Decarbonise, reindustrialise, regionalise - Grattan Institute

Sustainability is now an economic imperative for Australia. We have joined the global commitment to address climate change with a legislated 2030 emissions reduction target.

The Albanese government has promised that its renewable energy policies will lead to lower prices. And it has embraced the vision of a sustainable manufacturing renaissance based on renewable energy, hydrogen, and critical minerals.

Sustainability will be central on more than climate change. Social outcomes and a wide range of environmental issues will form a part of the challenge if the transformation is to be truly sustainable.

The pace and scale of the transformation are becoming clear, as are the global constraints of supply chains. No sector of the economy will be able to escape the consequences of what looks like another industrial revolution, but this time with a deadline.

This combination of factors creates seemingly uncomfortable bedfellows. For it to work will require a co-ordinated mobilisation of effort from the nation’s governments at every level, its businesses, workforce, and community groups.

The task is unparalleled outside wartime. Within 30 years, we must manage the decline of fossil fuel extractive sectors (coal mining and liquefied natural gas production), transform almost every aspect of our energy and transport sectors, reindustrialise much of manufacturing, and find solutions to difficult problems in agriculture.

Some of the challenges are already clear:

  • To develop and implement a cohesive set of policies aligned with meeting the emissions-reduction targets.
  • To navigate the path to a net-zero energy system without unaffordable prices or supply shortages. Attempts to reform the energy markets have so far been more than disappointing. And, in 2022, we have already seen an unprecedented energy crisis that led to sustained high electricity and gas prices.
  • To mobilise physical, human, and financial capital at the scale and pace required in a world of great geopolitical uncertainty and major supply chain constraints.
  • To develop and deploy the sustainable, zero-emission technologies that will be necessary to underpin most of the transformations identified above.
  • To work with communities in regional areas where existing carbon-intensive industries will decline, and to identify and plan for their replacement with economically and environmentally sustainable alternatives.

Yet, there is good news on two dimensions. First, we are no longer fighting about the destination, but rather on how to get there in a timeframe shortened by too many wasted years of inaction. Second, despite that inaction, some momentum has been created and we know much more about the solutions than we did only a few years ago:

  • A range of federal and state policies have led to emissions from electricity generation steadily falling since about 2015. That trend is expected to continue through this decade.
  • Delivering electricity transmission investment critical to a high-renewables grid has been frustratingly slow. Last week, the federal, Victorian, and Tasmanian governments committed to proceed with two such connections (between Victoria and NSW, and between Tasmania and Victoria). This suggests that the new federal funding model and the energy ministers’ National Energy Transformation Partnership might have the substance to break through the investment barrier.
  • Across the heavy manufacturing sectors often described as “difficult to decarbonise”, the industries and researchers have stepped up the pace of technology development. This includes identifying pathways to Australian opportunities in green steel, concrete, and aluminium.
  • The potential for applying Australia’s renewable energy endowment to our known critical minerals resources and creating a major export opportunity is increasingly clear. The current federal government has already shown a readiness to build on its predecessor’s Modern Manufacturing Initiative to realise this opportunity.

And high coal and gas prices might provide a windfall profit for their producers. But such prices also act similarly to a carbon price in shifting the economic balance towards lower-emission alternatives. There are strong signs that such a shift is in train.

The above conditions create an agenda for governments to deliver sustainable growth. That agenda has three tough but clear priorities.

First, targets are necessary but not sufficient. Governments must relentlessly build and drive clear policies to decarbonise across all sectors of the economy. Those policies must be linked directly to the targets. Recent moves for direct government equity investment combined with government-backed contracts to underwrite investment in renewables may be justified given the collective failure to deliver these outcomes with market-based policies.

Delivering 82 per cent renewables by 2030 and reshaping the so-called safeguard mechanism to cut emissions from heavy industry at the pace outlined by Labor’s Powering Australia policy could deliver the current target of emissions 43 per cent below 2005 levels by 2030. But policies and other support mechanisms must be developed to maintain that momentum towards net zero by 2050.

Second, rather than deindustrialise to reduce emissions by outsourcing to other countries, Australia should reindustrialise to deliver the low-emission materials the world needs for net zero.

This will require a new approach to industry policy, centred on co-operative government-industry partnerships. The potential for sustainable economic growth is huge. Rather than wishful thinking, this approach is grounded in Australia’s favourable fundamental economic advantage.

Third, governments should look to regionalise the transformation to deliver environmental, social, and economic benefits where they are most needed and where they will add the most value.

Current approaches, while promising, will not have enough authority and focus to mobilise the resources across all sectors for this revolution on the required timetable. A starting point to consider would be a new committee of national Cabinet charged with delivering these outcomes in formalised partnership with industry, workers, and regional communities.

Australia is a globally significant, high-emissions economy. But it is also unusually well-positioned to decarbonise while simultaneously building sustainable growth in a low-carbon world. It can and should be done.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

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