Forging a new economy in a heating world

Climate records are being broken by wide margins. July was the easily the warmest month ever recorded. Heatwaves and fires this northern summer are both off the charts, as is the heat in the global ocean and the decline in Antarctic sea ice. 

After our own fires and flooding rains, the number of Australians who discount dangerous climate change must be close to zero. We don’t need more warnings about the state of global systems, but we do need to sort out how to respond.

A multi-pronged threat to multiple communities calls for multi-pronged responses and the heft that only full national backing can provide. Over this supercharged northern summer the US and many other countries have found a new sense of urgency to do something serious about carbon pollution. 

When Joe Biden was campaigning for office three years ago, Australian physicist and entrepreneur Saul Griffith was in his ear to tell him that the only way to turn carbon emissions around at scale was to electrify everything, massively and very quickly. 

Also exercising the minds of Biden and his political allies at the time was the fact that Democrats had managed to seize majorities in both houses of Congress, albeit by tiny margins – an opportunity for big reforms that could not be missed.

The result was the Inflation Reduction Act, a modest name for what is turning out to be massive government investment, using tax credits, in making things – electric vehicles, batteries, wind and solar devices and whatever else might emerge from directed research into renewable energy and emission reduction technologies.

A year into its life, the IRA has opened the door to a storm of investment activity. The huge scope and ambition of the plan brings to mind Franklin D. Roosevelt’s 1930s New Deal and China’s market-shaping strategies of the 1990s, but above all it is the work of the 21st century Biden administration and Democratic legislators.

The US government wasn’t the first to offer big inducements to decarbonise its economy. Europe has been doing it throughout this century, and Australia started moving in that direction under Kevin Rudd 15 years ago. But the scale of the US transformation sets it apart. This is a moment in history.

All over the US, opportunities to join the new, green economy are being seized by investors. The IRA initially authorised spending of $783 billion on energy and climate measures, but embedding incentives in the federal tax code opens up the prospect of a near-limitless future spend. An analysis early this month puts the current running total at $231 billion invested in 136 projects creating 89,500 jobs.

Nearly 70 per cent of that money has gone into batteries – multiple new factories are springing up mainly in eastern states – with electric vehicle manufacture taking up 13 per cent and solar 12 per cent. The US is about to overtake us in the proportion of renewables in the power grid. Intriguingly, most of the new money is going to “red” conservative states like Arizona, South Carolina and Georgia.

Technology leader California has been doing its own heavy lifting in renewable energy, something that energy and climate change minister Chris Bowen acknowledged last week when he signed a memorandum of understanding with that state to invest jointly in renewable research and electric vehicle charging.

The new National Net Zero Authority, chaired by former mine engineer, trade unionist, climate minister and investment manager Greg Combet, is charged with guiding and supporting workers, businesses and communities in the transition to renewables. His advisory board includes Ross Garnaut, who helped inform the climate policies of Kevin Rudd’s government.

In terms of raw materials, Australia is well-placed to meet this challenge. It is the only country where all the essential minerals needed to make vehicle and storage batteries can be found, including over half the world’s known deposits of lithium. But we’re also the world’s largest lithium exporter, which will have to change if making batteries is going to be part of our manufacturing future.

The world’s climate emergency, as Bowen has said, is a jobs opportunity for Australia which should be seized and run with, but shifting a workforce to a new industry is not just a matter of taking people from their present job and plonking them in another.

Australia is not the US, and we must run our own race. The urgent need to renew our economy is one imperative, but so is ensuring that our nation can hold together on that inevitably bumpy ride. Is it possible to do both? There’s only one way to find out.

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