Green delusions

The industries of the future won't come from government handouts

In his first speech to the National Press Club after the 2022 election, the Prime Minister boasted that his reforming Labor government would transform Australia into a clean energy superpower.

How so? asked a sceptical journalist from Bloomberg News. How would Australia compete against the US, Canada, China, and other countries that are aspiring to be global leaders in green manufacturing?

“By getting on with it,” replied the Prime Minister. 

Some 20 months later, the question remains unanswered: getting on with what? The two examples of promising green businesses the PM cited that day have hardly stood the test of time.

Sun Cable, Mike Cannon-Brookes’ proposal to build the world's largest solar farm and link it by an undersea cable to Singapore, seems less likely to come to fruition than Clive Palmer's plan to rebuild the Titanic.

As for Tritium, the Australian company that promised to build the world’s fastest electric vehicle chargers in south-east Queensland, the less said the better. Tritium’s future, if it has one, won’t be built in Australia. It will be built in Tennessee, where the company has received generous assistance from President Biden’s Inflation Reduction Act, securing a sweetheart deal to build a giant manufacturing plant.

The $15 billion National Reconstruction Fund Albanese promised would kick-start the industries of the future has been in place for well over a year but has yet to issue a single grant. The PM plans to break the impasse with the National Reconstruction Fund 2.0, optimistically named the Future Built in Australia Bill.  

Underpinning the government’s green superpower ambition is a breathtaking complacency that assumes that Australia's natural advantages in the fossil fuel-based economy can be seamlessly swapped out for ascendancy in the brave new carbon-free world. They cannot. Our primacy in resources was based on having stuff. Green manufacturing is about making stuff, which is a different game altogether.

The Albanese government has placed a speculative bet on green hydrogen as the key to our export success. It makes the fatuous claim that Australia has an abundance of sunshine that can be turned into cheap renewable energy. 

In October 2022, Chris Bowen announced a $13.7 million grant to Andrew Forest’s company Fortescue Futures to scope the construction of a 500MW electrolyser at Gibson Island near Brisbane. Bowen described the project’s success as “critical” to Australia’a ambition to be a green energy superpower.

Last month, Fortescue Energy boss Mark Hutchinson reinforced the project's importance, describing it as "a litmus test for the rest of the hydrogen industry in Australia."

Yet when Fortescue announced financial approval for a string of green hydrogen projects at the end of last year, Gibson Island was not one of them.   

“We’ve been working very, very hard on it,” Hutchinson told The Australian Financial Review Business Summit last month. “But it’s tough based on the current power prices when we’re looking at competing globally.”

To judge from Fortescue’s investment portfolio right now, the future may be built in Norway, northern Patagonia, Brazil and British Columbia before it is built in Australia. It may even be built in Kenya and Congo.

The future is already being built in Buckeye, Arizona where Fortescue is investing $US 500 million in a green hydrogen plant it says will be up and running by the year after next.

It turns out that abundant sun was not such a competitive advantage in the manufacture of green hydrogen. Low taxes, fiscally responsible government and cheap and reliable carbon-free energy are far more appealing draw-cards for investors.

Manufacturing in Arizona grew faster than in any other state last year. It includes energy and water-intensive industries like silicon chip manufacturing, where Arizona has come from nowhere to fourth place among US states.

Apologists for the Albanese government might look for excuses in the global subsidy arms race unleashed by the Biden Administration's Inflation Reduction Act. They might claim that Arizona has easy access to a much bigger market.

Yet Arizona's high-tech manufacturing boom started before Biden came to power and came at the expense of neighbouring California, where manufacturing is declining. 

It isn't hard to work out why. Arizona's top state income tax rate is 2.98 per cent. California's is 13.3 per cent. Corporate tax in Arizona is 6.96 per cent compared to 8.84 per cent in California. For energy-hungry industries, like hydrogen and the IT sector, however, the biggest attraction is the industrial electricity price: 7.47 cents a kWh in Arizona compared to 18 cents in California.

Albanese continues to talk a big game, promising that jobs, industry and prosperity will flourish under the Future Made in Australia Bill. Details are a little scarce, but the PM told ABC's 7.30 earlier this month that there would be new government programs attached to the Bill, as well as a recalibration of old ones.

Yet the long history of manufacturing decline in the last 50 years is a story of broken promises and failed industry welfare programmes. The Hawke government’s generosity in granting $36 million to the Kodak film factory in Victoria in 1988 (roughly $100 million in today's money) failed to stop the introduction of digital cameras or the development of the smartphone.

Hundreds of millions of dollars thrown at the car industry failed to save the Holden Commodore. Indeed, evidence that industry assistance programs work as intended is difficult to find.

It’s more than three decades since Bob Hawke’s Labor government eschewed industry protectionism as a means to make Australia globally competitive. Yet governments, state and federal of both political persuasions, have found it difficult to go cold turkey. The federal government's guide to grants lists 330 different types of industry assistance. In 2019, the last year before Covid 19, the Productivity Commission calculated total government assistance to businesses at $13.9 billion in tariff assistance, tax concessions and direct grants.

That is why we can say with some certainty that more government grants are no substitute for the economic discipline practised by the Republican administrations of governors Jan Brewer and Doug Ducey or the far-sighted decision of the Arizona government in the 1980s in overseeing the construction of the second largest nuclear reactor in the United States. The 3.9 GW Palo Verde Nuclear Generating Station remains the backbone of the Arizona electricity grid, producing some of the cheapest power in the country.

Anthony Albanese is hardly the first prime minister to enter office who has failed to learn from King Canute, instead suffering from the delusion that getting your hand on the levers of state gives you the power to alter the tides.  The outgoing tide of de-industrialisation shows no sign of abating.