To be frank, it’s astonishing that the Albanese government thinks FMIA is a vote winner. The ads are being rolled out at a pace but, ironically, most of what is depicted is not actually made in Australia. Someone might want to tell the ad agency.
Once you get past the clear Trumpian tone about making things in Australia, are voters really keen to see a billion dollars of their money heading to Silicon Valley to support a highly speculative quantum computing project?
Do voters think it makes sense to direct hundreds of millions of dollars attempting to compete with Chinese manufacturers of solar panels? The details clearly matter.
But the real irony is this: At the same time as the government is promoting its FMIA agenda, several large manufacturing outfits are heading out the door or have flagged their intention to do so. Think here most of the oil refineries, the last substantial petrochemical plants producing polymers, a large glass manufacturer and others.
According to the government’s blurb, FMIA “is a plan by the Australian government to create new jobs and opportunities by maximising the economic and industrial benefits of moving towards net zero emissions. It aims to secure Australia’s place in a changing global economic and strategic landscape”.
In fact, FMIA is really a repackaging of several off-budget schemes that had been around for a while but were gaining no political traction. There is the National Reconstruction Fund ($15bn); Rewiring the Nation ($20bn); the Clean Energy Finance Corporation; the Northern Australia Infrastructure Facility; and other pots of money floating about.
In other words, FMIA is effectively a reboot of several programs grouped together around a questionable theme. Let’s be clear here: it’s about government picking winners according to the government’s interpretation of the changing investment environment and the presumed unstoppable decarbonisation transition.
Bear in mind that countries responsible for over half of global greenhouse emissions have not committed to net zero 2050. The US has pulled out of the Paris climate agreement and the newly appointed Energy Secretary, Chris Wright, has declared “net zero 2050 is a sinister goal. It’s a terrible goal. It’s unachievable by any practical means. The aggressive pursuit of it has not delivered any benefits but it’s delivered tremendous costs”.
The Albanese government may wish to argue that what is happening in the US won’t alter Australia’s commitment to reducing emissions according to its 2030 targets or to net zero 2050. But what other advanced economies are sticking to their pre-announced climate targets and flourishing as well?
The German economy is now into its second year of recession and the output of its most energy-intensive factories fell by nearly 25 per cent last year. The country is rapidly deindustrialising, with some large operations relocating to other countries, including China.
It is worth noting here that German electrolyser manufacturer Thyssenkrupp Nucera reported a 95 per cent drop in new orders for its green hydrogen business year on year in the last quarter of 2024. So much for the bright future for green hydrogen that our Climate Change and Energy Minister, Chris Bowen, keeps talking about.
The UK economy is also floundering as its equally committed Energy Secretary, Ed Miliband, continues to try to place round pegs in square holes. The country came very close to running out of electricity recently but was saved by its interconnectors with Europe. At least the Labour government is giving the green light to investment in nuclear, both large- and small-scale.
It’s hard to provide a comprehensive assessment of FMIA at this stage, although it hasn’t started well. The massive grant given to a US-based quantum computing company was not subject to any competitive process and apart from a small number of jobs that could be created in Brisbane, it’s not clear what the net benefits will be. Certainly, there is the possibility that advances in quantum computing will generate significant economic gains down the track. But the preferred approach would have been to give smaller grants – say, $250m apiece – to different groups. In this way, the Australian taxpayer wouldn’t be putting all the money on a single number on the roulette wheel.
As for the solar manufacturing plant in the Hunter Valley, the less said the better. With the backing of two extremely wealthy individuals, it’s not clear why taxpayers were being asked to chip in. It’s highly unlikely that this project will succeed commercially, even if it succeeds technically.
In theory, projects under the FMIA agenda must meet the National Interest Framework as assessed by Treasury. (You would expect that Treasury would vehemently oppose a pick-the-winner scheme such as this, but times have evidently changed.) There are two streams: Net Zero Transformation and Economic Resilience and Security.
We are also being told “the government will apply Community Benefit Principles in relation to investments in priority industries. These principles will have a focus on investment in local communities, supply chains and skills, and the promotion of diverse workforces and secure jobs”.
If that sounds like a dog’s breakfast to you, you aren’t wrong. Too many objectives, too few instruments. But when any politically attractive project pops up, it will be relatively easy to comply with these loose criteria, which is no doubt the point. Recall here that this type of scheme has been criticised by the chair of the Productivity Commission, Danielle Wood, as potentially “creating a host of inefficient and uncompetitive firms forever reliant on subsidies”.
But the real tragedy lies in the rapid exodus of some of our largest manufacturing operations at the same time as the Albanese government is bragging about its new program. Rio Tinto, the largest shareholder of the large Tomago aluminium smelter in the Hunter Valley, is now foreshadowing its likely closure because renewable energy is not capable of providing cheap and reliable electricity on which the plant depends. The fate of the smelter in Gladstone, as well as of the alumina refinery, hangs in the balance, again dependent on securing cheap and reliable electricity.
The decision to hand over $2.4bn to secure the future of the Whyalla steelworks is also illustrative of the potential problems of signing blank cheques on behalf of taxpayers. The talk about installing an electric arc furnace may turn out to be idle – EAFs work well for recycling steel, less so for iron ore. A lot of money may be lost in the quest. In any event, without cheap and reliable energy – there’s that factor again – there won’t be any long-term future for the plant.
The issue now is whether FMIA will really be a vote winner. In contrast with Make America Great Again and its range of highly complementary measures – think cheap and reliable energy, low rates of company taxes, immediate expensing of the cost of investments, a thick capital market, tolerance of risk and failure – FMIA looks like a very pale imitation indeed. With many countries now de-emphasising net zero, the scheme is also looking out of date. It could easily end like Captain Scott’s quest to reach the South Pole – not well.
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