Development, Environment & energy, Government and governance, Science and technology | Australia

24 July 2020

The government’s roadmap takes some small steps at creating domestic clean energy industries. A more decided approach to targeting the right technologies is needed, write Llewelyn Hughes and Jorrit Gosens.

The Australian government has asked seven companies to submit full applications in its competition to win a part of the $70 million Renewable Hydrogen Deployment Funding Round. Funding is managed by the Australian Renewable Energy Agency (ARENA), and supports the deployment of hydrogen technologies.

The announcement follows the release of a National Hydrogen Strategy last year. It also comes in the wake of the discussion paper for a Technology Investment Roadmap released last month. Both initiatives position the federal government as a key player in helping new industries to emerge in Australia by developing the knowledge base and supporting deployment of technologies at scale.

These initiatives are as much about economic opportunity as they are about transitions to low carbon energy systems. Beyond reducing greenhouse gas emissions, the national hydrogen strategy is touted as potentially building a multi-billion-dollar export industry. The technology roadmap discussion paper is similarly designed to identify “employment and growth opportunities, [..] arising from increasing global demand for low emissions energy and products”. All this would “ensure Australia remains at the forefront of the global low emission technology innovation”.

It’s important to note at the outset that policymakers have key options – such as solar PV, wind, options for firming power, and electric vehicles – that are ready to deploy at scale, supporting jobs as well as decarbonisation. Long-term technology roadmaps are in no way a substitute for deploying the products and services the country already has available as fast as it possibly can, and government has an important role to play in making this happen.

Nevertheless, these developments are a positive change in Australia’s climate change policy deadlock. These initiatives help Australia in three ways.

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First, they help promote the long-term international competitiveness of new Australian industries. Public investment can be a key factor helping to move low-carbon technologies closer to widespread deployment. And Australia is a laggard. Australia ranks 16th of 23 countries, the lowest of any developed country included in the Global Energy Innovation Index, in terms of public investment in clean energy research, development and deployment, relative to the size of the economy. Australia is outspent by countries like the Netherlands and Austria, which have much smaller populations.

Second, if implemented well, roadmaps can help diversify Australia’s economy. Harvard’s Growth Lab suggests countries with more complex economies tend to better generate sustained economic growth and prosperity. Their data shows Australia has fallen 22 positions in 10 years in terms of its economic complexity, from 57th to 93rd of 133 countries.

Third, the roadmaps move commits that the federal government has an important role to play in facilitating new economic opportunities through industry strategies, something Australia’s state and territory governments have long understood.

The big questions now lie around which technologies to support, and when and how to support them. A key innovation in the technology discussion paper is the development of a series of mechanisms for reviewing where Australia should invest in low carbon technologies.

There are some international lessons that we can take about how to do this.

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Care needs to be taken to prevent investment in industries that are likely to move abroad. Take the example of battery manufacturing, one of the industries identified in the technology discussion paper.

The complexity and high financial investment requirements of battery manufacturing makes for very high entry barriers. Australia does have abundant deposits of minerals used in battery production. But this might not generate much of a competitive advantage considering how strongly internationalized current supply chains in battery manufacturing already are.

The current understanding is that risks are highest with manufacturing-intensive and commoditized products. The experience of German, US, and Japanese PV panel makers having been rapidly displaced by Chinese competition is a prime example.

The same logic holds that technologies around as wind turbines, electric vehicles, and concentrated solar thermal may provide longer lasting competitive advantages. Australia could provide expertise in project development, engineering, procurement and construction or owner’s engineer services, or seek to be inserted in supply chains for complex and high value components.

In proposing a framework for assessing low carbon technologies, the government is following governments in Europe, the United States, Japan, and China in embedding a set of institutions designed to help governments make these kinds of decisions about when, where, and how much to invest.

This is a good start. Good green industry strategies are based on a few elements. Agencies need to be embedded in, but not beholden to, industry, enabling government to learn where opportunities exist. Japan’s industry policy, for example, is centred in a series of committees made up of business, government, and sectoral experts. The committees co-develop industry strategy on a sectoral basis, and these bodies are central to Japanese developments in hydrogen, electric vehicles, and elsewhere.

Policy also needs to be disciplined, narrowly defining targets and evaluating performance. A core part of the endeavour is also understanding what is occurring in international markets. In the case of hydrogen, for example, at least eight governments have released national strategies, emphasising different technologies, timelines, and export or import opportunities.

The knowledge sector, as well as government departments like the Department of Foreign Affairs and Trade, have a key role in assessing these schemes, and the opportunities they generate for Australia. Finally, governing green industry policy requires transparency and accountability, not only in terms of budgets and outputs but also deliberative processes.

Some of these elements are proposed in these new initiatives. But policymakers need a bigger framework to make sure Australia gets the decisions right up front and know how to follow through. The current set-up is that the basket of technologies to support will be subject to repeated review. That is more like looking two steps ahead than like setting out a roadmap. Whether in hydrogen or other sectors, industry policy will need more long-term and more tenacious target setting if it hopes to succeed into the future.

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