Transition is coming
Australia is an economy in transition. It is a globalised economy with export markets susceptible to commodity price swings and decisions of other governments. As such, Australia needs to seek to diversify production and economic activity in regional areas to reduce the impact of external shocks.
Australia needs to be particularly attuned to signals that global markets are sending. Australia is heavily reliant on coal, oil and gas domestically and for export revenues. However, the future outlook for hydrocarbons is uncertain, with thermal coal in particular facing the very real prospect of rapid structural decline.
Domestically, the electricity generation transition is already underway in Australia with the recent closure of numerous coal fired power stations. The majority of Australia's coal fired electricity generation are ageing, losing reliability and operating beyond original design life. Yet scheduled closures are expected to slowly occur for as long as the next 25 years.
With both Snowy Hydro and the NSW government recently signalling that they will secure firm renewables to be dispatched at any time at a price lower than the wholesale market set by coal and gas, it seems implausible that existing coal plants can operate until the mid-2030s without losing significant amounts of revenue in the meantime.
This means Australia is already at a tipping point where new renewables and storage is cheaper than existing generation, implying a rapid, snowballing threat to older coal generators which will only continue to get more expensive and unreliable compared to firm renewables which continually drop in price.
All today’s current signs show that the clean energy transition is happening faster than policy makers are willing to admit. We are not prepared for this massive disruption, nor how rapidly it will occur. Policy makers assume a steady, linear transition, whereas all previous technological disruptions in history have instead been ‘S-curves’ with rapid uptake and deployment. As Professor Ray Wills from Future Smart Strategies told the inquiry:
We always say that the future will come faster than we think, and when we look back the future always came faster than we thought.
There are around 38,000 coal workers in Australia heavily concentrated in specific localities, around half of which are estimated to be employed in thermal coal production. For these workers and their communities, hope that coal markets alone, especially thermal coal, will continue to sustain their livelihoods over the long term does not correlate with consensus forecasts. In every part of the world, firm renewable electricity generation is forecast to be lower than electricity sourced from thermal coal by 2030.
The biggest risk to coal-dependent communities is a failure to plan. The biggest threat these communities face is our law-makers pretending that coal markets will continue indefinitely. Once this disruption starts impacting global markets, it will be too late to minimise the impacts on unemployment and local economies. We owe coal mining workers and their communities more than being left to global markets. We have to protect the investments these coal communities have made.
As Professor Karen Hussey from the Centre for Policy Futures so eloquently put it:
…if you have a community that, at the moment, is heavily dependent on thermal coal mining, then I think it is everybody's responsibility to sit down with that community and do everything they can to, first of all, impress upon that community that, never mind what the federal government does in Australia, the rest of the world is making decisions in the coming decades that put them in a vulnerable position.
While the threats to metallurgical (coking) coal predominately produced in Queensland are not as imminent, they are still very much real and should be acknowledged. ThyssenKrupp in Germany have recently demonstrated steel production using renewable hydrogen at their Duisberg plant. The trial will move through to full-scale production, with three arc furnaces powered by hydrogen in operation by 2023. Heliogen, backed by Bill Gates, have successfully developed solar concentrator technology to provide industrial heat for steel, cement and petrochemical production. These technologies will provide lower costs to steel production and drive rapid decline in the metallurgical coal sector from the early part of the next decade.
From the evidence provided in submissions and at hearings across the country, regional communities told the committee they know that a transition in electricity generation and coal mining is underway and many are already making plans for the future.
But it is not just coal workers who stand to lose as regional economies transition. Without change, base metal industries also face an uncertain future as outdated technology and currently high energy costs mean many of these facilities are uncompetitive in the global market.
It is the workers in these regions that are highly dependent on significant industries that stand to lose stable employment, quality jobs and economic security. As a result, they will be forced into work for lesser pay, face insecure employment, early retirement, long-term joblessness and the associated mental anxiety that accompanies such a change in circumstances.
Australia does not have a strong record of managing these transitions well. The committee heard from various stakeholders about the devastating long-term effects that workers, their families and entire communities have endured as a result of failing to plan for change. When this happens, it is the workers who unfairly shoulder the impact of industry closures due to changed market conditions.
In Germany, a successful transition away from coal mining and associated power generation saw not one of the 130,300 black coal workers leave the industry through redundancy. Australia should strive to replicate this outcome.
Future industries
The jobs of the future for regional areas will depend on the modification of existing industries and the development of new industries. While some opportunities will be localised, the emergence of other industries will have application across regional Australia.
The sectors that already sustain regional Australia hold the key to unlocking new job opportunities. The committee heard how the best success comes from pivoting existing industries and skills into new areas.
These areas are also more-or-less known. Just as signals are sent of a market’s decline, the same is happening for industries that signal a bright potential such as hydrogen, ammonia, green steel, bio-innovation, circular economies and carbon stores in land use. As Dr Michael Askew from the Monash Sustainable Development Institute put it:
I guess I disagree with a lot of people's opinion that we don't have a crystal ball for the future. We don't know exactly what's going to happen, but we've got a good sense of what's going to happen and we've got a good sense of what jobs will look like into the future.
There is a deep well of potential jobs that can be created for regional Australia. Renewable energy not only holds significant potential for regional jobs, but utilising Australia's sun, wind and talented workforce to create cheap, abundant clean energy in the regions can act as a 'magnet' to further investment and jobs in manufacturing and heavy industry, all of which requires reliable, affordable local power.
The quantity of clean energy that will be needed to export as hydrogen, ammonia or via HVDC cables, as well as electrify our transport system, substitute industrial processes and enable manufacturing and heavy industry is massive. The CEO of the Australian Renewable Energy Agency, Darren Miller has said Australia could produce 700% renewable energy, while the ANU Grand Challenge for zero-carbon energy for the Asia-Pacific has mapped projects that amount to around 2000% renewables. This presents a huge potential for regional jobs growth.
However, witnesses were concerned that in some areas the transmission infrastructure and grid capacity is constraining potential construction and future jobs. The development and installation of the renewable electricity generation that Australia will need investment in transmission infrastructure.
Accordingly, the Australian Energy Market Commission (AEMC) has an important role to play in facilitating the rapid rollout of renewable energy generation. In particular, they should develop a model for the establishment of renewable energy zones, ensure regulatory frameworks are fit-for-purpose for clean energy exports, and reform the existing marginal loss factor regime to provide investor certainty for renewable projects.
If Australia can get the investment settings for renewable energy right in order to massively drive down prices, Australia can leverage off demand for clean, green energy from Asia, develop an energy export industry through hydrogen exports and high voltage direct current cables and regain our competitive advantages in manufacturing and heavy industry.
Without modernisation to meet the expectations of low cost, low emissions production that is valued by the global aluminium industry, Australia's aluminium smelters will likely close in the near future. However, the potential for aluminium smelters to be retrofitted so as to increase efficiency and provide grid stability is very encouraging.
By retrofitting pots with enhanced temperature regulation – an insulated, heat exchanger jacket – whole potlines can operate indefinitely within a range 25% below to 25% above their normal operating point. Most of this demand ‘swing’ can occur instantly, providing a highly valuable service to the grid, much like the Tesla megabattery in South Australia has been profitably providing for almost two years.
Given the potential benefits that could flow from the adoption of such technology in a renewables-dominated grid, the Australian Government should work collaboratively with smelter operators to determine if the technology would be suitable and, if so, work together to ensure its rapid implementation.
Similarly, the development of bioenergy industries has the potential to generate jobs in regional areas, maximise the value of local resources, and minimise waste and environmental impact. Government policies and investment in research can significantly contribute to the realisation of this potential.
Australia can already produce bioethanol cost competitively at scale but there is excess capacity in current production facilities and little incentive for investment in new facilities. Given the potential for bioethanol and synthetic fuels to be used as an octane enhancer, reduce emissions and create regional jobs from using waste products, there is a potential 'win-win' through government using procurement policies for its fuel and diesel use for defence materiel and operations, and mandating the inclusion of increasing levels of bioethanol for aviation and marine fuels to drive scale. Not only would this provide a market for bioinnovation, it would also help reduce emissions in more difficult areas of abatement and create regional jobs.
However, mandating ethanol requirements for passenger vehicles creates a very real risk of a boom and bust industry as global electric vehicle production ramps up over coming years without enduring markets to sell into, leaving ethanol producers exposed. The scale of electric vehicle production is staggering, as Professor Wills stated:
Last year, the global car industry announced investments to 2025 totalling over $400 billion. There has been another $100 billion added to that. So there are $500 billion worth of pipeline investments in building electric cars up to 2025. That number will not diminish, it will only get bigger.
Witnesses also made reference to the relatively uncompetitive cost of biodiesel production. With further research and investments to expand production to scale, it is likely that Australian biodiesel production could become competitive. However, this production will only be realised if an off-take market for biodiesel is secured, such as through the Department of Defence.
The recent announcement that the Australian Renewable Energy Agency (ARENA) will be creating a roadmap for bioenergy replacements for industrial use and transport are welcome. While ARENA is now driving Australia's future bioenergy and hydrogen strategies, they have been subject to three separate legislated budget cuts and re-profiling from their original $3.2 billion fund and have only around $200 million left to commit to projects across all of their responsibilities. Given the crucial importance of these strategies to Australia's future jobs and regional industries, it is crucial that their budget is increased in order to enable the deepening and broadening of these crucial strategies for regional jobs growth.
There is also significant potential to increase the number of jobs in regional areas through the expansion of ecological services industries. Environmental remediation needed for mine sites will likely generate a significant number of jobs in the future. Reef restoration is also an emerging area that is expected to generate more employment, as is carbon sequestration and associated land management practices.
Despite these forecasts, existing employment in such areas is piecemeal and not sufficient to meet current demand or need. As such, the Australian Government could take a more active role in supporting job creation in regional areas to address the need for jobs in forest and land management, and reef restoration.
The recycling and waste management industry could flourish with government support to develop markets for its products. In particular, the development of procurement policies, mandatory recycling targets and mandatory product stewardships would assist in reducing the 20 million tonnes of waste currently going to landfill and potentially create up to 12 000 jobs.
Skill development
While some workers in regions facing transition have transferrable skills to new industries, other employees face dire prospects for maintaining pay and conditions unless there is further investment in training and skills development.
There is particular concern about the low skill level of some mine workers, such as truck drivers, who have limited skill sets and will struggle to find alternative employment without further skill development. In industries that have a high likelihood of closing over the coming years, the Australian Government should explore the most appropriate option for younger workers with limited skills to be afforded free training and skill development so they stand ready to transition into alternative employment.
On the whole, the current demand-driven skills training system is not adequately catering to the diverse needs of regional communities and is contributing to significant localised skill shortages. There is no doubt that, without change, this system will continue to fail regional communities into the future. Governments, working with regional communities and employers, must ensure that the TAFE system is appropriately placed and adequately resourced to deliver the skills and training to match future employment demand.
Transitions must be community led
In unplanned transitions in the past, it was clear that existing industries were in terminal decline. Despite recognising this, government did not plan and the market alone was not going to be able to deliver the type of long-term investment that these regions needed to adjust.
Similar indications exist now with coal production. A large number of current generators are scheduled for closure over the near to medium term and new coal generators are not financially competitive in order to be built. These communities need to prepare for the inevitable transition. With many power stations expected to close over the short term and global demand flat-lining then shrinking, it is imperative that planning begins now.
Transitions do not happen overnight. They must be planned and executed—and that takes years, not days. Accordingly, the Australia Government cannot delay or give false hope that coal will sustain communities and instead proactively secure the industries and jobs of the future in regional Australia.
It is essential that transition planning is driven by locals with input from all stakeholders. Communities themselves are best placed to know what is likely to work in their region and should be in control of planning what their communities will look like in the future.
However, there is value in the Australian Government supporting and steering the transition process at a local level. An independent regional transitions authority should be established by the federal government. Their role would be to fund and steer the creation of localised transition groups involving employers, local government, unions and communities. Decision making would be driven by local interests, but the role of federal staff should be to offer secretariat support to distribute resources, and put forward funding to enable consultations and develop plans, while also cross-pollinating ideas back at the agency so that different regions could utilise the insights that other regional areas have. Final outcomes or reports from each region could be collated and published by the federal agency.
There would be benefit from the collation and analysis of existing information regarding regional transition in Australia. Based on feedback from stakeholders, a number of organisations would be willing to be part of such initiatives.
Government policies and investment
Governments can play an important role in creating markets and facilitating private investment in regional areas, particularly in a time of record low interest rates where money has never been cheaper.
Governments at all levels need to increase investments in regional communities in order to lower the risk environment for subsequent investments by the private sector. In doing so, this will demonstrate to private investors and entrepreneurs that government is committed to realising targeted transformation in regional areas. This investment should extend to providing quality digital telecommunications, developing local procurement roles for infrastructure, creating markets where regional communities can benefit, fostering an encouraging regulatory environment and facilitating co-investment.
Further, the use of government procurement policies and local procurement policies can create opportunities for regional businesses, demand for the use of recycled material in public infrastructure and allow the bioenergy industry to reach its full potential. The benefits of this for regional Australia will be significant, given the need to process these materials close to where they are located.
A further area of potential regional job growth is carbon abatement in agriculture, land management and forestry in which buyers and sellers, including landholders, could identify and manage multiple uses of private property and take advantage of diverse income streams. By restoring the Carbon Farming Initiative, the Australian Government can seek to secure access to global carbon markets, huge new economic opportunities can be unlocked for Australian farmers, land managers and forestry operations to earn export income from creating and protecting carbon sinks.
Economic diversity in regional communities requires having a targeted and stable public service presence. The Australian Government should reduce its increasing reliance on external contractors and divert this funding to create permanent public service employment across regional areas. The creation of new public servant jobs in regional areas (as opposed to moving existing jobs to regional areas) enables a more diverse local labour market with a need for diverse skills while also boosting local demand for other goods and services.
The Australian Government should create policy settings to add value to the many resources that are mined here. For example, given the nascent nature of the lithium industry, the Australian Government should ensure that a significant proportion of Australia's lithium ore is processed and used in the manufacture of storage technologies instead of simply being exported. This approach would create jobs in regional Australia, particularly in Collie which is already seeking out this industry for its future.
Many of the jobs of the future will rely on cheap, abundant, clean energy. As such, the very first step in securing these jobs is having stable energy policy to attract global investment and drive down energy prices through competition. Reversing the federal government’s intentional sabotage of Australia’s clean energy framework should be addressed as a matter of priority.
Recommendation
The committee recommends that the Australian Energy Market Commission:
develop a model for the establishment of renewable energy zones;
review the current regulatory frameworks to ensure they are fit-for-purpose for clean energy exports (via high-voltage direct current cables, hydrogen and ammonia); and
ensure reform of the existing marginal loss factor regime to ensure investor certainty for renewable projects.
Recommendation
The committee recommends that the Australian Government commit to an energy policy to provide certainty for the market to invest in and enable cheap, abundant, clean energy to restore our competitive advantages and attract manufacturing and heavy industry back to Australia.
Recommendation
The committee recommends that the Australian and state governments invest to create more ongoing jobs for forest and land management, reef restoration and national parks management.
Recommendation
The committee recommends that the Australian Government explore the most appropriate ways in which younger workers with limited skills working in industries that are likely to close could be afforded free training and skill development to enable the transition into alternative employment.
Recommendation
The committee recommends that state governments work with regional communities and employers to ensure the TAFE system is appropriately placed and adequately resourced to deliver the skills and training to match future employment demand.
Recommendation
The committee recommends that the Australian Government support regional communities to develop local transition plans by establishing an independent Regional Transition Authority that would:
provide financial and 'in-kind' support provided to bring together industry, governments, unions and community groups in regions undergoing economic transformation;
steer and facilitate local decision-making on what jobs and industries regional communities want to attract, how they intend to make it happen and what resources and timelines are required; and
collate and disseminate final outcomes and reports for each region and ensure cross-pollination for other regions through previous or current work with other communities.
Recommendation
The committee recommends that the $1,217 million that has been cut from ARENA’s budget since it was established be restored and re-profiled to deepen and broaden their hydrogen and bioenergy strategies.
Recommendation
The committee recommends that the Australian Government acknowledge that regional economies will not transition through market forces alone. Accordingly, the committee recommends that Australian Government reduce private investor risk in regional areas by playing a leadership role in:
providing quality digital communications;
local procurement rules for infrastructure;
creating markets where regional communities can benefit;
fostering an encouraging regulatory environment; and
facilitating co-investment.
Recommendation
The committee recommends that all levels of government in Australia create markets for recycled materials through procurement policies, mandatory recycling targets and mandatory product stewardships.
Recommendation
The committee recommends the Australian Government implement a national fuel standard that mandates a minimum level of ethanol for aviation and marine fuels and the Department of Defence commits to procurement policies and targets for biofuel use in its materiel and operations.
Recommendation
The committee recommends that the Australian Government:
develop and adopt a consistent methodology for carbon sequestration in forests;
seek access for Australian farmers, land managers and forestry operations to sell carbon abatement into global carbon markets that farmers and landholders can use to generate income streams; and
educate landholders on the economic opportunities that can come from carbon abatement on their land through reforestation and land management.
Recommendation
The committee recommends that the Australian Government introduce a requirement for a proportion of critical mineral ores, including lithium ore, mined in Australia to be processed and value-added in Australia to enable the development of domestic battery manufacturing.
Recommendation
The committee recommends that the Australian and state governments reduce their reliance on contractors and divert this funding to create permanent public services jobs in regional areas.
Recommendation
The committee recommends that the Australian Government work collaboratively with aluminium smelter owners and prospective investors to explore options for adopting technologies that would increase the viability of aluminium smelting and allow smelters to provide demand response and electricity grid stability.
Senator Richard Di Natale
Chair