Historic risk and opportunity in the new clean energy ‘arms race’

Despite vast resources of land, wind and sun, Australia risks being left behind in a trillion-dollar global renewable energy arms race accelerated by the United States’ green industry stimulus package, industry leaders have warned.

The US Inflation Reduction Act along with related legislation had resulted in more than $US1 trillion being pumped into American renewable energy industries over the past 18 months, Anne Valentine Andrews, global head of real assets for the global investment giant BlackRock, told a round table discussion hosted by Deloitte in Sydney on Wednesday morning.

Fortescue Metals executive chairman Andrew Forrest (L) is among those warning of a clean energy arms race.

“To that put that in perspective, the [stimulus package for the] GFC, I think, was only about $700 billion.”

In response to the US package, the European Union countered with its own Green Industrial Plan, providing an initial $US265 billion in support for its green industry.

As a result, investment and resources that might otherwise have flowed to the Australian renewables sector are being redirected to competitors.

Pradeep Philip, lead partner with Deloitte Access Economics, said the US package could ramp up production of green hydrogen so fast it could result in future Australian exports being cut by 65 per cent of what would otherwise be the case, and delay the large-scale production of green hydrogen until the mid-2030s.

“This is a story of scale, of Australia’s energy mix, the recapitalisation of production – every business, every sector.”

He said the US Inflation Reduction Act had ended a global period of incremental industrial change and created one of revolution. Australia had a comparative advantage due to its access to wind and solar resources, but unless it acted to exploit that advantage over the coming year it would lose out to those willing to rapidly invest, he said.

Australia should to fast-track the renewable energy zones already being created, and expand them to include new industry, so that new users of clean energy are located close to new producers, Philip said.

He said the government should consider instituting a green hydrogen production credit of $2 per kilogram, about half that available to producers in the US, and explore ways to ensure Australia developed and maintained a workforce capable of developing new industries.

Where once global manufacturers directed their investment to nations with cheap labour, in the new green economy they would be drawn to those with cheap, clean and reliable energy, he said.

Clean Energy Council chief executive Kane Thornton said it had taken some months for the scale of the risks and benefits of the changes brought about by the IRA to flow through to Australia, but that it was now clear they were “eye-watering”.

“Truly profound” levels of investment and employment opportunity were at stake, he said.

“The nature of the change that will sweep throughout this country for many decades to come is extraordinary.”

Andrew Forrest, who also addressed the event, said the speed of what he called the green tech “arms race” was difficult to comprehend.

He said if anyone had described the scale of investment and speed of investment now being seen around the world even a couple of years ago people would have, “asked what you were smoking and where they could get some”.

Forrest, whose company Fortescue Future Industries plans to make green hydrogen in Australia and around the world using broadscale wind and solar farms, said FFI’s resources and expertise were increasingly being drawn from Australia to the US.

Australia is also facing competition from the Gulf states, particularly Saudi Arabia, he said.

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.