating new employment opportunities.

The SGS team, with the Melbourne Sustainability Institute, have also studied the costs and benefits of transitioning to a clean energy future. This analysis also found that transitioning to a low-carbon economy is more beneficial from an economic development standpoint. Even if the benefits from carbon emissions are ignored, such as the reduced impact of natural disasters, the other economic benefits of a transition to a low-carbon economy still easily outweigh the costs. Benefits of a low-carbon economy beyond a reduction in emissions include:

  • Access to more affordable investment capital due to lower risks
  • Enhanced agricultural productivity
  • Reduced energy use and costs for households and businesses
  • Improvements in biodiversity
  • Improved urban air quality
  • Improved comfort for people and lower health risks
  • Commercial benefits from developing and selling emissions reduction technology.

Adding to this, the Senate Select Committee Inquiry in Jobs for the Future, which looked at the implications of global technical and social change on regional communities, found that all of Australia’s major existing regional industries (mining, power generation, agriculture, service industries, manufacturing) have the opportunity to capitalise on their existing strengths to take advantage of a transition to a low carbon economy.

Much of the economic evidence and thinking, from business leaders and policy professionals, thorough to insurance companies, point to the need to transition, not only to mitigate climate change and its impacts but also as a golden economic opportunity.

— Thomas Walker

Examples of similar thinking from overseas

This thinking that a transition to a low carbon economy can have wide-reaching economic benefits is not restricted to Australia. Many countries are more advanced in this space, including the tabling of a Green New Deal legislation in the United States, the UK’s proposed New Green Industrial Revolution and Germany’s A Roadmap for a Just Transition from Coal to Renewables, as just three examples.

In the United States, the Green New Deal resolution was tabled in the Senate by Alexandria Ocasio-Cortez. A Green New Deal provides a vision and framework for climate and economic justice, arguing for a rapid transition to renewable energy backed by good jobs and public investment in housing, transport and infrastructure. The goal of the Green New Deal is to quickly reduce greenhouse gas emissions to avoid the worst consequences of climate change while also trying to fix societal problems like economic inequality and racial injustice. The resolution says the government must provide job training and new economic development opportunities, particularly in communities that currently rely on jobs in fossil fuel industries.

The New Green Industrial Revolution was a policy platform taken to the 2019 UK elections by the Labour party. Labour outlined how there is a crisis of living standards and a climate and environmental emergency. It was argued that the nation must confront these problems together with a plan to drive up living standards by transforming the economy into one low in carbon, rich in good jobs, radically fairer and more democratic (UK Labour, 2019). The plan had a spatial element, with rewarding, well-paid jobs, and whole new industries targeted to revive parts of the UK that have been “neglected for too long”.

Germany shuttered its last coal mine in December 2019 after many years of government intervention. Coal was critically important to the industrial strength of Germany through the nineteenth and twentieth centuries, employing over 600,000 Germans at its peak. But there was a community recognition that the industry needed to end if they were to address climate change. As a result, they progressively closed the coal mines. Miners who wanted to stay in the industry were transferred from mine to mine, others were offered opportunities to retrain, and those over 50 years old were offered generous voluntary payouts. To support coal mining communities, the German government directly invested in transport infrastructure, new universities, and in the rehabilitation of waterways, while mine sites and coking plants were converted into parks, exhibition areas and museums. Overall, it is claimed that Germany closed all of its coal mines without sacking a single worker (O'Malley, 2019).

Germany is now moving on closing coal-fired power stations. In the summer of 2018, Germany established a Commission on Growth, Structural Change and Employment otherwise known as the Coal Commission. One of the goals of the Coal Commission (Agora Energiewende, 2019) is to prevent economic disruption and associated social hardship for workers from the transition that needs to occur. This includes a guarantee that no worker will be left high and dry and that coal mining regions will have sufficient time and resources to adapt economically.

The above three case studies are all based around the same idea that climate change mitigation can be pursued at the same time as regional economic growth, not as separate conflicting objectives.

Though the Australian situation is different, it is not dissimilar, and much can be learnt from these overseas initiatives in resolving the tension between economic development in regional areas and the need to close down high-carbon emitting industries.

— Thomas Walker
SGS Economics and Planning Janschwalde Power Station Germany
Germany is now moving to close all coal-fired power stations. Image: Janschwalde Power Station Germany

Transitioning to a low carbon economy and regional economic growth are not opposite objectives

Jobs, particularly well-paid ones, are critical for communities in regional Australia. Jobs in carbon-intensive industries provide incomes for families and are the cornerstone of many regional communities. However, a transition to a low carbon economy and regional economic growth are not opposite objectives. The technology already exists, and regional communities have the industrial skills, knowledge and infrastructure ready for the jobs of the future to be developed.

How Australia transitions to a low-carbon economy will be complex and will differ by region. It is not acceptable to simply point to opportunities and hope for the best, planning for the transition must consider the communities role and how growth and development will benefit and sustain them.

— Thomas Walker

Central to a successful transition plan is co-operation at the national, state and local levels. However, given the lack of policy frameworks and direction from the Australian Government, local communities will need to do some heavy lifting in creating and planning for new low-carbon industries.

A divided leadership approach increases the risk that regional communities will be negatively affected during the transition to a low carbon economy. And the opportunity for Australia to be a global superpower in clean energy and technology will be delayed or lost, while also contributing to increased hazards like drought and bushfire that will hit regional communities hardest.

Addressing climate change and the needs of regional Australia simultaneously can help transition millions of Australians into jobs in low carbon industries. With leadership, Australian communities can work together on the shared problem of high carbon emissions to grasp the opportunities offered by Australia’s sunlight, wind and ingenuity. Proposals such as a Green New Deal and the opportunities outlined by Garnaut would see climate change and growing economic inequality between Australia’s cities and regions addressed simultaneously.

References

ABARES. (2019). The effects of drought and climate variability on Australian farms. Australian Bureau of Agricultural and Resource Economics and Sciences. Retrieved from https://www.agriculture.gov.au...

Agora Energiewende. (2019). A Roadmap for a Just Transition - Analysis. The German Coal Commission.

Carney, T., & Stanford, J. (2018). The Dimensions of Insecure Work: A Factbook. Retrieved from https://d3n8a8pro7vhmx.cloudfr...

Gilfillan, G. (2019). The extent and causes of the wage growth slowdown in Australia. Parliament of Australia. doi:https://www.aph.gov.au/About_P...

Kompas, T., Witte, E., & Keegan, M. (2019). Australia’s Clean Energy Future: Costs and Benefits. MSSI Issues Paper 12. Melbourne Sustainable Society Institute, The University of Melbourne.

O'Malley. (2019). How Germany closed its coal industry without sacking a single miner. The Age. Retrieved Februray 11, 2020, from https://www.smh.com.au/environ...

PWC. (2019). The Future of Energy: Australia's Energy Choice. in collaboration with Jacobs. Retrieved from https://www.pwc.com.au/power-u...

Scott Morrison, Prime Minister of Australia. (2020, January 29). Transcript, National Press Club. Canberra: Prime Minister of Australia. Retrieved from https://www.pm.gov.au/qa-natio...

SGS Economics and Planning. (2020). Economic Performance of Australia's Cities and Regions. Retrieved from https://www.sgsep.com.au/asset...

UK Labour. (2019). Manifesto: A Green Industrial Revolution. Retrieved from https://labour.org.uk/manifest...

Senate Select Committee Inquiry in Jobs for the Future. (2019): https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Jobs_for_the_Future_in_Regional_Areas/JobsRegionalAreas/Report

Author(s):
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SGS Economics Planning Thomas Walker
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Thomas Walker

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