Anvil Hill Decision: Impractical and Uncompetitive

Last week the NSW Land and Environment Court found that a proposed coal mine at Anvil Hill in the Hunter Valley was being approved without adequate consideration of the likely impacts of greenhouse gas emissions.  While many consider the judgment a big win for the environment, with national implication, on careful analysis it's perhaps just an example of the pointlessness of trying to deal with global warming through regulation and legislation.

A young environmental activist, Peter Gray, brought the action.  The Minister for Planning is now obliged to consider ecologically sustainable development principles including the precautionary principle in relation to the Anvil Hill Project.  The Minister has to balance environmental against economic considerations.

Mark O'Neill from the Australian Coal Association has said that if Anvil Hill does not go ahead, not one molecule less carbon dioxide will be emitted because customers will simply buy their coal from elsewhere.

But the Coal Association is overreacting because the mine is still expected to go ahead.  Indeed the affected coal company, Centennial Coal, has stated that the current approval process for the Anvil Hill mine remains on track and that they have already prepared a document that comprehensively deals with the downstream greenhouse gas impacts.

Indeed even Mr Gray has said:  "The thrust of the case was not that you should not approve Anvil Hill but that it should be assessed [for climate change] before it goes ahead".

But this is absurd.  It is possible to determine the likely amount of carbon dioxide generated by the mine and emitted by the burning of the coal from the mine, however, it is not possible to determine the impact of this carbon dioxide on global climate.

Think for a minute what fraction of a per cent coal from that mine would constitute relative to all the coal mined and burned in all the world not forgetting industry growth.  For example, every 10 days a new coal-fired power station opens somewhere in China.

It is also interesting to ponder all the potential non-carbon sources of global warming including methane and nitrous oxide emissions and that a recent published study indicates the United Kingdom may be emitting 92 per cent more methane than it declares and France 47 per cent more.

Then there are also significant uncertainties associated with the models used by the Intergovernmental Panel on Climate Change (IPCC) with latest official projections suggesting anything from a 1.4 to a 5.8 degree Celcius increase in average surface temperatures over the period 1990 to 2100.  Furthermore, the IPCC does not assign any probability to these projections and acknowledges that there is a need for better models and better scientific understanding.

In short, given the many and growing sources of greenhouse gas emissions, the uncertainties in carbon accounting and the models, it is simply not possible to calculate the likely environmental impact of the Anvil Hill mine on climate yet this is what the law, at least in NSW, now seems to expect.

Climate change is emerging as the environmental issue of this century, but the Anvil Hill decision illustrates the extent to which all the campaigning, good intentions and regulation are unlikely to achieve anything except a further increase in the regulatory burden on industry.

The NSW Labor government says it intends to make climate change a campaign issue at the next state election, but at the same time wants the Anvil Hill coal mine to go ahead.  So it's nothing more than lip service to greenhouse?

Most of the coal from Anvil Hill is to go to Japan.  But Japan is not dependent on Australia for its energy needs.  Indeed Japan recently reached an in principle agreement with Indonesia -- already the third largest exporter of coal to Japan -- for a bilateral free trade agreement including an energy security partnership.  So Mark O'Neill is correct, if it's not mined here it will be mined somewhere else.

Interestingly even Germany, a country bound by the Kyoto Protocol, is building new coal-fired power stations and at the same time allowing them to opt out of the European Union carbon trading scheme until 2022.

In other words, global consumption of coal is not going to be limited by supply from Anvil Hill or the Kyoto Protocol.

Peter Gray, once a university student studying Ancient History, has been hailed the winner in a David versus Goliath battle.

But in the end, the original action and the ruling are all about process and amount to no more than a requirement that the parties acknowledge greenhouse, not that they change their ways.  What is the net result -- apart from an increase in the regulatory burden on Australian industry?  It's business as usual as long as everyone pays lip service to global warming in an increasingly energy-hungry world.

On Robert Malthus and Banning New Foods

Many people harbour a deep-seated fear of new technology particularly when it involves our food.  The current ban on all new genetically modified (GM) food crops represents the worst manifestation of this fear.  If Australian farmers are to adapt to climate variability including drought, reduce their ecological footprint, and play their part in feeding and clothing an increasing world population, they need access to this new technology.

Two hundred years ago Robert Malthus predicted that the world's population would overshoot its food supply by the middle of the 19th century.  It didn't happen.  Then Stanford University professor Paul Ehrlich predicted that by 1980 the world would have experienced terrible famine and life expectancy in the US would be just 42 years.  It didn't happen.

Since Robert Malthus, food production has more than kept pace with population increase because of technological development.

Australian scientists and farmers have been trail blazers.  They invented the first harvester and released the first genetically modified (GM) biological control, the crown gall bacterium back in 1988.

But over the last 10 years things have stalled and now, this winter, the wheat and canola crops failed across southern Australia because of drought.  All this at a time when the world's food stockpile is low, and the world's population set to increase by another 2.5 billion.

Will Robert Malthus be just 100 years late in his prediction?

Perhaps it depends on the extent to which countries like Australia continue to embrace new technologies.

By the end of the last century farmers were growing double the amount of food from the same area of land because of new pesticides, fertilisers and crop varieties.  This century the big breakthroughs have been predicted in the area of biotechnology.

Cotton is the only crop that is exempt from the bans on new GM crops here in Australia.  The latest GM cotton varieties reduce pesticide use by 80 per cent and the latest CSIRO research suggests a 10 per cent improvement in water use efficiency.

About 30 per cent of the vegetable oil we consume in Australia is from cotton seed.  Most of the rest of our vegetable oil is from canola.  A Greenpeace anti-GM campaign, launched in 2001, targeted GM canola as the first GM food crop, conveniently ignoring cotton as an existing source of vegetable oil.

Now this year, with the failed canola crop, it is likely Australia will be importing canola from Canada to make vegetable oil.  If the canola imports go ahead, Australia will be importing a product that we have banned our farmers from growing.

Canadian farmers grow GM canola because it gives better weed control.

The anti-GM campaign claims that being GM free has given Australian farmers access to more markets, in particular Europe.  But Europe is likely to be importing Canadian canola from early next year for biodiesel.

Our cotton, and the Canadian canola, represent the first generation of GM crop varieties.

The next generation will combine superior yield and weed control with improved nutrition.  For example, DuPont has a new variety of soybean with a low linolenic acid profile, meaning reduced trans fat, and thus a reduced risk of heart disease.  Just last week Hamburger giant McDonalds said it will change the cooking oil used in its Australian outlet away from standard canola to healthier new oil blend with much less trans fat.

Then there are the climate change benefits of GM food crops.  A global study of the socio-economic and environmental benefits of GM identified a carbon saving equivalent to taking five million cars off the road through decreased fuel use, and increased soil carbon sequestration from conservation tillage associated with GM crops.

Recent research in Japan has shown that by inserting a gene from maize into rice, it is possible to increase rice yields by 35 per cent while sucking in 30 per cent more carbon dioxide from the atmosphere.  But Australian farmers haven't got past the basics.  They haven't yet opened the door to GM canola, a crop that has been grown by their competitors for over 10 years.

Bob Brown, leader of the Australian Greens, recently explained his opposition to GM food crops on the grounds that we know we'll survive if we keep things as they are, but we don't know if we'll survive roaring off into the future using these new technologies.  But the only constant in life is change and we need to embrace it.  It is only through the adoption of new technologies that we have managed to escape what Robert Malthus considered the inevitable human condition, one of misery, vice and poverty.

The Australian community needs to open its eyes to all the benefits of technology, including new GM food crops.

Loving the Corporation

When Peter Drucker died late last year, his reputation as the "father of the modern management" was secure.  Leading business figures such as Jack Welch -- the CEO who led a revolution at the massive GE Corporation -- credited Drucker for the insights behind some of their key business strategies.

In a similar vein, the Editor of Review once introduced an article of Drucker's by calling him "probably the best-known writer in the world on the philosophical and practical aspects of industrial management"

Nothing remarkable there perhaps, except that the year of publication was 1956, highlighting the remarkable productivity and longevity of Drucker's life as the original management guru.

Drucker's 1956 article was called "The Management Horizon", and it looked at the impacts of automation and the challenges this raised for management.

"The Management Horizon" pointed out that automation would not mean mass unemployment -- as many then feared -- but rather a shift in the type of work that people did.  There would be more technicians required to manage the new machines, and more managers to organise the work flow.  The workers in automated factories would need higher levels of education and training.  No longer unskilled factory fodder they would become a new type of knowledge worker, and must be free to do their jobs properly.  Innovation continues to drive wealth creation, but in a corporation it is created by systemic management processes.  Fundamentally, automation of production would drive the transition to a knowledge society.

Fifty years after publication of that article, it is perhaps time to resurrect our understanding of Drucker's philosophical stance and how it informed his practical advice.  This can tell us much about both the efficiency and the legitimacy of the free enterprise system.

Drucker was interested in the potential of the Corporation, because he shared the common belief that modernity had shattered the traditional social structures, but he resisted the so-called "progressive" assumption that the State must expand to fill the empty space.  This approach he maintained, was doomed to failure.

His first big idea was the "emergence of Big Business ... as a social reality".  He called this "the most important event in the recent social history of the Western World".  Corporations don't just manage economic transactions;  they have become the pre-eminent institution of society itself.  A corporation -- like any powerful institution -- should constantly renew its legitimacy by establishing and explaining its reason for being, one aligned with the objectives of the broader society.  The rise of the corporation also meant that the leading social type was now the professional manager, who had to take a leading role.

This was a social and political view of modern free enterprise and its purpose, and Drucker saw no need to evoke the so-called "profit motive" as taught in schools of economics.  Unlike the left, he had no issue with profit per se.  "Even if corporations were run by angels", he said "they would still need to make a profit to survive and prosper".  But profit was the outcome rather than the objective of rational, purposeful activity.

Drucker wasn't much interested in debates about what Government should do to manage the economy and deliver services, because they missed the point that there was little that Government could do without stuffing it up.  He was also beginning to see the potential of the third or voluntary sector to make a comeback, if only the State would get out of the road.  "Most post World War II social government programs," he said, "have been disasters".  Governments rarely abandon any activity no matter how bad the failure, as something like -- say -- the provision of electricity assumes a "moral" rather than an economic dimension, and rational resource allocation goes out the window.

Perhaps in our post-Thatcher world complete with the Third Way, we might see Drucker's critique of State activity as an unremarkable sentiment, but in 1956 it took a certain intellectual fortitude to maintain that position.  The Cold War was in full swing and even many defenders of freedom believed deep down that a centrally planned economy was the superior model in strictly economic terms.  Ever since Lincoln Steffens returned from the Soviet Union in 1921 and declared "I have seen the future and it works," an endless stream of fellow travelers and useful idiots helped promote that falsehood.

In the West it wasn't always the principles behind the battling ideologies which were winning the hearts and minds, but rather expectations of who might win the industrial race.  Drucker was trying to establish that capitalism could be managed to achieve superior economic outcomes, while also achieving social objectives and maintaining the dignity of the worker.

When in 1956 Nikita Khrushchev famously and furiously banged his shoe on the desk at the UN and told Harold Macmillan "We will bury you", the fear in the West was as much about being overrun economically as it was about a military challenge.

Drucker had no such fear.  At the age of 93 he maintained the position he had reached when he left behind Nazi Germany as a young man to head for the USA:  "I am for the free market," he said, "even though it doesn't work too well, nothing else works at all".

The Might Have Beens

Christopher Pearson appears on Counterpoint on economic reform.

Economic history, as a discipline, has gone out of fashion in Australian universities.  Ideologically driven economics, whether of the left or the neo-con variety, has triumphed over nuts and bolts empiricism.  Students who want to learn about the role of wool and wheat and labour costs in the development of the national economy mostly have to search it out for themselves in textbooks written before they were born.

This is a great pity, not only for the economics profession but for anyone trying to get a handle on the real world consequences of public policy.

There was a memorable example of how a grasp of economic history can transform policy debate a few weeks ago, in an article Richard Wood wrote in The Australian Financial Review.

Wood was talking about the 1870s, the golden age of pre-Federation Australia.  At the time our per capita Gross Domestic Product was the highest in the world.  It was 50% higher than the United States' and 15% higher than Britain's.

As he said:  "Within a few years the twin disasters of industry protection and centralised wage fixation were established, and in the following decades the country's economic performance plunged.  Wealth produced bad policy ..."

Exploring that paradox, Wood's analysis goes to the heart of the malaise that kept The Lucky Country underperforming for the next century.  "Colonial politicians believed they would always have enough money to fund any policy decision they chose to make".

To put it another way:  the political class ever since has felt entitled to buy our votes with bad, self-indulgent policy.  With Labor featherbedding the proletariat or the Liberals offering middle class welfare.  In either case the political class cheerfully presided over a radical disjunction between bad policy and its baleful consequences.

What's more -- short of outright depression phases -- they've usually been able to borrow enough to delay or disguise those consequences, or else to blame them on the weather, market cycles or flights of capital.  To blame them, in short, on everything except the root causes.

The first decade of the last century, the early years of Federation, were the turning point.  In the end, Alfred Deakin and the Victorian protectionists defeated George Reid and the New South Welsh free trade lobby.  The Deakinite Settlement, with a white Australia policy and industrial arbitration leading up to the Harvester Judgement as its other planks constrained our future and capacity to grow for decades to come.

It's always instructive to think about the alternative scenarios, the Might Have Beens in our history.  Perhaps the aptest parallel with Australia in the decades before Federation is with California, another goldrush boom economy.

Had there not been a regime of tariff walls to protect local industries, imports would overall have been much cheaper.  The proletariat in particular would not have been sorely taxed to cosset primary and secondary producers into ever-more-uncompetitive practices.  By the middle years of the Menzies regime, the average level of tariff support was 35%.  And locally manufactured goods were by and large a watchword for second-rateness.

Without the white Australia policy, competitive non-Anglo labour would in practice have undermined any attempt at centralised wage fixation.  Unemployment as we know it would never have been an issue.  Self-employment, of the kind which is only now coming into its own, would have been as much of a norm as working for someone else.

We would not have had the economic absurdity of arbitral bodies deciding minimum wages, not on a worker's worth to his employer but on the hypothetical needs of a couple with three children.  Employers would not have been coerced into funding "a social wage", as a de facto arm of social security.  Unskilled workers in Hobart would never have been priced out of a job by fixed pay rates geared to the cost of living in Sydney.  We would also have had far earlier emerging, in the tradition of the Currency Lads and Lasses, what nowadays we call an enterprise culture and with it a much more adaptive, independently minded workforce.

Without the lazy politics of the Deakinite Settlement, Australia might well have become as rich, developed and diversified an economy as California.  We'd no doubt have a larger, healthier manufacturing sector.  We'd be mostly exporting steel products rather than iron ore.  We'd have a far stronger finance sector and less of a balance of payments problem.  We would never have let shipping and rail transport become the featherbedded and dysfunctional sheet-anchors on trade that they became for most of the last 80 years.

We would almost certainly have become major global suppliers of educational services much earlier and we'd be more likely to have the capacity and entrepreneurial spirit to spend up on research and development.  Given our proven track record of technological inventiveness, too often marred by a lack of follow-through funding, we might even have given Silicon Valley a run for its money.

Does the Murray River Still Need Saving?

On budget night the Federal Treasurer, Peter Costello, pledged MORE public money to "Save the Murray River".

An extra $500 million will be spent on projects to reduce salt levels in the river by building more salt interception schemes, more fishways so fish can more easily travel along the river, and to buy more water from irrigators for environmental flow for the river.

But does the Murray still need saving?

As a tax payer with an interest in environmental issues, I am concerned that the federal government has already spent enough public money on the Murray River.  There has been no audit, no cost to benefit analysis, just more money continually promised.  The time has come for a stock-take, and a reassessment of what all this money is hoping to achieve.

My first question is -- is there a need for another salt interception scheme?  Salt levels have halved since the first salt interception scheme was built in 1982.  Just how much lower does the government want to push salt levels?  It is true that thirty years ago salt levels were rising and it was feared that Adelaide's water supply would soon be undrinkable.  Since then salt levels have been trending downwards.  The river may now be the freshest it's ever been.

We should remember -- the Murray is not a European river.  The Australian landscape is naturally salty and many native fish species can adapt to fluctuating levels of salinity, particularly during drought.

My second question is -- how come the river was brimming with water during the recent drought?

There is a story told in Echuca, a town in north-west Victoria, about a visit from Peter Garrett, the then President of the Australian Conservation Foundation.  He stood on the wharf lamenting the drought and the need for more water for the river -- but this was just after water had been released from Hume Dam.  The locals looked on as city journalists and film crews recorded his every word -- apparently oblivious to the fact that that the river was brimming with water.

Modern water management practices -- like saving water from the Snowy Mountains in Lake Hume and promising it to South Australia -- means that there is no opportunity to let stretches of the river just dry-up during drought.  This would have occurred naturally in the past.  For example, photographs taken on New Year's day in 1914 show a completely dry river bed at Riversdale, just south of Euchuca.

Yet it is often claimed that there is never enough water at the very bottom of the system, at the Murray's mouth.

How often have you seen images of that dredge working to remove sand to keep the Murray's mouth open?  It is a symbol of inadequate environmental flow.  But history reveals that these sand bars are actually naturally occurring.

When British explorer Charles Sturt first sailed down the river in the early 1830s, he reported good flow in the Murray and Darling Rivers.  But he couldn't get through to the Southern Ocean in his boat because of the sand bars.  We now dredge the sand to create an artificial mouth below the lakes and have built a series of large barrages across five channels to stop freshwater flowing out to sea.

To now blame the sand bars on irrigation is to rewrite history.  The irrigators take water that would once, before all the levies were in place, have naturally spilt out across the great flood plains of the Riverina.

In the same way it is wrong to suggest that the Murray River doesn't already receive a significant environmental flow allocation.

When Murray Irrigation Ltd, a large irrigation company supplying water to farmers in the NSW Riverina, made water savings in the late 1990s, it was encouraged to give the saved water to a wetland working group -- which it did.  In 2002, at the height of the drought, this wetland working group sold 23 gigalitres of water back to irrigators for $3.8 million dollars.  Much of the money from this water trade was used to build a fishway.

Which brings me to my final question -- what is the cost to benefit analysis of another fish way for The Murray?

Building more fishways may be a good investment for the environment, but we don't know because there has been inadequate monitoring of the river environment.  We don't know whether native fish numbers have been increasing or decreasing over the last few decades and no government will tell me what the total environmental water allocation is for the Murray River.

The Murray River is an old river, running through a semi-arid environment.  Let's accept it as such, and not pretend it should be, or ever was, fresh, blue and always brimming with water.