Australia's do-or-die moment as the world races to the top on climate

With the European Union announcing their “green industrial plan” at Davos this week – an ambitious response to the US’s $530 billion Inflation Reduction Act, which itself is in part a response to China’s state-sponsored long push into clean energy production – Australia now stands at a “do or die” moment.

This week a bold new green industrial plan unveiled by European Commission President Ursula von der Leyen in Davos made it clearer than ever that the world is locked into a fast-moving “race to the top” when it comes to ambitious climate policy.?

How Australia chooses to respond – and the speed at which we respond – will determine the economic prospects of our nation for decades to come.

Australia’s export profile is highly exposed to demand collapse as the world rapidly pivots to a zero-emissions future. The EU’s green new deal, the Inflation Reduction Act together with the net-zero targets of Australia’s top five export markets (China, Japan, South Korea, US and the EU) represents at least $128 billion a year wiped off Australia's exports unless we invest in alternatives.?

Today, up to 50% of Australia’s total commodity export value are fossil fuels in the form of thermal coal, metallurgical coal, crude oil and LNG. Our choice is clear: over the next two decades Australia will lose significant commodity export revenue and the jobs that go with them, unless significant policy shifts are made to unlock investments in new export industries. This must include policies that will help reindustrialise the nation and create jobs in the regions by incentivising more value-added onshore processing of mined resources before export.

The good news is that work by Beyond Zero Emissions has shown Australia has the potential to grow a new green export mix worth $333 billion per annum, far exceeding the value of existing fossil fuel exports. Our report Export Powerhouse details how new green export industries will meet surging demand for zero-carbon products, such as green steel, renewable hydrogen and ammonia, green aluminium and critical minerals that will dominate global economic growth this century. In particular, our industrial and mining communities in regional Australia are set to benefit from this opportunity.

Australia is at a “do or die” moment. We have to rapidly invest to avoid a ‘valley of death’ in our export profile. If left too late, not only will fossil fuel exports drop off as our major trade partners implement their net zero emissions pledges, other nations will capture early market share of new export industries leaving us with insufficient runway to replace the nation’s lost export income.

Our analysis also demonstrates the pitfalls of acting too slowly to respond to these dramatic new global market settings. A more cautious, slower industrial development strategy sees growth drastically reduced to a third of the rate of Australia’s full $333bn potential.

Warnings from industry have been clear around Australia's failure to match incentives offered by the US and Europe. Late last year, former RBA deputy governor Guy Debelle said Australia was at “serious risk” of surrendering its natural advantages in emerging industries, while Worley chief Chris Ashton warned against underestimating "the immediacy" with which the Inflation Reduction Act was having an impact on decisions of their customer base globally and in the US.

If the Australian Government wants to announce to the world Australia is serious about “playing ball” with our climate-ambitious trading partners, we should invest in a national Renewable Energy Industrial Precinct program . A network of 14 precincts across the country acts as industrial engines to power Australia’s clean zero-emissions export market, giving Australian manufacturers access to low-cost, reliable energy.?

A national Renewable Energy Industrial Precinct program will put Australia on track to secure our long term future and ensure we corner our share of the global market in green commodities.