In late September, Energy Minister Angus Taylor announced his “technology investment roadmap” as again, another pandemic measure with a dual focus, in providing financial backing to environmental innovation whilst “splashing the cash for economic stimulus”.
The announcement highlights the potential for significant positive emissions and economic outcomes. The policy response is dependent upon a diversification of environmental technologies to alternatives aligned better with Australia’s current economic needs. Solar, wind and hydro energies have now been classified as ‘mature technologies’ along with coal, which could signal a decrease in funding for these streams. Angus Taylor has instead now prioritised development in
- Clean hydrogen
- Energy storage solutions
- Low carbon steel and aluminium
- Carbon capture
- Soil capture
This is part of stage 1 and 2 of the roadmap, which are targeted toward the short term (2020-2022) and medium term (2023-2030) respectively. The long term plan for technology investment from 2030-2050+ is predicated upon the development of the short term strategies into long term scalable solutions; adapting hydrogen fuel cells to increase transport efficiency and reduce costs, construction of small modular reactors, and renewable energy exports.
The government has allocated $18 billion into this program over the short to medium term, with the anticipation of creating 130,000 new jobs by 2030 and over $100 billion in additional private sector investment growth. It thus appears this $18 billion is being used help propel the energy sector into a state of self-propagating investment and innovation, rather than a full stimulus payment to directly fund sector development in the medium term.
This three-stage system appears very well aligned with Australia’s intended economic recovery in supporting high jobs growth and increasing consumption expenditure. By investing in development, the government can reach similar environmental and economic targets without outlaying the $800 billion required to convert Australia to 100% renewables, which would take an estimated 35 years.
As with all government policies from now until unemployment and economic growth return to their long-term healthy averages, economic growth is the number 1 priority with the investment roadmap.
In accordance with the Morrison government’s neoliberal fiscal approach, Aggregate Supply is in key focus. By increasing aggregate supply via direct government expenditure, this will improve the total productive capacity of the economy, where productive capacity refers to the ability for the economy to produce all goods and services using the four factors of production.
The reason why Aggregate supply is so critical? Long term economic growth. By providing investment and channelling spending into infrastructure, the government also exploiting the multiplier effect, which explains how initial expenditure is then ‘re-spent’ by other groups in the economy. Simple transfer payments or stimulus checks start and end with a smaller amount of individuals in the economy, where the fundamental improvement of energy infrastructure over the next 40+ years has the ability to impact our domestic manufacturing, engineering and construction sectors the strongest.
Furthermore, Aggregate Supply improvements also stimulate long term prosperity by both increasing output and decreasing the price level. If the economy were to rely on Aggregate Demand increases alone, this would positively improve output, but constantly increase price levels until a threshold is reached where there are constant increases in price with negatable improvements in economic output – simply put, inflation increases with no increase in GDP.
The 2020 Budget is highly aligned to jobs creation, and the technology investment roadmap’s plan to create more than 100,000 new jobs will help reduce Australia’s unemployment rate and overarching labour market spare capacity. Undoubtedly, this policy response will also provide a dual benefit in putting skilled individuals from damaged construction, infrastructure and manufacturing sectors back into work, targeting the cyclically unemployed, whilst also creating new skilled opportunities for structurally unemployed individuals.
By targeting these individuals, the government is addressing Australia’s ‘long term unemployed individuals’ and those with an absence of demanded skills. By securing work in this manner, there will be a stronger impact on unemployment. This is because now a larger proportion of the working age population are developing transferrable skills which makes them attractive to a plethora of sectors and also, resistant to structural change.
The Low Emissions Technology Statement also has allocated additional $1.62 billion toward ARENA, Australia’s Renewable Energy Agency which will further improve employment through environmental improvement related infrastructure projects.
Despite the unemployment and growth benefits, a huge downfall to renewable energy and this investment plan more specifically are the potential increases to electricity prices for firms and consumers in the short to medium term. A positive argument for unregulated coal fired power is the low costs it can deliver to the economy; especially as Australian power prices are almost 200% of the lowest cost providers in the world. Alongside high upfront infrastructure costs, the efficiency lag and unparalleled cost incurred by suppliers and service providers for pure renewables will be passed onto service users.
Increases in the cost of key resources for businesses like electricity is an example of cost push inflation, signified by a decrease in aggregate supply. This results in both a higher price level and lower output level, causing stagflation which significantly inhibits economic prosperity.
The investment roadmap in semi-renewables and energy storage particularly will be helpful in alleviating higher costs and ensuring the transition to renewables is as smooth as possible. Also recall that this policy measure is not so much an effort to address environmental concerns as it is a fantastic opportunity to pump funds into the economy through key infrastructure projects which will create future benefit.
Alongside Angus Taylor’s announcement is the constant reference by the Morrison government of a ‘gas led recovery’.
Under the JobMaker plan, Gas will “make energy affordable for families and businesses and support jobs” – Morrison’s plan is to re-develop the east coast gas market and create a competitive ‘gas hub’, unlocking gas supply through efficient pipelines, transportation and widespread use in electricity generation. As another infrastructure project centred on energy, reliable and affordable gas will not only better service domestic customers and alleviate pricing concerns, but will also allow for cheaper gas exports on the global market as more economies like China under their 2030 Green energy plans, step away from coal and look for alternative non-renewable sources to complement renewable energy development.
In discussion of the aforementioned syllabus points, Gas improvements will support the manufacturing sector which “employs over 850,000 Australians” and help Australia continue to reach the peaks of commodity exports. In 2019, Australia was the world’s largest exporter of LNG providing an economic value of $49 billion.
The technology investment roadmap appears to be a great way to target multiple economic concerns in an effective manner and inspire private sector innovation. However, widespread concerns call that Australia’s investment in renewables is misguided without stringent environmental targets which critique our emissions performance. How do the public and private sectors know investment is effective if there are no active and enforceable metrics to measure key indicators.
Concerningly, without improvement in this way, the investment roadmap will deliver on its promise to create jobs and short term innovation opportunities, however if the venture is both unprofitable or ineffective, there will be no long term employment, economic growth, environmental or scalable opportunities