10
Jun
2021

Jobs versus climate

by Tony Wood


Published in Pearls and Irritations, 10 June 2021

A debate between having a job and acting on climate change is painful for everyone involved and will not end well. Yet the absence of a clear narrative from our political leaders to clarify the issue is leaving many Australian communities in exactly that position.

Australians – and Australian political leaders – broadly understand and support the need to act on climate change. By ratifying the Paris Agreement, the Australian Government agreed that all countries must work to limit global warming to well below two degrees Celsius. The Prime Minister, the opposition, and all state and territory governments have adopted the target of net-zero emissions, most of them by 2050 or earlier.

At a global level, commitments by the G7 and countries in our region are all increasingly aligned. And the International Energy Agency (IEA) recently published a report that considers the actions and consequences that would be consistent with a global move to net-zero emissions by 2050. Under such a scenario, global coal demand would fall from more than US$400 billion today to less than $50 billion by 2050, and the latter would mostly involve carbon capture and storage technology. The implications for Australia, with our coal and gas exports, may not be catastrophic today but will be dramatic over the next few decades.

While this scenario is not a forecast and Australian policymakers may disagree with the prognosis for our exports, the direction and destination are clear. The prudent, risk-based approach would be to have a plan that can respond to changes in the scale and speed of the global transition to net zero.

We must recognise that the future of Australia’s carbon-intensive industries, particularly coal mining, will be determined primarily in Beijing and New Delhi, not in Canberra.

Three-quarters of coal mined in Australia is exported. Australia has ridden a coal boom that was primarily made in China – the number of Australians employed in coal mining increased by about 70 per cent between 2006 and 2016.[4] If our major trading partners move away from coal, we will have to ride the rollercoaster back down. Our domestic climate-change policies and political preferences will do little to extend the long-term viability of coal mining and other carbon-intensive industries.

Australia has close to 100,000 “carbon workers”. About half of these carbon workers are concentrated in certain regions. These are Australians working in carbon-intensive industries such as coal mining, oil and gas extraction, fossil fuel electricity generation, cement manufacture, and ‘integrated steel-making’ using blast and basic oxygen furnaces.

Our political leaders are stuck in a conundrum. They need to balance the national interest – which requires strong global action on climate change – with the legitimate interests of the communities and workers in these regions. As illustrated in a recent 7.30 report, these communities feel threatened by climate change action and seemed to reject the ambitious emissions reduction targets that Labor took to the 2019 federal election. This was despite Labor’s attempts to assuage these workers’ fears with a policy for a ‘just transition’. It seems that either the message was poorly delivered, or voters did not trust Labor to manage such economic risks.

Since that election, Labor has been urged by federal backbencher Joel Fitzgibbon to make a strong commitment to coal mining. He has not made it easy for a party still struggling to construct a compelling policy framework that reconciles the tension between such a position and its commitment to net-zero emissions by 2050.

The Minister for Energy and Emissions Reduction, Angus Taylor, is acutely aware of this challenge:

“Australia must do its bit to address climate change, and we are doing so. But we must do it in a way that secures our way of life – not just the way of life in inner Sydney, but the way of life in Newcastle, in Roma, and in Townsville.”

The evolving language of Prime Minister Scott Morrison illustrates the pace at which the political landscape is changing. In 2020 his framing of the issue emphasised the more immediate and tangible costs of action and ignored the costs of inaction:

“Currently no one can tell me that going down that path [net zero emissions] won’t cost jobs, won’t put up your electricity prices, and won’t impact negatively on jobs in the economies of rural and regional Australia.”

Since then, he has been moving to embrace net-zero as an appropriate target, even as his government’s policy is focused on ‘zero cost or low cost’ technological solutions to reduce emissions.

Climate change and global climate inaction will have significant costs for Australia. While Australia cannot solve this global problem on its own, an honest debate about the costs of reducing emissions must also acknowledge the costs of not reducing emissions. And the consequences of global inaction – the costs of living with several degrees of warming – will be very bad for Australians.

Carbon workers deserve honesty about the extent to which Australian governments can protect their jobs. The government’s current approach – adopting only modest domestic emissions reduction targets – will not effectively protect jobs in the face of global climate action. Nor will it help capture the economic opportunities Australia might have in a decarbonised world. This ultimately works against Australia’s national interest.

This is easily missed in the public debate because the losers from climate action are more visible than the winners, and the costs come sooner than the benefits.

As well as honesty, Australia’s carbon workers would benefit from realistic government strategies that can cope with a range of outcomes. Assuming coal exports will continue indefinitely is a high-risk strategy. A better approach is economic diversification, particularly into new industries based on zero-emissions energy. Clean energy industries provide Australia with a valuable hedge in an uncertain world. Our fossil fuel resources will be less valuable if the world moves to reduce its emissions, but our renewable energy resources will be more valuable. And those renewable energy resources, as important as they are for Australia, could be even more important for the future of Australia’s carbon workers.

A 2020 Grattan Institute reportStart with steel, sets out a plan to begin building a new manufacturing industry built on a foundation of clean energy. Using renewable energy to make zero-emission commodities is the best hedge the coal miners could have. If the world changes slowly, we will keep shipping coal. But if the world changes fast, we will be ready to sell new zero-emissions products.

Opportunities such as green steel will require a scale of investment that must come from the private sector. But Australian governments should act now to ensure we can capture this opportunity. The key is building local skills and capability in low-emissions steel-making in the next decade. This is best achieved through government funding to support a steel ‘flagship’ project. This could involve gas instead of hydrogen in the interim, providing a lower-cost and commercially proven path to green steel.

Western Australia, with its low-cost gas, could play an important role. And moving towards lower-emissions steel could help sustain existing steel-making jobs in Port Kembla in NSW or Whyalla in South Australia. It will take decades to build a world-scale green steel industry. We must begin now.

The IEA’s report also identifies opportunities to locate new clean energy facilities, including for processing critical minerals, in the areas most affected by mine closures. Beyond iron ore, there are raw minerals that are critical inputs to technologies central to low-emissions energy. They include copper, lithium, nickel, and rare earth metals. The IEA projects that demand for these metals is likely to grow very strongly, such that by 2040 it could equal that of coal today.

Australia is likely to have a comparative advantage in low-cost, large-scale renewable energy. Turning that into a competitive advantage to capture these and other opportunities will require a level of industry policy and cooperation between governments, industry, and workers that we seldom see in Australia. It would extend to the reskilling of workers and the sort of regional revitalisation currently being touted by the federal and several state governments for hydrogen hubs. Done well, it would provide the substance to the just transition sought by these communities and by the broader labour movement. Sold well, it would be a powerful political weapon.

Australia has traditionally struggled to add value to our energy and minerals resources to create sustainable manufacturing jobs. We have such an opportunity now. If successful, it will resolve the great climate conundrum that has stretched our political fabric for more than a decade.