Place-based approaches can help industrial regions decarbonise quicker – here’s how

Anna Skarbek
Joshua Danahay

Decarbonising Australia’s industrial sector will be essential for Australia to reach net zero. The Australian Government can set the right policy signals with ambitious long-term goals to diversify economically in new clean industries and coordinate investment in specific locations.

Place-based approaches can help industrial regions decarbonise quicker – here’s how

Anna Skarbek
Joshua Danahay

Decarbonising Australia’s industrial sector will be essential for Australia to reach net zero. The Australian Government can set the right policy signals with ambitious long-term goals to diversify economically in new clean industries and coordinate investment in specific locations.

17 April 2023

The Australian Government is bidding to host COP31 alongside our Pacific neighbours in 2026. They will be keen to show impact ahead of it, but with an economy heavily reliant on fossil fuels, there is much to do. The Albanese Government accepted all recommendations from the Climate Change Authority’s first annual climate change statement, which emphasised the “momentum shift” that is needed to reach decarbonisation targets.

It has also progressed a number of its climate and energy policies, including: the Safeguard Mechanism amendments – a “baseline and credit scheme” with a price signal on emissions applicable to 215 heavy emitting facilities, requiring total emissions to fall over time – recently passed by Parliament; the National Energy Transformation Partnership established with state and territory energy ministers; and low-cost financing for energy transmission upgrades through the Rewiring the Nation and Powering the Regions funds. The National Reconstruction Fund, which was also recently passed by Parliament, will support industry to decarbonise with $3 billion for low emissions technologies such as electrolysers to make green hydrogen.

But while this is significant progress in the first year of government following the legislation of Australia’s updated Nationally Determined Contribution (NDC), ambitious long-term approaches are needed given the speed and scale of emissions reductions required for achieving net zero in line with Paris Agreement goals. This is true for all sectors and in this article we look particularly at industrial decarbonisation.

Currently, Australia’s heavy industrial sector accounts for around 44 per cent of Australia’s total emissions. Most of Australia’s industry is also concentrated in regional areas. Five regions alone – Pilbara, Kwinana, Hunter, Illawarra and Gladstone – contribute over $160 billion to Australia’s GDP and hold a potential abatement opportunity of 70 megatonnes of carbon dioxide equivalent (MtCO2e). This is equivalent to removing all emissions from cars and light commercial vehicles across Australia.

The 2023 report, Pathways to industrial decarbonisation: Positioning Australian industry to prosper in a net zero global economy, prepared by Climateworks and CSIRO as part of the Australian Industry Energy Transitions Initiative, looked at five material supply chains: iron ore and steel, aluminium, liquified natural gas, other metals such as copper and lithium, and chemicals. It shows that industry emissions can be reduced by 92 per cent by 2050 with strong ambition, coordinated action and government support. The report found that, while challenging, the scale of investment required is comparable to other major policy efforts – for example, the COVID-19 pandemic – with just an additional $225 billion needed to decarbonise the energy system while limiting warming to 1.5 degrees, in addition to the $400 billion of “business as usual” investment already required between now and 2050. For context, the economic response to COVID-19 has reached at least $291 billion since the pandemic’s beginning.

Coordinated action can unlock a faster acceleration than what can be achieved by fragmented market and government actors going it alone. Industrial decarbonisation can be likened to a “chicken and egg” scenario. According to Pollination, an investment and advisory firm focusing on climate change, companies already have the desire to invest in the transition. To be comfortable doing so, they need to see sufficient demand for their products and an investment pipeline. Without this, securing investor support can be difficult.

Scaling up through place-based approaches

To attract the scale of private investment and coordination between levels of government needed, the Pathways to industrial decarbonisation report recommended that the Australian government commit to decarbonising regions by setting a goal to reach net zero at a precinct level – using a concept referred to as “renewable energy industrial precincts” (REIPs).

In practice, this could look like a cluster of businesses within a geographic region collaborating to access lower cost 100 per cent renewable energy and shared infrastructure. By targeting clusters of industries, REIPs can reduce costs and leverage efficiencies that benefit all participants. Businesses within the precinct could use that energy to produce green steel, green aluminium, green ammonia, critical minerals and other clean technologies. Benefits arise from partnerships, knowledge sharing and risk sharing, alongside access to shared infrastructure. A foundational, or anchor, proponent can also help boost investment into the precinct.

A place-based roadmap – forward-looking plans for decarbonisation and economic diversification – would underpin each precinct, taking into account respective local contexts. Through a place-based approach, policymakers can leverage each region’s comparative advantages and unique characteristics.

By co-designing them with key stakeholders such as industry and local communities, including First Nations peoples, governments can backcast from when the precinct needs to reach net zero to ensure the right actions are taken today to set each region up for success.

While current whole-of-economy policy settings are focused on the government’s 43 per cent by 2030 target, industrial facility and energy system investments need longer-term outlooks. REIPs can kick-start the decarbonisation of our supply chains and build momentum towards net zero. And by demonstrating success in key locations, the concept can be scaled and replicated across the nation.

Applying lessons from other policy areas

The good news is that, even with the scale of the task at hand, there’s no need to reinvent the wheel on policy. Clusters of similar businesses with a shared goal have led to innovation and value creation in advanced manufacturing, life sciences, technology, and research. Place-based approaches and collaboration between different levels of government currently occur in other areas of policy. While effective solutions take time and effort, examples of success can be found in family policy here in Australia and internationally.

Co-investment, too, is a mechanism used to achieve outcomes in other areas. The Commonwealth Government has joined forces with states and territories to invest in healthcare and telecommunication infrastructure, for example. It has also co-invested on a project basis in hydrogen hubs with several states and territories. Australia has a sophisticated structure for financing the transition. The Australian Renewable Energy Agency and Clean Energy Finance Corporation are two successful examples of finance vehicles available.

State and territory governments have already made progress towards their own place-based initiatives, such as New South Wales’ Clean Manufacturing Precincts, giving the Commonwealth an opportunity to scale up their impact.

Coordinating the transition

To reach the scale required, a coordinating body is needed to implement REIPs through a national program. This would ideally have a mandate supported by a long-term objective to establish REIPs across Australia in all emissions intensive heavy industrial regions. The coordinating body would need strong cross-portfolio collaboration to facilitate the land use planning, build out of enabling infrastructure and the decarbonisation of existing industries that are key to a precinct becoming a REIP.

A coordinating body could support state and territory governments to determine priority locations to unlock economic opportunities, working with regional coordinating bodies to ensure positive place-based outcomes, leveraging their understanding of the local context and tailoring precincts to their strengths. This would enable the coordination of roadmap design and co-investment in each location, helping attract large scale multinationals who need to see multiple opportunities for deployment before investing.

Alongside these areas, supporting workers as regional areas transform into clean energy powerhouses will be critical to building social licence for the transition, and would be another focal point for a coordinating body.

Two potential government approaches fulfil some of these aspects. There has been much speculation lately about the need for a national energy transitions authority to support workers. In the Department of Prime Minister & Cabinet, a Net Zero Economy Taskforce has been working across government to consider how to support regional communities. There has been support for the taskforce to continue with a focus on export strategy, with REIPs a central component. Whatever the result of these approaches, a central coordination body would be necessary to effectively administer a nationwide rollout for all aspects of REIPs.

With a commitment to establish several renewable energy industrial precincts nationwide as part of a coordinated place-based program, the Australian Government can make huge strides towards meeting its national targets, while also giving industry long-term certainty and providing benefits to regional communities. With three years until COP31, there is an opportunity to showcase Australia’s progress on industrial decarbonisation on the global stage. While the task is challenging and action is needed at scale, policymakers have the tools at their disposal.

Anna Skarbek is CEO of Climateworks Centre, working to develop the low carbon economy. A former banker and green policy adviser, Anna has led Climateworks since its creation in 2009, analysing emissions reduction opportunities, setting the ambition and unblocking barriers to implementation. Climateworks’ independent and non-partisan approach, co-founded by The Myer Foundation and Monash University, sees Anna working with multiple federal government departments as well as state governments and large corporations along with other stakeholders including investors, and business, environment and civil society leaders.

Joshua Danahay works on Climateworks projects to support government and industry in the transition to net zero emissions, including Renewable Energy Industrial Precincts, a collaborative solution enabling regional industries to reduce emissions while maintaining existing industries and attracting new ones. With experience in the electrotechnology industry, working with industry bodies and state government, Joshua is particularly interested in how net zero strategies can provide economic co-benefits to countries and communities.

Image credit: Gin9038/Getty Images

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