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Economic growth: too clean and green?

One of the most annoying false arguments we have in New Zealand is about where economic growth should come from.

One of the most annoying false arguments we have in New Zealand is about where economic growth should come from.

Pattrick SmellieSure, on the surface, there’s a bland unanimity masquerading as consensus. Everyone agrees, in an ideal world, we would pursue high-value, high-margin clever ideas that create new, patented products that can command global markets.

Policy makers and politicians have moved in this direction with increasing purpose over the past decade, to the point where the new leader of the Labour Party, David Shearer, has nabbed the science and innovation portfolio for himself, while the government has given those roles to its number three-ranked Mr Fixit, Steven Joyce.

The reality, however, is that we are still doing mostly the old stuff, when it comes to what we make and sell.

The monthly trade statistics are full of unprocessed wood, semi-processed milk, meat, wool, fish, fresh produce, and a big chunk of aluminium made with cheap Southland electricity.

People come here as tourists in droves, providing thousands of low-skilled, low-paid jobs as cleaners and baristas in low capital growth such as owning a backpacker’s lodge.

Meanwhile, many of our smartest minds are winkled offshore, bearing away the fruits of a world-class education system for the benefit of others.

Part of the allure of the science and innovation portfolio is that it’s a good news story. If innovation policy works well, we’ll get more smart Kiwis deciding to stay here, more high-value jobs, new industries, and a reshaping of global views about what we are good at. Peter Jackson and Weta Digital have got us part of the way. The rest is up to us.

Where the disconnect occurs, however, is in the assumption that the only innovation or science worth pursuing is ‘clean and green’, a fungible term at the best of times.

There’s no argument that the world’s best hope for arresting climate change is a sudden technology shift away from hydrocarbons to a replacement energy source. The sun is the most obvious replacement, and there is a fierce global battle going on among solar energy manufacturers. Much less subsidised alternatives are wiping out some of the existing players, whose earlier technology is now uncompetitive.

But far from being bad news, that’s a sign the sun’s power could replace fossil fuels within the next few decades.

In the meantime, however, the world will use fossil fuels to do most of the things it does now, but in greater volumes as Asian, South American and African economies rise.

There are some who don’t believe this, and argue we’re on the brink of peak oil, but that misunderstands the market for hydrocarbons. Demand for energy is relatively inelastic. People will pay more for it to have it, to the point where expensive oil is now worth pursuing. That’s why deep-sea ocean exploration, shale sands, and ‘tight’ hydrocarbons targeted by fracking are so much in the news.

In other words, the only relevant ‘peak’ for oil is its price, not its availability. As hydrocarbon costs push ever higher, they will meet the cost of clean technologies as it is falling. There will be a convergence in these technologies, but not because oil ran out.

Enlightened governments would hasten that meeting by taxing the hell out of hydrocarbons, but judge that politically impossible and economically crippling. As a result, we end up with a deeply compromised emissions trading scheme instead.

Meanwhile, a view has taken root here that we should just leave our own hydrocarbons in the ground, based on an appeal both to the planet and to fear of the very low risks of a catastrophic hydrocarbons accident.

In particular, pursuing hydrocarbons – an industry with an endless thirst for highly paid skills – is seen as compromising New Zealand’s green image, and risking the industry that keeps all those baristas in work.

I don’t buy it.