Future Made in Australia [S1-10]

Show Notes

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Music: “Insurrection”
Written by Pierre Chrétien
Performed by the Soul Jazz Orchestra
Courtesy of Do Right Music Inc.

Transcript

William Sinclair
Welcome to Why Can’t They Just, looking at politics, policy and getting stuff done. My name is William Sinclair and I’m a member of the Labor Party.

Janaline Oh
My name is Janaline Oh. I’m also a member of the Labor Party, and before we start, I’d like to acknowledge that William and I are both recording this on the lands of First Nations people in Australia and we would like to pay our respects to their elders past and present, and any First Nations listeners that we have.

William Sinclair
In today’s episode, we’ll be looking at the Future Made in Australia policy. What it is, what’s been done about it so far. Janaline, first of all, what is the Future Made in Australia policy?

Janaline Oh
Yeah. So this is the Government’s attempt to implement the clean energy superpower agenda. So this is based on an idea put forward by Ross Garnaut, who is a professor of economics, was a Hawke government economic adviser and former ambassador in Beijing. He essentially put forward the case about five years ago, before Labor was in government, saying essentially that Australia could shift from being a fossil fuel exporter to seize the clean energy revolution and shift its export base to renewable energy and clean energy products. So a Future Made in Australia is the Labor government’s manifestation of that agenda.

William Sinclair
OK, but why did the Labor Party agree to this agenda? Why would the Labor Party be interested in this?

Janaline Oh
I think part of it is driven by the realisation that Australia is a very major fossil fuel exporter and fossil fuel exports account for a very significant part of our economic prosperity. And in a world where we need to decarbonize and in a world where we take climate change as a real thing and a serious threat, that cannot continue. And so it is incumbent on an Australian government that recognises that fossil fuels have a use by date - and that date needs to be quite soon. It is incumbent on a Labor government that believes that, to do something active to ensure that Australia is not left with a massive budget hole, unemployment and economic collapse because some of our major exports are no longer saleable.

William Sinclair
You’re familiar with economics. I did an economics degree. I’ve just graduated recently. The argument might be if Australia is seeking to leverage its comparative advantages in terms of renewable energy, in terms of clean energy, if these advantages that we naturally have are so salient, why can’t the free market just do this on its own? Why do we need the government getting involved? What does the government’s involvement actually achieve?

Janaline Oh
Yeah, look, that argument I think would work better if there were a global price on carbon. If there were a well functioning global price on carbon, a well functioning international carbon market, then the market signals should be strong enough for a Future Made in Australia, and this level of government intervention - because it is a very, very interventionist policy, like, let’s not pretend. This level of government intervention in Australia probably wouldn’t be necessary. The reason that we need this level of government intervention is because we don’t have a global price on carbon, so the international market signals are not necessarily fully consistent with the urgent need to decarbonize. So there is a role for governments to push that along.

William Sinclair
I’m just looking at some of the numbers here, so there’s $15.7 million to invest for a better approach to foreign investment, there’s $17.3 million to implement an agenda for better private investment. If someone wants to go out there and buy shares on the A200 and buy into a company, that’s all well and good, what does Government facilitating better foreign investment, or private investment - what does that actually accomplish?

Janaline Oh
I think what they’re talking about is not people just buying shares on the stock market. I think what they’re talking about is persuading some of those really massive heavy industry companies like your Mitsubishi Heavy Industries and your POSCOs in Korea - those really, really big companies - to come and invest in these new technologies in Australia to feed their supply chains. It’s about having those companies with the expertise and with the deep connections and commercial links through the global supply chain being able to invest meaningfully in creating these industries and importantly in buying the products.

William Sinclair
So the Government has promised to invest $22.7 billion over the next decade into this Future Made in Australia programme. What does investing $22.7 billion accomplish in terms of making decarbonisation a more attractive investing choice?

Janaline Oh
Well, I think mostly $22 billion is actually designed to try to deal with the green premium issue, to be an accelerator to some of the research and development that is needed to bring these technologies into a commercial space. A fair bit of that is R&D funding, a fair bit of that is committed to production tax credits at the other end of the scale. So once you’ve actually got your company going, you’ve got your production going, you can then claim tax credits when you start making stuff. Again, this is designed to get people to invest in production of these particular goods. I mean it is a classic kind of picking winners thing, you know, I mean you will be aware that a lot of economists do not look favourably on governments picking winners. This Government is unashamedly trying to pick some winners and those are green iron in particular, green hydrogen and probably also green steel.

William Sinclair
That brings me to our next question. When are we going to start to see benefit in terms of tangible changes to the Australian economy? When are Australians going to start to see benefit from this initiative in terms of wealth or projects that are actually occurring? When does this stop being pie in the sky stuff and actually start delivering a tangible change of any kind?

Janaline Oh
Well, to be fair, a Future Made in Australia was legislated last year, so it hasn’t had a massive amount of time to get off the ground. Some of the research funding has already gone out the door. That’s obviously the first and easiest thing to start funding. Some of the investments in kind of early implementation projects have started, but again one of the things that I think the Government is trying to do in the way that it designed Future Made in Australia was not over-intervene in the market. So I think they didn’t want to end up with the Government actually doing the production of green steel and green hydrogen, I think they wanted to create a mechanism to facilitate private investment in those things. And then the Government’s role comes in at a later phase through the production tax credits. It is still quite early days, like it has only been legislated in the last, you know, 12 to 15 months.

William Sinclair
Yeah, OK. I mean, I guess in terms of the strategy of the Government, as far as I can tell, the strategy of the Government is just to marry as much government decision making into private contracts as possible. So if and when the Liberals get back in, they can’t destroy the projects as quickly as they possibly can. Because the Labor Party tried rolling out the NBN, which of course had fibre to the premise, the Liberal Party came back in and they sort of scrapped the scheme. So they’re trying to marry as much of the project as possible into private contracts just to make it impossible for the Liberal Party to unpick. That’s the strategy as far as I can tell.

Janaline Oh
Well, I would say that is a very valid and reasonable analysis. I think you could definitely make a case that that is what the Government is doing. I don’t know if that’s exactly what the government strategy is, but you know, I mean it makes sense, right? It makes sense. If you look at the way that they’ve structured it, and it makes sense, as you say in the context of the kind of political analysis and history of Labor projects that have been reversed by Coalition governments.

William Sinclair
The project has five key industries, renewable hydrogen, critical minerals processing, green metals, low carbon liquid fuels, and clean energy manufacturing. Janaline, which industry is going to be the easiest to invest, to see tangible benefit in? Which industry do you think is going to be the most challenging in terms of investment in terms of approvals, in terms of seeing tangible benefits for Australians?

Janaline Oh
Yeah. Look, I don’t know. Look, nothing is easy, right? I just want to be clear.

The renewable energy roll out, for example, sounded great in the Powering Australia plan. We will just invest a motzer of government money into transmission lines and you know large renewable projects and people’s energy bills will come down And there will be massive support for this and we’ll take coal and gas out of the electricity generating system. You know, and we will keep a residual amount of gas for firming but essentially we can go to a massively renewable energy based electricity system in seven years from 2022 to until 2030.

Now that has not happened in the way the Government had planned, largely because there wasn’t a smooth roll out of transmission lines. There wasn’t a smooth roll out of large renewable projects. There were massive protests against offshore wind. There was massive resistance in regional Australia towards a lot of these projects. Now part of that was just, honestly, I think the Government failed to understand the extent to which local communities needed to be brought on board with their plan. I think they made a lot of assumptions about how people would perceive the costs and benefits of these things, and those assumptions proved to be wrong. On top of that, there were frankly quite a lot of mal-intentioned actors. Let’s say there were a lot of people who went out into those communities and basically stirred up, like magnified their legitimate concerns into really, really angry, strong political resistance, and a lot of that happened for political reasons, not for genuine reasons of, you know, community concern.

So I think nothing is easy. I mean hydrogen, hydrogen on paper makes a lot of sense. Green hydrogen is going to be absolutely critical to a lot of the decarbonization of heavy industry, because for a lot of heavy industry you need super high temperatures. You need massive energy bursts that are not possible with only electricity, and if you don’t want to use methane then hydrogen is not a bad option. But hydrogen also comes with a lot of technical issues, right? It is, you know, literally the smallest molecule in the universe, so it is very difficult to handle. It’s very volatile. It’s, you know, there are a lot of technical challenges, even ahead of the technical challenges there are a lot of issues around the commercialization, the transport, the infrastructure needed.

The Government’s theory, I think, is like with the COVID vaccines. If you chuck enough money and resources and political will at a problem, then human ingenuity will find a solution. That is, at the moment, proving to be a little bit challenging with green hydrogen. So the technology is there. We know what we need to do. It’s just proving a bit harder than I think the Government anticipated to get it all off the ground in a commercially viable way.

William Sinclair
Now we start going to, I guess, my concern with the whole project is that if there isn’t buy-in from the right stakeholders, if there isn’t buy-in from communities for wind farms, if there isn’t buy-in from Andrew Twiggy for hydrogen projects, how does the Government continue forward if it starts accumulating more and more resistance to these schemes?

Janaline Oh
Well, I think the Government is doing a lot to try to alleviate that resistance. So it is rolling out significant programmes in communities to try and deal with some of the issues. And look, a lot of these communities have real concerns, I mean, some of the private companies that were proponents for these renewable energy projects were doing, you know, random community consultations in a not very, you know, coordinated or reasonable way. I think the regulator was not on top of how to do these consultations properly; I think the Government didn’t think through the kinds of incentives and I guess structures that communities would need to have confidence that these projects would benefit them and not disadvantage them. So I think you know, there were some legitimate concerns. I think the Government is doing a lot better at that now. The other thing that it’s doing is looking at other ways of generating renewable energy. I mean the household battery scheme, which was just rolled out at the last budget and which has sort of immediately almost run out because it’s so over-subscribed, is one way of actually harnessing the residential generation of solar energy into supporting the grid and helping to stabilise the grid, as well as distributing benefits to people.

One of the things that the Government is doing, which I think is a really good thing, is it’s trying a lot of different things. It’s basically just chucking out a whole lot of ideas, putting some funding behind them and seeing what works and then modifying them. And I think that’s actually what governments should do more of.

William Sinclair
Obviously, a lot of these projects involve digging critical minerals out of the ground. Some of those critical minerals lie underneath forests, habitats, the sorts of things that environmentalists like us like and want to preserve. It seems to me like there’s a lot of people who aren’t that focused on the environment rubbing their hands thinking ‘Great, we’ve got a kind of climate changey reason to kind of tear up all these habitats and all these forests’.

Janaline Oh
This is one of the reasons that the Labor Environment Action Network, or LEAN, as you refer to us, has been so active in the reform of the environment laws, because one of the things that we wanted to be very, very clear about was that addressing climate change is not a reason to destroy biodiversity. We wanted reassurance that the rules for environmental protection would be just as strong for a wind farm or a critical minerals project as it is for, you know, a housing project or a factory or a fossil fuel project. I think we have achieved that in the sense that these rules will be applied across the board. There are not blanket exemptions.

One thing that I think we should probably keep an eye on is the capacity for the Minister to override some of the key environmental protections for a project that is deemed to be of overriding national interest. And honestly, when I think about what those projects might be, critical minerals is where I always end up because at the end of the day, renewable energy projects can be relocated; housing developments, factories, generally speaking, can be put in other places. You can only mine critical minerals where the critical minerals are. And if they happen to be underneath a really key bit of habitat, then the decision becomes very, very difficult. So I would be keeping an eye on that.

I think the main thing that we can do is make sure that there are strong protections through the environment laws and I think the laws that were passed at the end of last term and that were the subject of our last podcast episode are actually pretty robust. And if they are implemented in the way that we hope they will be, they should go a long way to ensuring that critical minerals projects don’t just destroy the environment, because obviously we don’t want that to happen.

William Sinclair
All right, we’re going to go take a break. But when we come back, we’ll talk about the geopolitics of the Future Made in Australia programme and we’re going to talk about what happens to the old workers who can’t retrain for the newer industries.

All right, so we’re back, and we want to talk about the geopolitics or the geopolitical implications of the scheme. I guess my first question is: Janaline, we all know that it’s cheaper to make stuff in China, particularly with the manufacturing angle of this project. How could we possibly compete with China in the manufacturing space in making batteries, in making XYZ? Wouldn’t it just be easier for us to export the minerals, get them manufactured in China and buy them back?

Janaline Oh
Well, I mean, this is effectively the economic strategy that we’ve had for decades, right? We’ve dug up iron ore, we’ve chucked it on boats, sent it to China and they’ve processed it.

The issue - there’s a few issues with that. So firstly, China is very dominant in a lot of these processing markets. Not all, but the Chinese economy is also quite fragile. The property bust in China has undermined a lot of the local government-run bits of the economy. Investment in heavy infrastructure is slowing and, you know, there is a huge unemployment and underemployment problem in China. People who are not dedicated China watchers don’t necessarily spend a lot of time focusing on these. But I think it would be very unwise just from a kind of global economic stability perspective to be relying wholly on a single country for manufacturing a whole supply chain, even if that is an enormous country, because history has shown us that even the most powerful empires can crumble and can do so quite quickly. So I think that’s one issue: the sort of economic stability of global supply chains.

The second issue is, quite honestly, political. The Chinese Communist Party has proven itself to be very willing to use its dominance of particular supply chains to punish trade partners for effectively political acts, such as talking to the Dalai Lama or, you know, criticising some aspect of Chinese sovereignty claims or hosting US missiles.

So I think that for all of those reasons, it is smart not to rely wholly on China. There is another reason, which is that the Australian economy is really incredibly non-complex for a country at our stage of development. And I think pushing Australia further up the value chain for some of these minerals is also a good idea from the point of view of diversifying our own economy and increasing value-add. I think in terms of just an economic strategy for Australia, it also makes sense to look at ways in which we can improve the value add that we produce within this economy.

William Sinclair
I guess my concern is that it doesn’t - to me it seems like all the government subsidies in the world are not going to bring down the cost of labour to, you know, $5.00 an hour or whatever it is that Chinese workers are being paid, so are you sure that even with all the government subsidies that we would be able to compete with the sort of manufacturing juggernaut of the Chinese economy?

Janaline Oh
So one of the things that I would say is that Chinese workers are not that low-paid anymore. One of the reasons that a lot of the sort of lower skilled end of Chinese manufacturing has migrated to places like Vietnam and Cambodia, is because Chinese workers are actually quite a lot more expensive now.

China is actually dominating in much higher value ends of the supply chain. Chinese capital is also like - Chinese capital investment is also massive. And you know, their use of robotics, their use of AI, their use of, you know, very capital intensive and non-labour intensive modes of manufacturing is quite substantial, so I think there is a bit of a myth around China just being full of a bunch of really cheap low skilled workers that people in the West can’t compete with.

Even at that lower skill end. I would say that lower skilled workers in Australia are still more productive than lower skilled workers in China. They are healthier, they are better educated, and they have better social structures around them. I don’t think it is impossible for Australia to compete with China. Australia cannot compete with China in the full range of things that China is a leading manufacturer in, but we can definitely compete with China in specific areas.

William Sinclair
So the last question to sort of cap this episode off: obviously, we’re both members of the Labor Party and when it comes to economies transitioning away from certain industries, usually that means a whole bunch of people losing their job. What is the plan?

If workers in the carbon based economy, workers in the traditional economy lose their jobs or are just made redundant as we shift towards this renewable energy plan, what happens to them?

Janaline Oh
So one of the things that obviously the union movement is very, very, very focused on is exactly that question. It is how do we ensure that the inevitable transition away from a fossil fuel based economy to a clean energy based economy is implemented so that workers don’t just end up on a scrap heap. And part of a Future Made in Australia is actually about creating those good, high-skilled, secure, unionised jobs that workers can transition to, because a lot of the skills are going to be the same.

The skills you need to dig up critical minerals are at least similar to the skills that you need to dig up other types of minerals, you know, I mean the transition of people from the oil and gas, the offshore oil and gas industry to potential jobs in offshore wind is possible because a lot of the skills are similar or the same.

So it’s really about, I think, ensuring - and this is actually part of the whole purpose of a Future Made in Australia. One of the things that we as the Labor Environment Action Network worked very, very closely with the unions on at the 2023 National Conference where we put the sort of the seeds of this policy into the national platform was about the need to ensure that this transition is properly planned, because if you have a planned transition - and this comes to your original question actually about why not just let the market do it. If the Government has a role in the transition, then the Government can ensure that unintended consequences for workers don’t overwhelm the system. That you know what you’re going to do with your workforce when they are no longer able to work in the fossil fuel sector.

If you just leave that to the market, then we know what happens because we’ve seen what’s happened throughout history. Companies and industries go bust. And the workers end up, you know, unemployed, they end up struggling. Over time as a population and as an economy, more jobs are probably going to be created and people will get those jobs, and maybe those jobs will be better. But for the individuals who actually lose their jobs in the first round, often they can’t get other jobs. Often they stay long term unemployed and it is a terrible, terrible social cost.

And it’s also a terrible political cost for progress and for economic reform, because once people see that degree of suffering inflicted on parts of the community, they become a lot more nervous about progress and economic reform. So I think it is actually really important, not just because it’s the right thing to do, although I would say as a Labor member it is absolutely the right thing to do, but also because it is the smart thing to do to ensure that you maintain community support for reform, because we will need reform. Fossil fuels are going to end. I mean, it’s just, this is the way the planet is going. So I think it is really smart for the Australian government to preempt that, not have it happen to us, but actually try to accelerate it. And shape the outcome.

William Sinclair
All right, that was this week’s episode of Why Can’t They Just, looking at the Future Made in Australia policy. I guess we’ll see you after Christmas. My name is William Sinclair.

Janaline Oh
My name is Janaline Oh, and this is Why Can’t They Just?