Speech to the AIG Industry Meets Canberra dinner
ACKNOWLEDGEMENT OF COUNTRY
Thank you Innes for that introduction.
We of course meet on the lands of the Ngunnawal and Ngambri people whose elders we acknowledge.
We have to be honest and say that cause of reconciliation recently suffered a setback.
But it is incumbent on all of us to ensure that is exactly what this, a setback to be overcome just as many setbacks have been overcome in the long path to reconciliation.
Thanks again for inviting me here to speak to you tonight.
I've enjoyed the strong and deep engagement the AIG and I have had in our first 18 months in office.
There is nothing more important to the economic prosperity of Australian industry than the energy transition, and that close engagement is deeply appropriate and necessary.
Apart from generally working together on the energy transition there have been two topics in particular which have required close engagement between the AIG and your members and the Government:
The Government's Safeguard reforms and the energy price crisis caused by Russia's invasion of Ukraine.
I'll say more about the Safeguard reforms in a moment.
In relation to energy prices, our intervention last year was dramatic. And necessary.
An intervention like capping coal and gas prices is not the first inclination of me, the Prime Minister, Treasurer, Industry Minister or Resources Minister.
It was not done lightly and it needed very careful design and deep consultation.
But we were driven in no small part by the clear conclusion that Australian industry would find its viability increasingly threatened because of a spike in energy prices which was the result of events on the other side of the world.
After years of forecast short term shortfalls – by working with Australia’s big energy users and producers, many of you in this room today, we’ve delivered a gas code of conduct that means more gas at reasonable prices for Australian users.
The code imposes mandatory processes for the negotiation of gas contracts, something some of your members have been calling for for years; to level the negotiating playing field between producers and users.
The code also imposes a price anchor of $12, to ensure Australia domestic gas prices are driven by Australian market fundamentals, not the ructions of international gas markets.
But this price anchor isn’t a strict government price control, it’s a mechanism that supports investment certainty to deliver the additional supply we need to ensure Australian users have access to the gas they need, while also ensuring Australia meets its energy supply obligations to our trading partners.
Through an exemption framework, which can be accessed by providing government and the market with firm and enforceable supply commitments, we anticipate over 260 PJ (to 2027) of additional supply through supply commitments under the code.
This will put further downward pressure on prices and crucially, it will address projected supply shortfalls.
I also want to thank gas producers for their engagement in the design and implementation of the code; they understand that central to their social licence is their commitment to supply Australian gas to Australian users at affordable prices, and the gas code provides a stable policy framework to support that commitment.
And we’re working constructively on a number of exemption applications, including supply commitments, consistent with our expectations and the commitments given by producers prior to the finalisation of the code.
Together with the Resources Minister, we hope to make an announcement on the first firm supply commitments under the code in the coming weeks.
Along with improving the powers of AEMO to manage gas supply, reforming the ADGSM to make sure it is fit for purpose, and improving the market monitoring powers and resources of the ACCC and AER to ensure a well-functioning market, including the retail market, our gas code has already delivered results.
When we formed government in May 2022, the average east coast gas price was over $31 a gigajoule.
The average price in this month so far is $12.01 a gigajoule.
The average east coast gas price fell by 60 per cent from Q3 2022 to Q3 this year.
This is a great testament to what can be achieved with government leadership that works with both energy users and energy producers.
Leadership focussed on getting results by working with all of industry, not pitching one group against the other in an endless and futile blame game.
So 2023 was marked by close engagement between industry and Government on energy and climate.
This will also be a hallmark of 2024.
Earlier this year I announced the development of six sectoral decarbonisation plans – across Electricity and Energy, Industry, the Built Environment, Agriculture and Land, Transport and Resources.
These plans will underpin the development of our 2035 target and form part of a comprehensive plan to get to net zero by 2050.
The sectoral approach recognises that decarbonisation is a whole of economy effort, and we need to undertake the necessary planning and discussions in partnership and dialogue with each sector.
You and your members will be particularly interested in the Industry sector plan, but your feedback will be welcome across the board.
Tonight I also want to give you an update on the implementation of our Safeguard reforms and associated measures to support the vibrant and growing industry sector in our country.
As I said, consultation was key to the successful implementation of this major reform.
The reform is a big deal.
It requires an ambitious 4.9 per cent emissions reduction each year from our biggest industrial emitters.
This is appropriate.
We are no chance of getting our country's emissions down unless we get emissions from our biggest industrial facilities down.
But it was a big and complicated reform.
I spent many hours in rooms with the likes of Mark Vassella and Sanjeev Gandhi, often accompanied by Ed Husic.
I think the best indication of the success of our consultation process is that both Bluescope and Orica have announced investments worth more than a billion dollars in Australian manufacturing.
Sanjeev said, in making the announcement:
“Thanks to this policy certainty, we can continue delivery of our broader decarbonisation plans across our operations and ensure Australia remains competitive as the world transitions to a lower-carbon economy.”
Mark Vassella said the Board approval was:
“Underpinned by supportive Government policy, including Safeguard Mechanism reforms which acknowledge the challenges facing hard to abate sectors and the importance of domestic steelmaking to the Australian economy”.
The need to carefully manage the decarbonisation of steel manufacturing is a case in point.
We need to be honest. Steel making is emissions intensive.
It contributes about 7 per cent of global emissions.
But our energy transition needs steel and a lot more of it.
90 per cent of the total material requirements of a wind turbine are steel and cement.
And cumulative steel demand for the energy transition between 2022 and 2050 will be almost five billion tonnes, accounting for 75 per cent of the total material requirement.
I’m the biggest advocate for the promise of green steel – and extremely encouraged by work underway to progress electrification domestically and internationally.
But I know that the industry won’t, and can’t, decarbonise overnight.
And I want as much as possible of the steel we need here and elsewhere to be Australian steel.
We knew our reforms needed to support growth and competitiveness, particularly when it came to emissions intensive hard-to-abate sectors.
That’s why we designed the scheme to include a special ‘trade-exposed baseline-adjusted’ category where cost impacts exceed thresholds and lower baseline decline rates apply.
The manufacturing sector, with low margins in many of these industries, has been supported by targeted consideration of impacts on their profitability.
We also implemented targeted funding support for the decarbonisation of existing industries and creation of new clean energy industries – the Powering the Regions fund.
PRF – INDUSTRIAL TRANSFORMATION SCHEME
When designing the Safeguard Reforms, it was a critical consideration to both support industries of strategic importance but also ensure that the regions that have always powered Australia are the same regions that will power us and the world throughout the global economic transformation.
That’s where the Government’s $1.9 billion Powering the Regions Fund originated from –
Recognition of the importance of investing to make sure traditional and new industries in regional Australia can harness the economic opportunities of decarbonisation.
I’m pleased to announce tonight that the Government is opening the first funding round of the Industrial Transformation Stream - a $400 million investment to support emissions reduction at existing industrial facilities in regional Australia, with the process run through ARENA. Submissions will be opening on November 30.
Round 1 will see $150 million of funding available, with ARENA selecting two focus areas to start with, although it should be noted that they are open to applications outside these areas.
The first focus area - improving process heat, including by efficiency or electrification.
It’s an area of significant potential – an estimated 35 million tonnes of emissions each year from industrial heat in medium and large facilities, representing around 20 per cent of all NGER reported emissions.
This might include projects across the food & beverage, paper, glass or manufacturing sectors -
Improvements such as:
Heat pumps in food processing and manufacturing.
Electric boilers in a beer brewing process.
Mechanical vapour recompression in winery residual management.
Or thermal energy storage.
The second focus area is off-road transport decarbonisation, expected to be of interest to the mining and rail industries in particular.
The emissions reduction potential here is also substantial – representing around five - ten million tonnes of emissions each year, around five per cent of all NGER reported emissions.
Projects to include electric locomotives in rail freight.
Zero Emissions Vehicles and charging infrastructure on mine sites.
As an example –
A year ago I visited Fosterville Gold Mine east of Bendigo, run by Agnico Eagle.
The mine is approaching its 30th anniversary and is a great example of the importance of industry in regional communities around Australia –
Not only as a key employer, but as a supporter of local schools, skills and training and critical to the region’s economic future.
It's also home to some of the world’s first fully-electric mining vehicles – a Sandvik Battery Electric Loader and a Rokion R400 crew carrier.
These vehicles have the potential to be a gamechanger not just for Agnico Eagle, but for mining in Australia.
100 per cent electric – so no carbon emissions.
They involve far less heat produced underground than diesel-powered mining vehicles, better for workers and reducing energy-consumptive ventilation.
And far less noise and vibration, improving working conditions for drivers and miners – an important consideration, given hearing loss is one of the biggest occupational hazards for long-time mine workers.
I saw them in person and they were seriously impressive vehicles –
And I want to see more of them at other mine sites around the country.
Critically, this stream is not limited to safeguard facilities, but includes smaller facilities in regional Australia.
Particularly where electrification is involved, projects will be encouraged to enhance their energy performance, with opportunities for demand response and shaping their load to maximise their use of our great, cheap renewable resources.
All potential applicants are encouraged to reach out to ARENA to discuss proposals, with submissions for Round 1 opening via ARENA’s website at the end of the month and remaining open until December 2024, or until funds are exhausted.
But we know that targeted funding support is only one part of the picture.
The second update I wanted to provide tonight is in relation to the work on carbon leakage policy.
The Government recognised that now that Australia has a proper policy in place for industrial emissions reductions, it is the right time to examine what else we should do to prevent international carbon leakage risks, while protecting Australia’s reputation as a reliable and secure trading partner.
We need to ensure that industries with a strong future in a net zero world are able to pursue that future here.
We know of the potential for production to shift from countries with more ambitious emissions reduction policies to those with lower emission reduction policies, and potentially resulting in increased global emissions.
Any carbon leakage undermines national and international climate action and has long been a key consideration in the development of climate policy across the world.
As I said earlier, making Australia a renewable energy superpower and leader in areas such as critical minerals will require essential industrial inputs – like steel, cement and aluminium.
And we want to want to keep those inputs at home.
Keep our domestic sovereign capacity.
And make it even stronger.
So tonight, I’m pleased to announce the next stage of consultation on our carbon leakage review.
As you know, this is being conducted by my Department, but I also wanted to bring in outside expertise, so asked Professor Frank Jotzo of the ANU to lead.
Now tonight, I do also in particular give a special and well deserved shout out to your own Tennant Reed, who is perhaps the country's most passionate advocate for a CBAM and indeed an eloquent and persuasive one.
Tonight I am announcing that the first round of public consultation is now open until December 12.
This won’t be the only round of consultation – we are planning on undertaking a second round mid-next year which will look at the feasibility of detailed policy options, ahead of the review findings being provided to the Government around the end of the third quarter of 2024.
To guide this process, today we have released, the paper which will form the basis of consultation.
This isn’t a light touch process. It’s a serious reform, and we will be approaching it in a detailed and methodical way.
There are serious and technically challenging issues to consider.
The paper provides a general and thorough discussion of the issues – it is a high-level reference piece of the options.
That may be an Australian Carbon Border Adjustment Mechanism (CBAM), but it could also include emissions product standards, public funding, and multilateral initiatives.
In addition, Australia will continue working with international partners on multilateral approaches to carbon leakage, including at the OECD and WTO, and in the new G7-led Climate Club.
Some in this room may have wished the paper set out the detailed design of an Australia CBAM – but the broad approach is entirely appropriate for this stage of consultation.
Because as I said at the time of announcement – a policy of this volume and breadth cannot be rushed.
We can’t simply look overseas and do a copy and paste job on a carbon leakage approach – anything which is developed will need to be closely tailored to our unique domestic circumstances.
The paper seeks to establish a strong evidence base for further reform and initiatives.
The second phase of the review will take your views and evidence into account to analyse the options further to provide a robust assessment of the feasibility of policy options to address any identified leakage risks. The second consultation paper to be released in mid-2024 will allow you to test the review’s assessment and analysis.
I encourage you all to participate in this process, as I know you will.
INDUSTRY INVESTMENT AS A RENEWABLE SUPERPOWER
These investments and policy considerations are just part of the broader enormous industrial opportunities connected to the energy transformation.
Policies and investments that transform and modernise our manufacturing competitiveness.
That broaden and deepen our industrial base.
That get private capital flowing to key economic priorities.
Making renewable hydrogen, and its derivatives like ammonia.
Refining and processing critical minerals.
And expanding the industrial opportunities downside of the transition – like manufacturing batteries and other clean energy technologies such as solar and wind.
The steps we need first are our foundations for clean, cheap, renewable power – and having the conditions to build it quickly and at scale.
We’ll have more to say on those soon.
And as we look to the next Budget, we’ll continue our work to back our ambition as a renewable energy superpower with further action: capturing the broader industrial opportunities that flow from our transformation.
Thank you again for inviting me to speak tonight, and I look forward to staying a bit longer and answering some of your questions.
If there’s one thing I want to leave you with tonight it’s this –
We don’t underestimate the challenges of the transition to net zero.
But nor do we underestimate the opportunities or indeed the economic necessity.
To compete in a decarbonising global economy, Australia needs to have the ambition, policy settings, and track record of action.
The good news is that we are progressing all three.
And I know this.
Further delay in this transformation.
Calls for a pause.
Questioning of the need of this transformation is all just a recipe for missed opportunities.
That's the opposite of our approach.
We embrace the opportunity with alacrity. And we welcome your partnership as we do so.