21
September 2021

Remarks at UNSW Energy Institute Australia's Energy Future: Shaping a Climate Changing World

If you're a baby boomer, and you came of age in the US in the 1960s, when you looked around the main engines of the US economy, and the five largest US companies by market capitalisation, were these: General Motors; Standard Oil; Kodak; AT&T; and IBM.

One of these companies barely exists in a recognisable form, Kodak.

The main successor to Standard Oil, Exxon Mobil, dropped out of the Dow Jones Industrial Average last year, having been the

largest US company as recently as 2013. Nowadays the biggest automaker by market capitalisation is Tesla, which makes electric vehicles. It's worth roughly ten times GM.

And if you look at the five biggest US companies by market cap today, they are Apple, Microsoft, Alphabet (Google), Amazon and Facebook. These are the drivers of jobs, wealth and prosperity today.

There is more than a good chance that you've used the products of at least one of these companies today. They are in many respects indispensable to the modern economy and modern lives.

This has been a pretty profound restructuring of industry and the economy in the last fifty years. How is this relevant to Australia's energy future? When it comes to energy, we are at the start of an equally profound transformation.

It's a transformation that has immense potential upside for Australia, if we get this right. But it also entails risks. If we end up on the wrong side of these historical forces, then it will jeopardise our future prosperity and living standards.

Last month the Intergovernmental Panel on Climate Change released the first part of its sixth assessment report, IR6. It's a stark and sobering read. It should be a wake-up call for all of us.

As the report makes clear, and with a level of certainty and confidence not seen in its last report, climate change is already underway.

The planet is already warming. By about 1.1 degrees Celsius since 1850.

Extreme weather events are already becoming more common, as we have seen all around us this past year. And it is unequivocal that human activity, and growing concentrations of greenhouse gases in the atmosphere, especially carbon dioxide and methane, are the cause of this.

Human influence is warming the climate at a rate that is unprecedented in at least the last 2000 years.

The last time the world had this concentration of CO2, the world was three degrees celsius warmer, and Greenland was green.

As the report makes clear, rapid and large-scale emissions reductions are needed, and from right now. If the world can substantially reduce emissions in the 2020s, and get to net zero carbon emissions by 2050, temperature rise can still be limited. But as the IPCC report makes clear, the clock is ticking, and the urgency is growing.

This will be the backdrop to the next UNFCCC COP, or Conference of the Parties, in Glasgow in November.

I'm fundamentally an optimist when it comes to the human species, not a doomsayer.

Since the enlightenment, we have continuously proven wrong the doomsayers, showing ourselves both sufficiently innovative and sufficiently wise to avert catastrophe and change course when needed. The world's answer to Thomas Malthus' gloomy prediction of overpopulation and mass famine was the agricultural revolution.

The world's answer to the threat of mutual nuclear annihilation was the Nuclear Non-Proliferation Treaty, established de-escalation channels, and US-Soviet detente.

The world's answer to the threatened destruction of the ozone layer was to agree the Montreal Protocol and phase out ozone-depleting substances

And the world's answer to the modern-day plague, the COVID-19 pandemic, has been to develop and scale vaccines in absolutely record time, including new vaccines using mRNA technology for the very first time.

Even if at times we have looked over the precipice, and given ourselves a bit of a scare, we have always navigated our way back from the brink. So, I have faith in humanity's ability to overcome this challenge of climate change, just as we have overcome many before.

This does not mean we can afford to be complacent. But it should be an antidote to the counsels of despair which too often characterise this discussion.

One of the positives from the IPCC report is it has killed climate denialism. The IPCC has laid to rest those claims that the link between CO2 concentrations and global warming was not clear, or who claimed natural climatic variability as the main driver. But it seems to be giving rise to climate delay-ism. These are the people that tell you the problem is too big for Australia alone; that we cannot move the needle, so we should not bother at all; that our economy and lifestyle are too dependent on fossil fuels to chart another path.

These are the fatalists, and I take objection to this attitude. Australia has never been one to leave our fate in the hands of others, or to shirk from global challenges. Our military record alone attests to this. From World War One right through to Afghanistan, we have prided ourselves on making an outsized contribution to address a global challenge We quite willingly play our part, even if we are realistic enough to recognise that our own role will not be decisive.

We are not fatalists; we recognise our own agency; we do not deny our own ability to make a contribution. Instead, we act.

We demonstrated this just last week, in our bold and far-sighted decision to acquire nuclear-powered submarines. We need a similar boldness of vision and sense of national agency when it comes to our energy transformation.

Too often those who seek to argue for a more ambitious climate policy in Australia find they need to denigrate or dismiss what we

have achieved thus far. This is not only wrong analytically, but it is divisive politically. It hampers our ability to create an enduring approach.

If you are not prepared to acknowledge the progress that has been made to date, and build on that, then you're not in the business of finding solutions, you're in the business of mindless partisanship.

So let's examine our record. Our emissions today are 20% lower than in 2005, and at their lowest level since records began in 1990. This compares well with other countries. Across the OECD, the average reduction in emissions across the same period is 9 per cent.

If you look at countries like Canada and New Zealand, often held up as paragons of climate virtue, over this same period their emissions have barely reduced at all.

We are well on track to meet and exceed our Paris emission reduction targets, and without the use of Kyoto credits. We are installing renewable energy generation capacity at a record rate: ten times faster than the global average.

In 2020 we installed a record 7GW of renewable energy capacity in Australia. We now have the highest solar power capacity per person of anywhere in the world. We are investing in key energy infrastructure that will allow more renewables to come into the grid, such as Snowy 2.0 and the Marinus Link.

So we have made considerable progress to date. But we must also recognise that we are still in the foothills, and there is a mountain yet to climb.

As in any other area of policy, energy and climate policy cannot be 'set and forget'.

Just last week we walked away from the most expensive defence acquisition project in Australia's history, to acquire 12 Attack class submarines.

This was not an easy thing to do. There was a lot already spent in going down this path. There were some costs - financial, diplomatic and others - in changing course. So why did we do it?

We did so because our fundamental circumstances have changed since 2016. The decision we made in 2016 no longer made sense in 2021. Well, in energy and climate policy, three fundamental circumstances have changed since we first set our Paris targets. First, the IPCC report. Second, what the Soviets would have called the correlation of world forces.

Third, the comparative advantage and opportunities for Australia in a low-carbon world economy.

Let me go into each of them in turn.

First, the IPCC report has made it clear that the climate is already warming at an alarming rate.

Extreme weather events are already becoming more common, and more expensive. The world's transition towards net zero needs to occur at a faster rate.

Second, the correlation of world forces.

The world's largest emitter, China, has now recognised its responsibility to act and committed to net zero by 2060.

The United States, the world's second largest emitter, has returned to the Paris agreement with new zeal, and has committed to net zero by 2050.

Much of the developed world, and every Australian state and territory, has now committed to net zero by 2050.

Many nations, including our main peers in the Umbrella group, have increased their 2030 targets.

Global capital markets, pension funds, insurers and investors are signed up to net zero by 2050, and are increasingly putting a climate risk prism on investments and capital allocation decisions.

For a country like Australia, given our level of integration with and dependence on global capital markets, this means our commitment to reduce emissions and reach net zero is inextricably tied to our economic future.

Third, and most important, are the immense opportunities that are becoming clearer for Australia, including for Australia's regions, in the global energy transformation that is underway.

We are endowed with the lithium and rare earth metals necessary to build new energy networks, battery storage, and a more electrified and connected world.

Green hydrogen has the potential to be the liquid fuel of the future, and Australia, with our large renewable endowment of solar and wind, is uniquely positioned to provide this.

Liquid hydrogen would allow us to "ship sunshine", as Alan Finkel says.

We are also likely moving to a world where industry locates near the source of energy, rather than the fossil fuel world that saw energy travel to industry.

For a country like Australia, this means opportunities to process more of our raw materials onshore, from bauxite to iron ore, and create low emissions steel and low emissions aluminium.

This could see the reindustrialisation of Australia.

Meanwhile carbon sequestration in our soils -- soil carbon -- can improve agricultural productivity and drought resilience, but also deliver a revenue stream for farmers.

Earlier this year a cattle grazing property in New England, through grazing management, was able to lift its soil carbon and sell half a million dollars worth of carbon credits to Microsoft.

Low emissions technologies could position Australia for over $30 billion of new export revenue from energy-intensive, low emissions products by 2040.

The national hydrogen strategy envisages hydrogen being an $11 billion industry in Australia by 2050.

The Investor Group on Climate Change expects that an orderly transition to net zero by 2050 would unlock around $63 billion in new investment to 2025, and significantly more in the period out to 2050.

So this energy transformation underway has immense potential for Australia.

Many of these new jobs and industries will be in the regions, not in our capital cities.

Those opportunities are the focus of our Technology Investment Roadmap: a government supported research and development strategy to support the development of new and emerging technologies which will reduce emissions and where Australia can play a leading role.

With our submarines, we dramatically updated a decision we made in 2016 to reflect our new national circumstances of 2021.

When it comes to our climate and energy policy, the positions we adopted in 2015 no longer reflect our national circumstances of 2021.

We need the same sort of recalibration, to reflect our new set of national interests.

What does this look like?

To be credible, we need a firm target and accompanying plan to reach net zero emissions by 2050.

We need sufficiently ambitious milestones and interim targets along the way to reach net zero by 2050.

I think there is a strong case to be made to update our 2030 target, particularly as we are likely to overachieve it.

Clearly, though, our next nationally determined contribution, with a post-2030 target, needs to be significantly higher in ambition.

A 2035 target of 40-45% below our 2005 levels is achievable on the technology and policy levers available today, and will put us on a managed transition to net zero by 2050.

And finally we need a set of policies that position Australia to benefit from the massive global energy transformation underway, in a way that we are uniquely positioned to do.

These will build on our National Hydrogen Strategy, our Future Fuels Fund, a recapitalised and refocused ARENA, and other areas identified as priorities in our Low Emissions Technology Statement.

Just as what we used to call the "Information Revolution" has transformed the global economy of the early 21st century.

So too the energy revolution now underway is likely to be equally profound in its implications.

On the whole, this is good news for Australia.

Yes, there will be some structural adjustments in Australia, just as there will be all around the world.

But the upside opportunities for Australia are immense.

The potential to attract global capital which is hungry for the opportunities to invest in decarbonisation.

The potential to create new and diversified markets for a growing stream of Australian exports.

The potential to create the next generation of high-skilled and wealth-generating jobs, including in our regions.

To borrow a phrase from a predecessor of mine, It's an exciting time to be an Australian.

Thank you.