Flat White

Australia’s deindustrialisation

14 August 2017

7:27 AM

14 August 2017

7:27 AM

High energy prices are causing Australia to deindustrialise. Earlier this month mining giant Glencore’s chief Peter Freyberg’s called for the abolishment of the renewable energy target, stating “If heavy industry is to continue operating in Australia, it will have to be exempted as it is currently bearing the brunt of the crisis given the high percentage of energy within its overall cost structure,”

Over the last decades Australia’s energy prices have gone from being among the cheapest in the world to some of the highest, yet many of Australia’s competitive export industries are dependent on cheap energy.

At present Australia has a renewable energy target of 24 per cent, to be achieved by 2025. The recent Finkel report recommended this be increased to 42 per cent by 2030. Australia generates 14 per cent of its electricity through renewable energy and already consumers have seen energy prices increase dramatically. This has already significantly affected Australian industry.

The RET is a threat to Australia’s competitive export industries. Take our aluminium smelters. Australia exports 1.6 million tonnes of aluminium generating $3.8 billion in export earnings. As Freyberg said, “The much heralded proposed renewable lithium battery storage in South Australia of 129 megawatt-hours would power our aluminium smelter here in New South Wales for a grand total of 7.7 minutes.”

Much of Australia’s competitive export industries depend on reliable and affordable electricity. Renewable energy targets are incompatible with Australia’s National Electricity Objective to, “to promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to – price, quality, safety, reliability, and security of supply of electricity; and the reliability, safety and security of the national electricity system.”

As Regulation Economics’ Alan Moran wrote in the Herald Sun recently, increased energy prices are “causing the progressive closure of energy-intensive businesses including smelters that were previously the jewels in Australia’s industrial crown.” Many of these capital intensive assets have been built by Australian industry over decades, and much like Australia’s ageing energy generation will prove difficult to replace.

The Green lobby constantly promises Australians that there is a bright future for them in a deindustrialised country. Australian’s will work in new eco-tourism jobs and there will be new exciting opportunities in the knowledge economy. $3.8 billion dollars is a lot of rainforest walks.

Fortunately, we have a natural experiment that allows us to see what a deindustrialised Australia would look like, New Zealand. According to the World Bank, the Kiwi GDP per capita is $US39,426.62 compared to Australia’s $US49,927.82. 100% Pure New Zealand’s GDP is considerably lower.

Australia’s industrial heart is a long way away from ABC headquarters in Ultimo and the trendy suburbs of Wentworth. It’s likely that green activists won’t be impacted by Australia’s deindustrialisation. However, we know from past experience that when industries and regions deindustrialise those that lose their jobs often find lower paid ones in the services industries or not at all. Importantly, these services industries are unlikely to replace Australia’s export income, leaving us further dependent on an even narrower export base.

The energy affordability crisis is affecting more than Australia’s heavy mineral industries, MBL Food Services issued a letter to its suppliers explaining that it was facing cost challenges on a number of fronts and that its new energy supply contract was double the price of the previous agreement. This is particularly alarming as it shows that Australia is dependent on cheap electricity for more than just its smelters.

If the world is going to move to greener cleaner future it’s going to need a lot of aluminium, copper and rare minerals. If those commodities are not purchased from Australia they will be purchased elsewhere, most likely from a part of the world that cares far less for the environment. To remain competitive Australia will need to prioritise the availability of affordable and reliable electricity. This isn’t going to be accomplished with wind and batteries. It’s time to abolish the renewable energy target and save Australian industry.

Justin Campbell is General Manager of LibertyWorks Inc.

Got something to add? Join the discussion and comment below.

Got something to add? Join the discussion and comment below.

Show comments