The perils of Aussie parochialism

Reading between the lines of the latest Energy White Paper I see a long-running and contradictory argument that the Australian government should ‘not pick winners', but at the same time have an exclusive focus on ‘strategic' technologies.

The Wilkins Review was more explicit in its enunciation of this contradictory argument. In relation to renewable energy support policies such as the Renewable Energy Target, the report cautioned that, “[Government role is] not to pick winners.” However the review also insisted, “Carbon capture and storage (CCS) technology is… very important to Australia's economy... Government should commit serious and substantial funding to demonstrating CCS… The current funds are nowhere near enough for the sort of commercial scale demonstration required.”

It is incredibly concerning that senior government officials and politicians seem to still believe they have the foresight to tightly target government support on technologies that will yield results of ‘strategic' benefit to Australia.

This idea that Australia has some kind of special claim on particular technologies of ‘strategic' importance is laughable. Australia is just one relatively small player in a much larger global endeavour to develop low carbon electricity supplies. The US, China, Germany, Japan, India, Spain, France and the UK as well as the European Union as a whole, are dedicating huge amounts of money to developing and supplying the entire gamut of low carbon electricity technologies. In terms of addressing Australia's own needs for low carbon electricity, this is unambiguously a good thing. Australia has incredibly diverse and high quality low carbon energy resources, so we are in an excellent position to make good use of almost all the technologies likely to be developed.

In terms of Australia developing new high productivity export industries however, there are pros and cons. The positive is there is a very large international market for low carbon electricity technologies – the opportunity is already here. The negative is that competition for these markets is fierce, and the window of opportunity is closing fast. In wind and nuclear power Australia has well and truly missed the boat (except as an exporter of uranium). It also means the threat to existing carbon-intensive industries such as thermal coal mining is genuine – although some way off from becoming pressing.

Even Germany, with its considerable early investment in building-up renewable energy companies and its exceptional engineering expertise, now faces stiff competition from the US, China and Japan.

Australia needs to resist the temptation to fall into a form of policy parochialism, deluding ourselves into focusing on things we think we can do better than others or concentrating only on those things for which we expect to be the predominant beneficiary. This will lead to a form of policy favouritism likely to fail over the long-run.

Yes, Australia has a large coal export industry, but many other countries around the world have much larger coal resources. Also these countries often see coal as a very important strategic resource because it gives them an alternative option to importing gas or oil from countries deemed to be threatening. And we certainly aren't the owners of the technologies that are being proposed for use in clean coal projects in Australia. Overseas conglomerates like General Electric, Mitsubishi, Alstom, and Shell are the companies supplying the technology and equipment to Australian CCS projects.

Yes, we have more sunlight than any other developed country in the world, but this hasn't stopped Germany (with its feeble solar resources) overtaking our early lead in solar PV.

While we clearly missed the boat in design and manufacture of wind turbine technology, there are few countries in the world for which wind is such a promising low carbon resource. Neglecting such an important technology seems unwise when there may be considerable challenges and constraints involved in rolling it out at large scale. 

Nuclear power offers a parable of the costs involved in energy technology parochialism. Due to countries developing their own nuclear reactor technology, there has been inadequate standardisation that would enable cost reductions through economies of scale and learning by doing. For example, the UK had its Magnox reactor, Canada the CANDU, South Africa had pebble-bed modular reactors, and India focused on thorium-fuelled reactors. Even France saw its highly disciplined and low cost reactor program become highly costly once it tried to tinker and ‘Frenchify' a US-based design. Billions of dollars were squandered on developing nuclear technologies that have proved to be inferior to existing, more widespread designs.

There is probably only one certainty for Australia in low carbon technology – imported equipment will be a large component of our electricity generation system. I don't think that Germans, Americans or Chinese are any smarter than Australians. But there are a lot more of them, and they have bigger markets and more funds to go around. Australia should be most concerned with ensuring it can be an efficient and fast adopter. This means a focus on early deployment of a mix of energy technologies for which we have good quality resources (just about everything) to force domestic learning and skills development. It also suggests the need for a good education and research systems to support the training of engineers and scientists that will understand and know how to exploit these technologies. As a side-benefit, I suspect that such an approach will provide as good a chance of developing home-grown innovation as any attempt by public servants to precisely target those projects they consider to be strategic.

Australian policymakers need to accept that the gains from technological innovation in low carbon technologies will inevitably be shared across the globe. The temptation for parochial picking and choosing amongst low carbon technologies has led to favouring grant tendering programs that so far have proven hopeless.