Australia’s new budget fails to grasp the full magnitude of the economic opportunity of decarbonizing despite the country’s leading position in rare earth minerals, lithium, solar and low-carbon innovators.
Since the U.S. passed its Inflation Reduction Act (IRA) – injecting roughly US$1 trillion into a climate New Deal for America’s economy – it is game on for decarbonization, triggering a global race to become the next climate economic superpower.
Europe, Canada, India, South Korea and the U.K. have all established their own IRA like programs with stimuli to try to keep pace with the U.S. And we can’t forget that China already has a decade-long lead in everything from wind and solar to batteries and green metals refining.
Australia, with its unlimited renewable energy resources and rare earth minerals, is a natural candidate to join these ranks. Hopes surged last year after the stunning defeat of Scott Morrison’s conservative, fossil fuel loving government. The country voted in seven “teal” independents and a number of Greens in a political moment that turbocharged Australia’s Labor party to power.
So, expectations were high last Tuesday when Australians tuned in to Treasurer Jim Chalmers’ budget speech. Given that climate had been the decisive issue in the last election, a growing coalition of regional partner nations, investors, decarbonizing innovators and climate activists alike held their collective breath in hopes of some real vision.
Where was the vision for a new climate economy, for a future that keeps jobs, investment opportunities and income onshore?
A political mandate without climate ambition
Chalmers is, by all accounts, a measured and trusted man with a dollar. Prior to the speech, his meetings with business and non-government organizations, myself and members of a new Climate Capital Forum, suggested that a strong IRA and energy transition response was in the offing.
Sadly, Labor did not deliver. The budget that Chalmers announced screamed “missed opportunity.” Australia’s Labor government led by Anthony Albanese, known at home as “Albo,” missed out on a once in a century opportunity. Where was the vision for a new climate economy, for a future that keeps jobs, investment opportunities and income onshore?
For more than a hundred years, Australia has had a “dig and ship” economy, mining coal, gas and raw materials mined and shipped them to China for refining. It then buys back key goods like steel and solar panels at much higher prices.
The global move to both improve supply chain security and decarbonize offers Australia – the world’s leader in rare earth minerals and with some of the cheapest renewable energy in the world – unprecedented opportunities.
Okay for renewables and electrification, great for the gas cartel
It’s not that the budget was a step backwards – it was a welcome change from ten years of inaction but there was no sign of economic courage.
There was good news – the government delivered a massive surprise: An A$4.2 billion (US$2.8bn) surplus for 2022/23 – a staggering A$43 billion (US$28.8bn) turnaround in just six months. Imagine that America!
While a surplus is nice, if ever there was a time to invest that money into Australia’s great big decarbonizing opportunity, it’s now. Instead, Australians got incrementalism – scatter-shot funding and previously announced initiatives. Funding of A$89 million (US$59m) to build renewable energy capacity is, as we say in Australia, “small bickies.” A$1.6 billion (US$1bn) to electrify everything is a good start, but not enough. A$2 billion (US$1.34bn) to support two to three green hydrogen demonstration projects at world scale is…nice. It’s sufficient to at least keep Australia somewhere in the green hydrogen race, but the U.S. is spending US$7 billion with private capital already crowding in more.
Previously, the government also committed a sizable A$15 billion (US$10bn) National Reconstruction Fund post-Covid, a A$20 billion (US$13.4bn) Rewiring the Nation Fund, A$1.9billion (US$1.2bn) Powering the Regions Fund and added funding to a range of existing clean energy project funds. The government did announce a Net Zero Authority that just might have enough power to pull all the threads together but there’s little sign of that yet.
The “Lucky Country”
What jumps out from Tuesday’s budget is a clear sign that the Australian government still doesn’t get just how big and transformational global decarbonizing really is and what it offers. Instead, the government fell back into a tried and true lexicon of Australian life made famous by author Donal Horne’s “The Lucky Country.”
Now what? Australia can recapture the moment of last year’s election and show the world what it takes to become a renewable energy superpower, a phrase much touted by Albo and his ministers.
Australia, he wrote, is a lucky country “run mainly by second-rate people who share its luck.” The book was a wake-up call in the 1960s to an unimaginative nation, an indictment of a country mired in mediocrity and manacled to its past. The book still remains illuminating and insightful decades later. It’s also a cautionary tale. If Australia doesn’t grab the global decarbonization opportunity now, its luck may well run out.
A gift for gas
One big reason for the reluctance to act is that the leaders of the main political parties do not want to antagonize the country’s powerful fossil fuel producers. The budget barely increased the country’s windfall Petroleum Resource Rent Tax (PPRT) by a tiny 1%. Climate finance expert Tim Buckley, CEO of Climate Energy Finance, calls this “a serious case of fiscal policy underreach” given that the gross profits of Australia’s liquid “natural” gas (LNG) exporters will top A$63 billion (US$42.2bn) this financial year.
“The gas industry has been gifted a discount on royalties relative to every other mining sector in Australia, as it reaps war profits off sovereign public assets while returning a relative pittance to tax coffers,” Buckley says. “It speaks to the undue influence of the gas cartel and its vocal lobbying on public policy.”
Also disappointing is the government’s failure to cap the country’s A$9 billion (US$6bn) a year imported diesel fuel rebate which is, unbelievably, bigger than all of its renewables support in this year’s budget.
Show us the vision
Now what? Australia can recapture the moment of last year’s election and show the world what it takes to become a renewable energy superpower, a phrase much touted by Albo and his ministers. The opportunities are everywhere.
Last November, the non-partisan Climate Capital Forum (CCF) published a road map of what Australia should do to capitalize on the world’s climate economic opportunities. CCF is an unusual combination of impact investors, decarbonizing businesses, climate finance NGOs and philanthropists – including this writer* and Buckley. What surprised Forum members – now up to 28 – was the furious agreement we shared in what the government needs to do to take that road: Economic reform.
Australia is in a unique position. It cannot compete with Biden’s big IRA dollars or America’s deep consumer markets. But it also doesn’t have the debt that may hobble America’s green dreams.
See our related story*: Why I formed a Climate Capital Forum in Australia and why every country needs to do the same.
Australia is in a unique position. It cannot compete with Biden’s big IRA dollars or America’s deep consumer markets. But it also doesn’t have the debt that may hobble America’s green dreams.
Our unlimited renewable resources and abundant lithium and rare earth minerals are, however, the envy of the world. We are also strategically positioned close to the fastest growing economic region in the world. Japan, Korea, China and India are eager to throw off the shackles of fossil fuel dependence and embrace clean, renewable energy like green hydrogen, wind and solar. We have that to offer.
Australia too is blessed with a spirit of innovation and has legions of entrepreneurs, investors and a population eager for smart economic reform and incentives that could open the flood gates to private capital. We could, for instance, leverage our now A$3.7 trillion (US$2.48) private superannuation – retirement – fund pool. That would send a clear message to investors and businesses that this is our pivotal economic moment.
All of this will require Albo and his government to go beyond provincialism and the historic dependencies that are the hallmarks of the “lucky country.”
Now is the time for courageous action
The world does not operate on Aussie rules. It won’t wait for Australia in the climate solutions race. Now is the time for this country to shrug off its old ways, step up, think big or be left behind.
Featured photo: Jim Chalmers’ budget speech. Credit: ABC News
