Rio signals the reality of net zero

Mining giant Rio Tinto has fired the first warning shot over the future of heavy industry in Australia following the introduction of the Albanese government’s revised safeguard mechanism that will force big companies to progressively reduce their carbon dioxide emissions by law. Rio has written off $1.2bn in value for its aluminium division because of the new rules. The company says it wants to stay in the aluminium business in Australia but to do that it needs access to alternative supplies of low-emissions power that are dependable and affordable. Company management said it felt a “big responsibility to explore all opportunities”. Ultimately, however, it said: “If we can’t get renewable energy in Australia, it’s impossible to produce something and export it out of Australia.”

Rio’s decision highlights what critics of the speedy decarbonisation push have been saying all along. If companies cannot make a profit because of climate policies, they will pack up and go somewhere where they can.

Rio is not yet at that point but the signs are ominous. The Australian Energy Market Operator confirmed on Thursday that the cost of generating electricity rose 31 per cent in the three months to June despite price caps on coal and gas and the strengthening of global supply chains following Russia’s invasion of Ukraine. Chris Bowen concedes the government’s target to lift renewable energy to 82 per cent of supply by 2030 is under pressure. Mr Bowen has said Australia must install 22,000 500-watt solar panels every day for eight years, along with 40 seven-megawatt wind turbines every month, plus 10,000km of additional transmission lines. But the advice from industry is that delivery of renewable projects is running at about half the pace required to meet the target.

The global picture extends the bad news. As Adam Creighton wrote on Thursday, in the US talk of the low-emissions transition has been conducted in inverse proportion to the actual transition because science and economics have got in the way. Last year, about 3 per cent of the world’s energy was supplied by wind and solar power, and only 4 per cent in the US – the remainder overwhelmingly came from coal, oil, gas and nuclear power stations. The US is running into exactly the same problems as Australia: rising prices for the commodities needed in battery and renewable energy projects and a requirement for tens of billions of dollars to be spent on long-distance transmission lines in the hope they will make intermittent sources of generation more reliable.

Meanwhile, Chinese leader Xi Jinping has made it clear in recent weeks his country has no intention of sacrificing either living standards or industrial production in the chase for climate change action. As recent research from the Australian National University has shown, China is expanding emissions at a rate equal to Australia’s total annual emissions every six months. This is why the news from Rio on aluminium is all bad. The great fear has always been that trade-exposed industries such as aluminium will become uneconomic in Australia and be forced to shift offshore. That day is rapidly approaching.