It’s important that we get it right because manufacturing is extremely good for Australia.
The manufacturing industry accounts for 22% of Australian exports and $108 billion of GDP annually, employing nearly one million people.
Manufacturing is by far the most research-intensive sector of the Australian economy, accounting for more than a quarter of Australian business spending on R&D and employing more than a quarter of all research staff in the private sector.
Sovereign manufacturing capabilities provide essential ballast and resilience. In times of external shock, Australia must be able to provide the basics of life: medical supplies and public sanitation; food, fibers and fertilizers; transportation fuels; and building materials.
Australia cannot afford to choose between reducing emissions or retaining manufacturing. We must do both, even as we adjust to a new era in global strategic relations and the global pandemic recovery.
Australia’s success will be based on three things: proving & developing advanced technologies, reducing the cost of delivering clean energy and leveling the playing field for trade-exposed manufacturing industries.
Australian manufacturers are investing in technologies to reduce their emissions in the short, medium and long term, presenting viable decarbonisation pathways for even our most emitting manufacturing industries.
Direct electrification using clean energy, green hydrogen as a feedstock, green hydrogen for heat and carbon capture, utilization and storage are four key long-term pathways, which will underpin the weak steel, ammonia, aluminum, cement, packaging and construction emissions. materials industries of the future.
Gotta be realistic
In some manufacturing industries, Australia will be a frontrunner in testing and scaling up low-emission technologies, while in others Australia will be a “fast follower” of global breakthroughs.
But we have to be realistic about the timeline: some of these technologies are still in their infancy on a global scale. Some require significant technical improvements, while others are prohibitively expensive to deploy on a commercial scale.
For any of these technology pathways to succeed, Australia must significantly expand its clean energy infrastructure, while achieving the best energy prices in the world.
Converting manufacturing processes that today are directly fueled by coal or gas to run on electricity or hydrogen is not the same as going from a form of electricity to a form of cleaner electricity. It’s much harder, it will require a lot more electrons, and they need to be priced competitively.
The scale of investment required in clean power generation, infrastructure, firming and storage to meet the demand for electrified manufacturing processes and hydrogen production is massive.
more and more urgent
To power just four key manufacturing sectors – steel, cement, ammonia and alumina – with clean electricity and hydrogen, Australia will need to more than double its total electricity production. This makes public investment in renewable energy areas, in transport and grid connection infrastructure, and in gas peaking, hydroelectricity and battery storage not only essential but increasingly urgent.
It also makes the disorderly or premature shutdown of thermal power generators, before they are properly replaced, an obvious risk for Australian manufacturers.
In the national electricity market, prices for electricity delivered in 2021 averaged between $70 and $80 per Mwh. At these prices, switching from fossil fuel-based manufacturing processes to clean electricity-based processes is unlikely. The competitive disadvantage for Australian manufacturing would be too great.
At $40 per Mwh delivered, we can roughly halve the competitiveness gap between today’s inputs and those of tomorrow. And at $15/Mwh, which is the federal government’s target for low-cost solar, we can expect significant investments in direct electrification and hydrogen-based manufacturing, regardless of other energy policy measures in place.
As we have seen elsewhere in the world – notably in the United States thanks to its affordable and abundant shale gas – having the best electricity prices in the world can lead to a resurgence in manufacturing, while reducing emissions.
There is a clear role for governments.
First, governments should continue to invest in research partnerships with industry to develop and reduce the costs of low-emission manufacturing technologies.
Second, when private investors will not invest in projects that are needed to shore up, integrate, transmit and store clean energy at the lowest cost, then governments should invest.
Third, governments can help stimulate demand for “green manufacturing” through consistent national standards and accreditation developed in partnership with industry, and changes in government procurement.
Finally, targeted investment incentives should help level the playing field for trade-exposed industries and reduce the risks for Australian manufacturers to make step-change investments, even when international competitors do not.
Australia has every reason to expect to play a globally competitive role in low-emission manufacturing. But we shouldn’t expect a straight line by 2050. Rather, our transition will look like a downward staircase, with big emissions reductions every time a technology matures and becomes commercially viable.
The transition of Australia’s manufacturing capabilities to a low-emission economy will benefit all Australians. Getting it right is essential.
Ben Eade is CEO of Manufacturing Australia.