The sunny side of a manufacturing demise

There is a bright side to the recent closures of car manufacturers and ageing industrial manufacturers: it means modern environmental standards consistent with those in place overseas become more likely down the track.

Australia will benefit through cleaner air, more fuel efficient and modern cars and possibly even cheaper energy costs.

Regulations that made economic sense have been held back because our large manufacturers have been treated like fine glass china, too delicate to sustain the kinds of standards that apply overseas.

The reality is that Australia, to a large extent, actually lags the developed world in implementing environmental and energy efficiency standards. For the most part, large Australian industrial manufacturers employ old technology making old technology products (one notable exception is the Toyota Camry Hybrid, for which we’re little more than an assembler).

It’s a product of the fact that these large industrial facilities were built several decades ago on the back of high tariff protection. Now their overseas parent companies see little merit in investing in these facilities to make them modern and world-competitive.

It would probably surprise many people in Australia that their country is one of only a few major economies in the world that doesn’t have fuel economy standards applying to its cars. The US, Europe, Japan, Korea, China and even India have such standards in place. A number of these countries have historically also applied more stringent fuel quality standards and air quality standards.

Implementing these standards costs extra money upfront to pay for better technology. But is outweighed by major savings over time in lower fuel bills, a healthier, more productive population, less economic vulnerability to oil price shocks and future constraints on carbon emissions. Indeed our own environmental minister, Greg Hunt, has said several times in the past that following the rest of the world in adopting fuel economy standards makes good sense. But it was never going to happen so long as Australia had a car industry specialised in making large six-cylinder vehicles using second-hand, cheap technology.

In the end the job losses from a government regulatory intervention are far more easy to see than the lots of little savings scattered across the entire population in terms of: savings on their fuel bills; lower hospitalisation rates; and, the most invisible of all, the future generations who face a lowered risk of dangerous climate change.

The reality of achieving progressive environmental standards is actually an incredibly ugly affair. It’s not some elegant, impartial process of arithmetic where the costs and benefits are rigorously weighed up. An economist can argue until they’re blue in the face that the concentrated jobs lost from a factory will be outweighed by jobs gained across the rest of the economy. But the politician will have trouble paying attention as he/she thinks about the TV broadcasts of retrenched workers streaming out of a factory. 

The money and jobs concentrated on the polluting side will count for 10 times more than the future opportunity of gains, because one exists now and can scream loudly. Meanwhile, the constituency on the other side is still to be created. Until the money and the jobs are entrenched on the side of reducing pollution, progress will be incredibly slow. 

In working within government I saw this process first hand.

Trying to progress even voluntary fuel economy standards for motor vehicles and even weak improvements in the federal government’s vehicle fleet was an exercise in banging your head against a brick wall. There was about zero political support.

But in appliance efficiency standards we were able to achieve good progress (albeit, still far too slow) because there weren’t any domestic manufacturers to resist the overwhelming case of large consumer benefits, except for two notable exceptions – lighting ballasts and water heaters (in both cases the domestic manufacturer won out over substantial savings to consumers).

Even in Germany, thought of as the beacon of green progressive politics, this process has been at work hindering European efforts to upgrade vehicle fuel efficiency standards. Climate Spectator has profiled how Germany’s chancellor, Angela Merkel, cajoled and threatened her European colleagues to water down fuel economy standards that worked against German luxury automotive brands.

Incidentally, this ugly way of doing policy could work in reverse, counting in the Australian solar PV sector’s favour. Thanks to the prior generous support (which has now been slashed to a fraction of original levels) there now exists a substantial number of businesses and jobs involved in rolling out this pollution-reducing technology. 

The Australian Solar Council is busy promoting the fact the sector employs more people than some fossil fuel-based industries while also outlining the job losses it expects if the government were to abolish the Renewable Energy Target, based on modelling and surveys it has undertaken.

Australian Solar Council infographic highlighting survey results and modelling indicating levels of job losses from abolishing the RET

Graph for The sunny side of a manufacturing demise

It will be interesting to see whether this protection of existing jobs strategy can work in reverse. Going against the solar sector is that its jobs are dispersed across a number of small businesses, rather than concentrated in a handful of factories. On the other hand small businesses tend to have a much better ability to be heard by Coalition backbenchers, but only if they find the time to write and complain.

Organising such a disparate group of businesses will be a supreme challenge for industry lobby groups such as the Australian Solar Council and the Clean Energy Council.