Race of the Century: Australia is in the box seat on climate and finance, here is the blueprint for victory
Michael West Media, by Tim Buckley | Jan 23, 2024
The global energy transition is the race of this century. The rewards are enormous. The risks too. This is an edited version of the submission by Tim Buckley and the Climate Capital Forum on how Australia can tackle the race to electrification and a clean economy.
The world is currently in a technology, trade and finance race as the global energy transition takes hold and we grapple with the growing impacts of climate change and climate risk.
For Australia, this is one of the biggest investment, employment and net export opportunities this century, but only if we proactively build a strategic national response proportional to the investment opportunity.
With China’s huge technology leadership and the US Inflation Reduction Act (IRA) providing upwards of a trillion dollars of incentives, “free global markets” are being heavily and rapidly disrupted. To avoid remaining a zero value-add “dig and ship” country servicing China and greater Asia, Australia must pivot quickly to investing in our own development, in partnership with global technology leaders.
This would require a major similar public policy shift at scale, the likes of which has not been seen in decades. It would not only set the right market signals but also strategically leverage the national balance sheet, and selectively provide public budget support to unlock and crowd-in private capital to enable large-scale investment to meet the challenge.
It is already possible to see the impacts and benefits of the IRA in the US: it is driving the energy transition across the country using a mix of policy initiatives – grants, loans, rebates, incentives, and other investments. Central are tax provisions with the dual function of saving families money on their energy bills while also building demand that accelerates the roll out of clean energy, clean vehicles, clean buildings, and clean manufacturing – all opportunities available to Australia with the right investment.
Petro-state Australia: risks of inaction
We know the growing risks associated with inaction. As one the three largest petro-states globally, Australia’s existing, outdated industry profile means failure to overcome the inertia of relying on fossil-fuels will undermine our economic security and sustainable growth.
Two likely consecutive budget surpluses have demonstrated this government’s financial credentials, accompanied by the rolling out of innovative and strategic building blocks, such as: the Safeguard Mechanism; the $20bn Rewiring the Nation fund; the $15bn National Reconstruction Fund (NRF); $4bn into the Critical Minerals facility; establishing the Net Zero Authority and the Climate Act 2023; and the 32GW Capacity Investment Scheme (CIS). And with the fossil-fuel hyper commodity price rises of 2022 slowly fading, general inflation in Australia is starting to moderate, as is the cost of living crisis.
The time is right for the government to broaden its focus to the electrification of everything across the economy and to strategically stimulate onshore value-adding of our resources; to process and build domestically and then export products with embodied decarbonisation to a growing global market. Australia has world leading and affordable renewable energy, and this creates a massive global competitive advantage, if we can harness this cost advantage to build out our capacity and help diversify global supply chains in zero emissions industries of the future.
The global competitors
Globally, multiple economies have released substantial government-backed fiscal packages to shore up their own industries. The US has laid out a massive trillion dollar subsidy through the Inflation Reduction Act (IRA) resulting in the crowding-in of up to US$3 trillion in private investment, the EU has a immense subsidy program in its Net Zero Industry Act (NZIA) and policies such as its Carbon Border Adjustment Mechanism (CBAM) to build domestic EU supply chains, Korea has its massive battery and EV public-private partnership program, Japan has its GX Roadmap and India has its Production Linked Incentive (PLI) funding.
This is all taking place alongside China’s finely-honed strategy to fund R&D and investment at an unprecedented pace and scale with a lack of regard for near term profitability at the individual sector level; this on top of it being the biggest buyer in the world of lithium, rare earths, iron ore, copper and nickel. And at the same time, it is in China’s national interest to flood in new global supply and push down imported commodities prices – those same commodities that Australia produces.
Decarbonising is also an energy security necessity. With next to zero domestic stockpiles of diesel and oil and increasing global supply chain challenges, Australia’s national security is best served by building local supply chains and renewable energy and non-fossil fuelled transport as well as to ensure decarbonised products have the right price signal in both local and international markets.
Profound economic reform and modernisation in Australia is needed, as is international collaboration.
Doing so will ensure that Australia is not just in the race, but that we are a front runner, leveraging our global competitive advantage of the rich natural resources, low population density and world-class renewables, the smarts of our people, the power of our world leading A$3.5 trillion superannuation base, the stability of our political system and our position as a trusted supplier of commodities at global scale.
CCF submission
The Federal budget position today is in rude financial health. After a decade of deficits under previous governments, careful and prudent management – and some good luck on international markets – the Australian government has delivered a very welcome massive fiscal surplus in 2022/23, which is set to be repeated again in 2023/24.
Building on the policy initiatives announced in 2023, we encourage the government to continue to develop programs such as the Capacity Investment Scheme – a clever and innovative low risk response that underwrites cash flows that will crowd-in A$40-50bn of private investment and leverage many state government programs already in place.
This submission builds upon previous recommendations in Climate Capital Forum’s September 2023 Discussion Paper – An Australian Response to the US IRA.
We provide recommendations for the May 2024 Budget by arguing for a strategic public interest response to the global economic changes commensurate with the massive opportunities in front of Australia; one that outlines how we can leverage our own decarbonising actions, illustrate the growing capacity across the economy, and help drive the global move to renewable energy and energy storage, consistent with the COP26 pledge to triple renewables and double energy efficiency by 2030 and the massive uplift in momentum the IEA Renewables 2023 details, noting China’s growing dominance in all these measures.
By making available an additional A$100bn investment of public capital and budget support over the coming decade well over A$200-300bn of private capital can be crowded in – through debt, infrastructure and equity, both domestic and via collaborative partnerships with strategic international technology and industry leaders. We need a “uniquely Australian” response to “complement not copy the priorities and plans” of the US IRA and other nations, as Treasurer Jim Chalmers said.
Provide capital funding that supports the public interest
Focus strategic investment through the development of a package of funding that builds an Australian renewable energy industry – including a value-adding critical minerals industry development package…………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
About Capital Climate Forum
The Climate Capital Forum was established in December 2022. It brings together the investment, decarbonising, and philanthropy sectors as well as climate finance experts and NGOs to work with government, industry and stakeholders to advocate for ambition in Australia’s drive to become a renewable energy superpower. https://michaelwest.com.au/australia-climate-finance-race/
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