Future Made in Australia
On April 11, 2024, Australian prime minister Anthony Albanese announced that his government would introduce a “Future Made in Australia” act, signaling the explicit adoption of a new industrial policy for Australia. The policy aims to help Australia transition to a more carbon-neutral economy, take advantage of its natural resources to better integrate into the global green economy supply chain, and contribute to a more resilient supply chain in critical minerals and goods associated with green energy.
Q1: What is the rationale behind the Future Made in Australia program?
A1: In announcing the program, and in a subsequent speech by the treasurer of Australia, the fact that the United States and other nations have undertaken industrial policies that include the green energy transition and critical minerals was highlighted. The Inflation Reduction Act and CHIPS and Science Act, along with long-term Chinese subsidization of favored industries (especially green tech, electric vehicles, and semiconductors), seem to have forced the Albanese government to help the Australian private sector establish more of the next generation of energy technology and production on-shore. The goal is to ensure that Australia establishes some high-tech manufacturing capability in these industries.
Noting that the free-market world has changed, Australia is changing policy according to the new game. High-tech manufacturing in these fields is seen as important to Australia’s future economic security due to its ability to assure a market for locally produced raw materials, create quality jobs, and secure a larger role for Australia in global supply chains.
Moreover, policy decisions across the board are increasingly made through a national security lens. “We are all economic advisors now,” noted one senior official at a closed-door event, referring to himself and his colleagues in national security. This challenge to long-standing economic orthodoxies implicitly accepts that economic efficiencies will sometimes need to be traded for national security.
The move toward an Australian industrial policy marks a major shift for a nation that has championed neoliberal macroeconomic and trade policies since the Hawke-Keating reforms of the mid-1980s. The decision to allow the Australian dollar to float and largely end tariff protections for domestic industry resulted in both an immediate recession but was also followed by a record run of economic growth. Australia’s history of choosing industries to protect, such as the domestic auto industry, proved both a waste of resources and—in the end—a failure. Will their efforts be more successful this time around?
Q2: How will the Australian government choose investments?
A2: The Albanese government seems to be making a “a red-hot go” if the projected budget figures are indicative. A Future Made in Australia budget measures encompass a A$22.7 billion package (US$15.0 billion) of commitments aimed at “maximizing the economic and industrial benefits of the move to net zero and securing Australia’s place in a changing global economic and strategic landscape.”
Specific areas of investment include sectors and industries where Australia believes it has natural resources advantages that would provide a competitive advantage in green tech-related industries. These include:
- A$549 million over 8 years for battery manufacturing
- A$8.0 billion in renewable hydrogen tax incentives over 10 years
- A$7.1 billion over 11 years in tax incentives for critical minerals processing tax incentives.
Most of the investment is expected to come from the private sector, with government funding used primarily to support research and development (R&D), training, and boosting precompetitive geoscience data to help support exploration, prefeasibility studies, and common-use infrastructure.
Investors will benefit from a time-limited production tax credit for critical minerals processing. The Australian government has also identified green hydrogen, green metals, low-carbon liquid fuels, and clean energy technology manufacturing as priority sectors to receive these incentives.
The Australian government’s spending decisions will therefore hinge on where infrastructure should be located, which exploration projects to support (location and types of minerals sought), and how to choose among similar but competing proposals. No clear mechanism for this has been identified, but it will clearly require considerable coordination across federal and state government departments.
Q3: How does the Future Made in Australia policy comport with Australia’s trade obligations and general support for free trade?
A3: The Albanese government will need to balance domestic considerations with the interests of its key strategic partners. Prime Minister Albanese said Australia would continue to advocate for global markets and free trade as well as bilateral and multilateral cooperation. For instance, Albanese and U.S. president Joe Biden identified climate and energy as the third pillar of the U.S.-Australia alliance in May 2023, alongside defense and economic cooperation. There are questions about how the new policy will work in conjunction with the Australia-United States Climate, Critical Minerals and Clean Energy Transformation Compact and efforts by the ministerial-level Australia-United States Taskforce on Critical Minerals.
To frame the new policy within Australia’s overall trade policy, the secretary to the Australian treasury, Steven Kennedy, said, “Actions to bolster and diversify supply chains are not occurring in a vacuum. And the costs will be significantly lower if countries work together, rather than alone. A distinction should be drawn between actions to make the Australian economy more resilient and actions to contribute to global efforts.” The signal, therefore, is meant to cement Australia into a cooperative supply chain of like-minded nations while increasing the supply of green goods to the world.
Q4: What other concerns have been expressed about the policy?
A4: There are a number of additional considerations and questions related to the policy:
- Governments need to walk a fine line regarding the trade-offs between economic and national security considerations. Strict guardrails are needed, as Australians are unlikely to tolerate any government that uses national security as a justification for unwise investments aimed at serving its own political purposes.
- How will Australia compete against higher U.S. and Chinese subsidies and their economies of scale? For example, the budget proposes A$500 million to support battery production. By comparison, the Tesla battery “gigafactory” in the United States required an investment of US$3.5 billion in 2014, and Tesla is investing another US$3.6 billion to expand production. Indonesia, with its labor and other advantages, is also investing heavily in the battery sector.
- Historically, big Australian companies invest little in research and development. Universities and the Commonwealth Scientific and Industrial Research Organization, Australia’s scientific research agency, have a poor history of commercializing their work. Without new processes, can Australia successfully compete?
- Superannuation funds are the largest pool of investable funds in Australia. Can these greenfield projects be derisked sufficiently to attract investment?
- How can operational synergies be achieved for all aspects and inputs of critical minerals processing?
- Without a domestic industry to ensure offtake, can Australian producers ensure a long-term market for their output?
- The opposition Liberal Party has a platform that appears to favor nuclear energy production over renewables. How might this impact the ongoing viability and confidence in the Future Made in Australia policy?
Q5: What are the Next Steps for the Future Made in Australia Policy?
A5: On July 4, 2024, the Australian senate referred the provisions of the Future Made in Australia Bill 2024 and the Future Made in Australia (Omnibus Amendments No. 1) Bill 2024 to the Parliament of Australia’s Senate Economics Legislation Committee for inquiry and report by September 5, 2024. The closing date for submissions is July 26, 2024.
Submissions are expected to include arguments for various industries aside from those explicitly covered by the bill, including nuclear energy production (being championed by the parliamentary opposition), space, and other less-evolved energy solutions. The areas of direct budget support, tax incentives, and how to include participation from historically disadvantaged people are all likely to be addressed.
James Carouso is a senior adviser and chairman of the Advisory Council to the Australia Chair at the Center for Strategic and International Studies in Washington, D.C., and was chargé d’affaires to Australia from 2016–19.