Ross Gittins writes that Australia’s economy is expected to be hit by a meteor within a decade or two, with the world stopping buying fossil fuels and declaring it worthless. This means that Australia’s greatest comparative advantage is in the process of ceasing to exist. Australia has much more sunlight than most other countries and as much wind as the best of them, making it expensive to turn renewable energy into a form that can be exported.
In the coming zero-carbon world, it will make economic sense to produce green iron in Australia, as it requires a massive amount of renewable energy to power the electrolysers that split water into hydrogen and oxygen. Australia is likely to be the cheapest place in the world to make green iron, and the best place for further processing will be close to the regional sources of sun and wind-produced electricity.
However, green iron-making technology is not yet done at scale, and the first mover will inevitably make mistakes, from which others will learn. This learning by doing is a “positive externality” – a benefit to other businesses and the community generally for which the first business isn’t rewarded.
It should be the same story for green aluminium, green fertiliser, green silicon and green aviation fuel. We will be able to export our masses of surplus renewable energy embedded within those many products.
The key “negative externality” relevant to the transition to renewable energy is the cost to the environment from the use of fossil fuels to make steel and many other things that the relevant businesses aren’t required to pay for, thus putting renewable energy producers at a price disadvantage.
However, the formula is inverted once the externality is priced in a zero-carbon world, and Australia will have a competitive advantage.
If all the Made in Australia talk means subsiding businesses making solar panels, wind farm components, batteries, and electrolysers, then there’s no way Australia will become a superpower, and the extra manufacturing jobs will come at the expense of jobs in all other industries.
However, it all depends on having enough cheap and reliable stationary energy production to make it so. Even green iron will need firming power to support renewable energy.
That is still gas for decades:
We currently export around 1800PJ of gas from the East Coast. 15% of that must be reserved for local use. Some of that quantity might be offset by new domestically reserved supply, but the LNG export cartel must still be forced to contribute, or it will simply juggle its gas portfolios to ensure other volumes go offshore.
Or the green iron is all made on the West Coast where domestic gas reservation does work.
Without more gas, there is no Eastern Superpower, just the perpetual energy Superidiot.
