Australia can be a winner from Trump’s climate retreat

In the mind of the President Donald Trump, there are only “winners” and “losers”. And the world is divided into countries that have a trade deficit with the US, and those that don’t. The good news for Australia – with our trade deficit with the US – is that Trump’s climate rollbacks give us an opportunity to be a winner.

Donald Trump is turning his back on pro-climate and clean energy policies. Credit: Michael Howard

On his first day back in office, Trump began the process to withdraw once again from the Paris Agreement on climate change, but also to wind back elements of the so-called Inflation Reduction Act (IRA) – the biggest pro-climate and clean energy piece of legislation ever enacted by any country and which passed without a single Republican vote.

To put it in perspective, the IRA mobilises government spending equivalent to about a quarter of Australia’s GDP. Coupled with the private sector investment, it was likely to be galvanised over the coming decade, this figure gets closer to Australia’s entire annual GDP. By some estimates, more than 42,000 jobs had already been created in America owing to the IRA.

Elements of the IRA may survive, thanks to the emergence of Republican support on the ground as money began to flow and sods began to be turned. But even if it is rolled back entirely, US demand for clean energy technologies – especially batteries (including for EVs) and solar panels – will still grow, but not by as much. The difference is that domestic supply will almost certainly no longer match demand – and that is where Australia’s opportunity awaits.

Johns Hopkins University has suggested this gap will probably represent as much as an $US80 billion opportunity for other countries to fill. With Australia having been granted many special provisions under the 2023 Climate, Critical Minerals and Clean Energy Transformation Compact it signed with the US, you would think it is especially well poised to seize this opportunity.

Unfortunately, we risk being eclipsed by the likes of China (subject to their broader trade squabble), Japan, South Korea, and the EU when it comes to batteries, and the likes of China, Malaysia, Cambodia and Thailand when it comes to solar panels if we don’t get our skates on.

This is why measures like the Australian government injecting another $2 billion into our Clean Energy Finance Corporation last month is so important. It helps ensure we are not just accelerating the clean energy transition away from more expensive forms of energy such as coal, but spurring on our own industries and manufacturing to support that transition here and abroad.

Prime Minister Anthony Albanese likes to talk of how we can export solar power via cables to Singapore, but opportunities are boundless for Australia to become a clean energy superpower with the right policy settings.

All this requires us to stay the course, even in an era of US geopolitical uncertainty. And there will be two big tests of that in coming months.

First, the government must secure passage of its own Future Made in Australia production tax credits. This will particularly help with our processing of critical minerals that go into batteries, and position us well whenever the US turns its attention back to green hydrogen. Whether the IRA is here to stay or not, it has kicked off a round of green industrial policy around the world that also includes the GX (Green Transformation) policy in Japan and the Nova Indústria policy in Brazil.

It would be stupid for Australia to have built the same train, but then not equip it to leave the station. The concern of the mining industry that these tax credits bring with them too much green tape is odd when you think that the government is offering them $7 billion over the next decade that would otherwise not be on the table.

The second big test is that Australia doesn’t follow Trump and walk away from the Paris Agreement if a Coalition government is elected in coming months. Such a move would mean us also joining Iran, Libya and Yemen as the only other countries that choose to sit on the sidelines – hardly our natural bedfellows. But most importantly, it would mean leaving Australia susceptible to slower economic growth and green tariffs – hardly what you want to do in the middle of a cost-of-living crisis.

Dutton’s confirmation last week that a Coalition government would stay in the Paris Agreement over concerns about European tariffs should therefore be welcomed. Even if, worryingly for Labor, it is a sign he is at least thinking like a leader of an alternative government.

While the world can weather Trump’s exit and is even better positioned to do so this time, the Paris framework will begin to shake if another G20 economy followed it out the door. Argentina under Javier Milei is considering doing just that, but equally it is the economic consequences that are keeping them in for the moment – not least the prospect of an EU regional trade agreement being torn up, or their OECD ascension process being stalled.

Dutton has been more circumspect on whether Australia would produce a 2035 emissions target under a government he led. It would be legally incompatible for Australia to stay in Paris without a target. But, just as the government is awaiting advice from the Climate Change Authority, we shouldn’t expect either party to put their numbers on the table before the election, let alone the underpinning economic rationale and what they mean for electricity prices.

Continuing to position ourselves to benefit from the climate and clean energy transition does not require us to pick a fight with the US. It is quite simply about doing what is right for Australian jobs, manufacturing and economy and therefore Australians’ cost of living – all the while giving our friends in the US what they will still need, no matter who is in the White House.

Thom Woodroofe is a senior international fellow with the Smart Energy Council. He is a former climate diplomat and recently worked at the Australian Embassy in Washington, DC.

Get a weekly wrap of views that will challenge, champion and inform your own. Sign up for our Opinion newsletter.