Round in circles

Australians are finding innovative ways to use materials sustainably and efficiently but are being held back by complex and inconsistent regulations.

The Australian Productivity Commission’s recently released inquiry into the circular economy indicates that Australia’s efforts seem to be slowing down rather than expanding. A circular economy seeks to utilise materials and products more sustainably and efficiently by designing products to require fewer materials, prolonging product lifespans through reuse and repair, and recycling and recovering materials to minimise waste.

“Innovative sustainable practices, like prefabrication in construction, using organic waste to create energy, and repurposing old mine sites, are sometimes being stymied by out-of- date or overly complex regulation. Governments need to ensure that rules and guidelines support a safe shift to a more circular approach,” said Commissioner Alison Roberts.

Circular economy practices aren't new in Australia. For over 60,000 years, Aboriginal and Torres Strait Islander peoples have maintained deep cultural, social, environmental, spiritual, and economic connections to Country, with their knowledge and practices sustaining its health. These holistic, place-based understandings that emphasise connections and relationships make a significant contribution to concepts like the circular economy.

Some governments have policies that encourage the integration of Aboriginal and Torres Strait Islander knowledge and support their involvement in circular economy opportunities in ways that benefit communities while respecting cultural and intellectual property rights. Nevertheless, in practice, governments still have a long way to go in fostering genuine partnerships to achieve these goals.

Today, the inconsistent regulations across governments create barriers to circular economy practices. At present, states and territories have varying rules regarding e-waste disposal, the use of recycled materials in construction, and kerbside recycling, among others. “Inconsistencies in regulations between governments are a recipe for red tape and frustration for businesses and consumers that can slow the uptake of circular practices. Getting governments on the same page will make sustainable choices cheaper and easier for everyone,” said Dr Roberts.

As Australia’s export partners rapidly decarbonise their supply chains, now is the time for the government to invest in the future of local workers and businesses by supporting green industry and technology. Australia must be regarded as serious about future-proofing our industries and economy and substantial in its commitments to reduce climate pollution.

The transition to clean energy is well underway, and there’s no turning back. By investing in green jobs and industries now, and by increasing the rollout of renewable energy supported by storage, we can establish a world-leading green economy, safeguard our precious natural environment, and bolster global efforts to tackle the climate crisis.

The growing challenge of e-waste highlights the significance of circular economy practices. Materials found in most white goods, electronics, solar panels, and battery systems can be valuable when recovered appropriately. The government can facilitate cross-industry solutions to the e-waste issue that could benefit both the economy and the environment.

The circular economy relies on connections – whether between researchers and industry or between businesses. These connections can span across Australia or be concentrated in circular economy precincts or regions that can create benefits for local communities.

'In cities and regions, we heard about businesses working together to develop new circular economy ideas, turn waste into wealth, and save on costs such as transport. The PC is considering ways for governments to enable these connections between organisations both close to and far from each other,' said Commissioner Chong.

The Australian and global metals industries also face considerable uncertainty–from short– term trade disruptions to the longer-term challenge of decarbonisation. This highlights that governments and industry must work together to ensure that unsustainable levels of red, green and grey tape do not cripple Australian sectors.

Paul Hellard

Changes

Energy costs, keeping businesses alive, and traversing possible trade wars.

Thank you for reading my editorials. In these quick missiles, you might have noticed my obsession with economics, the onshoring of our manufacturing, and the origins of the energy used to power Australia’s industries. I reference many independent media outlets, such as The Conversation, Project Syndicate, ASPI and Reuters, as well as organisations like the Australia Institute and the Superpower Institute and other trusted sources, such as CSIRO and AEMO.

The latest draft of the CSIRO’s GenCost report has assessed Australia’s future electricity generation costs and once again found that renewables have the lowest cost range of any new-build electricity-generating technology. The report focuses on cost estimates for new-build electricity generation, storage, and hydrogen technologies. It provides business leaders and decision-makers with updated capital costs and data comparisons for planning and financing studies.

Professor Ross Garnaut has long advocated for Australia to harness its natural advantages—such as abundant sunshine, wind, and land—to lead the world in renewable energy production, export, and innovation. He has also offered investment guidance to the Future Fund.

The New Energy Trade report intimates that Australia investing in Japan, South Korea, China, India, and Germany has a higher chance of reaping future funds than not. The report provides a world-first analysis of likely international trade in clean energy and finds that Australia could contribute up to 10% of the world’s emission reductions while generating six to eight times larger revenues than those typical from our fossil fuel exports. As the years pass, exporting gas and coal will lose value as our buying clients shift to renewable projects. Finighan focuses on Australia’s international trade role in helping the world reach net zero emissions at minimum cost to our economy. He says Australia should be the low-cost producer of renewable energy, exporting most of it to the world and earning a good living. We have more than enough abundant open spaces, without sacrificing food-growing pastures or populated areas, to generate solar or wind energy at a genuinely massive rate. Finighan finds we can produce “essentially limitless low-cost green electricity”. The required solar and wind farms would occupy about 0.6% of our land mass.

Transporting that electricity overseas is prohibitively expensive, but using some of it to produce energy-intensive products like iron, steel, aluminium, and urea before exporting them could be a valid solution. Australia could become that foundry and quarry along the way and profit from expanding our manufacturing industries. The future world trade in clean energy will involve energy embedded in ‘green’ products. This will mean Australian-manufactured iron products will become part of our export market and our new comparative advantage. It does surprise me that some mainstream media ignore many of these studies.

Talking of Murdoch and the second US Presidency, whatever the Trump Administration chooses to do in the first half of 2025 will strongly influence how manufacturing in Australia continues or reinvents itself. The worst-case scenario for Australia would be picking sides in a future trade war. Treasurer Jim Chalmers notes that we have more at stake here than most. Probably more than anyone else, given our economic and strategic relationship with the US and, meanwhile, our deep economic relationship with China.

Paul Hellard

Swings and roundabouts

Australia should transition to modern manufacturing with an eye on training and infrastructure improvements while spending wisely.

The confirmation that the Federal Budget was in surplus for a second time last year is an important reminder of the need to remain vigilant about government spending. While the $15.8bn surplus for 2023-24 is a pleasing outcome, budget estimates still suggest significant deficits for the rest of the decade. The Federal Government has been careful to note that this latest surplus was partly due to lower-than-expected government spending rather than higher revenues.

The Australian government must now be clear-minded that a robust manufacturing sector is not just about job creation and economic prosperity; it is an insurance policy to protect the nation. Australia’s vulnerability during the pandemic, when global supply chains faltered and essential goods became scarce, should have served as a wake-up call. In his semi- regular column with the Australian Strategic Policy Institute, John Coyne cites a string of external geopolitical tensions and climate disasters that are reviving and exposing supply chain vulnerabilities much like those visited during peak COVID times.

Australia still relies heavily on international suppliers for essential goods and raw materials. Its recent shortage of IV bags and palliative care drugs highlight its reliance on fragile global supply chains. The Albanese government’s made-in-Australia policies and initiatives to boost local solar panel and battery production aim to promote domestic manufacturing in renewable energy. Focusing narrowly on that sector leaves many other manufacturers without the support needed to be competitive, let alone grow. Without addressing skills development, innovation, and supply chain resilience, these initiatives will unlikely foster a diverse and sustainable national manufacturing capacity.

A good starting point would be to bolster domestic production of medical supplies and agricultural inputs using technologies of the fourth industrial revolution. Such investments would reduce reliance on imports, mitigate risks posed by global trade disruptions and strengthen national security. Moreover, they could ensure that geopolitical tensions or economic shocks would not disrupt much of the economy.

Coyne and many others may be critically applauding the Albanese government's efforts. However, innovation and technological advancement in manufacturing must be further incentivised. As global competition intensifies in that ‘polycrisis’ we’re all in, Australia needs to catch up in developing and adopting cutting-edge technologies. The future of manufacturing lies in the advanced production techniques of automation, artificial intelligence, 3D printing, and many further unimagined technologies.

Modern manufacturing addresses the challenge of scale that has bedevilled Australian businesses. It enables companies to optimise production processes, reduce lead times and costs, and efficiently adapt to on-demand supply needs while maintaining high quality and precision. To maintain a competitive edge in these emerging fields, Australia must lead in adopting and developing these technologies.

The Reserve Bank highlighted that the economy’s ability to meet demand is stretched, as evidenced by the persistence of inflation and ongoing strength in the labour market. Therefore, state and federal governments must ensure that their spending doesn’t put upward pressure on inflation.

Spending measures must be well-targeted to those who need them most, especially at this stage of the economic cycle. The RBA also reminds us that “labour productivity is still only at 2016 levels, despite the pickup over the past year,” so more substantial productivity growth is critical to controlling inflation.

They tell us this will allow them more room to reduce supply pressures in the economy and create long-term income growth to help fund government spending sustainably. It’s all swings and roundabouts and one hell of a ride we are all on.

Paul Hellard

Australia's mining futures

Mining is a complex business with many moving parts. External factors like skilled labour shortages and extreme weather events suggest that fully autonomous exploration may be the answer.

Mining can be highly mechanised and often occurs in remote locations with vulnerable supply chains. But these days, more elements in mining don’t need to ‘get their hands dirty’. Remote visualisation technology, deep spectral analysis of test sites, fully autonomous exploration and extraction of rare earth minerals are all part of the future of mining. However, according to FM Global’s 2024 Mining Loss Report, grand promises of profits come with more significant risks and barriers to overcome.

One must remember that the mining and processing of the ore is the source of the steel our industry forms and fabricates. It is our raw material to manufacture.

The complexity of the mining industry can lead to a significant risk of business disruption, costing companies millions or even billions of dollars due to lost market share, missed growth opportunities, and negative investor sentiment.

External factors, such as the increasing frequency of extreme weather events and skilled labour shortages, heighten the risk of disruption. Mining companies understand these risks and aggravating factors well. The comprehensive financial impacts due to the downstream effect of disruption on the entire business need to be better understood.

An operational disruption impacts an entire operation. Beyond the direct cost of repairs are the opportunity costs: lost time, business, and work hours. Corporate reputation can suffer. Market share can be lost. Stock prices can fall, reducing investor confidence and even capital flight.

A report by Pentland Analytics measured over 20 years showed that a reputational crisis's average share price impact is -5% across the post-event year, significantly reducing a company’s market capitalisation.

In this environment, you can’t afford not to be prepared. Only through a thorough evaluation of your operations can you develop a holistic view of how risks might impact your business. This will allow you to plan for and adequately mitigate the effects of a catastrophic event or disruption. Through risk mitigation, you can help your enterprise become resilient and prepare for future threats.

In the Canadian context, with labour disruptions, infrastructure interruptions, and extreme weather events becoming more common, this type of holistic analysis is more necessary than ever. By adopting robotics and AI and having workers operate machinery remotely, these risks can be prioritised, and investment in resiliency can be justified and secured. Operations and facilities in some areas of Canada were shuttered, and underground mining activities across the country were suspended during the major fires in northern Spring/Summer 2023. These wildfires are estimated to have cost Canada’s mining sector millions of dollars in direct costs and millions more in losses due to the disruption of value chains.

Mining companies may need help mitigating these risks using internal resources. Many companies try to control costs in a capital-intensive business, leaving few resources to invest in risk mitigation. For example, companies often keep very little excess inventory on hand and are reluctant to spend the money required to keep spare equipment in storage — meaning a disruption in operations can quickly snowball, leading to missed deliveries and lost market share.

The threat of disruption will only increase, with wildfires, floods and other extreme weather events on the rise. Investing in resilience is not just insuring against loss. It is about investing in the future and bolstering your competitive position for decades.

Paul Hellard

Australia's future energy clarity

Over the past month or so, the question of how Australia will power its industrial engines, manufacturing, and even civic base has been challenged like never before.

Conjecture about where industry-scale energy will come from has yet to help the national energy debate. Australia needs renewables and only needs nuclear if it’s worth it in the long run. Australia needs facts.

The Smart Energy Council has released an analysis that puts the cost of the LNP energy plan between $118bn and $600bn, using an average sample of large-scale nuclear power stations constructed in developed Western economies over the past 30 years. Australia has no nuclear industry capability right now, and while renewable power still has yet to attain the majority power base, it is still in the early days.

The hastily gathered nuclear plan hasn’t clarified that it will account for less than 4% of Australia’s electricity requirements by 2045. That’s expensive power.

New research from NAB and Deloitte Access Economics has revealed what Australia could reap as the world moves toward decarbonisation and lower emissions. According to Deloitte, Australia can reap a $435bn economic boost by 2050 if it capitalises on the global race for net-zero emissions.

The report concludes that Australia could take advantage of the transformation and surging global demand created by the need to replace emissions-intensive assets. Green industrial exports drive a net increase in Australia’s total exports—they not only replace lost economic output from emissions-intensive activity but also create new growth.

But NAB Chair Philip Chronican strongly suggests Australia needs to make the most of its natural endowments as we make the energy switch. “Australia has two challenges: getting to net zero and replacing our existing export industries as global demand falls away,” he said.

“This expanded economic capacity in green industries supports an increase to Australia’s exports of about $420bn by 2050,” the report says.

“The harsh reality is that if we only hit our targets without replacing the exports, we will become a materially poorer nation.”

According to NAB Group CEO Ross McEwan, despite the high cost, Australia needs to “build, build, build” to secure the economic benefits of the clean energy boom.

“To do this, we need investment and labour to drive the projects, shorter lead times, improved consultation and a consistent national framework that delivers major green infrastructure projects with widespread community support,” McEwan said. Geoff Crittenden (CEO of Weld Australia) states, “Of the 67,000 welders identified in the last census, fewer than 5,000 possess the expertise to weld to the highest standards required for nuclear power plants, submarines, and other critical infrastructure. Of those 5,000 welders, approximately one-third are nearing retirement, further compounding the issue.”

“Australia’s energy transition is already struggling, and adding the monumental task of building nuclear power plants without a sufficient skilled workforce is impractical. We can barely meet our current commitments, let alone embark on new nuclear projects.” The yawning gap is approaching in the next decade when coal stations are closed down, too much of our gas is exported for no profit, solar, wind, and hydro can’t quite make up the shortfall, and operational nuclear is still more than a decade in the future. Hopefully, mature heads will make the right decisions for Australia’s energy requirements over the next few decades. There is a lot to lose if we don’t get it right.

Paul Hellard

Big Budget show

As I write, Treasurer Jim Chalmers has just delivered a relatively measured Federal Budget. On Tuesday 14th May, he had the unenviable job of nudging growth without triggering further inflation amidst weak and uncertain domestic and global economic outlooks.

Labor framed the budget on the changes made to the stage three tax cuts and the Future Made in Australia positionings. The government faced a dilemma with this budget. Spend too much, and they risk overheating an already supercharged economy and exacerbating cost-of-living pressures. Spend too little, and they risk providing insufficient support for business should the long-expected-but-never-quite-here downturn come to pass. It seems that the surplus of $9.3bn represents a carefully calibrated middle-path between these two unpleasant scenarios. It’s been a teetering balancing act, whichever way you look at it. Chalmers said before delivering the speech that Australia, “had a lot going for our economy,” but “we’ve also got a lot coming at us.”

The mention of free TAFE in various construction and manufacturing courses may be helpful to some, and 225,000 scientists and technologists have welcomed the announcement of a review of the R&D system, as a way to chart a course towards investing 3% of GDP in R&D.

This comes on top of measures already announced to the media before budget night, including more affordable housing, the $22.7bn Future Made in Australia package, and the big one: a tax cut for every taxpayer.

There was also a strategic investment in science, technology, engineering and mathematics (STEM), which is a pathway to incentivising business to help the country reach a 3% of GDP target for R&D and secure the nation’s future are welcome initiatives in the 2024-25 Federal Budget.

Paul Hellard

Steady as she goes

The economics of making stuff is better when it is cleaner, safer and faster.

As many of those qualified economist’s columns extol, the Australian economy has made it through 2023 in fairly good shape, helped by a resilient labour market, buoyant business conditions and strong commodity prices. Risks of a recession this year have receded, but that doesn’t mean things will be easy. The thing to remember here is that economics is international. The local conditions are weathering what occurs overseas. The cumulative (long-term) impacts of interest-rate rises are still biting, with softening consumer spending and more gloomy consumer confidence. Firms are still adapting to higher interest rates, meaning increased volatility in business conditions and lower business sentiment.

Of particular concern is weakening economic activity in China. Ongoing geopolitical risks in Ukraine, the Middle East and Asia are adding to the uncertainty, compounded by the looming US election. Extreme weather events, both at home and abroad, are already in the headlines in 2024 and are a constant reminder that climate resilience and the energy transition remain policy priorities and are likely to have an impact on economic growth for some time. With this much real-life drama, who needs reality television?

Inflation is moving in the right direction but is still too high in Australia. It is likely to remain the focus of economic policy and public debate throughout this and next year. Globally, inflation is receding. This will assist the Australian outlook. While we may not see more interest rate rises in 2024, rate cuts are not yet on the agenda – unless inflation falls quicker than expected. Anything that entrenches inflation for longer will lead to worse outcomes for the economy and the broader community. The Government must ensure its policies and spending decisions work with monetary policy, not against it, to avoid stoking inflation.

ESG (Environmental, Social, and Governance), is the practise of keeping a close watch on the effects your manufacturing have on the environment, your workers and the bottom line, while giving the manufacturing industry the confidence it is producing goods (profits) without destroying the planet.

In 2017, Xie Jinping temporarily shut down parts of the Chinese steel manufacturing sector to allow factories to refit and clean up their act. The export market halted for months.

The strongarm rules helped standardise reporting in China while reducing greenwashing risks. Fast forward to China 2024, there are new ESG disclosure rules for its biggest companies as the world’s top polluter seeks to align with European requirements and bring foreign investment back to its struggling economy. But foreign investors have been turning their backs on China lately. Direct investment plunged to a three-year low in 2023 as a property market slump, deflation risks and growing geopolitical tensions with the US stifle economic growth. China is looking to bring its regulations in line with Europe, where companies have to make similar disclosures starting this year under the Corporate Sustainability Reporting Directive.

Australian manufacturers are now having to file their ESG reporting obligations and the benefits won’t just be financial. It’s time to join the queue of nation’s industries having to report how they ‘make their stuff’. I’d suggest this is way better than being forcibly shut down until your act is cleaned up.

Paul Hellard