July 21, 2023
The Productivity Commission has issued a timely warning on the insidious way in which the green transition can quickly morph into a new age of industry protection. It notes dryly that many of Australia’s sectorial abatement measures do not currently approximate an efficient form of carbon pricing and selectively confer significant advantages on some activities, at high cost to taxpayers. For example, the PC says the exemption of electric vehicles from fringe benefits tax equates to a carbon price of between $987 and $20,084 per tonne. In addition are other assistance measures for preferred industries. These include incentives for hydrogen fuel worth $3.6bn since 2017, $257m for large-scale energy storage, $300m for ultra-low-cost solar and more than $1.3bn for carbon capture and storage between 2003 and 2017.
Australia is not alone in what is akin to a global arms race for subsidies, led by the Biden government’s misnamed Inflation Reduction Act, which is sucking investment from other parts of the world. But the PC said Australia stood to potentially lose its comparative advantage if it sought to compete on a protectionist level with the US and Europe by going too far in the direction of self-reliance and domestic production through large-scale industry assistance programs. It said industry assistance through concessional finance, including carbon abatement policies, had become increasingly “opaque” and called for greater transparency on the use of taxpayer funds. Left unchecked, the rise of “hidden” protectionist policy risked winding back the nation’s living standards.
Politicians can argue we are investing in a necessary low-emissions future. But a global perspective must take in the whole picture. There are some salutary lessons from US climate tsar John Kerry’s visit this week to China to keep alive the pretence of Sino-US co-operation on climate action. Mr Kerry told Chinese officials “climate should be freestanding” as a diplomatic issue, “because it is a universal threat to everybody on the planet”. But this was not reflected in the official Chinese readout of the meeting with Chinese foreign affairs chief Wang Yi.
The view from China is that climate co-operation cannot be separated from “the overall environment of Sino-US relations”. Mr Wang says it is hoped the US will pursue a rational, pragmatic, positive policy toward China, continue to adhere to the one-China principle and properly handle the Taiwan issue.
Meanwhile, emissions growth in China continues unabated, as it is allowed to do under Beijing’s global undertakings. The Climate Action Tracker says that between 2015 and 2022, China’s greenhouse gas emissions increased nearly 12 per cent. Between 2020 and 2022, China added some 113 gigawatts of new coal-fired power plants, according to S&P Global Commodity Insights. For perspective, the entire world managed to retire some 187 gigawatts of coal plants between 2017 and 2022.
As we risk making our economy less efficient with misguided subsidies, we are at every step making ourselves more dependent because most of the hardware needed for the energy transition will come from China, including electric vehicles. And as Cameron Stewart reports on Friday, this also extends to the electronic devices needed to make the solar panels we import from China operate. The concern is that in times of crisis this will allow Beijing to sabotage, surveil or disrupt solar energy supplies.
Liberal senator James Paterson makes the obvious point that if companies such as Huawei are not safe to be the backbone of our telecommunications network, they can hardly be safe as the backbone of our new electricity grid. Home Affairs Minister Clare O’Neil says the government is working to expand domestic manufacturing in order to reduce the reliance on “high-risk vendors”. What would the PC have to say about that?
