The Biden Administration Should Look to a Surprising Source for Climate Policy Inspiration: Australia

Australia is not exactly thought of as a global leader when it comes to climate policy, so much so, in fact, the country was recently excluded from the United Nations Climate Action Summit. It is perhaps most famous for being the only country to have passed and then repealed carbon-pricing legislation, as well as its enormous coal export trade with China. Australia and the United States face similar political hurdles in passing significant climate policy as large, fossil fuel-producing nations marked by seemingly endless culture wars over the issue. While pundits prefer to compare the United States to its more ambitious European counterparts, these are misleading. Instead, the Australian example offers a more realistic approach whose principles could be built upon and applied to an ambitious U.S. climate agenda that reaches across the aisle while leaving a lasting technological and institutional legacy.

Australia, the Canary in the Coal Mine?

Perhaps more than any other nation, Australia’s contemporary politics has been defined by climate change. The conservative Liberal Party government came into power in 2013, winning the federal election with a promise to “axe the [carbon] tax” and has continued to be hostile to climate policy ever since. Initially led by Tony Abbott, who infamously called the science around climate change “absolute crap,” the current prime minister, Scott Morrison, is instead famous for bringing a lump of coal into Parliament to extoll its economic virtues.

Nonetheless, the government has overseen significant progress on core issues. Australia has had one of the largest expansions in renewable energy in the G20, coming mostly at the expense of coal (Figure 1), and is the world leader in rooftop solar, with a panel on top of one in every four Australian homes. More recently, it announced its new $1.4 billion “Technology Investment Roadmap,” which makes big bets on green technologies in an attempt to forge a new approach that can move past the cultural divisions and political chaos.

According to its critics, however, the roadmap is a thinly veiled obfuscation strategy designed to provide maximum political cover and flexibility for a government that refuses to acknowledge the seriousness of climate change. The alternative view—as discussed in a recent episode of our Energy 360 podcast—is that investing in clean technologies, green jobs, and new industries is the only politically feasible way to reduce emissions.

While it is clear the government is overselling the emissions benefits, the roadmap contains three principles from which a Biden administration could build its climate platform: (1) more carrots, less sticks; (2) technology over timelines; and (3) leave a legacy.

More Carrots, Less Sticks

Climate change is not just a pollution problem, but a technology problem as well—a “Tale of Two Market Failures,” if you will. You can either punish polluters until consumers choose the greener alternatives, or as the Intergovernmental Panel on Climate Change notes in its 1.5°C Report, you “include the widespread adoption of new and possibly disruptive technologies and practices and enhanced climate-driven innovation.” Preferably you do a bit of both, first driving down the price of cleaner technological options before then adding a carbon price that incentivizes substitution at the margin.

Not only are these technologies essential to reducing our emissions, but investing in them can create jobs, growth, and productivity benefits. These economic “co-benefits” help bring coalitions together instead of driving voters apart, cutting the proverbial “Gordian Knot” at the heart of climate policy. Policies like Australia’s roadmap, which explicitly prioritize these co-benefits over more cost-effective emission reduction strategies, are likely to foster more ambitious climate action by incrementally lowering political, economic, and cultural barriers to further action over time.

This is in stark contrast to the traditional, first-best carbon pricing approach. As the political scientists Leah C. Stokes and Matto Mildeberger put it, “[a carbon price] may be the optimal economic policy for reducing carbon pollution, but as the centerpiece of climate reforms, it has proven a political disaster.” This statement has proven especially true in the few fossil fuel-rich countries that have tried to pass such a tax, notably Australia and the United States. In both cases, concentrated vested interests, particularly coal and oil companies, fought tooth and nail against what they perceived to be an existential threat against their very business model. In the understated language of a recent academic workshop on the issue, “the distributional impacts of climate policy invariably collide with the political economy of a given jurisdiction to constrain the real-world implementation of carbon pricing”.

In the very real-world example of Australia, it is hard to overstate how politically disruptive carbon taxes have been over the last decade. Attempts to put a price on carbon have helped depose at least three separate prime ministers (and one twice) and turned what should be a technocratic challenge of managing a technology transition into a culture war that has divided a nation. While emissions did indeed fall much faster during the carbon price period than under the Coalition government’s Emissions Reduction Fund (see Figure 2), it set back the policy and politics of climate change by a decade. The current government has only recently seen enough political goodwill to make the limited progress that is the roadmap. What is exciting about this roadmap, however, is the groundwork it lays for fostering technological progress in key sectors, therefore creating the economic and political space for ramping up ambition in the future.

Technologies over Timelines

To the extent climate change is a technology problem, low-cost, profitable technologies are the answer. The recent focus on timelines, or “net-zero targets,” does nothing to address this problem, since “timelines are not policies,” they are promises. Government only has so much control over decarbonization, whereas a clean technology’s growth can be exponential once it presents profitable opportunities to private enterprise. Much as motor vehicles rapidly overtook the use of horses for private transportation, so are renewables in the process of replacing coal for reasons of cost rather than environmental protection (see Figure 3). Policy was vital in driving down the cost of these technologies, but only market forces are capable of scaling to meet an economy-wide energy transition. Government’s role in this process is to (1) support emerging technologies that need R&D funding and safe spaces for experimentation, before (2) providing incentives and public infrastructure that can help commercially competitive technologies deploy as rapidly as possible.

The roadmap focuses squarely on the first problem. It is not an economy-wide emissions strategy, nor a rapid deployment plan (Australia has versions of these elsewhere), but a targeted investment strategy with real dollars attached to specific projects in emerging technologies. This is important not only because it is where government can most accelerate innovation, but because these technologies are needed in so-called “hard-to-abate” sectors that still comprise well over half of global emissions. The roadmap identifies five priority technologies where progress is lagging and creates accompanying policy incentives designed to reach specific “stretch goals” associated with each (see Figure 4).

Importantly, these technologies not only address climate mitigation needs but are areas of economic opportunity for Australia. For example, Australia has the largest potential renewable energy endowment of any country, with over 4 million square kilometers of good coexisting wind and solar space, compared to around 1 million square kilometers in all of North America. This could support green hydrogen and steel sectors, for example, which could help replace lost coal mining jobs. In its National Hydrogen Strategy, released in 2019, the government estimated that a domestic hydrogen industry could generate over 8,000 jobs and $11 billion a year in GDP by 2050. A green steel industry could create a further 25,000. Australia is also blessed with excellent geology for safely and securely sequestering CO₂ deep underground, creating a possible future where Australian carbon capture and sequestration plays a significant role in climate efforts while providing jobs and export revenue for everyday Australians.

Leave a Legacy

Last, while the government deserves some praise for this new approach, the real heroes of the story are the institutions created by the Labor Party government in 2012. These have proven politically durable and consistently effective in the face of a government initially hostile to their very existence. In particular, the Australian Renewable Energy Agency (ARENA) and Clean Energy Finance Corporation (CEFC) are models of how dedicated, independent agencies should be critical components of any climate strategy, and each are set to play a growing role as part of the roadmap strategy. ARENA, which provides grants for innovations in renewable energy, has a rough American equivalent in the highly successful Advanced Research Projects Agency–Energy; however, no such analogue in the United States exists (at the federal level) for the CEFC.

With a growing gap between what the private sector invests and what we need to reach our climate goals, the CEFC has been a model of how a “green bank” can crowd in private sector capital. With its initial capitalization of $7.4 billion, the CEFC is the world’s largest green bank (see Figure 5) and has made cumulative investment commitments of more than $8 billion in over 160 investments as of June 2020. Even with its mandate to provide capital only where private capital is deemed insufficient, there have not been any material loan losses at the CEFC since inception. Perhaps most importantly, every CEFC dollar invested was matched by more than $3 in investment from private sector capital, thus multiplying its impact on the deployment and adoption of clean technologies in Australia.

Lessons for the United States?

The Australian experience is relevant to the United States because of the profound way in which cultural divisions and fossil fuel interests have defined their respective approaches to the issue of climate change. Australia shows that if you want to make any progress, you need to reduce the salience of fossil fuels, thereby keeping it out of the realm of cultural skirmishes and limiting policy backlash, while incrementally increasing ambition over time. The politics for low fossil-fuel producers is just fundamentally different, with fewer vested interests to oppose big ticket pledges. It is unsurprising, for example, that almost all the countries to have announced net-zero emissions targets produce next to no fossil fuels per person (see Figure 6), a proxy for their political salience.

That a conservative government is threading the needle between fossil fuel interests and climate ambitions suggests the Biden administration should co-opt much of this approach. To the extent Republicans have advanced a climate agenda, it has focused almost exclusively on technology innovation, and every senator comes from a state that could use more well-paying jobs and economic opportunities. Biden’s climate strategy should therefore focus less on first-best policy options, like carbon taxes, but rather, as Obama’s former chief of staff, Rahm Emanuel, puts it, “find issues on which individual senators would benefit politically from breaking with their leadership,” such as infrastructure spending, innovation policy, and deployment incentives.

Further, there is just a lot of work to do in promoting a clean technology transition in “hard-to-abate” sectors and comparatively little attention in the area. For example, despite accounting for 22 percent of U.S. greenhouse gas emissions, the industrial sector was the focus of just 6 percent of the Department of Energy’s (DoE) R&D funding. According to recent DoE modeling, the United States could cut its emissions by 40 percent compared to 2005 levels if it reaches its clean energy goals, which could be achieved through a National Innovation Mission that triples funding for energy innovation to $25 billion by 2025, or just 0.1 percent of GDP, among other measures.

The United States is also a much larger and more diverse economy than Australia, and therefore has more comparative advantages it could leverage in its pursuit of climate goals. The United States shares many of the geographic advantages for creating competitive clean hydrogen or carbon capture industries. It should also look to the technology-led approach as a way to revive its ailing manufacturing sector. Importantly, this approach could create manufacturing jobs in all 50 states, and especially in those parts of the country hardest hit by globalization and automation over the last 40 years.

The moment might even be right for a Biden administration to follow Australia and establish a publicly funded bank that could accelerate the energy transition, help meet the economic crisis, and leave a lasting political legacy. In June, nearly 100 groups called on Congress to include a “Clean Energy Jobs Fund” (really a savvily renamed green bank) as part of any stimulus relief package, which, according to their estimates, would create over 5 million new jobs. Biden could even revive the National Climate Bank Act, which was introduced by Senators Ed Markey (D-MA) and Chris Van Hollen (D-MD) and Representative Debbie Dingell (D-MI) in 2019, and passed the House earlier this year as part of the $1.5 trillion Moving Forward Act, with a $20 billion capitalization.

Final Thoughts

Australia’s “Technology-Led Approach” is not a silver bullet for climate policy, nor is it the shining example of how to rapidly reduce emissions. Rather, it illustrates a set of core principles for how climate policy can reach across the aisle, broaden its appeal, and leave a legacy of institutional and technological change. From Australia’s example, we learn the perils of putting all political eggs in the carbon pricing basket, the advantages of incrementally building on popular ideas, the technological benefits of strategic investments, the economic opportunities of focusing on comparative advantages, and the durability of independent institutions. The Biden administration would of course have to put its own spin on each of these principles and, preferably, radically increase their ambition. However, it should also not assume that the United States is so unique it cannot learn a little from its mate down under.

Lachlan Carey is an associate fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2020 by the Center for Strategic and International Studies. All rights reserved.

Lachlan Carey