Population Growth is Good for Innovation

Victor Bivell

Eco Investor Novermber 2009

Many environmentalists are against population growth, as shown by the debate about Australia speeding towards 35 million people. But a higher population can also help the environment.

Contrary to the impression, there is no direct correlation between population numbers and environmental damage. The direct correlation is between the quality of political leadership and environmental damage.

Spain proved this again last month. Spain's electricity system often runs above 40 per cent on renewables and, according to Greenpeace, on one particularly windy day in late October it tipped up for the first time above 50 per cent.

Spain has about 40 million people so that was about the equivalent of supporting Australia's 22 million people on renewable energy. Yet renewable energy supplies only 6.5 per cent of Australia's electricity needs, enough for about 1.4 million people.

Spain's renewable energy comes mostly from wind and some help from photovoltaics and solar thermal. Australia has a lot more wind and a lot more sunshine than Spain. We also have a lot more ocean, a lot more geothermal potential, and a lot more biomass. But clearly we have only a fraction of its political leadership.

I wish I could argue that a bigger population would guarantee Australia better political leadership, but Denmark would prove me wrong.

Denmark has five and half million people, about a quarter of Australia's population. It is even smaller than NSW which has 7 million people. Yet renewables supply 17 per cent of Denmark's energy. Like Spain, much of it comes from the wind.

If Australia produced 17 per cent of its electricity from renewables that would be the equivalent on a population basis of Western Australia and South Australia combined.

So a bigger population need not mean more environmental damage. It would certainly give us a bigger talent pool from which to draw our political elites. But if the quality of leadership is important to you, the medical advice is don't hold your breath.

The real benefit for Australia of a larger population is a larger domestic market and how this can make it easier to commercialize innovation, including our abundance of environmental innovations.

Our small market has always been an issue for local innovators and their financial backers and it's one of the reasons our venture capital sector is going nowhere in particular. As well as developing world leading technology, our innovators have the extra hurdle of having to commercialize it on the other side of the planet. That takes more money, more time, and more sweat.

How much easier it would be if we had a California or half a Germany in our backyard.

Our small domestic market also means Australian investors are likely to miss out on two of the biggest technologies coming down the environmental pipeline - the electric car and the smart grid.

On the electricity side we have listed electricity suppliers, including listed green energy suppliers. But on the technology side the Australian Securities Exchange doesn't offer exposure to electric car makers for the same reason it doesn't offer exposure to any car makers.

The best local investors can hope for is a listed local parts supplier, or a favourable exchange rate as they look overseas.

Ditto with the smart grid.

Through high tech componentry such as smart meters and broadband communications, the smart grid will let consumers do clever things like make their electricity usage more efficient, recharge their electric cars at cheap rates, and get paid for feeding electricity into the grid.

Utilities will also become more efficient, improve electricity supply and better integrate intermittent renewables such as wind and solar.

Like the electric car, the smart grid should be terrific.

Overseas markets are already on to it and in September the NASDAQ Clean Edge Smart Grid Infrastructure Index was launched to help investors.

But will ASX investors see much of the action?

A large chunk of the benefits from Australia's smart grid will flow to international electrical manufacturers, private Australian companies and government owned utilities including perhaps the new National Broadband Network.

Some listed companies will benefit, but these are more likely to be on the electricity side rather than the technology side.

That's what can happen when you're small. So more people please. But do it well.

This article also appeared in The Business Australian