Australia has a long and successful history of mining primary materials and growing agricultural commodities and shipping them to our major trading partners around the world.
Exports of iron ore, thermal coal, coking coal, wool, wheat, and other commodities have fueled a great expansion of the Australian economy for decades but, for a variety of reasons outlined here, this fantastic run is no longer sustainable.
We need to restructure our economy to better leverage our comparative advantages in natural resources and clean energy and to start making things here instead of just buying them with our commodities’ export earnings—this is critical our ‘buy or build’ challenge.
The first part of this challenge involves the rapid changes in external demand for some of our traditional mining exports. The world is rapidly decarbonizing and already the thermal coal value chain is under full assault with more and more coal companies filing for bankruptcy.
This decline in demand will also move to coking coal as major steel and aluminum producers are finding novel and cost-effective solutions for eliminating coking coal from their production processes.
SSAB, the major Swedish steel producer, is replacing coking coal with green hydrogen using their HYBRIT technology.
SSAB wants to become the world’s low carbon producer of steel as their customers are under increasing pressure from their investors to lower the carbon intensity of their supply chains.
This global energy decarbonization trend will eventually find its way to natural gas as it is already cheaper to produce electricity from solar and wind farms than burning gas in many countries—including Australia and the U.S.
Our thermal coal, coking coal, and gas exports cannot be relied upon as major drivers of economic growth over the next decade—we will need to find other large growth platforms to reach our 2030 targets.
The second part of this challenge concerns the extent to which we can continue to be a major producer of primary agricultural commodities as the impacts of climate change have already arrived.
Climate change will impact our ability to grow agricultural commodities due to changes in both temperature and rainfall. Increases in both daytime and nighttime temperatures across Australia are already impacting where certain plant species can grow.
Winemakers in many of the key wine regions of Australia are already forced to shift the locations where certain grape varieties are cultivated.
Major changes in the frequency and location of rainfall across Australia will ultimately lead to significant reductions in agricultural productivity across much of Australia.
Furthermore, with a growing international trend away from eating meat, including the explosive growth in plant-based ‘meat’, how much longer can we expect our world-class beef producers to continue to play a big role in our export earnings?
Finally, although there is a promising trend in investments into integrative farming, which is lifting productivity and yields on formerly degraded farmland, it is unlikely this will be enough to offset the larger climate change trends across the rest of Australia.
Considering the amount of economic growth required to drive the Australian economy to 2030, it becomes clear we now need to lift growth to unprecedented levels. When we add recovery from the impacts of the bush fires and the COVID-19 pandemic, this challenge becomes even more daunting.
Even if the supply and demand of our primary commodity exports were not at risk, they would not be enough to drive growth to the higher levels now required. This strongly supports the need for a completely new approach to growth.
Ross Garnaut was spot on when he claimed in his Superpower book that Australia could become a global low-carbon energy superpower.
Unfortunately, to date this has only led to major projects to export low-carbon solar power to Asia, generated in the Northern Territory or Western Australia, through a giant cable to Singapore and Indonesia and sending green hydrogen to Japan and Korea.
These are not necessarily bad projects, but they limit our ability to drive growth up to the higher levels required through 2030 and beyond. When we export highly valuable low carbon energy to our trading partners, they use it to produce low carbon products and services which are sold back to us at a premium.
Almost everything our trading partners will produce with our low-cost, low-carbon energy we can and should produce in Australia.
Lithium provides an excellent example of the extent to which we are giving away too much value through our exports—value which will now need to be created and captured in Australia if we want to reach our 2030 growth targets.
We are the world’s largest producer of lithium and we are more than twice as large as the next biggest producer, Chile. Until very recently, most of the lithium produced in Australia was controlled by the Chinese company, Tianqi Lithium.
Problems in servicing their large debt obligations forced Tianqi to sell a large portion of its Australian operations to IGO, an Australian mining company based in Perth.
Despite a large portion of our lithium production now being controlled by an Australian company, we still export lithium to countries which extract significantly more value from it by putting it into batteries—which we buy back at a premium in the form of mobile phone and electric vehicle batteries.
If we are going to drive growth to higher levels, we will need to capture much of this additional value in Australia. This will mean more local conversion of lithium mineral into lithium hydroxide and, eventually, large-scale local production of lithium-ion batteries.
Both these projects represent some of the best and largest investment opportunities in Australia—they also underpin the expansion of the gigantic clean energy industrial ecosystem as envisioned by Ross Garnaut.
Maybe the most glaring options for how to generate higher levels of growth comes from the NSW Government and its ambitious plans to convert 8000 buses from diesel and CNG to battery electric and fuel cell electric buses.
There are two extremes which define the boundaries the range of options for this plan—and they lie at the heart of our national buy or build challenge.
At one end, Transport for NSW [TfNSW] starts ordering electric buses from, for example, Chinese company BYD. This is a low-risk option as BYD is a world-class company which can be relied upon to deliver electric buses on time and on budget.
At the other end, TfNSW could require that all 8000 electric buses must be assembled in NSW with most of the major high value components, including the batteries, coming from Australian suppliers.
The problem with navigating this wide option spectrum is TfNSW does not see itself as an economic growth agency—quite the opposite as it is currently a major drain on the NSW Treasury returning little revenue relative to the cost of operating the State’s public transport system.
If the NSW Premier and Cabinet were to re-position TfNSW as a growth engine, then the electric bus plan will play out much differently.
A key fact, which should be reflected in the electric bus plan, is Australia exports more than $50 billion per year in capital, and thousands of quality jobs, to buy internal combustion vehicles and the petrol and diesel to power them from foreign suppliers.
This should be a source of national embarrassment and a key part of the electric bus option decision calculus.
Imagine the enormous uplift in economic growth which would flow from assembling electric vehicles and batteries in Australia and keeping $50 billion per year in the country.
We could finance the entire cost of retooling our former vehicle assembly plants and building battery factories with less than 10 percent of these annual savings.
We could create thousands of high value jobs and re-employ thousands of Australians who lost their vehicle assembly jobs over the last decade.
We can locate key electric vehicle supply companies in regions which are losing carbon intensive jobs in, for example, coal mining and exports. Imagine a battery giga-factory located in the Port of Newcastle and other key suppliers located across the Hunter Valley in NSW and the Latrobe Valley in Victoria.
Instead of running ahead with plans to continue exporting high value commodities, including low carbon energy, let’s keep most of it in Australia and use it to become the world’s low-cost, low-carbon energy superpower.
We can leverage our new clean energy superpower status to expand wind and solar energy, firm all of it with energy storage including batteries, produce green hydrogen then use it to make low-carbon aluminum and steel, assemble electric vehicles and batteries—with all the value created and captured in Australia.
This isn’t just a fantastic growth opportunity for Australia—it’s the only one large enough to drive growth to the higher levels required through 2030 and beyond.
Michael Molitor is CEO of Uniti Australia.