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From IT to ET. The challenge ahead of the world is to build prosperity by addressing the opportunity side of tackling climate change.

The challenge ahead of the world is to build prosperity by addressing the opportunity side of tackling climate change. Two key things need to happen - clearly innovation needs to be demonstrated, commercialised and deployed. But equally important is that we need to eliminate the artificially deflated pricing for basic staples of our economy. The issue of "cost" is often used as a pretext to wait before taking action. Energy and water are two examples where cost has not been properly calculated because negative externalities have not been included in pricing and the collateral damage of production, consumption and resource depletion. This is beginning to have severe economic impacts.

Developing countries who are struggling to build their economies are likely to be hit hardest because they have no buffer zone and environmental degradation is a huge drain on wealth. An article in the Australian Financial Review by Pan Yue, the Vice Minister of China's State Environmental Protection Administration, stated that "it would cost $US84 billion to clean up the pollution produced in 2004 - or 3% of GDP for that year. But more realistic estimates put environmental damage at 8-13% of China's GDP growth each year, which means China has lost almost everything it has gained since the late 1970s due to pollution."

As the international community increasingly demands that environmental degradation, and in particular climate change, be halted, markets will change. This is an important consideration for Australia - we have an abundance of energy sources, but which ones will tomorrow's markets favour as we enter the 'cleantech era' where energy productivity must be decoupled from greenhouse gas emissions? Indications from institutional investors, insurers, major retailers and corporations all point towards a decarbonisation of good and services.

My belief is that global demand for energy efficiency and zero emission energy sources will skyrocket as we try to address the additional stresses on natural climate variation because of he accumulation of anthropogenic green house gases in the atmosphere. For the wise and early mover the opportunities ahead may prove to be the biggest opportunity for generation and preservation of wealth that the world has ever seen. We have seen the benefits of IT to virtually all sectors of the market and now we need to recognise ET (environmental technology) as the next quantum leap for global prosperity.

Scientists, economists and the community clearly recognise that a major challenge is ahead as trends reveal rising greenhouse gas emissions, rising temperatures and rising sea levels. Clearly action to tackle climate change will be expensive and complex. The obvious rejoinder is that the cost and complexity of living in a world made untenable by human-induced climate change may be unknown but it is foreseeably very high. If climate change is pushed to the far extremes that modelling suggests could occur, no technology and no amount of money will be able to return us to a safe and secure world. A prudent insurance policy therefore, is to try to avoid runaway climate change using the tools that are available today and nurturing the solutions that will take time to develop.

In this regard many international and Australian investors are ahead of governments in understanding the foreseeable risks ahead . Whether one considers it prudent risk management, opportunity-seeking, or far-sighted altruism, the finance sector is pulling ahead of government policy. In the global market US$21 trillion of funds will be invested over the next ten years on energy infrastructure. Meanwhile, the Carbon Disclosure Project's 280+ institutional investors, who represent US$41 trillion of funds under management, are investigating any potential carbon liability associated with the companies they invest in - so carbon performance is now viewed as one of the key indicators of likely financial performance and return on investment. Indications are that higher capex costs associated with new-to-market cleaner energy will be considered favourably over lower capex that comes with higher opex costs associated with negative externalities having to be internalised. The potential for litigation, similar to tobacco and asbestos, if companies do not act to reduce their GHG emissions is being factored into investment decision making.

While Australia has lost some time and reputation by obfuscating over the Kyoto Protocol, we do still have an opportunity to be a leader in providing solutions. Energy efficiency, clean energy solutions and biological and technological offsets are areas where Australia has the potential to excel. And if this energy intensive country can provide ways to increase energy productivity that provides the goods and services needed, and at the same time steadily decrease GHG emissions, then Australia has a new energy future ahead. My conclusion therefore, is that an energy transition, taking place over a 20-30 year period, should have a strongly positive, not a negative, impact on employment and continuation of Australia's current strong economic performance.

Technology alone is not enough to achieve this transition. Government policies on market instruments, regulation, fiscal incentives, standards setting, as well as governments' own procurement and investment, all need to match the private sector's technical innovation. A key for early action is a cap and trade carbon emissions trading scheme that begins as early as possible and Environment Business Australia is strongly recommending a 2008 start.

There is no 'holy grail' solution, rather the outcome we want will be achieved with a broad portfolio approach that encourages market take-up of technically proven technologies. Fortunately, there are many approaches and technologies available - solar thermal (with gas boosting for energy storage), photovoltaics, wave and tidal where electricity production can be combined with provision of desalinated seawater, deep hot fractured rock geothermal, wind and reverse hydro, or next generation bio-fuels such as algae that combine a carbon sink with cleaner burning transportation fuel. But, in a typical Catch 22 scenario, until these technologies have access to a market of sufficient scope and scale, they cannot be operationally refined and brought down their natural cost curve.

For Australia, Asia is the market of scope and scale we need to focus on. I have suggested that APEC+India, would also make an outstanding base for Australia to engage in international emissions trading. There is a natural link with the AP6 technology approach to addressing climate change where the technology providers in the six participating countries (Australia, USA, Japan, China, India, South Korea) are calling for market incentives to take us beyond project demonstration and into full scale commercialisation and deployment. From an Asian base, Australia could conceivably then engage with the EU Emissions Trading Scheme and the Kyoto Protocol Clean Development Mechanism (CDM) aimed at linking technology and financing support for projects in developing countries. In our region the CDM market is growing rapidly. Imagine the value of the carbon credits that could have been negotiated with the Chinese Government if the LNG exports from the North West Shelf contract had included a CDM component.

Environment Business Australia, the peak industry organisation which I have headed for eight years, is keen to capitalise on Australia's strengths, indeed we believe that Australia can become a "sustainability superpower" by helping the global market to value both sides of the international balance sheet and increase the productivity of energy, while phasing out negative externalities of waste and pollution, and providing abundant carbon credit offsets during the transition period - all things that help make Australia and our export markets smarter and more efficient.

Break out boxes

Energy efficiency

There are sufficient gains to be made from energy efficiency so that the amount of energy demanded can be significantly reduced. This provides cost savings at current energy prices , it also underpins the competitiveness of our economy when energy prices inevitably rise.

Energetics, a leading energy efficiency and energy management company, believes that Australia can achieve between 2% and 2.5% per annum compound improvement in emissions reduction and that this can be sustained into the long-term. This would result in 22-28% emissions reductions in 10 years and 35+% over 15 years, from business as usual, through energy efficiency improvements alone.

Energetics emphasise that it will take up to three years to get a major energy efficiency program up to speed in Australia. They also emphasise that to drive systemic and accelerated energy efficiency improvements - in industrial, commercial, transportation processes, energy conversion industries, and at the household level - tax breaks, financial incentives, regulation, and carbon/energy pricing which recognises and internalises externality costs, will all be necessary.

Clearly this is a major undertaking and involves:

Minimum efficiency standards (capex and opex) being implemented rapidly for new capital
Incentives for energy efficient investments (including for commercial buildings, houses, cars and appliances) across all sectors
Incentives for energy efficient investments (including for commercial buildings, houses, cars and appliances) across all sectors
Carbon tax and/or suitable carbon trading scheme having impacts down to large end-user level
Investments in public transport that will encourage local government public policy to view this as an 'efficiency centre' rather than a 'profit centre' because it can make cities operate more efficiently and more profitably; other measures to cut distance-carbon intensity
Programs to increase recycling of energy intensive materials
An extensive education program.

Automotive sector

An example of this is energy efficient cars. While it may be very difficult to encourage a consumer to pay an extra 10% or 20% to purchase the vehicle without incentives, an energy efficient vehicle will pay off the marginal investment within 3 or 4 years. Further, if all manufacturers faced minimum performance standards on energy efficiency, very quickly there would be little differential in manufacturing costs between a standard and high efficiency vehicle. This change can be demonstrated in the cost and efficiency of refrigerators over the 20 years since minimum standards were applied in USA and Australia.

Environment Business Australia has proposed to the Federal Government that a policy where all three levels of government work together could 'kick-start' a highly efficient automotive market. By mandating that their own fleet procurement and leasing be based on world benchmark efficiency low-to-zero-emission cars, and giving automotive companies 18 months to retool their plants; and giving importers strict standards to adhere to; would provide a guarantee that Australia would purchase somewhere in the region of 87,000 vehicles at Federal and State Government levels (figures for local government are still being researched). While this is not an annual figure it is still sufficient to conclude that it is a sizeable enough figure to allow for the unit cost of low-to-zero-emissions cars to be substantially reduced for the consumer. This government market would also accelerate clean cars into the second-hand market. It is worth emphasising that not only does energy efficiency save money by reducing the amount of energy consumed but it also saves consolidated revenue by lowering the extent of negative externalities.

Solar thermal power with gas boosting

Using solar concentrators (paraboloidal dish or trough shaped mirrors that track the sun) solar energy is harnessed and concentrated to heat water to 500 degrees centigrade to create steam that will drive turbines. Alternatively, the heat can be used to heat chemical reactors with gases such as methane or ammonia, creating a chemical reaction where new chemical bonds are formed trapping energy for future use. This stored energy can then be used in turn to create turbine-driving steam.

Experts at CSIRO and ANU believe that a landmass between 125 km x 125km and 140 km x140 km in Australia would be able to provide sufficient electricity for all of Australia's 5,500 PJ/a primary energy usage - and this from an energy source whose future is secure for at least the next 5 billion years.

Baseload generation could be widely available from 2010-2012.

Hot fractured rock geothermal energy

The quality and quantity of Australia's recoverable hot fractured rock resources (at a depth of 4-4.5kms) is vast and capable of base-load energy generation reaching three or four thousand megawatts of electricity by 2030. Both Geodynamics and Petratherm believe they will be generating price competitive commercial electricity from northern South Australia by 2010 and Geodynamics has already done some initial production.

There are no technical breakthroughs required as the core drilling and reservoir technologies already exist from the oil and gas industry. Similarly, the power station technology exists through the conventional geothermal industry. The high voltage DC transmission line technology is also well proven (transmission losses of between 5% and 7% are equivalent to losses powered by any other source and have been factored in to the cost benefit analysis).

The quality of Australia�s hot rock resource, particularly that in the Cooper Basin, is seen as the best in the world. The high temperatures are coincident with good fracture permeability, fluid overpressures and a stress field that results in flat lying fractures dominating the flow field. This latter point means that many simple vertical wells can be linked up to create large-scale developments. The efficiency of converting thermal energy to electricity increases at a rate of 1% by every 1 degree centigrade temperature increase. The Cooper Basin site has temperatures above 250�C compared with European sites below 200�C. Australia�s high grade inferred resource of 2.5 million petajoules can support electricity production at current rates for hundreds of years.

Turning waste into recycled materials and embodied energy that generate credits

Global Renewables, together with Lend Lease, has recently been awarded a $5 billion contract in the UK to turn household waste into carbon credits. They do this by recycling both materials and embodied energy; by capturing and using the methane as an energy source to run the plant; and by turning putrescible waste into soil fertiliser. The company estimates that for every ton of waste recycled there are approximately 2 tons of GHG emissions avoided.

The benefits of their UR-3R technology is now being looked at to offset a coal-to-liquids (CTL) development in the USA and Australia that would help achieve energy (oil) security, create value-add employment, and reduce the energy trade deficit.

Environmental infrastructure projects such as recycling city food and green waste back into natural fertiliser and ending ocean disposal of nutrients in sewage effluent, could also provide an opportunity for farmers to be net beneficiaries of a carbon trading scheme as they replenish soil carbon and generate credits.

There is a further benefit - that is that recycled soil carbon carries with it the other minerals and nutrients removed from agricultural soils during food production and this natural fertiliser can replace chemical fertilisers which have high GHG emissions. Tests are showing that returning a more natural balance to soils can also reduce the need for insecticides and pesticides.

Environment Business Australia EBA is a business think tank and advocacy group promoting commercial solutions to environmental challenges. We push for far-reaching policies to help shape the marketplace for clean and efficient technologies and smart systems and ideas - policies that will help shape Australia's next competitive edge in the 'cleantech' era.