The cost of a green economy

Climate change has been popular with politicians seeking election on green issues, the greens seeking voter support, and naturally enough those industries in green technology, genuine and otherwise. The politicians run a parallel rhetoric emphasising the benefits in lifestyle, new skills and thousands of new "green jobs" from "green industries".

During his election campaign, Kevin Rudd trumpeted that expertise and innovation would confirm Australia's number one position in leading the world in green technologies, including clean coal, solar power and wind generation. He finally discovered the world of reality at Copenhagen.

Driving the green energy revolution

Profit is the prime motivator in any industry, and the promise of a new financial exchange dealing in carbon credits, the Kyoto Clean Development Mechanism (CDM) incentives and government subsidies, created a rash of investment, opportunism, and optimism.

Germany implemented renewable energy policies with massive wind and solar power generation projects and incentives. Spain, Denmark, the US did likewise with major wind generation projects.

China became the world's fastest renewable energy market, driven mainly by the billions in direct foreign investment due to a poorly regulated CDM.

Like the auto and other industries that relocated to China, the renewable energy industry followed suit, leaving behind vacant factories and unemployed workers, devastating the economies of a number of communities.

Renewable energy corporations from Europe and the US identified massive demand for renewable energy growing in China, only to find that the way into this market was via compulsory technology transfer, and manufacturing within China restricted to joint ventures with mainly state-owned enterprises.

Foreign wind and solar technology fuelled systems began marching across the north west of China, blatantly ignoring the absence of grids, or where access to grids was available, the lack of smart grid technology to accept the wind input.

Balance sheet bottom lines benefitted from the production of cheap renewable energy components and completed items for export back to home markets where they could undercut local competition. Large-scale, stimulus package funded, subsidised projects in Europe, the US and Australia were successful because of the low cost of imported components from China.

The advancement of renewable energy in the developed world received a major boost from the stimulus packages, reliance on government subsidies and the low cost of components made in China.

China's rush to meet demand resulted in a massive manufacturing overcapacity in wind and solar technology.

From early 2009, China began unloading large inventories onto world markets, with claims that these imports into developing countries were below the cost of manufacture. Criticism was subdued, since the cheap renewables made government stimulus incentives "affordable". Australians benefited from China's cheap solar panels and insulation, popularising the Rudd Government's renewable energy subsidy scheme.

Where are we today?

The uncertainty over carbon trading and its ability to achieve real reductions in emissions, the ongoing effects of the global financial crisis, and a crucial review of the CDM criteria are likely to reduce the rate of renewable energy manufacturing and generation development in China and parts of the developed world.

The global financial crisis is far from over and planned easing of unemployment across Europe and the US is reliant on a surge in manufacturing and public works.

China on the other hand is reporting an increase in economic growth based purely on massive infrastructure spending that is running in parallel with massive overcapacity in steel, aluminium and cement and the concealed level of real debt.

By the end of 2012, China will have developed a massive manufacturing and infrastructure capacity. Global demand however, will continue to grow slowly due to consumer credit constraints and demand. It is highly likely that this new capacity will exceed global demand well into the future.

Correcting this excess will be a serious challenge for Beijing, especially its banking sector that has underwritten manufacturing capacity, property development and infrastructure faced with falling property and stock markets.

Domestic consumption is still reliant on unlocking personal savings from those in the rural areas and on low incomes until China commits to funding a social welfare and environmental recovery program that will be far greater than the 2008 stimulus package, increasing China's consumer demand to the level needed. This is yet another growing challenge for Beijing.

Water demand

In Germany the solar arrays are in close proximity to cities and services, but in China, the US and other countries, solar is located in remote flat dry areas with abundant sunshine, on "cheap" land, but where transmission costs can be high.

Recent experience in the US has highlighted the immense thirst of solar arrays and power towers. The vast arrays of PV cells and mirrors consume quality water, that leaves no residue, to flush dust particles from surfaces that would otherwise reduce their efficiency. Power towers and concentrating PV systems also consume vast volumes of water for cooling.

To avoid major drawdown of scarce water resources in arid regions that serve cities and large communities some US states are refusing applications for large-scale arrays reliant on water resources. It comes down to priorities. Which is the more important - water or power?

Regardless of which politicians are in power, greening and greenhouse gas (GHG) emission reduction comes with an unavoidable price tag , no matter what the spin from government or others. Like health care, education and law enforcement, the government needs taxation revenues to pay the bills for growing consumer demands.

Germany, Spain, France, UK, Germany and Denmark are all cutting back on earlier rhetoric, while the Obama administration chases wind and solar options requiring balance with water availability and demand.

Obama plans to cut unemployment by creating jobs in the green energy sectors. The program will cost US$2.3 billion and comes with a bill of US$135,000 per job: it will be reliant on  large quantities of cheap imports, particularly Chinese components.

Obama may have overlooked those "green jobs" that have been flying into China where the silicon, PV cells and complete assemblies are manufactured for export back to the US.

Spain, Germany, and other nations signed onto the UN Kyoto protocols intending to cut carbon dioxide emissions and initiate green jobs programs, only to admit that not only do such jobs cost too much to create, but the imported components effectively eliminate the hoped for green jobs.

Quoting economists, a Washington Times editorial of November 2009 said it all:

“Green energy” is proving to be no miracle solution to the nation’s monumental unemployment problems, and it is doing little to help the economy emerge from its deepest recession in decades.

And the cost?

There is no free lunch and that includes climate change reduction. Everything comes at a cost, and in this case, that costs will sorely test social acceptance and political will.

China knows that its wind farms need additional massive investment in multi gigawatt coal fired back up power stations. To slake these giants’ cooling demands, further investment is required to draw down on water resources in arid areas that are seriously short of water.

The vast solar arrays located in the same arid windy water scarce areas, also need major investment in coal fired back up power, smart grid technology. Also required are large volumes of water for cooling the thermal plants and cleaning the vast areas of reflectors.

The benefits of rare earth elements to climate change

Rare earth elements play a key role in green technologies that include catalytic converters, hybrid car batteries, energy efficient light bulbs and the magnets in very large wind turbines. They are also crucial to the manufacture of iPhones, fibre optic cables, LCDs, superconductors, nuclear power rods, and ceramic colourings.

The 17 rare earth elements are not that rare, and are found around the world in varying concentrations. China is the current source and supplier of "cheap" key rare earth minerals used in wind generation and electric cars.

Responsible, safe mining and processing practices, however, are critical in protecting both the environment and health and safety of the workers and those living near mining and processing sites.

This comes at a cost.

The rare earths currently used in manufacturing green energy products come from China, mainly because of the low cost of mining and processing when compared to that of developed countries. These elements however are mined and processed under horrific, primitive and hazardous conditions posing clear and unacceptable risks to the health and safety of miners, process workers and nearby residents.

China's cancer villages and their frightful human misery now include communities in the toxic landscape around the rare earth mines in Inner Mongolia, Guangdong, and Jiangxi.

Every government has a duty of care and legislation to protect the health and safety of its population, as well as its environment and water supplies. China has such legislation but blatantly chooses to ignore its duty of care, prioritising revenues from the rare earth mines above human and environmental welfare.

Condoning such atrocious and callous operations that have such far-reaching and devastating consequences can only be described as the act of a reckless and irresponsible government.

Offsetting a green world with environmental vandalism

Environmentally conscious consumers readily support "environmentally friendly" products and green technology. Condoning the mining of rare earth elements in China now poses a direct challenge to the priorities behind that thinking. Does it mean the "cheaper price" for these elements and the related benefit to global warming outweigh the abuse and misery generated?

The expanding, devastated landscape around these mines and processing plants is just another addition to China' accelerating environmental degradation and decline. Renewable technologies reliant on rare earth elements may have real economic and human benefits, but they are currently offset by a totally unacceptable and horrific downside.

Will green consumers really regard such practices and effects as "acceptable sacrifices" for lifestyle's new accessories, or even "collateral damage", in the war against global warming?

Beijing knows there is no magic bullet to fix its rapidly decaying environment and the cost of rectification is accelerating daily. Beijing's misguided policies are pushing the ability to recover, beyond the tipping point.

Be it climate change, or just sustainability, the world must face the fact that survival has a substantial financial cost that in turn will demand reassessment of lifestyle and downsizing expectations. It is quite simple.

Can we ignore the risks and not prepare to adapt to meet the challenge for that possibility? The time for rhetoric, political, corporate, and individual egos is past.

Government needs to acknowledge its responsibility to plan and prepare for both current and future generations, and this is achievable only via collaborative international and national efforts.

Copenhagen clearly highlighted that nothing can be achieved by mammoth talk-fests with a cast of tens of thousands with too many individual goals and egos. Governments and oppositions around the world will have to weigh lifestyle and populist policies against harsh fiscal management to ensure sustainability, be it at a level below expectations.

An ETS is just another financial market that contributes to green projects in other countries and plays no real effective role in cutting back on total emissions. Because it lacks specific penalties for failing to reduce emissions an ETS is ineffective.

Assume that the effects of climate change prove to be correct: the price of carbon is the cost of reducing carbon emissions and the most effective means of motivating carbon reduction is imposing a cost on that carbon. It will not be simple, and it will cause severe angst with many, but it will be effective.

If Australia, or any other developed country seriously considers implementing climate change reduction policies, then it needs to ensure that it can provide diverse job opportunities with a broad skills base to meet the needs of future generations. A consumer economy philosophy reliant on cheap imports is not a serious option to create that essential skilled base.

Wayne Swan's starry-eyed vision of Australia's history of overcoming adversity is an illusion from Australia's past. It ignores the fact that in the past Australia had vast areas of undeveloped land, and untapped mineral and water resources capable of sustaining growing populations. Australia in 2010 is no longer that country and faces serious challenges to future sustainability.

Australia is not alone in facing the challenge of an ageing and growing population, escalating demand for health care, education and law enforcement, as well as diminishing natural resources that include arable land and water.

No matter what policies the government of the day implements, Australia's efforts alone cannot reduce the effects of climate change on Australia. Australia should also not be relying on China for its future economic survival. Climate change is only one part of the overall problem facing nations around the world, not the entire problem.