US and China need ‘climate armistice’ to meet net zero, says former head of CSIRO | Australian economy

The world needs a “climate armistice” between the US and China if net zero emissions are to be reached while Australia should hone its efforts on a few key areas where it has an unusual competitive edge, Larry Marshall, the former CSIRO chief executive, said.

Speaking ahead of Tuesday’s budget in which the Albanese government’s Future Made In Australia (FMIA) plans will probably be prominent, Marshall said the nation ought to focus any industrial support on sectors such as processing of lithium or vanadium or products that realistically scale up.

Australia’s “great unfair advantage is controlling the raw materials” used in batteries, solar panels and other decarbonising products, he said. Similarly, China was unlikely to surrender its steelmaking dominance but might be open to buying iron ore made into pellets in Australia using renewable energy sources that greatly cut emissions.

“In that way, we kind of earn our way into the global supply chain but without trying to own it all,” said Marshall, who will also be among the speakers at the Climate Action Week, starting on Monday in Sydney.

While some of the impetus for the FMIA – and the US’s much larger Inflation Reduction Act – was to diversify from over-reliance on China, Marshall said he’d “hate to see the world splinter”.

“Climate change is a global problem. It needs that global level of collaboration,” he said, adding that a “climate armistice [between the US and China is] maybe the thing that keeps us together”.

The federal government has so far earmarked more than $20bn in its National Reconstruction Fund, Hydrogen Headstart, Solar Sunshot and other programs in its strategy to accelerate manufacturing in Australia. The 2024-25 budget is likely to tip in more money.

Economist Saul Eslake, though, said there was a bipartisan belief “there’s something inherently more noble about manufacturing than other types of economic activity, and that manufacturing jobs are more important than other jobs”.

Productivity of manufacturers in Australia was about 11% below the industry average unlike the comparison in a handful of advanced nations such as US, Japan, and Germany, he said. Australia also lacked the large domestic market of such nations, and its distance from markets added transport costs for what were often bulky goods.

Eslake said security threats were “exaggerated by the security establishment”. If Americans were “willing to waste squillions of their tax dollars” subsidising a product such as solar panels, “why don’t we buy it off them?”

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“This is just manufacturing fetishism,” he said. “Like almost all types of fetishism, it’s unwise and risky.”

Marshall said Australia was among the top 10 nations for science and should seek to capitalise on its smarts. Governments were also likely to be more patient than market-only funds, underscoring the value of their intervention.

“If you’re too rigid with the [key performance indicators], you might shut things down before they get a chance to go,” Marshall said. “With science, you can’t schedule invention.”

Marshall said investments in areas such as small modular nuclear reactors – as proposed by the federal opposition – should be approached with caution.

“Nuclear fusion is exciting, and Australian funds like HostPlus are invested in it, but it’s not here yet,” he said.

“CSIRO’s Gencost [survey] shows that existing renewables can decarbonise our electricity system, eliminating 30% of our problem,” he said. The survey compared established technologies at scale, something SMRs had not yet achieved.

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