Australia’s deindustrialisation

High energy prices are causing Australia to deindustrialise. Last week the Australian reported that mining giant Glencore’s chief Peter Freyberg 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 Australia’s energy prices have gone from being one the cheapest in world to one the highest. This is unfortunate since many of Australia’s competitive export industries are dependent on cheap energy.

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

The RET is a threat to Australia’s competitive export industries, Australia exports 1.6 million tonnes of aluminum generating $3.8 billion in exports.Glencore’s chief Peter 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 of reliable and affordable electricity. As I have stated previous 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.”

Regulation Economics’ Alan Moran wrote in the Herald Sun of increased energy prices, “This in turn is 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 promise Australian’s 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, for those of us paying attention we have a natural experiment that allows us to see what a deindustrialised Australia would look like, New Zealand. According the World Bank the Kiwi GDP Per Capita is 39,426.62 USD compared to Australia’s 49,927.82 USD. 100% Pure New Zealand’s GDP is considerably lower resulting in the exodus of Kiwis to Bondi Beach.

Australia’s industrial heart is a long way away from Ultimo and Wentworth and 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
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