- Activities and initiatives paving the way for the transition
Overview
3.1The Australian Government plays a central role in facilitating Australia’s trade, investment, decarbonisation and green energy opportunities, particularly through programs and policies delivered by departments and agencies belonging to the following portfolios:
- Foreign Affairs and Trade
- Climate Change, Energy, the Environment and Water
- Industry, Science and Resources.
- There are many trade and investment activities underway in Australia that are already having a positive impact on Australia’s transition to a green energy superpower. Some of these activities are the result of leveraging Australia’s existing trade and investment architecture, such as by stating Australia’s commitment to achieving net-zero in free trade agreements, and others are the result of new, innovative ways of cooperation.
- The Committee received a wealth of evidence on trade and investment activities, and policies and programs currently underway. The Committee has not attempted to canvas all of these activities and initiatives. The report focusses on those that are most relevant to leveraging Australia’s advantages in the global green economy and to supporting Australia’s strongest export-oriented green energy opportunities.
- Several emerging trends related to the green energy transition are having an impact on the global trade and investment environment, with implications for Australia’s green energy superpower opportunity. These include supply chain diversification, competition for green energy industries and carbon border tariffs.
Australian Government departments and agencies
3.5Departments and agencies from across the Australian Government are working together to support Australia’s transition to a green energy superpower, given the transition’s transformative effect for the Australian economy and society. While each department and agency has their own role and mandate, their work informs and supports other departments and agencies to develop and implement their own policies and programs that together support a whole-of-government approach.
3.6This section outlines the specific roles of the departments and agencies belonging to three key portfolio areas (mentioned above) who engaged with the Committee during the inquiry. It also includes a high-level overview of the activities they are already undertaking to aid Australia’s transition to being a green energy superpower.
Foreign Affairs and Trade portfolio
3.7The Department of Foreign Affairs and Trade (DFAT), the Australian Trade and Investment Commission (Austrade) and Export Finance Australia (EFA) within the Foreign Affairs and Trade portfolio creates opportunities for green energy trade and investment through:
- Existing trade architecture, such as free trade agreements (FTAs), the World Trade Organization (WTO) and Asia-Pacific Economic Cooperation (APEC)
- New approaches, such as the Indo-Pacific Economic Framework (IPEF) and the Singapore-Australia Green Economy Agreement (GEA)
- Supporting Australian exporters to develop commercial partnerships to participate in new markets.
Department of Foreign Affairs and Trade
3.8DFAT’s large international network supports Australia’s transition to a green energy superpower ‘… by establishing and enhancing vital relationships with trading partners to secure new export markets and ensure access to necessary inputs and technology.’
3.9DFAT also supports Australia’s transition by providing ‘… the strategic and foreign policy lens on international climate engagement and energy transition which is essential to the whole-of-government efforts need to achieve a successful transition.’ In addition, DFAT works with countries across the Indo-Pacific to support the deployment of renewable technologies and improved energy efficiency to the region.
Australian Trade and Investment Commission
3.10Austrade promotes and facilitates Australia’s trade and investment and delivers services to businesses that create jobs and grow Australia’s economic prosperity. Austrade will play a crucial role in Australia’s green energy superpower transition by assisting companies to respond to changes in global trade and gain access to new export markets, attracting and promoting foreign direct investment, and promoting awareness of ‘Brand Australia’.
3.11Austrade’s work focuses on green export sectors where Australia has a competitive advantage, such as in ‘… green resource extraction; hydrogen; critical minerals; advanced manufacturing (including turbines); green education and travel; professional services and finance; green agriculture and high-tech renewables technology.’ Austrade’s work is also increasingly aligned with Australia’s net-zero objectives with investments in:
- 161 projects in renewable energy, predominantly hydrogen (76), solar (27) and storage projects (35). 35 of these projects are from Japan, 16from Canada and 15 from the USA [United States of America].
- 27 projects relate to critical minerals, including battery value chains and development.
- 37 projects relate to waste processing and waste to energy, and a further 13 projects relating to future transport (e.g. EV [electric vehicle] infrastructure).
Export Finance Australia
3.12EFA is Australia’s export credit agency and supports Australia’s trade agenda by providing commercial finance for exporting businesses. EFA administers the Australian Government’s National Interest Account, which includes facilities such as the Critical Minerals Facility and the Defence Export Facility.
3.13EFA supports Australian low emission technology exports and delivers finance for renewable energy and green infrastructure in the Indo-Pacific. For example, EFA finances renewable energy throughout the Indo-Pacific through projects such as the Lotus Wind Power Project in Vietnam in collaboration with the Asian Development Bank, the Japan International Cooperation Agency and private financiers.
Climate Change, Energy, the Environment and Water portfolio
3.14The Climate Change, Energy, the Environment and Water portfolio serves a central role in Australia’s transition to a green energy superpower. This section outlines the work currently underway by the Department of Climate Change, Energy, the Environment and Water (DCCEEW), the Australian Renewable Energy Agency (ARENA), the Clean Energy Finance Corporation (CEFC) and future Net Zero Authority.
Department of Climate Change, Energy, the Environment and Water
3.15DCCEEW has primary responsibility for managing the transformation of Australia’s energy system towards net-zero. DCCEEW is also responsible for managing risks to Australia’s energy security as it transitions ‘from a centralised thermal-generating based grid to one that is highly decentralised and driven by variable renewable energy generation.’
Emissions reduction, renewable energy and energy supply
3.16DCCEEW is responsible for delivering policies and programs to achieve emissions reductions in line with Australia’s legislated commitments, increasing deployment of renewable energy generation capacity and storage, and providing ‘… reliable, secure and affordable’ energy supply for Australia. Some of these include the:
- Renewable Energy Target
- Safeguard Mechanism
- Rewiring the Nation
- Powering the Regions Fund
- Capacity Investment Scheme and the
- National Energy Transformation Partnership.
- Together with CEFC, DCCEEW implements the Australian Government’s Rewiring the Nation program, which will provide $20 billion in low-cost finance over four years to invest in Australia’s electricity grid. Rewiring the Nation currently supports two transmission projects: VNI West (KerangLink) between Victoria and New South Wales, and Marinus Link between Tasmania and Victoria. A submission from the Tasmanian Government highlighted:
Project Marinus will deliver significant downward pressure on wholesale electricity prices, create significant employment and economic stimulus, and unlock Tasmania's world class wind resource, as evidenced by… Tasmanian wind farms that already perform consistently in the top ten in the country. Collectively, this offering can materially assist the Australian transition to become a green energy 'superpower'.
3.18DCCEEW also administers the $1.9 billion Powering the Regions Fund, which will support the transition to net-zero emissions in regional areas and ensure that they benefit from the economic opportunities of decarbonisation.
3.19DCCEEW is working with Australia’s states and territories as part of the Commonwealth's National Energy Transformation Partnership to co-design a First Nations Clean Energy Strategy, which aims ‘… to enable First Nations communities to influence and access the benefits of Australia’s renewable energy transformation.’
Emerging industries
3.20DCCEEW delivers policies and programs to support emerging green energy industries, including to underpin future exports of renewable energy, energy carriers such as hydrogen and value-added energy intensive products.
3.21Australia’s National Hydrogen Strategy was first released in 2019 and ‘… sets a vision for a clean, innovative, safe and competitive hydrogen industry that benefits all Australians.’ A review of the strategy was announced in February 2023 during a meeting of the Energy and Climate Ministers Council with the aim ‘… to ensure it positions Australia on a path to be a global hydrogen leader by 2030 on both an export basis and for the decarbonation of Australian industries.’ At the time of this report, the review was open for public consultation.
3.22DCCEEW is also in the process of designing a $2 billion Hydrogen Headstart Program with ARENA. The program aims to accelerate Australia’s hydrogen industry and will focus on large scale hydrogen projects, create funding for green hydrogen projects and connect Australia to global hydrogen supply chains. Ms Jo Evans, Deputy Secretary at DCCEEW, told the Committee that ‘Hydrogen Headstart is part of the consideration about what more we need to do to make sure that there’s a good probability of success for Australia to become a renewable energy superpower…’
3.23DCCEEW is also responsible for the ongoing development, implementation and operation of the Offshore Electricity and Infrastructure Act 2021 (Cth), which provides the legislative framework to enable the development of offshore wind energy and other types of offshore renewable energy projects. The framework is further discussed in Chapter 4.
Electric vehicles
3.24DCCEEW is leading the development of the Australian Government’s National Electric Vehicle Strategy to reduce emissions in the transport sector through three objectives:
- increase the supply of affordable and accessible EVs
- establish the resources, systems and infrastructure to enable rapid EV uptake
- encourage increased EV demand.
Environmental protection and approvals
3.25DCCEEW is responsible for the administration of the Environment Protection and Biodiversity Act 1999 (Cth) and therefore ‘… plays a role in ensuring the protection of matters of national environmental significance, including for the renewables industry.’
International partnerships
3.26DCCEEW manages Australia’s international clean energy partnerships, which aim to build new clean energy industries and trade opportunities for Australia. Currently, Australia has partnerships with Germany, India, Japan, Republic of Korea (SouthKorea), Singapore, the Netherlands, the United Kingdom (UK) and the United States (US). These are listed in Box3.1.
3.27DCCEEW also works with DFAT to implement the Australian Government’s climate and infrastructure partnership with Indonesia.
Box 3.1 Australia’s international clean energy partnerships - Australia–Germany Hydrogen Accord
- Australia–India Letter of Intent on New and Renewable Energy Technology and the Australia-India Green Hydrogen Taskforce
- Australia–Japan Partnership on Decarbonisation through Technology
- Australia-Republic of Korea Low and Zero Emissions Technology Partnership
- Australia–Singapore Initiative on Low Emissions Technology for Maritime and Port Operations
- Australia–UK Clean Technology Partnership
- Australia-United States Net Zero Technology Acceleration Partnership
- Australia–Netherlands Memorandum of Understanding on Cooperation in the Field of Hydrogen.
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Australian Renewable Energy Agency
3.28ARENA improves competitiveness of renewable energy technologies, increases supply of renewable energy in Australia and provides grant funding to support renewable energy projects. The submission from DCCEEW explained:
The Government has expanded ARENA’s mandate to support energy efficiency and electrification technologies that can reduce emissions. To date, ARENA has committed $1.96 billion to 632 projects across Australia. For every $1 invested by ARENA, there has been $3.48 of co-investment resulting in total investment of $8.81 billion. Recently announced projects include AGL’s feasibility study into integrating thermal energy storage into the Torrens B Power station, Yuri SPV’s deployment of a 10MW hydrogen electrolyser powered by renewable energy in Karratha, and Alcoa’s pilot program testing the technical and commercial feasibility of electrifying alumina refining through calcination.
Clean Energy Finance Corporation
3.29CEFC supports Australia’s ‘… emissions reduction targets by mobilising capital investment in renewable energy, low-emissions technology and energy efficiency in Australia through commercial loans, equity investments, and in limited circumstances, loan guarantees.’ The Australian Government provided an additional $20.5 billion to CEFC to ‘… accelerate progress towards Australia’s transition to net zero emissions by 2050.’ The funding will assist the delivery of the Rewiring the Nation program, the creation of the Household Energy Upgrades Fund and the Powering Australia Technology Fund.
3.30DCCEEW described the CEFC as ‘… a world leading example of a green bank’ and noted its role supporting ‘investment across solar, energy storage, bioenergy and wind.’ DCCEEW also highlighted:
Over its 10 years of operation, the CEFC has made over $10.76 billion in lifetime commitments, with a lifetime private sector leverage of $2.42 for every $1 in CEFC funding spent. Recently announced projects include $175 million for Stage 1 of the Golden plains Wind Farm, $160 million in financing for the Southern Downs Renewable Energy Zone, and a further $10 million investment in Australian advanced electrolyser technology company Hysata, following an initial $750,00 investment in 2021.
Net Zero Authority
3.31In May 2023, the Hon Anthony Albanese MP, Prime Minister, the Hon Dr Jim Chalmers MP, Treasurer, and the Hon Chris Bowen MP, Minister for Climate Change and Energy announced a National Net Zero Authority to be established through legislation. A joint statement announcing the Net Zero Authority explained:
The Authority will have responsibility for promoting the orderly and positive economic transformation associated with achieving net zero emissions.
…
The new legislated Net Zero Authority will:
- Support workers in emissions-intensive sectors to access new employment, skills and support as the net zero transformation continues.
- Coordinate programs and policies across government to support regions and communities to attract and take advantage of new clean energy industries and set those industries up for success.
- Help investors and companies to engage with net zero transformation opportunities.
- The Net Zero Economy Agency commenced on 1 July 2023 ‘… as an interim step whilst a statutory Net Zero Authority is established.’
Industry, Science and Resources portfolio
3.33Agencies across the Industry, Science and Resources portfolio work together to prepare and support Australia’s domestic environment to succeed in Australia’s transition to a green energy superpower. During the inquiry, the Committee received evidence from multiple agencies from the portfolio about their work supporting the transition and identifying new trade and investment opportunities, including the:
- Department of Industry, Science and Resources (DISR)
- Australian Nuclear Science and Technology Organisation (ANSTO)
- Commonwealth Scientific and Industrial Research Organisation (CSIRO)
- Geoscience Australia.
Department of Industry, Science and Resources
3.34DISR helps the Australian Government to build ‘a productive, resilient and sustainable economy enriched by science and technology.’ DISR’s work covers a vast range of industries with core roles in Australia’s transition to a green energy superpower such as manufacturing, mining, oil, gas, science, technology and trade.
Critical minerals
3.35DISR is responsible for managing initiatives regarding Australia’s critical minerals industry with the aim to position Australia as a world leader in exploration, extraction, production, and processing. These include:
- Critical Minerals Strategy
- Australian Critical Minerals Research and Development Hub
- Critical Minerals Development Program and the
- Critical Minerals Facility.
- The Critical Minerals Strategy 2023–2030 sets the vision to grow Australia’s critical minerals sector with objectives to develop supply chains, build critical minerals processing capability, assist Australia’s transition to a green energy superpower, and extract more value from Australia’s resources onshore.
- DISR supported the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA). The AI-ECTA promotes Australian minerals exports to India and improves access to a diversified market for Australia’s critical minerals sector. DISR also supports ‘negotiations with the European Union to liberalise tariffs on goods that support the uptake of low and zero emission technologies and the transition towards climate neutrality.’
Supporting Australian industry
3.38DISR oversees the establishment of the National Reconstruction Fund (NRF). The NRF is a $15 billion fund that ‘… will provide finance in the form of loans, guarantees and equity for projects that diversify and transform Australia’s industry and economy.’ DISR submitted:
The Government has announced target investment levels for specific priority areas, including:
- up to $3 billion for renewables and low emissions technologies;
- $1 billion for value-adding in resources;
- $1 billion for critical technologies, and;
- $1 billion for advanced manufacturing.
Through its investment in renewables and low emissions technologies, the NRF will support Australian industry to harness opportunities created by the transition to net-zero.
3.39As part of the Australian Made Battery Plan, DISR is leading development of Australia’s National Battery Strategy to ‘… capture more value by manufacturing batteries end-to-end onshore.’ Public consultation seeking responses to an issues paper closed in March 2023. The Australian Government, as part of the Australian Made Battery Plan, is also establishing an Australian-made Battery Manufacturing Precinct in partnership with the Queensland Government. DISR is also establishing ‘… a Powering Australia Industry Growth Centre with industry to convert Australia’s competitive advantages in renewables into local jobs and investment…’
3.40DISR manages the Major Projects Facilitation Agency, which provides information and assistance with regulatory approvals for major projects over $20million. DISR’s submission explained:
The majority of projects in the pipeline are within industries that support the transition to a green energy superpower, including offshore wind, renewable electricity generation and export, hydrogen and ammonia production and export, and carbon capture, use and storage.
Through its facilitation services, the MPFA not only supports projects in the green economy space to navigate their regulatory approvals requirements, it also facilitates business intelligence capture and feeds this into relevant policy areas to support evidence-based policy development, including initiatives within DCCEEW and DFAT portfolios.
Australian Nuclear Science and Technology Organisation
3.41ANSTO manages Australia’s nuclear infrastructure and research facilities and has ‘…world-leading expertise in the research and development of energy generation and storage systems and in the development and production of materials for use in those systems.’ ANSTO’s submission summarised its expertise in minerals (including rare earths, lithium, speciality and rare minerals, and uranium), materials and manufacturing.
Commonwealth Scientific and Industrial Research Organisation
3.42CSIRO delivers science and technology to ‘enable Australia’s transition to a lower emissions energy future.’ CSIRO’s research functions are progressing a number of projects that support Australia’s energy transition. For example, CSIRO is working to accelerate commercial uptake of its technologies through Endua, which is developing ‘…electrolysers and hydrogen-based power generation systems specifically for the diesel replacement market for remote/off-grid and backup power applications’.
3.43CSIRO’s research assists with identifying future trends and opportunities. As part of this, CSIRO is considering technologies that will meet different energy demand settings to improve energy security for remote communities and exploring how to optimise the digital transformation of the energy system.
3.44CSIRO also works with Austrade ‘…to attract investment to scale, grow and complement our research and science capability to effectively tackle global challenges.’ For example:
… CSIRO together with Austrade arranged a delegation of industry and academics to visit… Japan, in December 2018. The visit served to highlight Australia’s capabilities in electrochemical energy storage both in R&D [research and development] and in supply chains and opened doors to key companies in the Osaka region involved in energy storage materials and devices. More recently, Austrade supported the CSIRO-hosted International Meeting on Lithium Batteries… [in 2022] in Sydney, helping to promote the meeting through their offices overseas.
3.45Additionally, CSIRO entered strategic international partnerships to support Australia’s energy transition such as with the National Science Foundation and the US Department of Energy labs including the National Renewable Energy Laboratory.
3.46CSIRO also has a range of Mission Programs that aim ‘… to build Australia’s energy and resource security and competitiveness, while lowering emissions, through missions including the Hydrogen Industry Mission, Towards Net Zero Mission, Renewable Energy Powerhouse Mission and Smart Energy Mission.’
Geoscience Australia
3.47Geoscience Australia provides information about Australia’s geology and geography for government, industry and community decision making through data and advice that assists Australia to address challenges and enhance opportunities.
3.48Geoscience Australia made a submission to the inquiry about the strategic opportunities it has identified to enhance Australia’s competitive advantage as an investment destination to support its transition to a green energy superpower. These opportunities included:
- Energy storage, including compressed air energy storage, battery energy storage, hydrogen storage
- Offshore wind
- Critical minerals
- Capture technologies, such as carbon capture and storage
- Digital platforms.
- Geoscience Australia’s Exploring for the Future program ‘… helps to pinpoint new mineral deposits, identify potential locations for hydrogen and carbon storage, and discover naturally occurring sources of hydrogen… [T]his data drives exploration and helps to create the pipeline of new energy and resource projects required to support Australia’s transition to net zero and grow the green economy.’
Australia’s trade and investment architecture
3.50Australia has 18 bilateral and plurilateral FTAs that aim to reduce or eliminate certain barriers between economies in the trade of goods and services, as well as investment. Australia’s FTAs are negotiated to benefit Australian exports, importers, producers and investors. Australia’s trade and investment architecture also includes engagement with international and regional trade and investment organisations such as the WTO, APEC, the Organisation for Economic Cooperation and Development, and the Group of 20.
3.51To support Australia’s green energy transition DFAT is:
… actively promoting Australia’s network of free trade agreements [FTAs] to support two-way trade and investment flows for green energy, goods and services. FTAs can be utilised to attract inbound investment for domestic renewable infrastructure through creating certainty and predictability for investors that their investments into green energy overseas will be protected and compensated under international law.
3.52The Australian Government’s commitment to meeting its net-zero targets and transitioning towards green energy is increasingly reflected in many of Australia’s trade agreements. Ms Juliana Nam, Assistant Secretary, Free Trade Agreements Policy and Economic Cooperation Branch at DFAT, explained that:
We look to reduce and eliminate tariffs, of course, as well as the behind-the-border barriers but what we also seek to do in the new trade agreements is include more cooperative provisions on renewable energy, climate change action and environmental factors. It is early days, but we’ve got the platform in a number of these agreements… in four of our 16 FTAs, we do have specific provisions on such matters.
3.53Trade agreements such as the Australia-UK Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership contain provisions that commit to cooperation on clean and renewable energy. Further, Parties agreed to include a Trade and Sustainable Development Chapter during upgrade negotiations held in 2022 for the ASEAN-Australia-New Zealand Free Trade Agreement. DFAT submitted that economic cooperation activities, such as through ‘… the Regional Trade for Development initiative… can also focus on cooperation on green energy.’
3.54Australia is a member of the Minerals Security Partnership, which seeks to strengthen critical minerals supply chains for the global clean energy transition. Other countries participating in this partnership include Canada, Finland, France, Germany, Japan, the South Korea, Sweden, the UK, the US and the European Commission. In addition, Australia has further strategic engagement on critical minerals with partners such as the US, Japan, South Korea, the UK, India and EU member states.
3.55Australia also has a range of low and zero-emissions technology partnerships with several countries. These are listed in Box3.1 earlier in this chapter. DFAT supports these partnerships by ‘… promoting two-way trade and investment in green energy, goods and services, including skills and labour.’ DFAT explained in its joint submission with Austrade and EFA that existing trade and economic architecture ‘can be leveraged, for example to minimise tariff and non-tariff barriers to trade, and to identify and ensure access to new markets for Australian exports[.]
3.56DFAT also leads Australia’s work in the WTO and APEC. Australia cosponsored the Trade and Environmental Sustainability Structured Discussions in December 2021, which explored the role of trade in supporting the global response to climate change. APEC is on track to achieve goals to double the share of renewables by 2023.
Leveraging Australia’s existing trade and investment architecture
3.57Submitters and witnesses generally agreed that Australia should leverage existing trade relationships and agreements to drive the transition to a green energy superpower. Mr Sam Guthrie, General Manager, Government and Policy Division at Austrade, told the Committee ‘… we are looking at… existing trade agreements and what can be done with the future of those.’
3.58Some submitters and witnesses suggested ways that DFAT, Austrade and EFA can enhance their support for Australia’s transition to a green energy superpower. For example, Beyond Zero Emissions (BZE) recommended the Australian Government ‘set green export investment as a priority for DFAT…’ BZE explained there is:
… a key role for government departments such as… (DFAT) to help secure offtake agreements with countries such as Japan, South Korea, Taiwan, Europe and UK are existing trade partners, are renewable poor and have strong decarbonisation targets. There is also the opportunity to secure Australia’s place in key renewable supply chains (e.g.. [sic] critical minerals, lithium-ion batteries, aluminium). Locking in strong trade partnerships builds investor confidence and can be further supported by agencies such as [EFA] and the Clean Energy Finance Corporation.
3.59The Australian Conservation Foundation suggested that DFAT and Austrade work with trading partners to develop ‘… arrangements that support both countries’ critical minerals priorities, including supporting critical minerals investment and reliable supply.’
3.60The Grattan Institute suggested that Australia’s free trade agreements could be revised beyond a focus on improved market access and two-way investment flows, specifically that:
Australia should make better use of its trade and investment framework to secure access to the materials, equipment and labour we will need to reach our own net-zero ambitions and become a renewable energy superpower. This could mean accelerating tariff removals in free trade agreements, or establishing separate agreements with like-minded countries to secure supply chains.
It should also revisit existing energy and resource co-operation agreements with Germany, India, Japan, Republic of Korea and Taiwan and identify pathways to move those agreements away from promoting coal and gas exports. Future agreements should focus on securing trade in areas of competitive advantage in a net-zero global economy; and securing Australia’s access to the materials and technology we will need. Similarly, international partnerships on clean energy innovation should identify practical pathways to move beyond technical co-operation and towards greater trade.
New innovative approaches to promoting green energy trade and investment
3.61The Australian Government is pursuing new ways to create green energy trade and investment opportunities. DFAT is leading work to create innovative economic frameworks that ‘… seek to combine trade, economic and climate agendas.’
3.62Recent measures to promote green energy trade and investment include the:
- Singapore-Australia GEA
- Indo-Pacific Economic Framework
- Australia–United States Climate, Critical Minerals and Clean Energy Transformation Compact
- Australia–United States Net Zero Technology Acceleration Partnership
- future Australia–India Renewable Energy Agreement
- A number of these partnerships and agreements capitalise on the economic and strategic benefits of countries’ desire to secure resilient and diversified supply chains for inputs needed in the green energy economy. Global trends toward greater supply chain diversification are discussed later in this chapter.
- Several submitters mentioned the need for a greater focus on climate change in Australia’s foreign policy and diplomacy. The Climate Council recommended the Australian Government invest in climate diplomacy and suggested that the role of DFAT and Austrade ‘must explicitly be redefined – to use Australia’s diplomatic resources to promote clean energy exports and to pursue an ambitious climate agenda.’ Dr Simon Bradshaw, Research Director, Projects at the Climate Council, elaborated:
… we really need to make sure our whole trade and foreign policy is fully aligned with climate and energy goals. That could mean giving a further boost to our climate diplomacy capabilities, climate and energy specialists and all the key missions to make sure we're really promoting opportunities for Australian clean exports and understanding what we need to do to help unlock some of those markets.
3.65Similarly, Mr James Bowen suggested that the Australia Government should ‘develop an Indo-Pacific-centric clean energy diplomacy program’ that could ‘facilitate continued growth, and formation of new, cross-border partnerships to develop supply chains and provide financial and technical support to developing economies.’
Singapore-Australia Green Economy Agreement
3.66The Singapore-Australia GEA, signed in October 2022, builds on Australia’s bilateral relationship with Singapore and existing areas of cooperation: the Singapore-Australia Free Trade Agreement, Low Emissions Solutions Memorandum of Understanding and the 2021 Australia-Singapore Partnership on Hydrogen for Maritime Use. DFAT summarised the GEA:
… is a first-of-its-kind agreement that combines trade, economic and climate change policy objectives. The GEA facilitates green trade and investment by developing a foundational list of environmental goods and services based off existing APEC and WTO lists. This list will ensure the prioritisation of these goods and services in facilitating two-way trade flows between Australia and Singapore to accelerate the decarbonisation of our respective economies. The GEA also includes a bilateral mechanism to identify and address non-tariff barriers to the trade of environmental goods and services. The agreement serves as a potential model for international cooperation on the green economy with other countries.
3.67The Committee received evidence that highlighted the GEA as a positive step supporting Australia’s transition to a green energy superpower. For example, the Export Council of Australia explained:
Such deals help open markets and facilitate trade in environmental goods and services, including by having consistent regulations and standards across partner countries, and building goodwill through grant funding of joint projects. Similar agreements must be pursued or extended to other parties.
3.68Mr Guthrie from Austrade told the Committee that the GEA is ‘… a new type of agreement that Australia hasn’t done before. I think that it sets a model that can be used elsewhere, including, importantly, across South-East Asia.’
3.69SunCable ‘applauded’ the GEA and recommended the Australian Government negotiate more green economy agreements with partners across the Indo-Pacific, such as Indonesia. The Australia China Business Council suggested Australia should consider a green economy agreement with China.
Indo-Pacific Economic Framework
3.70The IPEF aims to build cooperation and economic integration in the Indo-Pacific. Formal negotiations commenced in September 2022 across four areas, including trade (and digital trade); supply chains; clean energy, decarbonisation; and infrastructure and tax and anti-corruption. DFAT told the Committee the IPEF:
… presents a flexible and innovative framework for Australia to work with its key partners in the Indo-Pacific on shared interests in diversifying clean energy supply chains and advancing decarbonisation and clean energy transition agendas. IPEF members include India, Indonesia, Japan, [South Korea], Singapore, [US], Fiji, Malaysia, New Zealand, Philippines, Thailand, Vietnam, and Brunei.
3.71IPEF negotiations have a focus on supporting ‘… clean energy, to develop new standards for the membership of that agreement.
3.72The Australian National University Zero Carbon Energy for the Asia-Pacific Initiative suggested that Australia build on low-emissions technology partnerships and the GEA, including through the Green Economy Pillar of the IPEF. Specifically, it was recommended that Australia use international green economy collaborations ‘to minimise unnecessary barriers to trade and investment arising from poor co-ordination of domestic initiatives and regulation’ as well as ‘to address market failures… that inhibit the growth of cross border green supply chains.’
Australia–United States Climate, Critical Minerals and Clean Energy Transformation Compact
3.73In May 2022, Australia and the US agreed to a Climate, Critical Minerals and Clean Energy Transformation Compact, which established climate and clean energy as a central pillar of the Australia–US alliance. The Compact seeks to:
- Accelerate expansion and diversification of end-to-end clean energy supply chains
- Promote responsible, sustainable and stable supply of critical minerals
- Drive development of emerging battery technologies
- Support development of emerging markets for clean hydrogen and its derivatives.
Australia–United States Net Zero Technology Acceleration Partnership
3.74The Hon Chris Bowen MP, Minister for Climate Change and Energy, and Jennifer M. Granholm, US Secretary of Energy, announced the Australia–United States Net Zero Technology Acceleration Partnership in July 2022. The partnership will ‘…accelerate the development and deployment of zero emissions technology and cooperate on critical minerals supply chains to reduce greenhouse gas emissions while supercharging economic growth.’
Future Australia–India Renewable Energy Agreement
3.75Further to the Australia–India Letter of Intent on New and Renewable Energy Technology (see Box 3.1 later in this chapter), DFAT is also working to develop a ‘…renewable energy partnership with India to enhance cooperation on the production and deployment of renewable technologies…’
Key trade and investment trends
3.76There are a number of trade and investment trends driving activity in the global trade environment, namely a desire for supply chain diversification, competition for green energy industries, and carbon border tariffs. These developments may present both opportunities and challenges for Australia’s green energy superpower transition.
Supply chain diversification
3.77Submitters highlighted the desire for countries to diversify from highly concentrated global supply-chains for many low-emissions technologies as an important trend shaping the global trade and investment environment.[119] The COVID-19 pandemic and the invasion of Ukraine by Russia have also played a role in highlighting global supply chain risks.
3.78Supply chain vulnerabilities were identified in relation to the critical minerals, solar photovoltaic (PV), wind turbines and battery supply chains.[121] Highlighting an example of supply chains concentration, the Australian Conservation Foundation stated that in 2019 China’s market share of the critical minerals processing industry was 65 per cent for cobalt, 58 per cent for lithium and 87 per cent for rare earths.[122] DCCEEW also advised that: ‘China has over 80% market share of the solar manufacturing stages from the production of polysilicon to panels.’
3.79The high level of concentration was noted to increase the risk of supply chain disruption, the ability to influence markets, and create critical dependencies for decarbonisation and the green energy transition.[124] As a result, DCCEEW observed that: ‘Major economies are looking to improve the resilience of these supply chains by identifying and scaling diverse innovative and alternative sources of clean energy technology components.’
3.80The focus on building diverse and resilient green energy supply chains presents significant opportunities for Australia. Mr Andrew Morris, Manager, Trade and Investment at Austrade, explained that: ‘Countries like Germany are now looking, as the rest of Europe is, to remove themselves from a single-supply relationship with countries like Russia, for example, and looking at alternative like-minded partners like Australia.’
3.81The Advanced Materials and Battery Council expressed a similar view: ‘As China dominates global manufacturing, companies in Europe and North America wish to build resilience to reliance on a single supplier. Private and government investors are actively seeking opportunities in and partnerships with ideologically aligned countries like Australia.’
3.82Boundless Earth suggested that: ‘[Australia] can benefit from our international partners’ push to diversity global supply chains – including by our key trading partners in the Asia-Pacific, the European Union, United States and other Quad members.’
3.83The Climate Council identified supply chain diversification as a motivator for the introduction of the US Inflation Reduction Act 2022 (IR Act) (discussed later in this chapter).
The US legislation [IR Act] is intended in part to address China’s dominance over global clean energy supply chains, including the supply of clean energy technology and components to the US market.
3.84DCCEEW observed a broader connection to energy security:
Energy security is now firmly linked to the energy transition, with major economies taking significant steps to shore up their energy security and resilience, and reduce emissions at the same time. Clean energy, particularly in the form of renewables, is seen as a way to achieve both of these aims.
3.85Mr Warren Hauck, Acting First Assistant Secretary at DFAT, noted that previous experience is informing decisions in the formation of green energy supply chains:
If I could use the EU as an example, they have recognised that their reliance on Russian energy has been a significant problem, so diversifying the supply chains for the renewable sector is fundamental to their approach moving forward.
3.86Mr James Bowen indicated that there may be more than diversification motivating a country’s choice of trading-relationships:
What’s interesting is that if you look at Japan’s relationship with us, Japan has about the same level of dependence on Australian gas, through LNG [liquefied natural gas], as Europe did on Russian gas. So its not really about the dependence you have on a single supplier, its about the trustworthiness of that supplier.
Green energy superpower competition
3.87Countries such as the US, Canada, Chile and Saudi Arabia also have potential to meet increased global demand for green energy and have expressed green energy superpower ambitions. Japan, South Korea, and the EU have additionally been identified as having potential to lead in the future global green economy.
3.88DFAT, Austrade and EFA advised that: ‘Some of these competitors are injecting significant economic stimulus into their clean energy transition and building their clean energy export sectors.’ Measures seeking to attract green energy investment in these countries are presented in Box3.2 below.
Box 3.2Measures attracting green energy investment in countries with potential to be leaders in the green economy - Canada: C$100 billion invested for climate action and ‘clean growth’ since 2015; investment tax credits to be introduced for renewable energy technologies.
- Chile: 20 per cent of energy is generated by renewables; all coal-fired power plants to be closed by 2040; US$77 million Investment Plan targeted at stimulating market development.
- EU: European Green Deal Investment Plan (also referred to as the Sustainable Europe Investment Plan), which includes the Just Transition Mechanism initiative to target a fair green transition.
- Japan: Green Growth Strategy through Achieving Carbon Neutrality in 2050, which includes a US$16 billion Green Innovation Fund to assist Japan to achieve carbon neutrality by 2050.
- Saudi Arabia: SR700 billion Saudi Green Initiative; US$2.5 billion to support Middle East Green Initiative projects and governments.
- South Korea: Green New Deal, a techno-industrial transformation strategy valued at US$61.9 billion to strengthen South Korean exports of the future.
- US: Introduction of the IR Act in 2022, a US$391 billion package of incentives to drive ‘clean energy’ generation and manufacturing and reduce US greenhouse gas emissions to between 30 and 44 percent by 2023.
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3.89Other measures noted in submissions included export controls on Indonesian nickel, REPowerEU Plan and European Rules of Origin regarding originating battery packs.
3.90Submitters acknowledged that policy measures taken by other countries may increase competition and divert capital, materials and equipment, and skilled labour that Australia requires to build its nascent industries and realise its green energy superpower potential.
United States Inflation Reduction Act
3.91The introduction of the IR Act in 2022 was widely identified as accelerating US decarbonisation and being a globally significant policy in the green energy transition. DFAT explained the IR Act ‘… includes an estimated USD391 billion package of incentives to drive clean energy generation and manufacturing; energy efficiency improvements; and industrial decarbonisation in the US.’
3.92DCCEEW told the Committee about the IR Act’s significance to the global energy transition:
The IR Act is fundamentally reshaping the US tax system to incentivise the manufacturing industry and clean energy generation critical to achieving net zero emissions by 2050, transforming the operating context for business at an economy-wide level. It is an historic inflection point in the global energy transformation.
3.93A submission from Fortescue Future Industries highlighted how the IR Act will generate green energy investment:
The recent [US] Government passage of the [IR Act] is the prime example of government intervention that will attract green technology and green energy investment at scale – and spur the creation of significant numbers of jobs across regional [US] – to set the conditions to create a globally dominating green energy industry in that country. The [IR Act] establishes tax credits and funding that is available for green manufacturing, renewable energy and low emissions hydrogen production that is estimated to reach US$374 billion. However, the production tax credits are uncapped, so in reality a much greater level of support to green hydrogen and green ammonia production in the [US] could be provided.
3.94Submitters advised that the IR Act will attract capital, technology, and labour to the US, with the potential to impact on Australia’s green energy opportunities such as value-added manufacturing and hydrogen production. The Committee received evidence suggesting that the IR Act may already be influencing decision making and investment decisions to Australia’s disadvantage.
3.95It was noted that the IR Act is particularly focussed on the creation of local industries to fulfil domestic needs, rather than building export-oriented industries.
3.96As well as challenges, the Climate Council observed significant opportunities for Australia presented by the IR Act:
The [IR Act] legislation contains provisions for ‘friendshoring’ production, as part of a strategy of diversifying clean energy supply chains away from China. Carve-outs to local content provisions under the legislation include international partners that have signed free trade agreements with the US, such as Australia. This provides potentially lucrative opportunities for Australia to export critical minerals and develop value-added clean energy production for export to the [US] (including for example, by moving up the value chain for battery production).
3.97Similarly, BZE highlighted opportunities for Australia as a free-trade partner, particularly in supplying critical minerals.
3.98Mr Shannon O’Rourke, Chief Executive Officer at the Future Battery Industries CRC described the IR Act’s subsidies as a ‘double-edged sword’ and explained that ‘They are advantageous because they improve demand for our upstream industries but disadvantageous because they take away investment from our midstream and downstream industries.’
3.99Mr James Bowen expressed a similar view:
There is assured to be increased ability to attract investment in critical minerals to service other countries’ manufacturing desires. The IRA [IR Act], for example, allows US companies to source inputs from free trade agreements partners (such as Australia) where domestic capacity is lacking…
There could, on the other hand, be increasingly strong competition for capital, labour and other inputs necessary to develop Australia’s strengths in key sectors. There is assured to be an influx of new entrants to international markets where Australian companies are looking to build strong positions.
3.100Some submitters and witnesses suggested that Australia should consider developing its own version of the IR Act, or adopt aspects of the IR Act, to assist its transition to a green energy superpower. For example, the Australian Hydrogen Council recommended ‘Investment attraction mechanisms in the vein of the US Inflation Reduction Act. These could include fiscal or other incentives to draw foreign capital to Australia…’ Potential mechanisms to support emerging industries and technologies are discussed further in Chapter 5.
3.101Mr James Bowen noted that other jurisdictions including the EU have pledged to implement measures in response to the IR Act.
Carbon border tariffs
3.102The introduction of carbon border tariffs, such as the EU Carbon Border Adjustment Mechanism (CBAM), were identified by some submitters and witnesses as having a potential impact on the global trade environment and on Australia’s exports. The EU CBAM is scheduled to commence in October 2023, and will initially apply to cement, iron, steel, aluminium, fertilisers, electricity and hydrogen products such as ammonia imported into the EU.
3.103Several submitters suggested that a wider introduction of carbon border tariffs and similar policies could reduce Australia’s export competitiveness and pose a greater risk to Australia’s high carbon content exports. For example, Dr Bradshaw at the Climate Council told the Committee:
… we're going to see more of these carbon border adjustment mechanisms. The EU's is the first cab off the rank. We know there has been significant consideration within the Biden administration and various other key markets. So I think we'll see more of these, and that's going to start to change that trade environment generally. We are also seeing a trend towards carbon pricing regimes generally, globally. I think it's one of those things that will progressively become more of reality.
3.104Mr David Olsson, National President and Chair of the Australia China Business Council, suggested that EU CBAM ‘… will add significant cost to our [Australian] exports unless we can demonstrate that we have lowered our carbon usage…’ However, DFAT, Austrade and EFA stated that as currently designed the EU CBAM is not likely to have a substantial impact on Australia’s exports, while acknowledging that it may have a greater impact if its scope is expanded.
3.105Star Scientific noted the potential for carbon border tariffs may already be a factor in driving some businesses to reduce the carbon content of their products to limit their exposure to future measures. Speaking about the EU CBAM, Mr Matthew Hingerty, Deputy Chair, Deputy Chief Executive and Head of Business Development at Star Scientific, advised that a common view among a lot of producers of food and other manufacturers is that ‘it's coming their way, and they need to find a way to remove carbon from their products.’
3.106A wider introduction of carbon border tariffs could present significant opportunities and be to Australia’s advantage. This is because Australia has the potential to produce many of the products likely subject to carbon border tariffs with considerably lower embodied emissions than other countries, thereby increasing the demand for Australian exports. Mr Tony Wood, Program Director of Energy and Climate Change at the Grattan Institute, described that: ‘Those sorts of mechanisms are more likely to be things that level the playing field – but to our advantage, if we get it right.’
3.107DCCEEW advised that reforms to the Australian Government’s Safeguard Mechanism, which provides a framework to reduce the emissions of large industrial facilities, will reduce exposure to carbon border tariffs:
By establishing a stable and predictable framework to drive emissions reductions, the reforms to the Safeguard Mechanism will strengthen the international competitiveness of our industry as the global economy.
Reducing emissions will also help to protect Australian industry against transition risks arising from global climate action. These include potential trade measures, such as the European Union’s proposed Carbon Border Adjustment Mechanism, and reduced access to private capital due to investors limiting their own exposure to risk.
3.108Submitters noted that as Australian industry decarbonises it may face higher costs than producers elsewhere, potentially to the disadvantage of domestic producers subject to import competition. As such, evidence indicated it may be appropriate for Australia to consider the introduction of a carbon border tariff or similar measure to ensure domestic producers are not disadvantaged. The Grattan Institute suggested that such measures may be more suitable in the long-term than providing ongoing assistance to trade-exposed domestic producers.
Committee comment
3.109The Committee acknowledges the wide range of work across Australian Government departments and agencies contributing to Australia’s green energy superpower transition. Given the vast activities underway across government to support Australia’s energy transition, the Committee welcomed the announcement of the intention to establish a Net Zero Authority to ‘… have responsibility for promoting the orderly and positive economic transformation associated with achieving net zero emissions.’
3.110The Committee notes that Australian Government departments and agencies used varying terminology in their evidence to the inquiry to broadly refer to ‘green energy’, such as ‘renewable energy’, ‘clean energy’ and ‘low emissions’. The Committee believes that greater consistency in terminology and definition use across the Australian Government would assist to ensure policy coordination.
3.111The Committee appreciates that Department of Foreign Affairs and Trade, Austrade and Export Finance Australia are leveraging Australia’s existing trade and investment architecture to assist Australia’s transition to a green energy superpower. The Committee was particularly pleased to see that Australia has already entered into and is looking to pursue further new and innovative agreements and partnerships to accelerate Australia’s green energy superpower transition. Such mechanisms must focus on Australia’s comparative advantages, as well as seeking to further capitalise on Australia’s position as a preferred trading partner and trends toward supply chain diversification.
3.112The Committee recognises potential for greater alignment of Australia’s foreign policy and diplomatic program with Australia’s green energy superpower ambitions. A diplomatic program focussed on strong climate change action and leading the development of global green energy supply chains could enhance Australia’s strategic interests, particularly in the Asia-Pacific region.
3.113The Committee notes that while Australia is endowed with many natural and developed strengths, other countries such as the US, Canada, Chile and Saudi Arabia are also progressing their green energy transition with superpower ambitions. The Committee encourages Australia to identify ways to capitalise on its early mover advantage to maximise its green energy capability and take to advantage of the opportunity to be a regional, and ultimately, global leader in the future green economy.
3.114The Committee acknowledges the potential impact of carbon border tariffs on Australian exports. While current exposure may be limited, and the Safeguard Mechanism reforms may further reduce exposure, it will be important to monitor and understand the risks and opportunities for Australian exports. This will be particularly important if the scope of the EU CBAM expands and if carbon border tariffs are introduced in other jurisdictions.
3.115The Committee also has some concern that Australia’s stronger emissions reduction commitments could expose domestic producers to cheaper imports from countries not taking equivalent climate action and result in emissions leakage. It is noted that the Safeguard Mechanism reforms include provisions to preserve the competitiveness of trade-exposed industries. It will be important to ensure that these provisions are adequate or whether additional measures, including an Australian carbon border tariff are required.
Recommendations
3.116The Committee recommends that the Australian Government continue to actively pursue opportunities to leverage Australia’s existing trade and investment architecture and look to enter new and innovative agreements and partnerships to maximise Australia’s opportunities in the global net-zero transition.
3.117The Committee recommends that the Australian Government:
- Take enhanced measures to improve understanding of the risks and opportunities for Australian exports presented by the European Union Carbon Border Adjustment Mechanism and carbon border tariffs introduced by other countries.
- Consider and monitor the need for an Australian carbon border tariff or similar measure to preserve the competitiveness of trade-exposed industries as domestic decarbonisation accelerates.