Playing resource roulette  

The Climate Spectator has an article by Ian Dunlop on peak oil, global warming and the implications for the Australian economy and its dependency on resource extraction - Playing resource roulette. The column is based on a chapter from Dunlop's new book, More Than Luck.

Australia has had a dream run since the end of World War II, built on our natural wealth. Despite the occasional hiccup, our economy has expanded year after year, with increasing prosperity. Much of our success has been built around supplying agricultural products and raw materials to the expanding economies of the world, particularly in Asia – initially Japan, then Korea and south-east Asia, now China and India.

Understandably, we are proud of being world leaders in agriculture, mining and processing, but we have also created a strong and vibrant society in many other areas, all built around a capitalist, market economy model.

Our resource base is formidable and expanding. Not only do we have substantial energy resources of gas and coal, but we have the world’s largest uranium and thorium resources and enormous untapped renewable energy – solar, wind, ocean, geothermal and bioenergy. Beyond that, iron ore, other metalliferous minerals and agricultural assets abound.

However, that bounty may well become our Achilles heel unless carefully managed. Much of our exports are carbon-intensive – thermal and coking coal, alumina, natural gas, with coal being the largest export earner of around $36 billion in 2009-10. Our domestic energy system is highly carbon-intensive, largely a result of readily available and inexpensive coal. Our carbon emissions are correspondingly high, around 19 tonnes CO2 per capita in 2007 – among the highest in the world.

A weak point is oil, where Australia has a particular vulnerabilty. We are around 50 per cent self-sufficient in oil, a situation that is declining rapidly unless new discoveries save the day, which seems unlikely. We rely on long supply lines from Asian refineries for around 85 per cent of our daily product use, offset by high exports.

We do not comply with the requirements of IEA membership – to maintain a 90 day net-import strategic petroleum reserve – relying instead on operational stocks and just-in-time delivery. With a small, geographically dispersed population in a large land mass, we are heavily dependent on transport fuels.

The cost of our oil and gas imports is now close to twice our oil and gas exports, with high coal exports saving the day. This will represent an increasing burden on our current account deficit as our level of self-sufficiency declines.

Despite this vulnerability, peak oil is not on the federal government's agenda. While some state governments have taken it seriously, studies at the federal level have been dismissive, even though it may have far more impact in the short term than climate change.

If the world now moves rapidly to a low-carbon footing due to climate change, while facing increasing oil scarcity due to peak oil, many of our traditional advantages turn into major strategic risks – that is risks beyond our control which have the potential to fundamentally change our way of life, and undermine our economic strength.

Whilst our raw material exports will not cease overnight, given likely strong demand from the developing world, a worldwide shift toward low-carbon alternatives will seriously disadvantage Australia if carbon sequestration technologies fail. Similarly, we may not find it that easy to secure the oil imports we require. Domestic alternatives, based on our coal and gas resources, such as Coal-to-Liquids (CTL) and, to a lesser extent, Gas-to-Liquids (GTL) technologies are likely to be expensive and environmentally damaging.

In agriculture, Australia is already experiencing the impact of changing temperature and rainfall patterns, which may well be the result of human-induced climate change, with serious drought in many areas and an overabundance of rainfall in others fundamentally altering farming patterns and water supply.

As the Garnaut Review pointed out: "Australia has a larger interest in a strong mitigation outcome than other developed countries. We are already a hot dry country; small variations in climate are more damaging to us than to other developed countries."

On the positive side, we have enormous undeveloped renewable energy resources, and there is great potential for the biological, as opposed to geological, sequestration of carbon, which has substantial benefits for agriculture, and possibly for our coal industry.

A Janus nation

The scenario, of rapid climate change combined with the onset of peak oil, while becoming part of mainstream thinking overseas, is still regarded as extremism in Australia, and not as part of the "official future."

Ironically, we have some of the best scientific and analytical advice in the world on the implications of climate change and energy supply, in studies such as the Garnaut Climate Change Review and extensive work by the CSIRO and other bodies. They indicate the need for rapid change – advice which is blithely ignored.

On the other hand, the vested interests defending the status quo, particularly those linked to some sections of the resource industries, are among the strongest in the world – which is not surprising, given the importance of those industries, historically, to the development of Australia and the resulting power they have accrued. ...