Is this government's commitment to oil a bit like investing big in New Zealand Post? And what will our children make of the choices we're making now?
As deepsea drilling started off the Raglan coast this week, it's a good moment (finally) to look at the other side of the debate, as promised in my previous post.
Much of the protest is around the risk of drilling at such depths, and the evidence suggests that increased depth means increased risk. Yes, this is the deepest well drilled in New Zealand and the exploratory phase is the riskiest part of the process. And yes, as I wrote in the previous post, the risk of drilling for oil is that one single accident could cause immense damage across large chunks of our economy.
But the fact remains that the risk of a spill is tiny. And in truth, it's not the best argument against an expansion of our extraction industry. For me there are several stroger cases to be made than a less than one in a hundred chance of disaster.
First, there are the taxes and royalties generated from mining. Or the lack thereof. Combined they amount to 43 cents in the dollar. On one hand that's a large amount of money and more tax than we get from many industries. But by international standards it's woeful. Norway, which has done so well from oil, keeps around 75 cents in the dollar. In Alaska it's over 60 cents.
The government says the royalty and tax take is low by international standards because our basins are pioneer territory; find oil, prove there's more around and the take can be increased. But for now you've got to say it's a rubbish deal.
The assumption is that with billions of dollars to be gained, the economic arguments are all with the pro-drilling side. Not so. Cleantech is a huge global industry in its own right, already worth $4-6 trillion, depending on whose figures you believe.
Consider these nuggets. The Brookings Institution has found that the clean economy employs more people worldwide than the fossil fuel industry ... and growing. On a per job basis, businesses in the clean economy generate twice the export value of a typical job and that clean economy wages are 13% higher than the regular economy.
Pure Advantage here in New Zealand has found cleantech is the fastest growing venture capital investment sector in the US. It also talks about the potential for 30,000 jobs in geothermal and bio-energy sectors, which leaves the minerals sector, well, in a hole. Many in that industry happily conceed its days are numbered, but argue that for now we're so depdendent on oil and minerals that to stop now – or slow too rapidly – would cause immense economic and social harm.
So the obvious question: Why not do both? Drill and prepare for the post-fossil world. I'm yet to be convinced that we can't, but here are a couple of good arguments often made. First, in a country where we're so starved of capital we're selling shares in well-performing state assets in order to, amongst other things, stimulate our capital markets, it's pretty clear our economic resources are finite. Perhaps we can't walk and chew gum at the same time; at least by National's own assets sales argument it's a choice. So wouldn't you rather invest in the coming technology than the fading one? In a world where countries – rich and poor – are desperate for green technologies to cut greenhouse gas emissions, isn't that where NZ Inc should invest?
Because here's the second point: investing big in mining and drilling as we are now feels a little like putting your money into New Zealand Post and its mail service rather than Xero. Fossil fuels, while vital today, are increasingly acknowledged as a necessary evil; everyone's trying to move away from them, certainly in Europe and the US, even in China. Russel Norman likes to talk about the risk of New Zealand being left with "stranded assets", with big investment in coal and oil just as the world is turning away from those 20th century technologies.
And he's right, up to a point. Exactly how you react to that argument in part will be determined by how fast you think the transition from fossil fuels will be. If it's 10 years he has a case; if it's closer to 50, well, there's time to profit now and still adapt in decades to come.
However that leads us to two other final points. First, the pressure to transition faster is ramping up. Consider this speech by OECD Secretary-General Angel Gurría just last month in London. This isn't the head of Greenpeace talking, it's the head of the organisation representing economic cooperation between the world's richest countries. It's a speech about how "governments need to start taking action now to put us on a pathway to achieve zero net greenhouse emissions globally in the second half of this century". That's right, eliminate emissions.
Here are some extracts:
"... if we’re going to feed a further 2-3 billion people and limit temperature increases we cannot gobble up all the atmospheric space with fossil carbon. But that is what we are doing...
I want to be very clear that I haven’t come here to vilify fossil fuels. Much of what we regard as material and social progress has been built on the back of them. They are incredibly convenient. We’ve physically constructed our world around them, and to wean ourselves away from them will mean swimming against very strong tides...
Listed companies alone spent USD674 billion in 2012 on finding and developing new sources of oil and gas. The fact is that there are more than enough reserves to raise temperatures way above levels that even the most reluctant climate regulator would feel comfortable about...
The fact is that any new fossil resources brought to market – conventional or unconventional – risk taking us further away from the trajectory we need to be on, unless there is a firm CCS requirement in place or governments are prepared to risk writing off large amounts of invested capital...
The fact is that any new fossil resources brought to market – conventional or unconventional – risk taking us further away from the trajectory we need to be on, unless there is a firm CCS requirement in place or governments are prepared to risk writing off large amounts of invested capital...."
The language is ecnomic (can we afford to carry on as we are?), but the plea is also moral. And that's my last point, although it's as much a question.
If we know the trajectory we're on in our use of fossil fuels will raise the temperature of the planet – raising sea levels, forcing migration, diminishing resources, starting conflicts and imperilling our children and grand-children – what should our moral response be? Should we take the profits and jobs now? Do we, as with superannuation, housing, education and so many other problems just pass the cost onto another generation? Can we take what we need now and have confidence the inheritance we leave our descendants will not be tarnished?
Or do we, as people as diverse as Angel Gurría and Yeb Sano have said in recent weeks, have to leave fossil fuels in the ground and move faster in our quest to find other ways to power our industry and grow our economy?
I can see virtue in both sides of the argument but wonder if our children might curse us for our selfishness if we get this wrong.