HOW TO ENERGISE THE CLEVER COUNTRY

Australian Financial Review 20 July 2001 Friday review p 9

Doug Cocks on the daunting task of powering our nation through the 21st century.

The Australian population grew by 1.2 per cent last year and, if that growth rate continues, we will have another 18 million people when your new grandchild turns 50. And there will be four times the present gross domestic product to spread around that doubled population, if we can hold a 3 per cent annual economic growth rate over the same period. Given our fondness for flocking together most of our cities will be twice their present size in 2050, with Sydney well above that.

Growth is a ``good news'' scenario for many; not so good if you think city life is polluted and congested enough already. Air pollution in a congested city with Sydney's proportion of diesel engines is equivalent to smoking a packet of cigarettes a day. And you may have doubts about national GDP as a measure of quality of life for your middle-aged grandchild. Will she get her share? How much of her share will come as things she wants and how much will be the costs of suppressing the things she does not want?

What fewer readers will appreciate is that, for 100 years, GDP has grown in tight correlation with the nation's primary energy consumption. Seems you can't have one without the other. A graph of this remarkable partnership should be displayed in the offices of every bureaucrat, politician and CEO in the country, even if it means displacing the Queen. Why? Because it is at the heart of several of the biggest challenges facing the Australian community between now and 2050: managing the national energy mix; managing lifestyle demands; managing environmental quality; managing the big cities (the subject of Pat Troy's article in the AFR Review of March 23); and managing society's complexity (you can't keep it simple, stupid).

This bold assertion rests on three working hypotheses: nearly all economic growth requires growth in energy use and (nearly) all energy use produces residues and effects which pollute and degrade natural systems; doubling population may well double GDP but will have little impact on GDP per capita (as a number of respectable studies show) it is productivity gains generated by capital growth that raise GDP per capita; and doubling the size of the population and the economy more than doubles the management effort required to keep society running smoothly or, more pessimistically, to stop society collapsing (systems theory asserts that a bigger society is not only more complex but more fragile).

This last hypothesis picks up the fashionable idea that there are diminishing marginal returns in making the ways in which governments and markets organise society more complex. Why? One reason is that it is harder for decision-makers to predict the consequences of their actions in a complex society.

Whatever strategy we come up with for managing the nation's future energy mix, it will have to recognise two inescapable boundary conditions. One is that long-term oil prices are likely to rise in real terms. The other is that as the effects of global warming begin to bite, the world community is not going to allow Australia's economy to be based as strongly on the use of fossil energy as it is now. That is unfortunate because our present energy ``strategy'' can be summarised as oil for transport and coal for electricity generation.

On present indications, Australian and global production of the transport sector's magic fluid will soon start declining. The conventional estimate (International Energy Agency) is that world oil production now 40 per cent per cent of the world's energy supply will peak between 2010 and 2025. Thereafter, oil production could halve every 25 years or so. Its share of a much larger world energy market could be less than 10 per cent by 2050. The energy break-even point for USA oil production (when it takes a barrel to retrieve a barrel) will probably occur in the first decade of this century, and others will follow. Plainly, the real price of oil is going to rise, and rise again, and economies which steadily reduce oil use per dollar of GDP will be advantaged.

Fortunately, of its own accord, the Australian economy is restructuring towards services, dematerialisation (using relatively less physical stuff), miniaturisation and more efficient energy use. All of these will help to decouple growth in energy use from economic growth and economic growth from environmental losses. Unfortunately, even in combination, these particular trends will only make a difference at the margin especially in Australia where decoupling has been less marked than in OECD member countries overall which reduced their collective energy intensity by 31 per cent between 1973 and 1996. Still, while important, decoupling is not the main game. What we do about our basic oil-coal strategy is.

No worries about options on that front for a lucky, farsighted country. Stabilising the population would reduce growth in energy use till 2050 by, perhaps, a third. If the P-word makes the pollies feel faint, remember that we have natural gas coming out our ears (as the Western Australians say). Everyone knows that natural gas is the bridging fuel between the oil economy and the hydrogen economy. And that using natural gas reduces carbon emissions. Well done Australia.

What does seem to have been overlooked is that if you subtract a projection to 2050 of domestic use plus sales abroad from the sum of Australia's Category 1 and 2 gas reserves (data from Australian Geological Survey Organisation), the answer is negative. At least it will be negative if we continue to double the number of gas trains constructed on the North-West Shelf every five years or so.

Perhaps we shouldn't write off the biomass option. We have the technology, the land and the sunshine to produce biodiesel and fuel (m)ethanol in abundance from plantations and field crops. The bonus from the biomass option would be a boost for the regions, a carbon-neutral transport-fuel system and, for our agricultural soils, a lowering of salty water tables. Costs and prices are converging on the break-even point but the capital investment would be awesome. As a minimum we need to revive serious biofuel research and demonstration programs. Alternatively, (ssshhh) we could just stop locking ourselves into massive long-term gas export contracts.

How to provide liquid fuels for transport is half of the energy-mix question. The other half asks how commercial and domestic electricity will be generated as pressure comes first on the coal option and then the gas option. The precise energy mix after about 2020 will depend on today's choices of both research and investment paths. Improvements to fuel cells (these are something like batteries you recharge by adding fuel) have the potential to trigger ``the big switch'' from a combustion-based polluting economy to a sustainable hydrogen/electro-chemical economy. One way or another, permanently rising oil prices and, eventually, gas prices will stimulate the development of renewable energy technologies like solar power, geothermal and ocean thermal power, wind power, tidal power and hydro power. Cornucopian possibilities for all of these except hydro power exist in Australia.

A practical method of harnessing the power of nuclear fusion for electricity generation would transform the world, but Mark Oliphant's most optimistic delivery date for that technology at any meaningful scale was 2040 (and you thought coal-based electricity generation was capital intensive). Other ways of drawing energy from collapsing hydrogen atoms are even further away. Still, unless such technologies emerge, the choice for an energy-hungry economy, as timid about renewables as we are, may be between learning to clean up coal-based generation and learning to live with the hazards of power from nuclear fission. (Now, where did all those options go?)

Improving what you are already good at doing is not necessarily the right strategy when there is a paradigm shift on the way (as the mammal said to the dinosaur). Nevertheless, new methods of sequestering (locking up) carbon dioxide away from the atmosphere or new ``clean'' technologies may allow the increasing use of ``dirty'' fossil fuels such as coal and tar sands. For example, carbon dioxide and heat from coal power stations could be used to to grow edible micro-algae in vats.

Whether from nuclear, renewable or fossil sources, it would not surprise if the primary function of large-scale electricity generation in the late 21st century turned out to be producing hydrogen from water and piping it to where it was needed. Under this scenario, hydrogen, if we can learn to store it safely, gets to be used both as a transport fuel and in free-standing fuel cells supplying local-area power.

So, what do we know after all this? We know that we are going to have to exit our oil-coal strategy for providing industry and consumers with energy. Global warming and finite oil reserves (bring back the Club of Rome!) will ensure that. We know that if we want to follow the ``good news'' scenario of doubling population and quadrupling GDP by 2050, we are going to have to increase primary energy production by 3 per cent a year (more compounding) less a temporary correction for whatever decoupling we manage to achieve.

The enormity of the investment task implicit in this scenario, irrespective of which technology mix we adopt (clean coal, gas, nuclear, biomass, renewables), now begins to emerge. By 2050 we not only have to replace the existing coal-oil infrastructure with something else, we have to build a further three versions of such a system. The metaphor that springs to mind is keeping the supertanker off the rocks put the wheel hard down, keep it down, pray. In other words, somebody has to start picking winners and then backing them. If nothing else will convince you, look at it this way. By 2050, the extra energy required to service an economy with a strong growth record will be 120 times the capacity output of that nation-builders' icon, the Snowy Mountains scheme.

-----------------

THERE WILL BE LIFE - BUT NOT AS WE KNOW IT

Australian Financial Review 27 July 2001 Friday Review p 9

Doug Cocks continues his series on the energy challenges of the 21st century.

In beginning this examination of Australia's journey towards 2050, I focused on the constraints and opportunities we face in selecting a mix of technologies to provide a steadily increasing energy supply (growing at 2 per cent plus a year) to underpin steadily increasing gross domestic product. The main environmental constraint recognised was the need to keep carbon emissions at a level acceptable to the international community. Concern over the environmental risks of defaulting to nuclear power came into the story too.

Unfortunately, the sort of ``carbon restraint'' strategies discussed did not have a snowball's chance in hell of bringing Australia's share of carbon emissions down to a level enabling a return to pre-industrial levels of atmospheric carbon (assuming all countries were similarly assiduous). What Kyoto reaffirmed is that politics is the art of the possible not the preferable. To achieve a pre-industrial atmosphere given current technologies, global energy use would have to fall to a third of its present level. Our quota as a developed country could be even less.

Perhaps it does not matter that the world cannot tackle this problem meaningfully. A few hundred years of global warming (even ``runaway'' global warming where warmer conditions trigger the release of carbon locked up in the tundra) might be just the ticket for deferring a coming ice age, which is already well overdue. It is an argument (flawed as it happens) which defenders of global growth do not seem to have discovered yet.

The contemporary focus on carbon emissions as the big environmental problem obscures the pervasive two-edged role of energy in both developing and destroying the natural world. All development of natural resources, whether for production (eg land clearing) or consumption (eg tourist resorts), requires energy and all energy use involves physical transformations which reduce the amenity value and services provided by natural systems.

Take pollutants, the unprocessed residues of such transformations. The simple Malthusian view of pollution is that unless pollution per unit of output can be reduced at a faster rate than total output is increasing, the limited assimilative capacity of natural pollution sinks (airsheds, watersheds) must eventually be over-taxed and air and water quality further reduced. QED. So far, no can do.

It has to be accepted that, with a few win-win exceptions (eg protecting fish nurseries in estuaries and mangroves), development meaning expansion of output from the resource-based industries is a one-way street. We cannot travel down it without losing something in the way of irreplaceable amenity resources and without permanently decreasing the range of future possibilities for using what's left. There are no free trips, no refunds. The umbrella task in natural resource management is to decide how far and fast to travel down this one-way street while developing strategies and technologies which will allow us to improve the trade-off rate between economic benefits and the loss of ecosystem services, which run from water filtering to spiritual renewal.

A decision to stabilise Australia's population at 24-25 million within a generation or so instead of doubling our numbers by 2050 would do more to slow growth in energy use than almost anything else. The modest levels of net migration that would ensure stabilisation would be politically popular. Business and a few elites would grumble, but their traditional arguments for a doubled population, domestic market size and international influence, seem thinner by the day.

The biggest and boldest policy option for managing energy consumption would be to cap it. In a volatile political climate where the middle class is already flirting with post-materialist values and looking beyond more commodity-consumption for improving quality of life, the word ``impossible'' has to be used carefully. If energy producers had to bid for permits to supply gigajoules to a fixed-size market or one growing at a capped rate, market forces would quickly eliminate profligate energy use. Splitting that overall gigajoule limit into limits for solid fossil fuel, liquid fossil fuel and renewables would further improve policy flexibility; and gigajoule quotas could be combined with tradeable carbon quotas, that other idea in good currency.

The natural corollary of energy limits in a post-materialist green society is materials limits. The idea here is to impose tradeable upper bounds on overall materials consumption (net throughput) as a way of stabilising and then reducing the amazing 200 tonnes of materials processed annually per Australian. The figure includes exports. With increasing average real incomes, energy and materials consumption per head is actually rising, albeit somewhat tempered by the ageing population and efficiency gains. One factor accentuating per-capita consumption trends is the legitimate aspiration of poorer people to consume as richer people do. Another is the acceptability of conspicuous consumption which tends to be both resource-intensive (holiday homes) and environmentally degrading (jet skis, four-wheel-drive bush-bashing).

In successful ecosystems, nutrients and other materials are largely recycled, with small losses from the system being balanced by small gains from the outside world. The analogue in a post-materialist Australia would be to encourage an ``industrial ecology'' approach to managing the use and re-use of physical materials. The objective would be to find an economic use for all waste or to place it into the environment without disruption. Eventually, all consumable products would be biodegradable and all durable service-providing products would be fully recyclable.

Further complementing economy-wide limits on total materials throughput, more targeted programs for pursuing dematerialisation of the economy would need to be considered, initiatives such as: introducing full-cost pricing for the use of landfill sites; promoting recycling by encouraging ``closed loop'' manufacturing, based on the automated identification of components, analysis of product ``life cycles'', technologies that encapsulate waste in new products and composites and regulations that permit use of recycled materials; developing official design standards for products that allow them to be identified as environmentally friendly (like low-temperature washing powders and low-phosphate detergents) or dangerous to health or the environment (eg building materials that emit toxic gases, leave toxic residues); encouraging the production of high quality, long-lived (20 years?) consumer durables that can be readily repaired and reconditioned it would be a mistake to regulate to achieve durability because goods that are too durable may become obsolete in terms of energy efficiency, speed, pollution etc; introducing preferences in government purchasing for goods that are biodegradable and readily recycled; and introducing excise duties for goods that contain a high proportion of virgin materials or produce residues that are difficult to recycle or are highly polluting at any stage of their life cycle.

Growing uneasiness about what we are doing to the environment may yet lead to a permanent change in community values from consumerism to ``voluntary simplicity'', this being the view that increasing consumption fails to satisfy real needs, increases pollution, depletes our grandchildren's resources and contributes to other social problems; that personal development is more strongly associated with quality leisure than with conspicuous consumption. Perhaps any move towards voluntary simplicity as a way of improving quality of life will be nudged along with less-than-voluntary marginal tax rates which target the consumption of ``luxury'' and ``novelty'' goods.

Finally, along with population growth, energy and materials throughput and consumerism, the way in which our ugly/beautiful landscapes are used will be the fourth broad determinant of environmental quality in 2050. This is most easily demonstrated by examples. If Australians do turn towards post-materialism in coming decades, we will see: more wind farms and solar farms; more dedicated (single-use) water catchments; more low-intensity, low-chemical agriculture; more large urban residential blocks supporting a self-sufficient lifestyle; and more biomass fuel farms growing deep-rooted perennial species.

If, however, economic growth remains society's dominant goal we might anticipate seeing: more cropping involving short rotations and intensive cultivation schedules; more mining operations that produce intractable residues such as cyanide residues from gold mining and radioactive spoil; more hotel developments involving high numbers of rooms in non-urban areas, particularly isolated and coastal areas; more developments threatening significant groundwater contamination or rapid groundwater drawdown; and more urban sprawl onto open space and natural systems in the coastal zone and onto high-value agricultural lands such as sugar and horticultural lands.

Tackling consumerism, managing population and land use and using market-based instruments for containing energy and materials use are powerful ways of moving towards an environmentally friendly economy. But would the patient survive? Remember, even with active diversification, Australia's major export industries in the competitive global markets of 2020 will be mining, agriculture and tourism. And, whatever the rhetoric about triple bottom lines, exporters won't want to be burdened with pesky impact assessments and codes of environmental practice.

While niches for eco-tourism and clean, green agriculture might proliferate under a strong swing to a post-materialist society, competition for energy, materials and workers, strong environmental regulation and weak home markets stand to drive growth and profits towards zero.

This is the fear, but we just do not know. We do not know if pushing for a dark green post-materialist society would wreck the economy or, conversely, rejuvenate it and improve its capacity to provide what tomorrow's people will need. No more do we know what would be delivered if we pushed for a doubled population and a quadrupled GDP by 2050, the ``good news'' scenario. The world is far too complex a place to allow the consequences of such strategies to be modelled with confidence.

And yet if we are not going to be wholly reactive, we do have to think about picking a way through the incompatibilities and complexities of the energy-environment-population-economy maze. It is because the choices are so ravelled and uncertain that we need to be suspicious of comforting beacons like sustainable development, not so much an oxymoron as a chimera. Not only does that particular emperorhave no clothes, but everything that has gone before suggests he has no body either.

This is the second of three articles. The last will focus on the need to understand complex systems.

Caption: Illus: It is hard to predict whether pushing for a dark-green society will wreck the economy or rejuvenate it. Picture: MICHELE MOSSOP

------------------------------

COMING TO TERMS WITH COMPLEXITY

Australian Financial Review 20 August 3 2001 Friday Review p 8

The system may be broke, but fixing it will be far from easy.. This is the last in a series of three articles.

Ecosystems that process high quantities of energy are more complex than ecosystems which process low quantities of energy. That is they have more plant and animal species interacting in more ways. Tropical rainforests are more complex than alpine meadows. And if the energy available to any mature ecosystem declines, complexity is lost and the system simplifies or collapses in the extreme case. There is a lesson here for human societies, particularly those mainlining on gigajoules.

When our ancestors first learned to access higher quantities of energy per worker by growing cereals, they began making society more complex through a process of population growth and specialisation which, with ups and downs, has continued to this day. First it was priests, healers and soldiers. Today it is spin doctors, biotechnologists and sports stars. Ever more energy became available as we moved from animal power, via water, wind and wood, to coal, oil and uranium.

In tandem with growing energy supplies came a succession of technologies that guided the extra energy into increasing output per worker. For example, stirrups, horse collars, barbed wire and tractors have successively transformed agriculture. Even with there being more mouths to be fed, workers were released from farming to work at providing enhanced or new services and products, usually with the assistance of yet more energy and technologies. Population grew with the food supply. The whole process accelerated with the industrial revolution but has been the same in principle from Mesopotamia to Silicon Valley.

The interconnectedness in a country between energy supplies, economic activity, population dynamics, technological change and environmental quality produces what can only be called a complex system of natural resource management. That is, changes in any of these components affect the other components in the system in ways which are often not easy to predict and hence to manage.

For example, technology will continue to squeeze human labour out of the production of goods and services, without necessarily providing either enough work of the same kind for those jettisoned, or a guaranteed rate of economic growth sufficient to absorb them. Technologies bite back in all sorts of unexpected ways, the classic example being DDT which, 30 years after earning its inventor a Nobel prize, was widely banned. The ``rebound effect'' is a phenomenon where, to take one example, an increase in the fuel efficiency of cars leads to higher, not lower, fuel use as people drive increased distances. Such counterintuitive results blossom in complex systems. Our ignorance is breathtaking. Economists can model the short-term effects of a new tax system but not long-term structural change in the economy. Scientists do not know if global warming will stall the Gulf Stream.

And so on. Complex systems can be racked by waves of change at one moment and in stubbornly intractable gridlock at another. Feedback, the process whereby attempts to change one part of a complex system end up being stifled or, conversely, magnified, is ubiquitous in complex systems. Land clearance usually speeds up when attempts are made to stop it. But land-rights claims encounter new obstacles at every turn. Long-chain dependency in modern societies means that disasters reverberate across the system; failures in utility grids are a good example. Not only are complex systems unpredictable, they are fragile under disturbance. Fragility is the price we pay for efficiency and specialisation. A company which produces the cheapest widgets cannot easily switch to producing gew-gaws if the market changes. A company which is geared to switching between these items will probably never be the cheapest supplier.

Why is it critically important to recognise that Australian society operates as a complex system (especially when, as systems analysts themselves acknowledge, we do not know how to manage complex systems to get the results we want, or even what results are possible not to mention the challenge of articulating what we want)?

Perhaps the first and most important reason is to puncture hubris and braggadocio. Buoyed by our success at inventing material technologies, some, the technological optimists, envisage a technical solution for every problem, every desire. Certainly we know how to turn out a stream of new technologies but the problems needing technologies are proliferating even as the ``big science'' cost per technology developed is escalating. More to the point, solving social problems requires ``social technologies'', not (just) material technologies. For example, in the ailing Murray-Darling Basin, landcare programs which change behaviour are needed as well as salt pumps and trickle irrigation.

And then there is ideological hubris. One would have thought that this siren would be dead after the Berlin Wall and the strained triumphalism of liberal democracy. In Australia though it lives on as unreconstructed economic rationalism. The idea that by leaving a complex socio-economic system alone it will do what you want is even more naive than hoping you might be able to nudge it into doing the right thing.

The second reward from seeing our society as a complex system is to remind us that societies do collapse (don't laugh). Historian Arnold Toynbee studied 21 civilisations that had risen, flourished and collapsed. What those societies had in common was that they had become so complicated that relatively minor challenges were able to destroy them. OK, so none of us really expects social collapse. But what about a paradigm shift in social organisation triggered, say, by a final oil crisis? From growth-ism to post-materialism? From democracy to soft authoritarianism?

The erosion of the invisible part of the consensus that assures social stability is often unseen and unnoticed until the accommodation is destroyed and there is an unexpected catastrophic overturn Boulding's ``iceberg effect''. While small changes can produce big effects, areas of highest leverage are often not obvious. Complexity theory warns us to beware of ``breakpoints'' spasmic changes that occur when slow forces for change eventually gain ascendancy over powerful but deadlocked forces and that we should be prepared to capitalise on breakpoints when they occur. Happily, there is a warning signal to hand paradigm shifts in social organisation occur when the old paradigm is breaking down (failing to deliver) and society, as in contemporary Australia, is becoming more turbulent.

The third pay-off from viewing society as inescapably complex is that it opens the way to managing society as an evolving learning system rather than as an equilibrium-seeking system, as is suggested in much social and economic theory. In a learning society there are no right answers, at least not before the event. Politicians would no longer be forced to declare their policies to be revealed truth and then have to seek scapegoats when things don't work out. In a learning society, governments would present their programs as carefully chosen experiments in ameliorating causes rather than symptoms. Meaning what?

Controlled experiments in complex social systems are clearly unfeasible but government programs can still be chosen to learn something about the system's inbuilt behaviour rules as well as improve system performance. Social learning is unashamedly a trial-and-error approach in which, ideally, every attempt is made to look widely at all the downstream, indirect and unintended consequences of the ``experiment'' and, after monitoring the results in terms of goal convergence, decide whether to continue or try something different. Tackling groups of problems collectively instead of one at a time is also part of the social learning philosophy.

The social learning process is like natural selection in evolution to the extent that variants are tried against reality and selected if found ``fit''. But that is about as far as the analogy goes. For example, variations are not generated by the blind chance of gene mutation but by purposeful attempts to design an experiment with, hopefully, favourable consequences. And humans can seek to actively avoid what has been called evolution's ``fatal flaw'', namely its myopic concern for improved performance right now with nary a thought for what blind alleys the evolving species is being led into. But the prospect of Australia Inc switching from ``Band-Aiding'' to a learning approach to policy-making seems dim without the prodding of a disaster or a crisis of legitimacy.

Finally, dabbling with a systemic approach to long-term natural resource management suggests a list of questions that Australians ought to be asking. In particular:

* Do we accept as working hypotheses that there is a looming greenhouse problem of major proportions and that world oil production will peak around 2020?

* Do we really want to try to think about the energy-environment-economy conundrum as far ahead as 2050? If so, what sort of political system could do this? What sort of institutional framework would allow us to manage these issues collectively?

* How can we tell if the present system is vulnerable to collapse or on the edge of drastic spontaneous reorganisation? If it is, what are our options for deliberately simplifying it or, alternatively, managing it to improve its resilience?

* Is the umbrella choice really just between low-energy, post-materialism and high-energy, growth-ism? Would active post-materialism destroy the economy? How can we let go of the growth tiger's tail? If sustainable development is something more than rhetoric, what is it?

* If we are going to be forced to abandon our coal-oil energy strategy, one way or another, what are we going to put in its place? And, seeing that massive investment will be required whichever way we go, when do we start? Or are we prepared to leave this fundamental question to the market? Is anyone in charge out there?

Caption: Illus: Historian Arnold Toynbee argued that complexity had been the key to the downfall of many civilisations. Picture: TANYA LAKE

------------------------------

Byline: Doug Cocks is a fellow with the CSIRO Resource Futures Program in Canberra. His most recent book is Future Makers, Future Takers (UNSW Press).