Australia needs a plan to exploit the green economy: Zoe Whitton

Published in The Australian

Although we’ve seen a mixed reactions over the past fortnight to the deal that delivered a beefed-up Safeguard Mechanism, Australia’s industrial and emissions outlook is now more certain and better placed as a result.

But for all that the mechanism can and will do to provide certainty and forward momentum there’s one thing it can’t and won’t do on its own.

It won’t make us a clean energy superpower.

On the floor of the Parliament, Environment Minister Chris Bowen recently declared: “Today we are a step closer to achieving net zero by 2050.” He’s right, of course, but a step closer is not the same thing as step change. The Safeguard Mechanism will absolutely help Australia as a country and a business community reduce emissions in line with our net-zero target.

But emissions reduction is not the extent of our national ambition. Australia’s goal, as laid out by leaders on both sides of the aisle in recent years, has been to position ourselves as a future clean energy (and industry) superpower. To not only weather the storm of decarbonisation, but to emerge stronger and better positioned to thrive in a changed global economy. Realising such an ambition requires an overarching plan – a Superpower Roadmap that lays out where we will deploy our resources, how we will play to win and how government will unlock the investment and innovation that’s required from the private sector.

We won’t get to superpower status if we transition one project, one announcement or one facility at a time — without linking our efforts together and considering how they might become more than the sum of their parts.

And we have some stiff competition. The release last year of the Inflation Reduction Act by the Biden administration sits heavy on the minds of the Australian business community.

In our discussions with clients – across both private and public sectors – we are hearing the same refrain: Can Australia respond with its own IRA and will it risk falling behind as an investment and innovation centre if it doesn’t? How can we possibly compete with the pull factors unleashed by the sheer size of the US intervention?

After decades in which we were told governments should get out of the way and avoid picking winners, these conversations mark a return in appetite for strong industry policy. The IRA shows that it’s still possible for a government to have industrial ambition – to use its regulatory and financial clout to stimulate demand, attract investment, drive innovation and achieve growth in targeted areas. In fact, if we want to transition successfully these choices might be necessary.

The good news is we don’t have to outspend our friends in the US in order to meet our goals; but we do have to do something. Today we released a new report: Driving Australian Climate Innovation: Unlocking capital to support a clean industrial revolution, along with the Investor Group on Climate Change.

The report looks at regions that have successfully built new clean industries to identify what policy settings actually worked. It finds that industrial ambition has been a driving force behind green growth globally, and needs to be a bigger part of the Australian toolkit as well.

We found that the most important ingredients for countries wanting to build rapidly growing clean sectors were firstly, picking a few, and then creating demand for these new low-carbon or zero carbon products, processes and commodities.

The Safeguard Mechanism – for all its benefits – is not in isolation the right tool for this job. As it pushes companies to decarbonise more rapidly it will drive demand for emissions solutions for existing industries. However, it will do little to create demand for new low-carbon products, and commodities. The SGM alone won’t create the industries of the future in Australia.

That task is the next challenge for Australia’s policymakers. We do not have the resources to outspend the IRA, but we do have natural advantages. Among them are endless sunshine, high renewable energy penetration, access to key minerals, and strong innovation capability. We also have access to key trading partners who are themselves working hard to decarbonise.

Other people’s demand and other people’s money present great opportunities for us.

Federal and state governments need to recognise those advantages and leverage them harder. We won’t be able to chase down every opportunity; we will need to make choices, educated bets and strategic plays.

This cannot be done in a way that is ad hoc. Australia needs a masterplan that goes beyond rhetorical ambition, that clearly sets out how we will get there, what role government will play and how private sector investment and innovation will be unlocked.

California provides an example of success. Tesla looks like a product of Silicon Valley’s world-beating innovation engine, but is also a product of California’s specific and determined efforts to create demand for a new clean transport sector. Denmark is another example of a region that picked a sector, leaned hard into it and built its way to worldwide dominance in wind power.

In Australia this starts with identifying the priority sectors in which we have both development potential and natural advantage. We need to put a growth plan in place for each of these potential new sectors that leverages onshore and offshore demand, spelling out how governments will remove barriers and accelerate innovation and growth.

The good news is governments have a range of mechanisms (including our current policies) that can fast track growth in these sectors. From ensuring priority funding (via institutions such as ARENA and the CEFC) through to purpose-designed product standards, government procurement targets and investments in key infrastructure, we have many levers available to drive the growth of key industries.

If we make these changes we will be far better placed to harness increasing flows of global capital in search of compelling climate solutions. We will be in the box seat to meet the need for products like green steel, green ammonia and green aluminium among our key trading partners. And, most importantly, we might get there in time.

We have the resources, the smarts and the advantages we need to chase our ambitions and build the industries of tomorrow in Australia. And if we commit hard to getting there our communities, businesses and investors will thank us for it. But we have to get going, and leverage the enthusiasm, the demand and the investment appetite that is building around if we are to convert a big dream into an enviable bottom line.

Zoe Whitton is Managing Director and Head of Impact at Pollination, a global climate change advisory and investment firm.