The power politics of aluminium

Anthony Albanese has confirmed the reality of the net-zero transition that without government subsidies, heavy industries are likely to close up shop and move offshore. The $2bn producer credit being offered to aluminium smelters recognises that they will be uneconomic if forced to pay the going rate for electricity in a transformed grid.

The federal government says the subsidy is part of its Future Made in Australia agenda. The Prime Minister says investing in the Australian-made aluminium industry is a “massive opportunity” to create well-paid jobs in our regions and suburbs, and set Australia up for the future. The government says the subsidy will save jobs and could give Australian aluminium production greater access to global markets that will require low-emissions materials in the future.

Peter Dutton says the requirement for aluminium producers to use low-emissions power will make electricity more expensive for everyone else. “I can’t find anywhere in the world an aluminium smelter, a high-energy use aluminium smelter, that is only run on wind and solar and batteries,” the federal Opposition Leader said. The $2bn in production credits is on top of the millions of dollars already being given as industry grants to look for ways to lower emissions across the aluminium production chain.

Federal Climate Change and Energy Minister Chris Bowen has criticised the Coalition for not valuing heavy industry but in the process appears to suggest that without government assistance, aluminium smelters at Tasmania’s Bell Bay, Portland in Victoria, Tomago in NSW and Boyne Island in Queensland will be gone by July 2029, starting in January 2026. Australia is well placed with world-class supplies of alumina and bauxite from which to make aluminium, but the crucial element has always been access to cheap electricity.

According to the Australian Aluminium Council, the four aluminium smelters consume as much electricity as South Australia and Tasmania combined. Australia’s aluminium, alumina and bauxite industries combined account for about 6 per cent of national emissions, but the council says competitive energy is the critical foundation that enables Australian business to compete internationally. It says the single most effective mechanism to assist in the transition of the aluminium sector is to ensure that low-emissions electricity is delivered reliably and at an internationally competitive price.

This is true for all electricity customers, not only the big industrial users. And it is particularly poignant given the relative cost of power in other parts of the industrialised world, notably the US and China.

The truth is a $2bn production credit for aluminium-makers does not lower the cost of energy – it simply protects the industry from the corrosive forces of a distorted energy system already littered with subsidies in an attempt to defy the laws of economics and physics. Fixing this is where the focus needs to be.