The costs of phasing out coal and gas are so high that governments must redirect coal royalties and create a sovereign wealth fund from the critical minerals boom to pay for it, a leading centrist think tank says, equating the shift away from a fossil fuel-dominated economy to a second industrial revolution for Australia.
The Grattan Institute warned “Australia’s social fabric could tear” under Australia’s commitment to reach net zero greenhouse emissions by 2050 if the jobs and economic losses in regional coal mining communities are not replaced with targeted industry policy to spur growth in new industries.
The clean energy revolution will need billions in investment and the Grattan Institute says coal and gas should help pick up the bill.Credit:Robert Rough
“The decline of coal and gas for Australia is a big deal because we earn so much of our export revenue from those two sources – the best part of $100 billion dollars [earned each year] between the two of them,” Grattan’s energy and climate change director Tony Wood said.
Grattan’s report The next industrial revolution, released on Sunday, said state governments should redirect a portion of coal royalties they earn to growing new industries that will feature in a net zero world – such as building wind and solar farms, and mining and processing critical minerals like copper, lithium and nickel and hydrogen fuel.
The price tag for transforming the electricity grid alone will be astronomical. Buried in the energy market operator’s 30-year road map for the grid, released this week, is an estimate that total private and public investment needed in wind, solar and battery infrastructure, as well as the transmission network, will be more than $300 billion by 2050.
Wood, a former executive general manager of Origin Energy, said Australia should create a sovereign wealth fund that reserves mining industry earnings and invests in transforming regional economies currently dominated by fossil fuels.
“Norway used their fossil fuels, the oil and gas, to create a huge sovereign wealth fund, which now does enormous things to the economy and it doesn’t invest in new fossil fuels anymore,” he said. “It built up that financial firepower and didn’t just fritter away the money.”
“Australia has been very bad in the past at frittering away the money” from mining and energy, Wood said, adding that a “windfall tax” should be imposed on coal and gas earnings when their income skyrockets on global market cycles.
The Labor government in June ruled out the Australian Workers Union calls to slap a windfall tax on gas exporters, despite record profits on soaring prices. Treasurer Jim Chalmers said any such policy proposals “are not part of something we are progressing”.
Amanda Cahill, chief executive of the not-for-profit regional economic development agency Next Economy, said a decade of inaction on the economic transition meant there is pressure on state and federal governments to now “move quickly”.
Cahill consults widely in regional communities like Victoria’s Latrobe Valley, NSW’s Hunter region and Queensland’s Gladstone district, where people are asking “what’s in it for us?”
“They don’t want a repeat of past mistakes like what happened in the LNG boom [in Queensland] where the industry rolled in and rolled out and communities didn’t see long-term benefits,” she said.
“We need to talk about this not just as nation-building, it’s a regional economic challenge. If we can build the renewable energy we need there is an opportunity to boost processing in agriculture and minerals, for example, but we need to think holistically about how we create opportunities for regions to tap into it.”
Grattan’s report said “if managed poorly [the energy transition] will generate social opposition and political friction… Delaying decarbonisation out of fear that it will be messy and difficult is fundamentally unjust to the people who will be most affected”.
It said gas and coal are in inevitable decline and there “should be no further government support for expanding production of either”.
“Such support would amount to subsidising stranded assets and decommissioning costs. It is time to phase out assistance to coal and gas production.”
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