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Australia’s very own Inflation Reduction Act

Labor is adopting green industrial policy. The UK's refusal to respond to Bidenomics looks increasingly anachronistic.

By Jonny Ball

This article was originally published as an edition of the Green Transition, New Statesman Spotlight’s weekly newsletter on the economics of net zero. To see more editions and subscribe, click here.

The Labor Party has committed to introducing a green industrial policy – no typo, that’s the Labor Party of our Australian cousins, hence the lack of a “U”. The Prime Minister, Anthony Albanese, has committed to introducing an Inflation Reduction Act-style package of measures to align his centre-left government with, in his words, a “new and widespread willingness to make economic interventions on the basis of national interest and national sovereignty”.

Details on the Future Made in Australia Act are, so far, thin, but the coming legislation will likely focus on boosting the green technology and energy sectors, supporting domestic manufacturing, and providing investment for the hydrogen, solar and critical minerals industries.

Albanese has for some time been promoting his vision of turning Australia into a “renewable energy superpower”. This is significant for a country still reliant on coal in its energy mix. The latest energy update for 2023 shows that despite a dramatic reduction from 84 per cent of electricity generation coming from coal at the turn of the millennium, the Aussie power grid is still leaning on the dirtiest source of energy with 47 per cent coming from the black stuff. In contrast, for 2023, just 1 per cent of the UK’s energy came from coal, a steep reduction from around 40 per cent, as recently as 2013. And that’s not all – Australia is also the second largest exporter of coal in the world, after Indonesia. That’s unlikely to change in a country that profits handsomely from its abundant mineral resources and is renowned for its powerful mining industries.

But the shift from Canberra is nevertheless illustrative of the changing global consensus on industrial policy. For decades, Australia championed a model of small government, low taxes, lax regulation, open markets and a casualised workforce. But today “the game has changed”, Albanese said in a speech this week, “and the role of government needs to evolve”. That likely means a programme of large-scale interventions to de-risk private investment in politically defined projects and sectors, in order to meet goals such as decarbonisation and high-waged employment. Markets are no longer being left to allocate and distribute capital in any way they see fit. Instead, governments are trying to shape old markets and create new ones, to incentivise certain behaviours in pursuit of political missions. By underwriting projects and targeting subsidies, states are attempting to “crowd in” private money seeking healthy and secure returns on investment. In the US, the approach has worked wonders: for every $1 worth of public investment (and Bidenomic spending has totalled at least $369bn), the private sector spent nearly $5.50.

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The Australian government, much like the UK’s, would find it hard to go toe to toe or dollar to dollar with the fiscal might of the US Treasury. But as Europe responds in kind to the Inflation Reduction Act with its Green Deal measures, and China continues its long-standing industrial activism and state-managed capitalism, governments that do not act risk being left behind in a global race for capital. Biden has changed the rules of the game, initiating the “largest redeployment of international capital since the 2008 financial crisis”, according to a recent report by the Aldersgate group.

But in the UK, as our partners and allies step up their efforts in the net zero investment competition, our government limps on, impotently condemning what it defines as a new protectionist trend that, says Jeremy Hunt, would “bring global growth back to the Dark Ages” if copied by others. The Chancellor’s problem, whether he likes it or not, is that it is being copied by others, and until the next election at least, the UK is looking increasingly lonely.

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