Transforming to ‘green’ industries is critical to our economy.

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Image: illustrates the linkages between an anchor facility and the various indirect jobs which depend on that facility for their own survival. One category of indirect jobs includes those located “upstream” from the anchor industry: in the numerous supply and service sectors which sell inputs (including raw materials, parts, machinery, utilities, and services) to the anchor facility. Another set of indirect jobs is found “downstream”: in the various consumer goods and services industries which require an initial population of employed workers nearby to serve as their own market. When those workers subsequently spend their earnings – on everything from homes to consumer goods to private services (like restaurants and dry cleaners), and even supporting public services from their tax payments – they create the economic foundation for thousands of downstream jobs.

Sustainable Energy Critical to Australia’s Aluminium Future

James Stanford

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March 12, 2022 The Australia Institute

New research from the Centre for Future Work shows that the rapid transformation of Australia’s aluminium facilities to sustainable sources of electricity would spark substantial economic benefits: for the aluminium industry, its supply chain, and for the burgeoning renewable energy sector (which would achieve greater critical mass from major new power supply contracts).

The report, by Jim Stanford (the Centre’s Director) and Alia Armistead, looks in detail at the Tomago aluminium smelter in the Hunter region of NSW. It is Australia’s largest smelter, and is currently powered through electricity mostly sourced from coal-fired generation. The facility has pledged to move to renewable power sources by 2030 — and the new report confirms that this would underpin long-term industrial and economic benefits felt in all parts of the country.

The report reviews the worrisome deindustrailisation of Australia’s foothold in the global aluminium industry. Australia’s exports of raw bauxite have grown rapidly, but value-added aluminium manufacturing (including smelting) has declined. This undermines employment, exports, and spin-off jobs.

The study also reports results of macroeconomic simulations of the overall impacts of the Tomago facility on the national economy (including employment, incomes, GDP, and government revenue). These effects, because of the economic linkages between the smelter, its supply chain, and the consumer goods and services industries which depend on its continued existence, are very large.  Our results indicate the Tomago facility ultimately supports:

  • Over $1.2 billion in national GDP per year, with production benefits experienced in all states (70% in NSW).
  • Household disposable incomes of almost $500 million.
  • Direct and indirect employment of over 6000 jobs: in the smelter, in its various suppliers, and in downstream consumer industries.
  • Incremental government revenues worth $465 million per year: two-thirds of which is captured by the Commonwealth, and $120 million by the NSW state government.

The study makes several recommendations for supporting Tomago’s transition to renewable energy, and enhancing Australia’s value-added aluminium presence. These include:

  • A clear and sustained commitment to rapid roll-out of renewable energy sources: Government should assist and accelerate Tomago’s transition to renewable power with clear, powerful measures to support expanded renewable energy developments, appropriate capacities (including batteries and pumped hydro) for backing up variable renewable power supplies, and fiscal measures that acknowledge the contribution Tomago could make (through the scale of its renewable energy purchases, as well as its potential role in demand-response measures that stabilise the regional electricity grid) to support NSW’s transition to renewable energy.
  • Full-cycle financial support and public equity: Our simulations confirm a large fiscal payback to state and Commonwealth governments arising from the operation of the Tomago smelter, its supply chain, and the downstream consumer industries which depend on its continued operation. This gives both levels of government a major fiscal stake in Tomago’s continuing operation. For that reason, in addition to supporting the roll-out of renewable energy, both governments should negotiate other forms of fiscal support for future capital improvements (including those tied to developments of renewable energy supply for the smelter).
  • Leveraging public infrastructure and procurement: Considerable demand for aluminium products will be forthcoming in future years as a result of the unprecedented investments being made by governments at all levels in new physical infrastructure: ranging from transportation to utilities to public buildings. The business case for continued aluminium manufacturing in Australia can be incrementally strengthened with pro-active efforts on the part of government to ensure that these investments (which are ultimately paid for by Australian taxpayers) embody maximum Australian-made content in all building materials and inputs, including aluminium.
  • A value-added trade policy: Australia’s laissez faire approach to international trade has concentrated Australia’s exports in the extraction and export of unprocessed or barely processed non-renewable resources; this has been coincident with a severe decline in domestic manufacturing and value-added activity, and a precarious dependence on imports to meet most domestic manufacturing needs. A rethinking of Australian trade policy could help reverse this damaging deindustrialisation. This must include active interventions to limit the inflow (often at prices below cost of production) of aluminium products from other countries which are not making reciprocal purchases of value-added merchandise from us. Trade policy should actively discourage exports of unprocessed bauxite, and instead require at least preliminary processing (and better yet, smelting) of Australian bauxite in Australian facilities.

Please see the full report, Sustainable Industrial Jobs in the Hunter: Aluminium Manufacturing and Australia’s Energy Advantage, by Jim Stanford and Alia Armistead.

Table 4
The Strategic Importance of Manufacturing

Innovation

Australia’s manufacturing industry re-invests 5 percent of GDP in new research and development, more than any other sector in the national economy. Manufacturing is an essential proving ground for the application of new product and process innovations, and manufactured capital goods are essential for the implementation of innovation in other sectors. A country cannot be an innovation leader without a strong domestic manufacturing capability.

Productivity

Productivity growth in Australian manufacturing has exceeded national average rates by one-fifth over the past quarter- century. Productivity is especially strong in capital-intensive advanced manufacturing sectors (including primary aluminium manufacturing). High and growing productivity provides a strong foundation for strong incomes and tax revenues.

International Trade

Manufacturing is an inherently export-intensive form of economic activity: manufacturing accounts for 40 percent of all Australian exports, far in excess of its 6 percent share of total GDP. A country without a viable manufacturing sector is prone to chronic trade and payments deficits (as Australia is experiencing at present), because it is effectively shut out of two-thirds of world exports.

Supply Chains

Australian manufacturers purchase $250 billion per year in inputs, supplies, and services from other businesses in all sectors and regions of Australia’s economy. By “anchoring” complex supply chains, major advanced manufacturing facilities sustain production, jobs, and incomes far beyond their factory gates.

Source: Stanford, Jim (2020). A Fair Share for Australian Manufacturing: Manufacturing Renewal for the Post-COVID Economy (Canberra: Centre for Future Work).

References

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