Will Australia’s ‘technology, not taxes’ energy approach deliver net-zero target?


Words by Alexandra Colalillo

Australia’s new Long Term Emissions Reduction Plan to deliver net-zero emissions by 2050 will rely on two trends: economies of scale to facilitate cheaper low-emissions energy production; and industry and consumers making the switch to an energy mix dominated by low-carbon sources.

A $20 billion investment in new technology by the Australian Government over the next decade may not be enough to precipitate at least $80 billion of total private and public investment in clean hydrogen, carbon capture and storage.

This plan, presented at the Conference of the Parties (COP26), is underpinned by the following principles: ‘technology, not taxes; expanded choices, not mandates; driving down the cost of new technologies; keeping energy prices down with affordable and reliable power; and being accountable for progress’.

These principles sound fair, but will this plan be fit for purpose to establish our nation as a leader in low emissions technologies, while simultaneously preserving existing industries, regions and jobs at risk?

There are three fundamental concerns: (a) the plan rules out taxes or a legislated mechanism to avoid costs on households, businesses and regions.

However, alternate plans to raise revenue in an effort to service new technology investment isn’t comprehensive; (b) while Australia intends to reduce emissions, it will continue to serve traditional markets that will ultimately dampen our ability to reach a net-zero target, such as coal; and (c) the strategy behind protecting Australian jobs is granted through continuing to operate mines in these traditional markets with little consideration to ensure current skill sets are transferable to serve the energy transition of the future.

Australian Prime Minister Scott Morrison stated: “The plan will deliver results through technology, not taxes … it guarantees that we keep downward pressure on energy prices and secures reliable power. It will ensure Australia continues to serve traditional markets, while taking advantage of new economic opportunities.”

This objective seems challenging amid concerns that Australia’s energy policies are not integrated, nor coherent.

There is uncertainty that Australia’s electricity networks are not designed, governed and operated to tackle increases in electricity demand as we undergo a significant energy transformation in Australia.

Key elements absent from the plan are: specific measures to reduce emissions; estimates of their effectiveness and their impact on existing industry and employment; and measures to reduce such impacts. This leaves Australia’s plan open to criticism.

Alexandra Colalillo is an economist and manager at a multinational professional services firm in Western Australia.

(a) Technology, not taxes

Minister for Industry, Energy and Emissions Reduction, Angus Taylor, noted: “Our plan is built on a set of key principles; the most important being technology, not taxes … we won’t introduce a carbon tax that drives Australian jobs overseas and punishes the most vulnerable in our community through higher prices for electricity and other essentials.”

How realistic is the net-zero emissions target if we continue to serve traditional markets that ultimately produce emissions?

The idea of an Australian green revolution depends on creating demand for a concept and a product in its infancy, while simultaneously soliciting support from the government.

The US Special Presidential Envoy for Climate, John Kerry, acknowledged that approximately 50 per cent of the “technology” required for net-zero doesn’t yet exist.

Therefore, $20 billion isn’t likely to fund critical technologies domestically, many of which require 15-20 years to come to fruition.

While the Australian Government has a plan to invest $20 billion into new technologies, such as carbon capture and storage and hydrogen production, where is future revenue coming from in the absence of a carbon tax? We are instead placing our reliance on future taxpayers and investors for support.

Andrew Forrest recently pledged to produce 15 million tonnes a year of green hydrogen by 2030 and announced that Fortescue Metals Group would no longer just extract and ship 180 million tonnes of iron ore. Instead, it would zero out its own carbon emissions and become a renewable energy powerhouse.

However, are Australian billionaires the solution to this environmental problem? Australia’s reliance on investors is a cause of concern if lower-profile investor confidence in new technology dissipates.

Ultimately, if investors pull out and alternate government revenue streams dry up, there is a risk that Australia will be left with a large debt and a heavy burden on future taxpayers.

This is very possible given Australia’s incoherent energy strategy to achieve the 2050 goal. Instead, investors may turn to other countries whom they deem to have a clear plan to drive down emissions.

(b) We’re still serving traditional markets

Minister for Industry, Energy and Emissions Reduction, Angus Taylor, noted: Our plan “will not shut down coal or gas production, or require displacement of productive agricultural land.”

Australia is the world’s biggest exporter of coal and the resource is often cited as a cheap form of energy. However, the environmental impacts are considerable on air quality and the climate. In 2020-21, export revenue for thermal coal equated to $16 billion and $23 billion for metallurgical coal alone.

Given we rely on a large proportion of coal export revenue to serve the productive capacity of the Australian economy, a global decrease in coal demand will hit hard.

Countries globally drive their own agenda to reduce emissions and we can therefore speculate that future tariffs may be imposed on Australian exports of coal in an effort to support global environmental agendas.

For example, America is aiming to switch off its coal-fired power stations in 14 years which will contribute to a deteriorating coal market, driving down coal prices and ultimately placing pressure on coal producers.

Will the demand reduction stemming from the lack of popularity in coal be the catalyst to drive away production of unclean energy sources? This is a future consideration and if we are serious about net zero emissions, the federal government needs to determine how best to transition communities in coal regions towards other forms of energy export.

(c) Preserving existing jobs

Minister for Industry, Energy and Emissions Reduction, Angus Taylor, also noted: “Our plan continues the policies and initiatives that we have already put in place and that have proven to be successful, while preserving existing industries and jobs, and supporting regional Australia.”

The question is, how do we deliver on net zero emissions while preserving Australian jobs?

Preserving existing industries and jobs may be perceived as a short-term solution to a long-term problem. If industries and consumers globally intend to switch to low emissions technology, the forces of supply and demand will inevitably drive out traditional markets, such as coal. Given Australia is heavily reliant on our resources export revenue, this shift could be damaging.

Therefore, those employed within those markets will be unemployed unless there are strategies in place to train and retain our pool of skilled labour.

Around 1.2 million people are already on JobSeeker and Youth Allowance benefits payments, yet businesses and the NSW Premier are calling for more immigration due to skills shortages.

It is the responsibility of governments, businesses and the education sector to develop strategic and operational plans in an effort to preserve Australian jobs amid the new energy transition.

However, if we call upon our leaders to make Australia the world’s leading exporter of renewable energy by 2030, this could be one step in the right direction.

This article appeared in the December issue of Australian Resources & Investment.

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