Renewables, not gas, will power resurgence of Australian manufacturing

The COVID-19 pandemic has reminded Australians of the importance of a resilient and versatile domestic manufacturing sector. It has confirmed that being able to domestically produce a full range of essential manufactures is a matter of national wellbeing.

Even the Treasurer, Josh Frydenberg, is reassessing our reliance on global supply chains.

But the sector is energy intensive.

The Prime Minister and others have claimed this means that without coal (which currently constitutes over half of our electricity mix), Australia cannot manufacture competitively. Others claim that new investments in gas, supposedly a ‘transition fuel,’ are the best hope for manufacturing.

For these claims to be true, renewables would have to be more expensive than fossil fuels, less available at the right times and locations, and unsuitable for industrial purposes (including steel and aluminium production).

None of that is accurate.

New research from the Centre for Future Work shows that, far from being paralysed by economic or technological restrictions, Australia enjoys an unprecedented commercial opportunity to green its energy sector and improve the competitiveness of its manufacturing sector – simultaneously.

The only barrier is lack of political foresight and courage.

Australia enjoys a superabundance of renewable energy resources – solar, wind, landmass – especially relative to our major trading partners to our north. As renewables demonstrate a growing cost advantage relative to fossils (including gas), energy intensive processes like steel and aluminium production become increasingly cost-competitive to undertake domestically.

This in turn presents an unprecedented opportunity to move our production mix up the value chain. Instead of exporting huge amounts of unprocessed raw resources, we’d do the upgrading and manufacturing ourselves: generating more jobs, more income, more innovation, more export value.

We’d break out of our current ‘resource trap’: importing expensive value-added goods made from our own raw materials (think lithium-ion batteries) at a significant mark-up. Instead, we’d make that high-value stuff ourselves.

The government’s own figures (from the CSIRO GenCost report) indicate renewables are already the cheapest source of new energy generation, even with extra costs for storage.

They will become even cheaper over time. And we know that our ageing coal-fired power stations are already the most unreliable sources of energy on the grid and are being progressively retired.

Why would anyone now choose a more expensive, dirtier, and less reliable power source (even gas) over a cheaper, cleaner, reliable one?

Under a scenario where, rather than replicating our existing energy mix to supply manufacturing, we installed renewables – wholly backed up by pumped hydro storage – the sector would save $1.6 billion a year, more than a fifth of its energy bills.

There is talk of a ‘gas-led recovery’, but each year the government foregoes the energy transition to renewables, it incinerates private sector money.

The situation is remediable. Forward-looking manufacturers are pressing ahead with renewables, notwithstanding a dearth of government support. These include Sun Metals’ solar-driven zinc refinery near Townsville, OneSteel’s reinvigoration of the Whyalla steelworks, and Danish wind energy giant Vestas manufacturing windmills in the former Ford factory at Geelong.

But while private firms can make prudent energy decisions, even the biggest private sector entities have less access to finance than governments, less ability to mobilise the workforce, and less influence over policy.

The federal government has an opportunity to provide investment certainty for these and other companies – as well as save business a lot of money.

A strong manufacturing sector and a clean energy market are not opposing objectives. Other industrial nations manufacture much more than Australia, while emitting far less, on a per capita basis – even without our abundance of renewable resources.

And some 80 to 90 percent of Australians support both the Australian manufacturing sector and a more assertive transition to renewable energy.

There’s a clear overlap between voters holding positive views about both the importance of manufacturing and the need for renewable energy. This majority bloc of voters would be mobilised by a persuasive policy narrative involving renewables-based manufacturing.

Domestic manufacturing is a source of good-quality jobs. Australia has renewable resources that other manufacturing nations can only dream of.

The economic ‘thaw’ coming after COVID offers Australia a unique chance to build a brighter industrial future: the interests of business, workers, the environment, and national resilience are all advanced by boosting sustainable manufacturing.

Forward-thinking policies to accelerate the transition to renewable energy, and link it strongly to revitalised domestic industry, would benefit all stakeholders – and the governments that put those policies in place.

Dan Nahum is Economist at the Centre for Future Work, and author of the new report: Powering Onwards: Australia’s opportunity to reinvigorate manufacturing through renewable energy, available at https://www.futurework.org.au/. @Dan_Nahum