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Consulting Matters Features
What if energy was free? THE COFFERS OF HOLLYWOOD HAVE BEEN LINED BILLIONS OF TIMES OVER FROM BLOCKBUSTERS FEATURING DYSTOPIAN FUTURES WHERE THE WORLD RUNS OUT OF ENERGY. FROM THE CLASSIC MAD MAX 2 TO THE MORE RECENT NBC REVOLUTION SERIES, WHAT HAPPENS WHEN THE LIGHTS OR FUEL RUN OUT CREATING ENOUGH DRAMA AND INTRIGUE TO EVEN WARRANT A DEDICATED ‘ENERGY CRISIS’ FILM CATEGORY ON IMDB.
While worst case scenarios make for good entertainment, what if a radically unconventional view was taken for real life: what if energy was free? Imagine if it was so abundant it could be made free or a nation decided that free energy was to be its competitive advantage. Although it might not help James Cameron with his next blockbuster, what sort of future would that stimulate? Professor Tim Flannery’s 2005 book The Weather Makers painted the scenario of a new Australian inland city called Geothermia. This city isn’t created for access to agricultural areas or waterways, rather because energy derived from the sun and hot rocks is free. Rather than driving economic activity from lower taxes or lower labourcost, Geothermia draws business investment by offering zero-cost energy. Let’s take Flannery’s idea to a global scale for hot-weather countries. Nations with an abundance of arid land and high insolation rates become free-energy zones where the costs of renewable power are so low that domestic energy is given away. Exporters pay an export duty to sell products, and the export duty is reinvested in the energy system. The benefit? It attracts investment, especially in manufacturing; it cleans up the environment; creates a ‘zero-emissions’ export brand, and lowers the cost of living for local communities. To get there we need a major rethink For decades, countries have attracted investment and industry to their nations with the goal of generating jobs and economic progress. Much of the development of South East Asia and Latin America has resulted from developed nations shifting manufacturing plants to locations where labour costs are lower, making production cheaper. Lower cost products increase the manufacturers’ markets and drive jobs for the host country. Other countries have advantages other than labour cost, including access to abundant natural resources or access to large
markets. Governments also offer investment incentives and low tax regimes. However, using energy as a differentiator has been low on the priority list. The Middle East’s low oil costs have not resulted in it becoming a renowned manufacturing centre because other factors have outweighed the low energy-cost benefit. Enter Australia. We have copious fossil fuel resources, most of which we export. We also have raw materials and an educated and high-skill workforce, even if our access to large markets is not great. However, we also have relatively high energy prices, particularly for a country that produces so much gas, coal, sunlight and wind. Our energy system is complex and while we have around 23% of renewables in our electricity grids already, the grids were built for coal-fired baseload generation, with some hydro and gas for peak demand periods. Even with a growing renewables share of our grids, we are bogged down with connection and transmission challenges. The COVID-19 pandemic has exposed weak points in the global supply chains that have basically shifted manufacturing to where the wages are low, and sold the subsequent products where incomes are high. These supply chains now prove troublesome during COVID-19, as basics and essentials – such as medical supplies, pharmaceuticals and precursor chemicals – are delayed or restricted in their country of origin.
For countries such as Australia, the question becomes if the global supply system has been changed by COVID, what levers can we pull to build our manufacturing base? If we accept that access to raw materials, access to market and the cost of labour remain the same, post-COVID, what lever could we pull other than a blatant bidding war on tax incentives? There’s a left-field, revolutionary option: free energy Here’s how it could work in Australia. The entire economy wouldn’t start on ‘free energy’ since we don't have a large enough renewables sector to be able to give away the energy. But we could begin with a zero-emissions loop where manufacturers’ products with zero-emissions energy inputs, get their energy ‘free’. They take electricity from hydrogen or renewables – for no cost – and pay 20% tax on their exports. Specific industries could be kick-started on the royalty system in a number of ways. For example, instead of billing the energy user, imagine if you set the royalty at the price of energy consumed via that product today, and it was attached to the cost of the export. Alternatively, you could start by taking the price of energy today and the export would pay no more than that. As this system develops – with increasing renewables and hydrogen generation
The COVID-19 pandemic has exposed weak points in the global supply chains that have basically shifted manufacturing to where the wages are low, and sold the subsequent products where incomes are high. These supply chains now prove troublesome during COVID-19, as basics and essentials – such as medical supplies, pharmaceuticals and precursor chemicals – are delayed or restricted in their country of origin
