Climate targets settled, trade-off sprint begins

Anthony Miller
08:00am November 25 2022

Now there’s alignment on emissions targets, Westpac Institutional Bank’s chief says the next step is to agree the right trade-offs to reach them. (Getty) 

It’s been decades in the making, but for the first time, Australia has reached alignment across the community, corporate sector and every layer of government on a shared goal to reduce emissions. The marathon which started in the 1980s has turned into a sprint.

The unanimity was sealed with the recent passing of the Federal Government’s bill enshrining a 43 per cent reduction in greenhouse gas emissions by 2030 compared to 2005 levels, and to reach net zero by 2050.

Our alignment on targets is a positive step forward for Australia and I believe the transition will create many opportunities.

However, the changes needed to limit global warming to 1.5 degrees are profound and the pace at which we have agreed to move means we will need to make sacrifices, trade-offs and some very tough decisions along the way. This was a key topic of the recent COP27 held in Egypt. 

What’s now needed is our shared commitment to work through the trade-offs carefully to help achieve a just transition – and quickly.

One example is around ramping up the sourcing of solar panels.

As one of the sunniest continents in the world, Australia has the highest uptake of solar photovoltaic systems globally. In 2021, around 10 per cent of Australia’s electricity was generated by solar PVs – and this will need to rise.

To date, it’s been estimated around 90 per cent of Australia’s solar panels have been sourced from only one offshore country. This raises a few dilemmas, not least of which are the sovereign risks of being so reliant on imports from one country and the myriad of risks within that supply chain, as highlighted in a report by the International Energy Agency in July.

The question then is: does Australia take the easier and quickest path by carrying on importing from the one country? Or do we tap into the opportunity to build solar power manufacturing and production capability and capacity at home, making the 2050 timeframe tougher to achieve.

If our choice is to build capacity at home, then what level of capacity do we build that makes use of our comparative advantage and where do we form partnerships?

From a production perspective, our country’s capacity to contribute on a per unit cost of production is not as great as the US or Europe. But in terms of the materials that go into making solar panels, Australia is rich in the hard-to-find specialised minerals and rare earths needed. This makes us well placed to position Australia as a critical part of a supply chain partnership with the US and Europe. By doing so we leverage our comparative advantage as a critical component producer, working in partnership with the massive manufacturing capacity of the US and Europe, to service the surging demand both at home and around the world.

But we also need to recognise that changing how we source our solar panels will inevitably impact the prices we pay. Are we collectively prepared to pay a premium, to ensure we have a better, more just future?

This is one example of the type of conversation we need to bring to the fore so we can move forward quickly.

Recent history throws up a relevant example of how this has worked in practice – the case of the global shortage of integrated circuits, known as semi-conductor chips. The shortage – primarily driven by disruptions from the COVID pandemic in 2020 to the supply chains from producers in Taiwan and South Korea – affected an estimated 170 industries, halting production of cars, video games, computers and household appliances.

In response to this crisis, the US stepped up action to reduce its heavy reliance on imports for such a strategically important product, including recently passing the CHIPS and Science Act of 2022, which has catalysed nearly $150 billion of investment into building up its domestic semiconductor chip manufacturing industry, and flexing policy muscles to give it a leg up over competition from Asia.

It’s a good example of the swift results that can be achieved when a country recognises the need, gets organised and prioritises its resource allocation.

Countries across the world, including Australia, have this opportunity and we look forward to supporting the Government’s work around planning and prioritisation.

Another area we need to continue to simplify and speed up are our project approvals processes. Progress has been made, but there is more to do. Some of our global clients have told us that building renewable power generation capacity in Australia can result in very complex processes. If we want to be a renewables superpower, we need to be competitive and easy to work with. There is an opportunity for the private sector and governments at all levels to work together to develop a streamlined approvals process, in effect a renewable project transit lane.

The challenges are plentiful and the coordination and alignment required have only been witnessed a number of times in history. However, I’m confident that as a nation we can get there if we have honest conversations, make the difficult decisions and commit to working through the trade-offs.

This will take leadership, investment and a galvanisation of government, private sector and community – all of which we now have in place. The Federal Government’s current inquiry into how trade and investment can support Australia's transition to a green energy superpower is very timely and provides a good opportunity for these and other ideas to be discussed and considered.

 

Anthony Miller

Anthony Miller was appointed Chief Executive, Business & Wealth in August 2023 and continues to be Chief Executive, Westpac Institutional Bank until October 1, 2023. Before joining Westpac in October 2020, Anthony was CEO of Australia & New Zealand and Co-Head of Investment Bank, Asia Pacific at Deutsche Bank from 2017. Prior to Deutsche Bank, Anthony was a partner at Goldman Sachs, having joined the organisation in 2001. Anthony holds a Bachelor of Law (Honours) from Queensland University of Technology, and Bachelor of Arts (Japanese Language, Modern Asian Studies) from Griffith University.

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