At a glance
- Australia’s manufacturing sector has been described by economists as not being proportionate to the needs of its population or income level.
- Economists believe the sector is ripe for a boost, and that this can be achieved by harnessing renewable energy to its full potential.
- A manufacturing sector proportionate to the country’s needs is estimated to have the capacity to generate new sales of A$180 billion each year and approximately 400,000 additional jobs.
By Johanna Leggatt
Australia’s local manufacturing sector is at an economic crossroads.
The mining sector is often lauded for its vast job creation projects. However, some experts argue that it pales in comparison to the employment potential of manufacturing.
“Manufacturing is a far more employment-intensive industry than resource extraction,” says Dan Nahum, economist at the Australia Institute’s Centre for Future Work. “While it is true that people in resource extraction industries such as mining often enjoy high incomes, there are not very many of them.
“What we’re doing at the moment is selling low employment intensity resources overseas and paying for high-employment intensity manufactured goods coming back to us,” Nahum notes.
Nahum says that, if Australia had a manufacturing sector proportionate to its needs, “we would have A$180 billion in new sales each year and create roughly 400,000 additional jobs”.
“Our share of manufacturing as a proportion of GDP is lower than it should be for a country of our level of income and advancement,” Nahum says.
With COVID-19 decimating jobs, Nahum thinks Australia has a huge opportunity to reboot its manufacturing sector through the harnessing of renewables, especially wind and solar.
In his recent report, Powering Onwards: Australia’s Opportunity to Reinvigorate Manufacturing Through Renewable Energy, Nahum writes that the use of renewables could significantly reduce energy costs.
The report estimates that if the manufacturing sector’s current use of fossil fuel-fired power were fully transferred to renewables, manufacturers’ power bills would decline by A$1.6 billion per year, or 23 per cent, compared to the current fuel mix. The saving increases to A$2.2 billion per year by 2050.
“The sooner we make the transition [to renewables], the sooner manufacturers save money,” Nahum says.
In addition to using green energy to lower their bills, manufacturers could harness renewables to make other renewable energy products in what Nahum describes as “one continuous virtuous cycle”.
For example, Australia possesses a large lithium ore endowment, which is exported for refinement overseas and re-imported as lithium-ion rechargeable batteries.
“By the time it comes back to us, we are paying 135 times what we sold it for” in raw form, Nahum says.
Adding a strong manufacturing pillar to Australia’s economy would also bring it in line with other developed countries that “make things”.
“Right now, our economy resembles a developing world economy,” Nahum says.
“We have a ‘secondary industry’ gap, which is uncommon among developed nations, whereby we have a large number of primary industries heavy on resource extraction, with a tertiary industry perched precariously on top.”
Tony Wood, energy program director at the Grattan Institute, is also optimistic about a renewable energy charged revival of manufacturing, arguing that “green steel” could help power a revival in former coal producing regions.
Green steel uses hydrogen, produced from renewable energy, to replace metallurgical coal in reducing iron ore to iron metal.
The Grattan Institute report, Start With Steel: A Practical Plan to Support Carbon Workers and Cut Emissions, which Wood co-authored, estimates that, if Australia could capture about 6.5 per cent of the global steel market, it would generate about A$65 billion in annual export revenue and could create 25,000 manufacturing jobs in Queensland and New South Wales.
Wood argues that Australia’s extensive wind and solar energy resources would allow the country to make hydrogen, and therefore green steel, more cheaply than countries such as Japan, Korea and Indonesia.
“We do have a relatively small population, and that means that we’ve got a big export opportunity, as other countries are more likely to use their wind and solar for domestic purposes to replace coal and gas-fired power stations,” he says. “It’s almost a no-brainer to turn green steel into an export opportunity.”
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Role of government
Of course, as Wood notes, one “cannot just dream about an energy-based manufacturing renaissance”, and there needs to be an accompanying commitment from both government and the private sector.
In September 2020, the Australian Government outlined its Technology Investment Roadmap for lower emissions that targeted five technologies for development: clean hydrogen, energy storage, low carbon materials (steel and aluminium), carbon capture and storage, and soil carbon. The government also made it clear, much to the disappointment of climate change advocacy groups, that natural gas would play a large role in Australia’s post-COVID-19 economic recovery.
Manufacturing Australia, a CEO-led coalition of Australia’s largest manufacturers, has previously endorsed a gas-led recovery, claiming that “developing new gas, close to customers, and reserving that gas for domestic customers” would help lower gas prices and power a resurgence in Australian manufacturing.
Wood thinks that the focus should instead be on exploring alternative options.
“It is about developing those options on the roadmap, knowing that some of them will fail, but if you’re not failing, then you’re not trying hard enough,” he says.
Meanwhile, the private sector, according to Nahum, is already ahead of the Australian Government, with companies such as United Breweries and BlueScope Steel signing power purchase agreements with renewable generators and saving up to 50 per cent on their energy bills.
Other companies have installed their own onsite solar arrays, he adds.
“I think there are far better ways to affect economic recovery than a gas-fired recovery,” Nahum says.
“We got a scare with COVID-19, and I think it showed us what we need to do to move into the next phase of our economic history.”