AFR Energy & Climate Summit
It is a pleasure to be here at the Australian Financial Review’s 2023 Energy and Climate Summit in Sydney, and I thank the Fin for its depth of analysis and reporting on the topics that are up for discussion.
I once lived here in Sydney. It was when I started working for global consulting and technology services firm, Accenture.
I spent over a decade with Accenture, working across Asia, mainly on M&As, JVs and other sorts of deals, but my entry point into the firm was here in Sydney as part of their strategy consulting practice.
I interviewed for the role, just across the bridge in North Sydney.
For anyone who’s interviewed with a strategy consulting house, you’ll know that case studies are the norm – typically presented as complex business scenarios, with some tricky financial data and a graph or two to decipher.
That’s what I was expecting with Accenture, and I was partly right for there was a case study but, surprisingly, it came in the form of just one question, verbally put by the lead partner.
“How many tennis balls are there in Australia?” he asked.
“I’ll give you a few minutes”, he said. “Present your thinking on the white board, but to be clear I expect you to come to a specific number.”
I passed the interview and started with the firm.
Sometime later I quizzed the partner on the case study and he explained that what he was really testing was my ability to correctly define the problem that needed to be solved.
The case study he had given me was a supply chain question.
Tennis balls are made of rubber … rubber lasts a long time … so, in calculating their number, you can’t just compute how many balls are being hit around tennis courts, backyard cricket games or school handball courts at any one time … you have to account for the end-to-end life of the ball, even after its use, given the duration of rubber.
The insight from this experience, which has remained with me ever since, was this: define the right problem and you have a good chance of finding the right solution, but define the wrong problem and there’s every chance you’ll arrive at the wrong solution.
I start with this anecdote today to underscore this point …
When it comes to net-zero, the Albanese Government has defined the wrong problem to solve and is therefore pursuing the wrong suite of policies.
To explain, let me take a step back ….
Australia has joined global efforts to reach net-zero by 2050.
While this is a bipartisan pursuit, it doesn’t mean there’s only one way to get there.
As the next Federal election draws near, the Australian people will be presented with two alternate pathways to net-zero: one Labor and one Liberal, one Labor-Green and one Liberal-National.
The pathway Australia ultimately chooses will determine the sort of country we shall become, such is the importance of climate and energy to our nation’s security, economy and social wellbeing.
Choose the right pathway, and Australia will be rich, strong and fiercely independent.
But choose the wrong pathway, and Australia will be poor, weak and dependent on foreign powers whose interests do not align to our own.
This is a genuine fork in the road moment for our nation.
So, having signed up to achieve net-zero, what problem needs to be solved?
At its core, it is to reduce greenhouse gas emissions, while accounting for constraints including security, economic, environmental, engineering and other complexities.
But the Albanese Government has failed to define the challenge of net-zero as such.
Take, the electricity sector, for example.
When you hear the Prime Minister or the portfolio Minister speak about electricity in the context of net-zero, it’s clear that the core problem they seek to address is getting maximum renewables onto the grid.
This explains their target of 82% renewables by 2030, and nearly 100% thereafter.
It explains why they support the premature closure of baseload power stations, reducing the supply of gas, dismissing abating technologies like carbon capture and storage, and denying the potential value of zero-emissions nuclear energy.
This “renewables-only” approach not only defies economics and engineering, but it actually sets renewables up to fail, not succeed.
For renewables to succeed, in light of their intermittency, they need to be firmed up by complementary technologies.
For net-zero to be achieved in the electricity sector, the real problem to be solved is to reduce emissions while keeping prices down and the lights on. And this requires a balanced mix of complementary technologies, each playing their own unique role.
It follows, therefore, that we need not the maximum amount of renewables, but rather the optimum amount.
Ladies & Gentlemen, we’re fast approaching half-time in this term of parliament where the Albanese Government has, for the first time in nearly a decade, had an opportunity to run with the ball.
And so, let’s look at the half-time score board:
- After successive year-on-year reductions in emissions under the Coalition, under Labor emissions are now going up, not down;
- Despite promising a $275 reduction in household power bills, prices are soaring, with families paying some of the highest prices in the world;
- Small businesses are on their knees with skyrocketing energy bills;
- Reliability issues and the risk of ‘lights-out’ are dire and getting worse, with the market operator suggesting blackouts may occur as soon as this summer;
- Despite Labor’s big promise of renewables, investment has stalled and is now at its lowest level in years;
- Coal-fired power stations are racing for the exit, with their only lifeline now coming from state Labor governments via secret deals made behind closed doors;
- Supply of gas is being strangled with dangerous shortfalls ahead;
- Our trading partners are sounding the warning bell for their own energy security as Australia is now considered a sovereign risk;
- Regional communities feel steamrolled as they protest against major energy infrastructure projects for which there is no social license; and
- Manufacturers are writing down assets, cutting jobs and looking to outsource operations to higher emitting markets, which will result in more emissions going into the atmosphere and fewer jobs here in Australia.
Labor spruiks that its energy transition is so transformative that it’s akin to the Industrial Revolution, and yet it refuses to undertake basic economic modeling of its policies and their impact.
Did the government commission Treasury, the Department or the Productivity Commission to undertake economic modelling of its 43% emissions reduction target before legislating it? No.
Did they commission economic modelling of its 82% renewables target? No.
Did they undertake a ‘total system cost’ analysis to satisfy themselves that their policies will not be exorbitantly expensive for families and businesses? No.
So let’s get this straight: the country is in the midst of a cost-of-living crisis, the government boasts that it’s embarking on the next industrial revolution and yet it refuses to model the impact of the very policies that will bring this revolution on.
So it’s basically a radical experiment, one that’s being implemented with reckless indifference towards the very people the government should be representing.
If the government had correctly defined the challenge of net-zero as reducing emissions, while accounting for issues of security, economics and the like, it would not be pursuing the suite of policies that it is.
Labor doesn’t deserve the benefit of the doubt that they’re just unconsciously incompetent; not when they’ve taken the deliberate decision to not assess the impact of their policies on the economy or the lives of everyday Australians.
You see, the Albanese Government has itself already crossed that fork in the road and they plan to drag the rest of the country along with them, at any cost.
Labor wants to lock Australia in to a path to net-zero from which there will be no return.
If Labor succeeds at blowing up our baseload power stations, stymying the supply of gas, and baking in hundreds of billions of dollars in a storage and network cost base, Australia can’t simply turn around and go back.
We will be locked-in to a path to net-zero that will make us poor, weak and overly dependent as a nation.
Thankfully, though, we’re not locked-in, not yet anyway.
There is an alternative – an alternative path to net-zero.
It’s a path that requires multiple objectives to be kept in balance:
- we need to reduce greenhouse gas emissions, but also protect our environment and native ecosystems;
- we need to make major investments, but also keep prices down;
- we need to embrace new technologies to clean up the grid, but also maintain reliability and keep the lights on;
- we need to build new energy infrastructure, but also respect the communities which are to host it;
- we need to prioritise our own energy needs, but also remain a reliable supplier for our trading partners who face their own energy security challenges.
None of this is easy, but a determinant of success will be our ability to keep these objectives – sometimes competing objectives – in balance.
And so too we need a clear set of guiding principles.
- One – It’s important we adopt an “All-of-the-Above” approach.
This doesn’t imply every technology gets a prize, but rather that we provide for optionality. Getting to net-zero will be hard enough and the last thing we should be doing is taking options off the table.
- Two – We need to put consumers and communities at the centre.
There’s an unwritten compact between government and the people on climate change: Australians support real action, but threaten their way of life, livelihood, property rights, or their community, and all bets are off.
- Three – We should leverage our nation’s comparative advantages.
Some are natural like the minerals under the ground and the ecosystems above, while others have been built over time from our economic system, our know-how and human capital.
- Four – We should be led by economics and engineering.
So complicated is the challenge that ideological zealots, vested interests and protesting anarchists should take a back seat. Pragmatism must prevail with economics and engineering leading the way.
- Five – It’s important to engage with industry and unleash enterprise.
The real solutions lie with enterprise which is why industry must be engaged, competition encouraged and innovation embraced.
As for the role of government, strong leadership is required: from fixing market failures, to establishing the economic environment in which markets can operate, to supporting the emergence and entry of new technologies, and to working with state jurisdictions and international partners.
And when it comes to the provision of services such as electricity, governments also have to remember they carry ‘social good’ responsibilities.
I want the Australian people to understand that they face a fork in the road and that they shouldn’t be locked-in to turning in one direction to the exclusion of another without first being privy to the consequences for them and future generations.
As for the Coalition, we will release our policies in good time before the next election, but we’ve already made our position clear on a few things.
Firstly, that we shouldn’t be closing down our baseload power stations prematurely with no guarantee of a like-for-like replacement, you don’t close down one system without another ready to go.
Secondly, we need more gas and lots of it.
Thirdly, as fossil fuels remain in the system, we need to embrace technologies that can help abate them including carbon capture and storage.
Fourthly, we need more renewables – but an optimum amount, not a maximum – and we don’t support the rolling out of tens of thousands of kilometers of new transmission lines and the ludicrous goal of installing 22,000 solar panels a day and 40 wind turbines a month through to 2030.
Fifthly – we need more storage and a technology agnostic approach to getting it.
As a Coalition, we’ve also been clear about something else: that is, the need for Australia to consider introducing zero-emissions nuclear energy.
We need to be humble enough as a nation to learn from others, especially those who are decarbonizing their economies while balancing strategic, economic and social interests.
Over recent years, I have personally visited and sat down face-to-face with energy experts in eight countries across Europe, Asia and North America. Next month I will be visiting the United Kingdom and the month after that, the United Arab Emirates.
A conclusion I have drawn as a result of this work is that Australia cannot reach net-zero without next-generation, zero-emissions nuclear energy.
Or, to put it candidly … “no nuclear, no net zero”.
32 countries in the world today use nuclear energy and another 50 countries are introducing it for the first time or looking to do so.
But, Australia is left out. In fact, we’re the only country in the G20 with a blanket ban against nuclear energy.
Less than a fortnight ago, Energy Ministers and Heads of Delegations from Bulgaria, Canada, the Czech Republic, Estonia, Finland, France, Ghana, Hungary, Japan, Korea, Poland, Romania, the Netherlands, Slovakia, Slovenia, Sweden, Türkiye, Ukraine, The United Kingdom, and the United States of America met in Paris to discuss zero-emissions nuclear energy.
In their Joint Communique, they commended (and I quote) “… the solidarity expressed by Canada, France, Japan, the United Kingdom and the United States during the G7 meeting in Sapporo, Japan in April 2023 in supporting nuclear energy as a means to provide affordable energy that reduces dependence on fossil fuels, helps address the climate crisis, provides jobs and growth, strengthens global energy security while providing baseload energy and grid flexibility”.
So, what is it that Anthony Albanese and Chris Bowen know that these countries do not?
Among these nations are our closest allies. They are countries that know the engineering and economics of nuclear energy far better than we do here in Australia.
For reasons of geopolitics, energy security, climate change, energy affordability, jobs and economic growth, these countries have just, within the last fortnight, issued an international ‘call to action’ for the embrace of zero-emissions nuclear energy.
An international ‘call to action’ that, here in Australia, falls on deaf ears.
In fact, the Albanese Government mocks the idea.
As our own emissions rise, our energy prices go through the roof, the reliability of own energy supply falls, and our manufacturers write down assets, shrink workforces and look to offshore their operations, our government is refusing to even contemplate giving Australia the option to consider zero-emissions nuclear energy.
This is because Labor has wrongly defined the challenge of net-zero and its wrongly applying a single-dimensional solution.
The end-goal for Labor is to maximize the amount of renewables on the grid – and so, in their mind, any alternate technology, must be rejected, and their preferred political strategy for doing so is to demonize them.
Meanwhile, the Coalition’s policy work continues.
And, unlike Labor, we are assessing zero-emissions nuclear energy as part of Australia’s future energy mix, with consideration for new and emerging technologies – specifically, Generation III+ and beyond.
These next-generation reactors can not only firm up renewables but also replace end of life coal-fired power plants, allowing electricity to be distributed on existing poles and wires, saving billions of dollars in new infrastructure which, under Labor’s plan, will be paid for by families and small businesses, through higher electricity bills.
Take a hypothetical of the Liddell power plant, for example – a decommissioned coal-fired power station, taken out of service in April this year.
Last year, reports suggest the Liddell plant was offering a maximum capacity of around 1.2 GW to the spot market, enough to power around one million homes.
If Australia had been open to zero-emissions nuclear energy, the plan to replace Liddell may well have been to install 4 x 300MW small modular reactors or maybe 1 x 1.1 GW larger reactor, both options deployed with Gen III+ technology and either could fit on the existing site and plugging in to existing infrastructure.
If we’re to learn from other countries, this would have been the optimal approach to reducing power prices and keeping the lights on, while also putting us on a credible pathway to meeting our emissions reduction targets.
Next-generation nuclear options include micro reactors, small modular reactors and large reactors.
Across the world today, there are already 11 large Generation III+ reactors fully commercialized and operating with a further 16 in advanced stages of construction.
And this excludes the recently announced plans of France, UK, Sweden, Poland, the Czech Republic and many other nations to build Gen III+ reactors as quickly as possible.
By the time Australia could start procuring reactors to connect to the grid – say, in the first half of the 2030s – there is likely to be at least a dozen installations, fully operational of both micro reactors and small modular reactors, and probably several dozen large reactors across the world, all Gen III+ or Gen IV.
In other words, there will be a suite of next-of-a-kind, Gen III+ and Gen IV reactors, fully commercialized and operational, from which Australia will be able to choose.
In conclusion, Ladies & Gentlemen, the Albanese Government has wrongly defined the challenge of net-zero by making it all about pouring more renewables onto the grid.
This flawed definition leads to a false binary choice between renewables on one hand and non-renewables on the other, effectively pitting complementary technologies against each other.
There is a binary choice to be made, however. Indeed, there is a fork in the road.
And it will be a choice between alternative pathways to net-zero, to solving the problem of reducing emissions while balancing strategic, economic and social interests.
Labor is trying to lock Australia in to a path to net-zero that will leave our nation poorer, weaker and more dependent on foreign powers.
The Coalition will be offering an alternative path that will make Australia richer, stronger and fiercely independent.
Thank you.