There is no doubt that the coronavirus pandemic will reshape our economy. Staring down the barrel of massive deficits and economic dislocation within some of our largest sectors, like tourism and education, there is an urgent need for economic reforms to foster future prosperity.
Whilst reforms to taxation, infrastructure, education and training, industrial relations and the regulatory framework are all important for enhancing the recovery, fixing Australia's energy policy mess, as the Productivity Commission has called it, should be a high priority.
Accelerating the renewables transition could restore Australia's place as a leader in climate change mitigation and have massive benefits for the economy reasonably soon.
Given our recent experience of having too many export balls in one basket, with our traded goods and services industries being so exposed to a single market - China - there would be considerable diversification benefits as well.
But if we don't act, there is a sting in the tail awaiting countries, like Australia, currently perceived as slow acting on greenhouse gas abatement. Increasingly, the laggards are being targeted as "free-riders" by the countries who see themselves leading the transition.
The Swedish central bank has commenced divesting its foreign exchange reserves linked to regions with high levels of greenhouse gas emissions. It recently sold its Queensland and Western Australian bond holdings, stating that Australia and Canada were countries "not known for good climate work" and that their "greenhouse gas emissions per capita are among the highest in the world".
Similarly, the European Commission unveiled a proposed new European Climate Law in March, which included a Carbon Border Adjustment Mechanism - an import tax - to be applied to countries not working effectively to reduce their emissions. As Europe struggles to kickstart economic activity after COVID-19, reports suggest that the EC is aiming to collect up to 14 billion euros from carbon import taxes on goods shipped from outside the EU.
Now is the time for Australia to seize the moment of our unbridled success in nationally co-ordinated policy, avoid being a global free-rider, and instead take up the opportunity to hasten our transformation to a modern, futuristic economy.
As Ross Garnaut has so eloquently pointed out, because of our abundant sunshine and breezes blowing across our southern shores, Australia has a comparative advantage in renewable electricity. This electricity can be harnessed, so that Australia becomes a leader in the export of renewable power via hydrogen, refined aluminum, copper, as well as "green" iron and steel. Yes, in such a world, Australia could be an exporter of steel again.
We can also benefit through exports of materials in high demand in the renewables space, such as lithium for batteries. Developing the technologies and systems to be a leading exporter of renewables will put Australia at the forefront of implementing system design and management. These will be world-leading skills, which can be exported to our neighbours across Asia, the Pacific and beyond.
Being at the forefront of renewables-based industries will have other spinoff benefits, by creating conditions for the development of associated high-tech industries, including high-tech manufacturing, which will benefit from being located close to clean hydrogen and smelters running off renewables power. Opportunities will multiply.
The prospect of becoming a world leader in exporting green power means Australia has a chance to future-proof and diversify our economy over the years ahead. Realising that potential will mean fixing Australia's energy mess and a focus on accelerating the transition. Do this and Australia can continue to be the Lucky Country well into the future.
- Rob Henderson is an economics and finance consultant, and formerly a chief economist at NAB and Dresdner Bank. He has also worked at the Productivity Commission and the Prime Minister's Department in Canberra.