Beyond the NRF: The nation’s search for industry policy

Sandy Plunkett

Back in August, just after the announcement of the National Reconstruction Fund Board, Industry and Science minister Ed Husic reminded us that “policy is shaped by the times it sits in.”

Addressing the American Chamber of Commerce (AmCham), Mr Husic stressed the need for new approaches in a changed 21st Century world.

“For us, a pandemic, geopolitics and the pressing need to reach a Net Zero future are all turning convention and orthodoxy on its head,” he said.

But the times are changing fast, and I wondered then – even more now – whether Mr Husic had the emphasis wrong. Achieving a Net Zero future (by 2050), he said, was pressing. ‘Geopolitics’ was just a word thrown into the frame in passing.

The geopolitical time we now sit in is the most fractured and unstable since the 1930’s. It is marked by a return of great power competition and de-globalisation; regional wars in Europe and now the Middle East that could blow-up into a world war; and myriad new realities about energy insecurity amid high green energy costs and transition complexities.

In that world, isn’t Net Zero ambition and orthodoxy the thing that is being turned on its head?

“The world of the past few decades has been the best it will ever be in our lifetime because the world, our world is breaking apart,” declares geopolitical and demographic strategist and author, Peter Zeihan in his confronting best seller, “The End of the World is Just the Beginning”.

Zeihan’s book was published just before Russia’s February 2022 invasion of Ukraine. The world that is breaking, he says, is one of “advanced transport and finance, ever present food and energy, of never ending (innovation) improvements at mind-bending speed.”

Why? Put way simply, not because of the existential threat of climate change, but because the post WW2 US-led security ‘Order’ that enabled unfettered global trade and wealth creation amid accelerated innovation and competition is disintegrating.

“The last seventy-five years will be remembered as a golden age, and one that didn’t last nearly long enough,” writes Zeihan. His perspective is shared by a growing number of historians, geopolitical analysts and foreign policy wonks, economists, and business leaders.

Navigating successfully through the new world disorder will test all countries in multiple dimensions – economically, politically, socially. The big message is that Net-Zero fervour is unlikely to fill the energy and global trade insecurity gap that is gripping much of the world in the 2020’s.

Still, Australia’s post pandemic reconstruction and Industry 2.0 focus is emphatically Net Zero-driven, as Federal treasurer Jim Chalmers reaffirmed last week.

Mr Chalmers acknowledged that Australia was behind on its Paris Agreement target, but promised that the 2024-5 Budget will back green energy winners. He identified four key industries – critical minerals, battery manufacturing, renewable hydrogen and ammonia and green metals – as central to getting the country back on track.

Which brings us back to the National Reconstruction Fund, a $15 billion ten-year co-investment fund that was a key plank in Labor’s federal election campaign. When formally announced in April it was billed as “the centrepiece” of the government’s re-industrialisation plan for Australia.

The NRF is also a response to US President Joe Biden’s horribly misnamed Inflation Reduction Act (IRA), and its unprecedented government subsidy largesse.

President Biden describes his IRA as “the biggest bet on climate action in history”. Yes, it is. And then some.

In just a year, the $US369 billion in primarily tax credit subsidies the IRA earmarked to accelerate the roll out of renewable energy and electric vehicles is estimated to be above $1.2 trillion to 2032.

The cost estimate blow-out is because many of the IRA’s subsidies are uncapped. With rousing “save the world” opportunism (and the promise of uncapped free money), the private sector has embraced the massive incentive program.

Thousands of projects on everything from electric vehicles to wind and solar farms and battery production are awaiting approval.  The fear is not just that many IRA-born companies won’t be able to survive without the government money, but also of the waste that comes with massive duplication in unsustainable projects.

The NRF fund is not big, but its goal is bold: to help achieve our Net Zero commitments; to develop new ‘clean’ industries for export to the world; and to build the nation into a Green Energy Superpower.

I love a moonshot and that’s about 3-in-1; All for a relatively modest $15 billion. Ambitious? Definitely. Executable? Hmm.

The NRF is a co-investment model where private investors will have to match NRF funds. Investments will be in the form of loans, guarantees and equity. It starts with $5 billion dollars, with $3 billion for clean energy and renewables projects and the remainder vegemited across medical science, advanced manufacturing, agriculture, and transport. The other 10 billion dollars is dispersed in instalments over the next decade. By 2030 the NRF is supposed to be self-generating.

NRF board chair Martijn Wilder, the founder and CEO of the climate change investment advisory group Pollination, says the fund’s goal is to claw back some of the money that would otherwise go to the US. He says the NRF is also in the business of picking winners and building industries to exploit our abundant wind, sun and land advantages and to make a commercial return of 2-3 per cent above federal bond rate.

Some green energy superpower true believers and unions criticise the relatively small size of the fund and call for at least $100 billion investment in clean energy tech over 10 years.

Others – tech-centric entrepreneurs and captains of industry not purely driven by Net Zero – are seeking clarity, not just about the NRF, but how exactly will it be the anchor mechanism for a thriving and globally relevant innovation system and a revival of long absent industry policy and action in Australia.

“The NRF is a financing mechanism. It is not industry policy,” quipped innovation and industry policy specialist Roy Green at InnovationAus’s recent Capability Papers forum in Canberra.

He’s right. There are a lot of (hopefully) moving parts that need to work both together and apart efficiently.

Just some of them include the NRF, the Clean Energy Finance Corporation (CEFC), AUKUS, the $392 million Industry Growth Centre program and just plain old R&D tax incentives and founder grants. Program and policy cohesion is made even more challenging when the Industry and Defence portfolios are as disconnected as they are.

The government may feel it has the right bigger picture policy plan in play, but many industry participants are wanting more clarity.

“Minister Husic – or someone – needs to draw a policy and program map that all constituencies can plan for and navigate as best we can,” says one high profile entrepreneur, reflecting the comments of many others I spoke to.

We may see something like that soon. The next Budget coincides with the operational start date for the NRF, meaning it will officially start reviewing projects and dispersing the first $5 billion of its $15 billion allocation.

But it first needs a chief executive officer and agreement on the fund’s detailed investment mandate.

A global search for the CEO has been happening since the eight-member board was announced in August and those close to the scene say the Board is now considering a shortlist of three candidates. The winner could be announced later this month.

The appointment of a CEO should also bring clarity around the specifics of NRF’s investment mandate, which is already being hotly contested among board members.

That’s understandable, not least given the makeup of the NRF Board. It encompasses a very diverse set of experience, capabilities, and agendas in people like Martijn Wilder, former liberal minister Kelly O’Dwyer, ex Australian Workers Union boss Dan Walton, and tech venture capitalist Daniel Petre.

Accelerating geopolitical realities and uncertainties are undoubtedly complicating that investment mandate debate.

In coming months, maybe even weeks, don’t be surprised if further geopolitical disruption will force the Government to reframe its vote-catching Green Energy Superpower ambitions to one that will prioritise energy security – including a more pragmatic assessment and mix of, coal, gas, nuclear and green energy initiatives.

One indicator? The S&P Global Clean Energy Index, comprised of major solar and wind power companies and other renewables-related businesses, is down by 30 per cent this year, with most of the decline occurring in the last few months. By contrast, the oil and gas-heavy S&P 500 Energy Index is up slightly this year. Over three years, the latter is up by 287 per cent, while clean energy sector is down 323 per cent.

Maybe the market is rational after all.

Do you know more? Contact James Riley via Email.

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