As Certain as Death and Taxes

Written by Richard Katter, Economics and Research.

The Federal Parliament is currently debating the composition of an Emissions Trading Scheme (ETS) for Australia. The Government’s initial proposal for an ETS was blocked by the senate in June and since then pressure has been on the Opposition to detail the changes they require to enable the Act to pass through the Parliament’s upper house. The Opposition is incentivised to arrive at an agreement with the Government on the ETS. If it is blocked by the Senate a second time it will trigger a double dissolution election, which at the moment the Opposition will surely lose, handing a further mandate to the Government to enact legislation.

Broadly, an ETS will allocate units of carbon output to industry on an annual basis. If the industry exceeds their allocation they will be penalised. This penalty is to encourage clean industry and the innovation of new clean technology. Industry will likely receive some form of payment if they are able to in fact consume carbon or store it long term (sequestration).

The argument is that an ETS will put pressure on our carbon intensive industries, possibly resulting in job losses, further damaging our economy in the wake of the GFC. However, the result will likely be the creation of new industries, while “driv[ing] some old ones out or chang[ing] them” (Robison, 2009), particularly if they are producing excessive greenhouse gasses.

What is almost certain is that an ETS will be introduced in Australia in the near future; it will be similar to those of other developed economies. One of the major points of debate between the two major parties currently is the level of support/compensation provided to emission intensive industries, particularly those which are exposed to competition within a global market.

However, in a recent article from the Gallup Journal of Management, it was asserted that "All too often, a politician will jump to get in front of a parade, but politicians never start them" (Robison, 2009). It is up to the industries that are in the middle of the damage to be the first to come up with innovative solutions.

An example of this is Ray Anderson of US carpet company, Interface. The subject of the Gallup Journal of Management article, Making Green While Going Green , Ray led Interface to cutting its net greenhouse gas emissions by 71% in absolute tons (the Kyoto Protocol, in contrast, called for 7% reductions by 2012, which many said was impossible). Over the same time frame, Interface increased sales by 66% and doubled its earnings, reducing greenhouse gas intensity (relative to sales) by 82%, wastewater stream by 72%, landfill-bound scrap waste by 78%, total energy usage by 44%, smoke stacks by 33%, and effluent pipes by 71%.

The property industry is probably one of Australia’s leaders in green innovation, particularly in terms of design. Australia’s legislation relating to sustainable housing is amongst the most progressive in the world and as such it may be unlikely that an ETS will have any great primary impact on the development industry. What is almost inevitable though is that building material costs will increase. Emission intensive products such as steel and cement will likely, without some level of protection, be subject to a marked increase in price.

The development industry does have the capacity to identify opportunities to capitalise on the introduction of the ETS. The answer lies beyond planting trees to absorb carbon dioxide, the restrictions on the amount of land available, particularly in South East Queensland, limit the possibility of this as a solution. Instead, innovative developers and designers will choose to use building materials which are less emission intensive. At the most basic level, timber, which actually stores carbon, may be preferable to steel which is emission intensive.

According to Ray Anderson, Interface were able to initiate such a sustainability possibility by reducing waste at all levels, resulting in over $400million worth of savings – a figure which more than pays for green initiatives. An ETS will also encourage efficiency within the development industry. An increase in the cost of materials will lead to designs that increase the efficient use of space, thus reducing wastage.

On top of saving money and the environment through clever design, community demand will play a large part in encouraging developers to be carbon-friendly. Recent times have seen a huge swell in the popularity of community gardens and programs such as the 100 Mile Diet that encourages people to only eat things that come from a short distance from their community, thus reducing their individual carbon footprint. What this means for developers is changing the way communities are structured, to allow for adequate public space such as corner stores, public gardens and community facilities that negate the need for extensive travel. These changes, along with the inevitable increased in the cost of oil will lead to an increase in TODs. This though is reliant on the infrastructure leading the development to ensure that the foundations of TOD are in place from the onset.

In addition to this, we all ought to be raising the bar with regards to our purchasing policies. Specifying that suppliers provide climate-neutral products today negates the green-wash that is eroding customers’ and industry trust in environmental sustainability. This will reward innovation and get the whole process cranking along at a much faster pace.

Resources:
THG Economics and Research
Robison, J. (2009). Making green while going green. Gallup Management Journal.