Australia must press on with transition spend: Guy Debelle

Australia is starting to catch up with what it needs to do to reach its climate goals, but there is much more to be done, former RBA deputy governor Guy Debelle said.

At the UBS Australasia Conference on Monday: from left, George Tharenou, James Aitken and Guy Debelle. Picture: Scott Ehler

Australia must press on spending the hundreds of billions of dollars of investment required to fuel the energy transition, even if it leads to “higher for longer” interest rates, former RBA deputy governor Guy Debelle said.

Speaking at the UBS Australasia Conference on Monday, Dr Debelle said the country was now starting to catch up with what it needed to do to reach its climate goals, but more needed to be done.

He painted a picture of a “pretty damn lucky” country that again had been blessed with “some of the best endowments” including sun, wind and land.

He said that the massive capital expenditure required – about $225bn in coming years by some estimates – not only to fuel Australia’s decarbonisation but to decarbonise fuel exports simply “needs to happen”.

“Australia’s greatest contribution to decarbonisation is actually through our energy exports – that is orders of magnitude larger than our own domestic decarbonisation,” Dr Debelle said.

“That doesn’t mean we don’t do that, but it is in the energy export side of things where the opportunity is greatest.”

He said Australia needed to be able to generate enough clean energy both to decarbonise its own economy but also to replace its fossil fuel exports. “It’s sort of the same solution for both,” he said. “It all starts with generation.”

If the Albanese government meets its renewable generation target of 82 per cent by its target of 2030, that would be “great” but would require it to “stand up a hell of a lot more generation capacity than we have at the moment. That’s a lot of investment.”

Dr Debelle said the massive capex would mean high rates would serve to manage higher aggregate demand, but that the pain would ultimately be worth it.

“In this country in particular, once you have deployed enough generation, we have the capacity to way more than meet our own decarbonisation needs in terms of renewable energy potential – and (then) have a very large green electron export sector” he said.

“At some point in the medium to longer term – and it may be probably in this decade – you are looking at really cheap energy in this country,” he said.

Having access to low cost green energy, “which the rest of the world is going to demand, at roughly zero marginal cost, is actually a pretty huge asset”.

Dr Debelle said the levels of investment required, particularly in the next decade, would increase the likelihood that interest rates remain higher for longer.

He acknowledged the load would add to aggregate demand (which is inflationary) but said that could be manageable. He added that it didn’t “necessarily mean it has to be inflationary in the short term, while the investment is happening”.

“The higher interest rates would be passing some of those costs to future generations, and that’s OK because they are actually going to be the ones reaping the benefits, or at least avoiding the costs of not doing that is the more likely outcome.”

What’s more, higher-for-longer rates were a better outcome than an economy with sluggish growth that needed the support of low interest rates.

“It’s a better challenge to be managing a bit too much aggregate demand than … a large shortfall. I think I’d rather have that challenge.”

Dr Debelle stepped down from the RBA in March last year to join Fortescue Future Industries as chief financial officer in June 2022, before departing the company to join the board of listed vanadium miner Tivan.