ReGen Strategic
While we don’t live in an age or place of ardent revolution, Jim Chalmers’ third budget rammed home the major shift occurring in Australia’s political class.
The additional detail – and coming debate – of the $22.7 billion Future Made in Australia package will be the major economic pillar of the Albanese Government, as it attempts to craft a clean energy future that benefits all Australians over the long term.
In this race, there is a big difference between ‘picking winners’ and picking the winner.
The tens of billions of dollars in public funding to shepherd Australia’s transition to clean energy and a rewired economy is about as sure a bet as can be made presently.
Rather than comparisons of propping up an industry like car manufacturing, the investment in Australia’s shared clean energy future can serve as a down payment on the well-being and livelihoods of future generations.
In a world that is definitively moving away from fossil fuels, even advocates of nuclear power are framing their raison d’etre as a way in which to support a longer-term transition to renewable energy.
The challenge in front of the Albanese Government – and Peter Dutton’s Coalition Opposition – is how to best support the energy transition right now, while the rest of the world scampers for a similar path.
These decisions in front of political and business leaders have been as critical to our future welfare as anything encountered in modern history.
Could a country of 26 million people, with an outsized and enviable endowment of wind, solar and mineral resources, really afford to wait for market conditions to stabilise and allow for the hundreds of billions of dollars necessary to be released from private balance sheets?
The Future Made in Australia package
The Future Made in Australia package does not seek to commission massive state-owned enterprises to control this energy transition. Instead, it provides a necessary shove for green hydrogen, critical minerals processing and renewable energy projects that need to accelerate development and reach into export markets.
Leading up to the Federal Budget, there was predictable and reflexive opposition to the Future Made in Australia package due to the immediate connotation of subsidies and corporate handouts.
There were warnings from free-market economists, the Productivity Commission and the ACCC about avoiding the propping-up of new business models over the long term.
The five components of the Future Made in Australia package provide an outline of Australia’s path to reaching net zero by 2050 while maintaining living standards and connection to the global energy transition:
- Attracting investment in key industries, through the incentives to invest in our regions, in skills and in essential supply chains.
- Making our country a renewable energy superpower, through the acceleration of green hydrogen production and critical minerals processing.
- Strengthening our defence capabilities and economic security, by building sovereign capability to innovate and manufacture high-value technology.
- Supporting small business to grasp the opportunities of our transforming economy, with incentives for small businesses and rural communities to keep pace with economic volatility and climate change.
- Expanding and reforming tertiary education for a more skilled workforce, by fast-tracking the training and skills to service Australia’s economic and energy transition.
The Federal Budget gave a clear indication that these new business models would need to stack up on their own over the long term. Production credits for green hydrogen and critical minerals will be capped for a duration of 10 years, while reverse auctions will force proponents to sharpen their bids for support.
In a nod to some of the hard-nosed economists watching these announcements closely, production credits will not commence until 2027–28, which means that currently distressed mining operations in the lithium and nickel sectors will have to stay afloat through the current commodity price shock.
ReGen Strategic continues to work with an expanding range of clients that are seeking to support a decarbonised economy, whether through the generation of clean energy, the production of minerals and components critical to batteries, or the restoration of natural ecosystems.
None of these entities are lazily sticking out their hands for corporate welfare. There is an acute understanding that their business models will need to compete in a volatile global economy, however there is also a need to accelerate the growth of new sectors that need to move beyond just primary production.
Determining the appropriateness of government assistance
Prior to the Federal Budget, Jim Chalmers had outlined a series of five tests to be used to determine the appropriateness of government assistance.
Firstly, can Australia be competitive and productive in the industry. Secondly, will it provide a path to net zero. Thirdly, will it build skills for the future. Fourthly, will it improve Australia’s national security and economic resilience. Finally, does it have a clear role for the private sector and provide value-for-money for the government.
The ‘goldilocks’ amount of government assistance will be critical to accelerate sectors that will power Australia’s future prosperity. Time will tell whether the $22.7 billion announced in the Federal Budget was just right.
But there is a way to look at this problem and acknowledge that targeted assistance now could reap generational benefits over the coming decades.
For example, it is anticipated that the first gigawatt to produce green hydrogen could be mightily expensive. But from that point on, the cost of energy will reduce markedly to become practically zero over a project life.
All of a sudden, Australia’s oft-lamented labour inputs could become offset – and then some – by a drastic reduction in energy inputs.
With this reduction in costs playing out alongside a demand for electrolysers, solar panels and wind turbines at scale, original equipment manufacturers (OEMs) would find a compelling reason to onshore their operations in Australia.
The role of government to support isn’t limited to purely financial incentives or actions from the Federal Government either. The provision of industrial land can accelerate project planning and provide supply chain certainty. Support for a spine of transmission lines can allow clean energy projects to access Australia’s dispersed energy users. Accelerated approvals can be generated by allowing greater collaboration across government agencies.
The Future Made in Australia package seeks to herald the type of targeted government support that allows for an Australian manufacturing renaissance. It has the potential to drive the next wave of prosperity and in a manner that is equitable, accessible and sustainable.
That’s a bet we should feel compelled to make as a nation.