Victorian Climate Change Green Paper
Part 4 - Adjustment: the low carbon economy - a climate of opportunity
Green Paper part 4 - Adjustment (Printable version, PDF - 622 KB)
Victorian industry can capitalise on the new jobs, technologies and markets that will flow from a low carbon economy
4.1 Creating opportunities
4.2 Driving innovation
4.3 Developing skills
4.4 Supporting adjustment to change
Our climate change goals
Two of the Government’s proposed long term goals are relevant to Victoria’s efforts to adjust to the impacts of a carbon price.
- Goal 3 - Help communities and industries to adjust to a carbon price
- Goal 4 - Capitalise on new opportunities emerging from a carbon price
The introduction of a national emissions trading scheme means that energy and other prices will rise. Victorian industries, businesses, households and communities can take action to reduce the impact of these price increases - from making relatively small adjustments, such as switching off unused lights and appliances, to making major changes in industry production systems. Most of these adjustments will be made without government assistance, however, in some specific areas, the Victorian Government may need to provide support.
Our success in building an economy for the future - one that is well prepared for climate change and that can capture new opportunities - is dependent upon:
- Creating opportunities - There are a number of areas where strong potential exists for Victoria to take up new opportunities and become a national, regional and global leader as we move towards becoming a Green Economy.
- Driving innovation - Successfully adjusting to climate change will require new ways of thinking, being open to new ideas and becoming more innovative in how we do things - in our homes, in our businesses and workplaces, and in government. Support for innovation across the Victorian community will be critical to finding solutions to climate change challenges and realising climate change opportunities.
- Developing skills - Engineering, construction and technical skills will be needed to develop and adopt new energy technologies and create energy efficient, climate resilient buildings and infrastructure. ‘Green collar’ jobs are expected to grow rapidly. Skills shortages could delay and increase the costs of making the shift to a low carbon economy.
- Supporting adjustment to change - To adjust successfully to climate change, the Victorian economy will need to be dynamic, diverse and flexible. In some parts of the state - and in some industries - where change has the capacity to be particularly disruptive, this may require taking strong preparatory action and providing structural adjustment support.
Adjustment refers to the changes that people, households and businesses make in their behaviour as they adjust to the introduction of a price for carbon. Some adjustment costs will be relatively low (such as switching to more energy efficient appliances in our homes); others will be substantial. In some cases, adjustment to a carbon price may deliver benefits - or result in short-term costs that can be recouped or that are outweighed by benefits over the longer term. The longer we leave it to take action to reduce emissions, the sharper - and more costly - the adjustment to the economy will be in the future.
The energy revolution
The world’s energy system is on the cusp of a revolution. This is the conclusion of the International Energy Agency who reported that 30 per cent of power generation installed globally in 2007 was renewable energy. Looking at Victoria and our current energy systems, the thought of a shift towards clean energy sources seems a distant and far fetched reality. We know that our current energy system is not economically sustainable in the long-term but some are daunted by the task of responding to the climate change energy challenge.
I see things differently. Responding to climate change will open up new opportunities for economies that embrace change. In the short-term, Victoria’s good investment environment for gas and renewable energy generation can meet growing energy demand. With smart policies, we can turn our back on our history of energy gluttony and develop new industries based on energy efficiency. Our buildings can be comfortable but use much less energy. Homes, housing estates, CBD office blocks and factories can become decentralised power sources through the use of co-generation and solar energy. Each of us can become our own power company executive.
In the longer term, shining examples of scientific, community and business innovation and ingenuity can drive technological breakthroughs such as in large scale solar energy and fossil fuels with carbon capture and storage.
The world is not waiting for us to start the switch to global clean energy. The question for Victoria is: play catch up or reap the early benefits of becoming one of the world’s smart clean energy economies?
Erwin Jackson
Director of Policy and Research at The Climate Institute and member of the Premier’s Climate Change Reference Group
The role for government in adjustment - smoothing the transition
Adjusting to a changing climate and a carbon price will involve a joint effort across our entire community. While government will be a key player, individuals, households, businesses, industries and communities will need to assess their own exposure to climate change and the CPRS, calculate their own risks and make their own decisions about what action they need to take.
Generally, the main role for government is to create the right conditions in which individuals, firms and the community can make timely, well-informed and efficient decisions about adjusting to climate change. Government action will be particularly important in creating a robust economy by encouraging innovation, reducing red tape, facilitating the take up of opportunities from climate change, and supporting skills development and tackling skills shortages.
Equity - or fairness - is also an important consideration for government in relation to adjustment. While markets can deliver an efficient allocation of resources, they give less focus to equity issues. The CPRS will generate structural changes in the Australian economy that may result in uneven impacts across society. For this reason, governments may need to take action to reduce any inequitable impacts by:
- Redistributing income through changes to taxes and welfare payments
- Providing access to public services
- Promoting policies that will assist individuals, businesses and communities to adjust to changed circumstances and enhance their ability to capture the opportunities that come with change.
As part of the implementation of the CPRS, the Commonwealth Government has committed to provide assistance to emissions-intensive, trade-exposed industries (EITE industries) to reduce the risk that these industries will relocate offshore due to competition from countries without carbon constraints and to support the transition to a carbon constrained economy. Recently this assistance was increased by the Commonwealth, in recognition of the challenges faced by many EITE industries due to the Global Financial Crisis.
In addition, the Commonwealth Government has committed to provide one-off assistance to the most emissions intensive electricity generators and grants to reduce fugitive emissions in the coal sector. The Commonwealth Government has also committed to support firms not eligible for other assistance by making funds available for small to medium enterprises and community groups to invest in energy efficiency activities.
While the assistance from the Commonwealth will support the transition to a low carbon economy, the extent and speed with which industries can respond will be dependent upon the availability of skills, knowledge and capital to adjust - providing a rationale for action by the Victorian Government to assist EITE industries.
Climate change is opportunity
Climate change is opportunity. We compete with the rest of the world and turning climate change into opportunity is no exception. Whether it is smart meters, more bike lanes in cities, 5-star green buildings or upgrading old buildings, we must seek out the chance to excel. Every school should be a leading example of energy consciousness. Every building approval should be a chance to change. We should label our foods so that the embedded energy is obvious (transporting water from California to Australia is not smart). In short, partnerships, consciousness and profile are the levers for change.
There are many opportunities for Victoria in transforming to a low carbon economy. Here are just a couple:
Cars for climate - In our large cities, over 90 per cent of journeys are less than 20km. When renewable energy sources make up a greater part of the electricity supply, why not have ultra lightweight vehicles, hybrid or electric; plug-in at parking lots and at home with the batteries of the cars providing some of the storage capacity needed? In Victoria we have the design skills, the components and car manufacturing capabilities. Even the advanced composites needed are already made in Victoria (for aircraft components). How to get this act together? Try the City of Melbourne combining with the Government to buy 10,000 such vehicles.
The brown coal elephant - Over 95 per cent of our electricity comes from brown coal and much of the plant still has a long economic life. We cannot walk away from this economically effective ‘elephant in the room’. The answer of course is to see brown coal as a bridge to the future, with carbon capture and storage the planks of the bridge. How to fast track this development? We need to fast-track access to our offshore depleted oil and gas reservoirs and finance the full scale deployment of capture technologies with their initially higher costs.
In summary: it’s all do-able, but there’s a long way yet to go. As Alexander the Great once said: “Let’s just get on with it!”
Robin Batterham
Group Chief Scientist with Rio Tinto Limited, President of the Australian Academy of Technological Sciences and member of the Premier’s Climate Change Reference Group
4.1 Creating opportunities
Adjusting to climate change is generating challenges and opportunities on a global scale.
Many nations are now taking action to reduce emissions and bolster the capacity of their economies to deal with climate impacts and tighter carbon constraints. These actions will inevitably result in a shift away from ‘traditional’ production processes and an increase in the demand for low emissions goods and services.
This means that, worldwide, significant opportunities and markets are likely to develop as investment flows towards more energy efficient products, processes, skills and services, and towards activities that will help people, businesses, communities and governments to adapt to climate change. In Australia, similar opportunities will be created as the introduction of a carbon price drives substantial changes across the market.
What we need to do
While identifying and capturing opportunities from climate change is primarily the role of industry, the Victorian Government can play a role in facilitating the development of these opportunities. Different opportunities will have different requirements: some may require investment or innovation support, some may require new skills; in others, market access will be the greatest challenge.
Opportunities exist across many industry sectors; however, there are a number of areas where strong potential exists for Victoria to take up new opportunities and become a national, regional and global leader.
A Climate change priority for action
Drive innovation to position Victoria to capitalise on new jobs and skills, new technologies and new markets and accelerate the transition to a low carbon economy.
Our Focus
The sectors discussed in detail in Part 3 highlight the compelling case for State action to capitalise on new job and investment opportunities that the CPRS will create. The range of potential areas of opportunity for Victoria is wide, and will be limited only by preparedness and capacity of the Victorian Government, economy and community to take action.
Below is a snap shot of just some of the new Green Economy opportunities potentially available to Victoria. More information about the prospective opportunities for Victoria can be found in the report Victoria’s Greenhouse Opportunity Set: new growth prospects in a carbon constrained world, prepared by the Allen Consulting Group and available at www.business.vic.gov.au
Four key opportunities
While there are diverse opportunities emerging from climate change in Victoria, four particular areas where Victoria is well placed to succeed are described below.
Sustainable food and farming systems
Significant opportunities exist for Victoria to become a global leader in sustainable food systems. More than 10 per cent of Victorian jobs are related to food and the Victorian food system makes a significant contribution to local and global food supplies - providing around one quarter of Australia’s total food and fibre exports.
Victoria’s expertise and knowledge in areas such agricultural production and processing, biotechnology, water management and waste processing could be used to lead the development of innovative, sustainable food and farming systems that contribute to reducing emissions and that are more resilient to the impacts of climate change.
Advanced water management
Victoria has developed significant capabilities in water resource management and ‘smart’ water technologies, including innovations for some of the State’s largest agricultural, energy and manufacturing users. As the impacts of climate change become more evident, water management products and technologies will become increasingly sought after throughout Australia and overseas. There is also likely to be an increasing interest in and demand for technologies to support urban water management and alternative water sources, including stormwater, recycled water, grey water and drainage water to complement ‘traditional’ conventional water supplies.
Victoria can capitalise on our existing research, manufacturing and practical expertise in these areas to become a leader in advanced water technologies, exporting products and technologies for ‘smart’ water management to the rest of the world.
Carbon markets
Expertise that supports the CPRS and related carbon market activity offers significant opportunities for Victorian business within global markets. This expertise includes carbon trading, brokerage, asset management and training, verification and audit services. Melbourne is already developing its credentials as a domestic carbon market services hub and new carbon trading services in Victoria will build on well-established energy and water trading markets. This cluster of industrial, energy and financial firms provides a sound foundation for expanding into the Asia Pacific region. The Government has established a Melbourne Carbon Market Taskforce to advance this agenda and is undertaking a feasibility study into a Cooperative Carbon Market Institute.
Cleantech
‘Cleantech’ covers firms operating across the spectrum of renewable energy, energy efficiency, advanced water technologies, waste management and environmental services. The world market for environmental technologies and services is predicted to grow to $688 billion by 2010 and almost $800 billion by 2015.
The Victorian Environment / Cleantech sector has globally recognised expertise that can be converted into significant economic and environmental outcomes. A recent survey of Victorian providers of environmental products and services suggests that the industry already directly employs over 17,000 people and earns revenue of over $3 billion per annum. The response to climate change presents an unprecedented opportunity for this sector to make its mark in what is - relatively speaking - a highly contestable, immature global market. The challenge will be to use the current window of opportunity to best position the Victorian cleantech sector to meet the massive growth in domestic and international demand for environmental goods and services.
Victoria's climate change opportunities - Adjusting to a carbon price
| Renewable energy | Creating leading-edge large and small-scale renewable energy projects and driving the further development of our cleantech capabilities. |
| Clean coal technology | Developing the Latrobe Valley as a hub for clean coal research and development and exploring technologies and building expertise in carbon capture and storage methods, such as geo-sequestration. |
| Advanced manufacturing | Using our strong manufacturing base to shift into new areas of clean technology, and materials such as advanced materials technology and nanotechnology. |
| Design | Building on the Design Victoria Strategy to develop Melbourne and Victoria as a hub for innovative planning, architectural and industrial design that supports more sustainable industrial processes, buildings, transport, goods and services. |
| Information and Communications Technology | Using the strengths of our ICT industry to transform other sectors. |
| Financial, legal and risk management services | Providing financial and legal advice and services to governments and businesses to support new enterprises and initiatives related to climate change. This includes the development of carbon markets to support the CPRS and related carbon market activity. |
| Carbon markets | Enabling Victorian businesses to successfully participate in carbon markets and positioning Victoria to be the home for key CPRS functions and regulatory and market services. |
| Energy efficiency | Developing new products and services to assist people to identify and implement low cost energy efficiency changes made more attractive by the CPRS. |
| Ecomarkets / ecosystem services | Building on Victoria’s world-first ecoMarkets scheme to give farmers further incentives to protect the health of our soil, land, waterways and biodiversity. Opportunities also exist to further commercialise our significant capabilities in water resource management and develop innovative and sustainable food and farming systems. |
A question to consider
- What new sectors offer the greatest opportunities for Victoria’s green economy under the CPRS?
4.2 Driving innovation
The imperative to respond to climate change over the next decade and beyond means that this is not a time for simply hoping that existing practices will continue to serve us well: this is a time for innovation - a time when new ideas will be needed to solve new problems.
What we need to do
Successfully adjusting to climate change means that we will need to find new ways to do things: from simple everyday household tasks to complex industrial processes. Through innovation, we will create new products and services for use in Victoria and for export to the world; we will develop and adapt new technologies to help us to respond to climate change in our homes and businesses; and we will generate high quality jobs in emerging industries.
Innovation for climate change is not only about particular niches where new products and services can make improvements; it is also about becoming more innovative in our systems of transportation, buildings, energy and water, and the ways in which we produce and consume goods and services. Businesses will also need to become more innovative in their operations and processes.
The step-up in innovation required to respond to climate change in Victoria will require a culture of support for creativity, ideas and experimentation across government, businesses and communities. A key challenge for Victoria is to find ways to encourage and equip people from all walks of life to come up with new ideas, experiment with new approaches and solutions, and convey their knowledge and experience to others.
The CPRS will drive innovation by giving companies buying permits under the scheme a strong incentive to find new ways to reduce their emissions. The Commonwealth Government is also supporting climate change innovation through major initiatives such as the $240 million Clean Business Australia Initiative, the $150 million Energy Innovation Fund, the $500 million National Clean Coal Fund and the $500 million Renewable Energy Fund.
While it is difficult to predict where these changes will lead, Victoria will need to ensure that our infrastructure and systems support as wide a range of innovative actions as possible - keeping our options open in the face of uncertainty about the future extent and consequences of climate change.
A climate change priority for action
Drive innovation to position Victoria to capitalise on new jobs and skills, new technologies and new markets and accelerate the transition to a low carbon economy.
What we’re already doing
Victoria’s leadership in innovation is widely acknowledged and the Government is supporting innovation initiatives that will advance Victoria’s climate change response. These include:
- The 2008 innovation statement - Innovation: Victoria’s Future - which lists sustainability and climate change as one of three priorities
- Demonstrating sustainable energy technologies and carbon capture and storage through the Energy Technology Innovation Strategy (ETIS)
- Supporting new technology and innovative farming practices through the Future Farming statement
- Using high-resolution images and digital models to track the impact of climate change on coastal communities and assets as part of the Future Coasts project
- Supporting businesses, communities and individuals to develop innovations in response through the Sustainability Fund, the Smart Water Fund and Community Action Grants.
- Creating the Victorian Advanced Resource Recovery Initiative (VARRI), which is exploring new waste recovery technologies for Melbourne
- Incorporating climate change within broad innovation and research policies and programs, such as Victoria’s Science Agenda.
The Victorian Government has an important role in facilitating innovation alongside the CPRS. In particular, the Government’s main role is to foster innovation in areas that are of national or state interest or in which Victoria has a clear comparative advantage.
Potential areas for further action in the Climate Change White Paper include:
- Creating a culture of innovation
Worldwide, there is increasing recognition of the value of innovations that are generated by individuals and small groups coming up with good ideas as they apply existing technologies to meet their own needs or to fit new market niches. A successful response to climate change will involve encouraging individuals, businesses and communities across Victoria to develop knowledge, test solutions and demonstrate new ways of living and working that will make it easier for the rest of the community to adjust.
- Driving new technologies and markets
Victoria is a leader in scientific research and many of the State’s capabilities (such as energy, biotechnology, advanced materials and ICT) have the potential to contribute to Victoria's response to climate change. As the home of some of the premier universities in the nation and leading scientific infrastructure - such as the Australian Synchrotron - there are opportunities to direct more of Victoria’s scientific research effort towards climate change. Significant opportunities also exist to capitalise on Victoria’s excellent capabilities in climate science; for example, building upon current support for cleantech ventures and programs such as ETIS and the Sustainability Fund could further drive the development of innovative technologies.
The Government can also support Victorian businesses to overcome barriers to innovation by sharing the risk of being ‘first movers’ in taking up new technologies, products and services. As a major purchaser of goods and services, the Government can also use its procurement practices to drive innovation in ‘everyday’ products and services, and to assist innovative climate change-related products and services to find a stable niche in the Victorian market.
- Smarter regulation
The Victorian Government has been a national leader on new, innovative forms of regulation that prepare business for the CPRS, increase efficiency and reduce their costs, such as the EREPs program. This type of smart regulation can play a role in further positioning Victoria as a leading green economy. With innovative solutions to climate change likely to play a critical part in our response, the Victorian Government has an important role to play in working with the Commonwealth to make sure that the ‘rules of the game’ at the national level encourage and enable innovative new products, services and processes.
What is the right mix of tools available to Government to foster innovation and maximise the benefits to Victoria under the CPRS?
4.3 Developing skills
The shape and nature of Victoria’s future workforce will be different to the one we have today. To secure opportunities and move smoothly to a low carbon economy, we will need to develop an appropriately skilled workforce. Developing these skills is not only essential to our ability to respond to climate change, it is also vitally important to making sure that young Victorians can participate and succeed in the new industries and careers that will emerge over the coming decades.
It is possible that well over 200,000 new jobs could be created nationally in sectors with high potential environmental impacts. There are also likely to be a number of ‘green skills’ areas where the demand for jobs will increase, including:
- Design and construction (in relation to energy and water efficient buildings and infrastructure, renovations and retrofits, and the installation and maintenance of efficient appliances and machinery)
- Restructuring of the energy system and the introduction of renewable energy
- Developing alternative transport systems
- Changing the ways in which food is produced and provided.
Victoria has introduced reforms for a demand-driven Vocational Education and Training system that is responsive to the changing needs of the State’s industries and workforce. However, a lack of awareness of skill needs from industry and students could delay and increase the cost of transition to a low carbon economy and exacerbate the challenge of responding to climate change. Overcoming these skills gaps and building Victoria’s workforce for a low carbon future will require a focus on:
- Training individuals (including disadvantaged workers and those who may already have experienced long-term unemployment) in occupations that will be critical in responding to climate change, such as engineering, science and the trades.
- Training individuals in ‘green collar’ jobs - jobs in all sectors of the economy that will contribute significantly to preserving or restoring environmental quality.
- Re-skilling workers who will be displaced as Victorian industry and the economy adjust to a carbon price.
What we’ve already done
The Government is already making the changes needed to respond to the climate change skills challenge, including:
- Releasing Securing Jobs for Your Future: Skills for Victoria, a groundbreaking package of reforms to the Vocational Education and Training system that aim to build a training system that is responsive to the changing needs of Victoria’s industries and workforce
- Supporting skills programs through Sustainability Victoria, such as a course in energy efficiency for electricians and a course in Home Sustainability Assessment
- Supporting initiatives through Skills Victoria, including the National Centre for Sustainability based at Swinburne University, the Centre for Sustainable Construction in Ballarat and the Centre for Environmental Technology at the Gordon Institute of TAFE
- Introducing the Skills for Growth - Workforce Development Program, which supports small and medium sized enterprises to identify and meet their skills development needs
While already taking action to improve skills development in areas relevant to climate change, the Government has identified three key areas where it can take further measures through the Climate Change White Paper:
- Identifying the skills required in a strong and successful low carbon economy
We need to know the types of skills that will be required in the future and the level of demand for these skills. Research is also needed to help industry, training providers, government and others to understand and respond to emerging trends.
- Supporting our VET and higher education sectors to provide the required skills
Having people available and willing to undertake training is only part of the solution; the qualifications being delivered must be suited to the changing needs of the Victorian economy. We will need to revise existing qualifications to incorporate green and climate change components, introduce new qualifications to respond to emerging technologies and new occupations, and make sure that we have qualified teachers in the relevant areas.
- Attracting and training new entrants and existing workers
Climate change will add to the demand for higher level skills and qualifications. To meet this demand, we will need to encourage young Victorians to consider careers in areas of skills shortage and climate change-related professions. As the transition to a low carbon economy will reduce employment in some industries and occupations, we will need to re-train workers in these areas.
- How can we ensure Victoria has the skilled workforce needed for the transition to a low carbon economy?
In the Statement of Government Intentions on 3 February 2009, the Premier announced the Victorian Government would develop a Green Jobs Action Plan.
The opportunity for Victoria to consider the challenge of climate change and the global economic crisis together could generate a “double dividend” where mutually reinforcing actions are put in place to aid Victoria’s recovery from the global economic downturn, and position Victorian industry on a pathway towards a low carbon and more sustainable future.
The Action Plan will build upon recent policy initiatives that are already creating significant job opportunities in the environment sector, for example: the Victorian Renewable Energy Target (VRET) which will create 2000 jobs, mostly in rural and regional Victoria; and the Rebates for Being Green scheme which will upskill hundreds of ‘green plumbers’ and other tradespeople. The plan will identify how new green skills will be delivered through the training system as well as how Victorians will be encouraged to take advantage of new future green job opportunities. A preliminary assessment suggests that these opportunities fall into a number of categories including:
- Green buildings and urban design
- Water efficiency and water markets
- Lower emissions technology and renewable energy
- Development of the Australian carbon market
4.4 Supporting adjustment to change
Smooth adjustment to a carbon price will require new ways for governments, communities, businesses, households and important sectors such as NGOs and universities to work together.
Introducing a price on carbon is a major economic reform that will lead to lasting changes in the way businesses, governments and individuals act. It will also lead to a restructuring of many industries and the Victorian economy as a whole. The Victorian Government will establish new partnerships or accords to bring together the right mix of skills and perspectives to plan for and achieve a smooth transition to a carbon price for key regions, communities and industries.
The Victorian economy has evolved through many significant economic reforms in recent decades, including the lowering of tariff barriers, the deregulation of labour markets, the introduction of the GST and the floating of the Australian dollar. Our economy is also affected by many external forces, including the rise of manufacturing sectors in countries such as China, volatility in the value of the Australian dollar and the global economic downturn.
In meeting these challenges, the Victorian Government has sought to facilitate the economy’s transition in a way that ensures that regions and communities maintain their prosperity, diversity and vibrancy during times of change.
What we need to do
The Government will continue to adopt this approach as the introduction of a carbon price leads to major changes for many businesses, regions and communities. The Government will seek to facilitate a smooth adjustment to a carbon price, while securing the prosperity and vitality of the State as we make the transition to a low carbon economy.
However, it is clear that some workers, regions and industries will experience particular difficulties in adjusting to climate change. In Victoria, the industry sectors that are most likely to be affected by future carbon constraints are carbon-intensive activities, such as coal-fired electricity generation and firms that rely on large amounts of electricity to produce goods, such as the manufacturing sector and aluminium industry.
The Commonwealth Government has made a commitment to support a large number of these firms and provide one-off assistance to the most emissions intensive electricity generators. While this assistance will help these industries to make the transition to a low carbon future, the extent and speed with which industries can respond to climate change is also heavily dependent upon their access to the skills, knowledge and capital needed to adjust.
A climate change priority for action
Help vulnerable regions, businesses and communities adjust to a carbon price, particularly the Latrobe Valley.
What we’ve already done
The Government has already introduced a number of initiatives that support adjustment to changing economic conditions. These include:
- Community Regional Industry Skills Program (CRISP), which contributes to industry development, new jobs and increased skills in rural and regional communities
- Regional Industry Investment Program (RIIP), which aims to strengthen the diversification of Victoria’s regional industry base
- Skill to Transition, a new program to support the securing of training places for up to 6,400 Victorian workers who want to retrain or who are in industry transition
- Experience Counts, which delivers strategies to re-engage mature age workers in the workforce
- Planning for Change, which assists local councils to improve community adaptation to economic and social change
- Major investment in the Latrobe Valley to secure the region’s future.
The Victorian Government recognises that it may need to act to address any uneven distribution in the impacts of the CPRS. The Government will establish new partnerships or accords to bring together the right mix of skills and perspectives to plan for and achieve a smooth transition to a carbon price for key regions, communities and industries.
Key groups that may need additional measures include:
- Workers
While the introduction of a carbon price will have a positive effect on workers with skills demanded by industries that will expand under the CPRS, it will have a negative effect on workers in industries that will decline. Extra support will be needed to assist affected workers to transfer their skills to new areas.
- Businesses
Generally, businesses must manage their own risks in adjusting to the CPRS. However, in some areas, businesses may need additional support to assist them to become more energy and resource efficient, exploit new opportunities and source new skills and expertise.
For example, the tourism sector will face: higher operating costs from fuel and electricity and flow-on price impacts to other items such as food; potential changes in demand due to higher transport fuel costs (this may be offset by local consumers choosing to spend holidays locally); and changes in demand patterns driven by changing consumer sentiment about the carbon footprint of different travel choices. The adjustment risks to this sector will be compounded as consumer preferences for tourist destinations are affected by climate change (such as the extent and duration of snow cover). Businesses in this sector will need the right advice and tools to help them adjust and adapt to climate change.
- Regions
Regions with less economic diversity are likely to experience larger effects - positive and negative from the CPRS. Regions that experience climate extremes (for example, those that have significant requirements for winter heating but will also face increasing demand for cooling in summer) and that are dependent upon more greenhouse-intensive fuels (such as those areas that are not part of the gas reticulation network and are reliant upon electricity) will be particularly affected. These regions may need additional assistance to adjust.
Gippsland is likely to experience the largest adjustment pressures under the CPRS. This region may require the most transitional support, principally because it is home to the brown coal-fired electricity generators in the Latrobe Valley. However, the Gippsland region could also benefit as its forestry sector expands in response to the extra incentives for forestry activities provided by the CPRS.
- Communities
Across Victoria, some communities will be particularly affected by regional adjustment challenges. While many of the issues faced by these communities could be addressed through generic policy options (such as measures to build community resilience, assistance to low income households and support for skills development), there may be some instances where the Government will need to consider specific additional adjustment assistance.
- Low income households
The effects of climate change, including rising temperatures and reduced water availability, are likely to contribute to higher water and energy costs. Carbon pricing will further affect the price of goods and services, with businesses passing on the increased cost of carbon to consumers. Electricity and gas prices will rise in the early stages of the CPRS and these costs will quickly flow through into other areas of household spending, such as food and transport.
There is a clear role for the Victorian Government to work with the Commonwealth Government in assisting low income households to make the transition to a low carbon economy and ensuring that the impacts of the CPRS are distributed equitably across the community. The Commonwealth Government has committed to fully compensate low income households for the impacts of these costs, however, potential areas for action where the Victorian Government could work with the Commonwealth include:- Seeking to make sure that low income households are not left worse-off when compared to the broader population as a result of the CPRS
- Seeking to ensure the continued affordability and provision of essential services to low income households
- Developing the capacity of households and communities to deal with the impact of the CPRS, recognising that an effective way to minimise costs for low income households is to help them to improve their energy efficiency
- Improving community knowledge about the impacts of the CPRS and climate change to enable communities to develop local responses.
Coordination between the Victorian and Commonwealth Governments will be needed to ensure that support for low income households is delivered efficiently and without duplication. The Victorian Government recognises that assistance provided to low income households should strike a balance between ensuring that these households are not disproportionately affected by rising costs under the CPRS and maintaining incentives for them to reduce their overall emissions.
The Government also recognises that further support may be warranted for people who are likely to be disadvantaged by rising transport costs, such as incentives to improve the energy efficiency of vehicles for those most at risk, assistance to Local Government to develop car pooling systems in their communities, support for community transport and an extension of the Transport Connections Program.
The Latrobe Valley is one of Victoria’s key economic regions: home to over 73,000 people. It is the centre of Victoria’s electricity generation sector, which is based primarily on brown coal. The region’s recent history has seen its economy evolve following significant structural change over a decade ago to today boast a diversified economic base, with activities in the services, retail and manufacturing sectors.
However, power generation still dominates the Valley’s economy. Over 3,000 jobs, or about 10 per cent of all employment in the Latrobe Valley, rely directly on the power industry. Importantly, one in three of the Valley’s higher paid jobs are held by workers in the electricity and associated industries. Likely impacts of putting a price on carbon include long-term structural transitions to the region’s economic base and initial short-to-medium run employment changes and associated adjustment impacts for the region’s coal generation and mining industry.
This suggests that any employment impacts resulting from the CPRS in the electricity sector are likely to have a significant flow-on impact on spending in other areas of the region’s economy. The longer term outcomes for the electricity sector in the Latrobe Valley will depend on many unknowns - whether and when technologies to reduce emissions from brown coal are perfected, which renewable technologies will emerge as commercially viable and whether these can be located in the Valley. The region’s broader outcomes relate to continuing the economic diversification of the Valley and whether industrial uses for brown coal can be identified and emerge as commercially viable.
The Victorian Government is committed to maintaining the Latrobe Valley as a centre of energy production and expertise, while also creating new opportunities to diversify the regional economy. To achieve these outcomes, the Government is considering a suite of policy options to be negotiated and delivered in partnership with the Commonwealth and local government. These options will cover the following areas:
- Ensuring that the transition in the coal-based energy sector is gradual and orderly
- Maintaining the Valley’s high skills base while driving new research and development opportunities
- Maximising business opportunities in the region
- Providing support through transitional adjustment strategies
- Creating opportunities for new types of investment in the region
The Government already has a number of programs in place to facilitate energy efficiency and support low income households with the cost of utilities, including:
- Energy and Water Task Force, which provides energy efficiency and water audits and modifications to low income households
- Rebates for household energy efficiency improvements, including higher rebates for insulation and gas hot water systems for concession card holders and their landlords
- Climate Change Proofing Low Income Households program, which provides funding for retrofits and energy improvements in social housing
- Concessions on essential utilities such as electricity, water and gas to low income households
- The Transport Connections Program, which delivers innovative transport solutions for people in regional, rural and outer suburban areas who are experiencing transport disadvantage
- Upgrades to public housing across the State
- Hardship policies, which are implemented by energy retailers to assist consumers experiencing financial difficulties
- What types of new partnerships and shared actions between Government, communities, businesses, households and other important sectors are needed to achieve a smooth adjustment to a carbon price?
- Which communities, regions and sectors would most benefit from a targeted adjustment partnership or accord?
- What opportunities are there to provide a coordinated approach between the State, Commonwealth and Local Government, NGOs, industry and the community to ensure that low income and vulnerable households are assisted to make the transition to a low carbon economy?
Climate change itself and climate change mitigation measures, such as the CPRS, have the potential to have significant impacts on disadvantaged members of the community.
Energy prices are already on the rise and the costs of goods and services will increase further as a result of the CPRS. Low income households will face proportionally higher price rises because they spend a higher proportion of their weekly expenditure on carbon intensive goods and services, even though they use less carbon overall. They are also less able to adapt their spending patterns in response to price increases - for example, they cannot re. t their homes or buy a more fuel efficient car.
Alongside the impacts of the CPRS, unchecked climate change will have a direct and negative impact on the wellbeing of low income and disadvantaged Victorians. The most up to date science tells us we will face more extreme weather events, reduced rainfall, increased evaporation, higher temperatures and sea level rises. Low income and disadvantaged Victorians will be extremely vulnerable to the rising energy, food and water prices which follow from these climatic changes. At the same time, the changing climate is likely to put pressure on particular regions and industries with resulting job losses - just as the drought is doing now.
Considered policy interventions can reduce the vulnerability disadvantaged households face and increase their capacity to adapt to changing circumstances. The Federal Government’s household compensation package in response to the CPRS combined with the insulation program announced in the economic stimulus program will provide an essential buffer for low income households. There is however more that needs to be done. The Victorian Government has a key role to play in leveraging its energy efficiency program experience to develop new initiatives (or expand existing ones) specifically targeting low income households. Victoria can also play a key role in ensuring coherency occurs between State and Federal programs to ensure comprehensive energy efficiency assistance for disadvantaged Victorians. Comprehensive household retrofits have the potential to save each Victorian household between $390 and $500 per year and also reduce vulnerability to extreme weather events, such as heatwaves, which are expected to increase as a result of climate change.
Increasing the adaptive capacity of disadvantaged households and communities will need to be at the core of our response to climate change - because without assistance these already stressed households will be more vulnerable. One important step will be to ensure low income households are part of the solution to climate change. In order to achieve this, new green job schemes should prioritise disadvantaged and unemployed job seekers.
Tony Nicholson
Executive Director - The Brotherhood of St Laurence and member of the Premier’s Climate Change Reference Group
A sectoral case study: adapting and adjusting to change in agriculture, forestry and fisheries
Victoria’s agriculture, fisheries and forestry sectors provide an excellent case study of the need to meet the challenge of adjustment to a carbon price and adaptation to climate impacts simultaneously.
These sectors contribute significantly to the State’s wealth and wellbeing and are especially critical to the ongoing vitality of Victoria’s rural and regional economies. They also rely directly on natural systems - water, land and biodiversity - that will be fundamentally altered by climate change. Impacts such as reduced water availability, higher temperatures, damage from extreme events (such as floods, bushfires, droughts and storms) and more or different kinds of pests and parasites will have significant consequences for agriculture in Victoria. Reduced freshwater flows and changes in oceanic current dynamics and water temperatures will in. uence Victoria’s aquatic environments, with consequences for the productivity of wild harvest fisheries and aquaculture.
These sectors will also be affected by changing global trading markets and shifts in consumer preferences towards products with lower carbon footprints and - while agriculture is not expected to be included in the CPRS until at least 2015 - as a carbon price flows through the economy businesses in this sector will need to adjust to meet the cost increases for energy, fuel and other commodities, that the CPRS will cause.
An example of the exposure of the agriculture sector to the adaptation and adjustment challenge is Victoria’s dairy industry.
As well as adapting to drought, heat stress and possible increasing susceptibility to pests and diseases caused by climate change, the dairy industry will also need to adjust to the imposition of a carbon price, both on production and supply chains and in preparation for agriculture’s prospective inclusion in the CPRS in 2015.
Early estimates suggest the dairy farm sector could reduce its emissions intensity by up to 20 per cent by 2020, if all of the available mitigation technologies were adopted by 100 per cent of Victoria’s farm businesses. However, the costs of these technologies need to be considered along with their benefits and the industry will need advice and support as it transitions to a low emissions footing.
What we need to do
These impacts mean that - right across the State - our agriculture, fisheries and forestry sectors are likely to be transformed in many ways as a result of climate change. However, while climate change brings new risks and pressures to these sectors, it will also create new opportunities - including shifting distributions of fish species, crop varieties that are currently unsuitable for Victoria becoming profitable, improved crop yields and the production of carbon neutral products to supply to new markets.
