Given India and China are still installing coal-fired power plants, our current fossil fuel exports of LNG and steaming coal are unlikely to phase down rapidly, unless we force them to do so.
Our iron ore and coking coal exports are also unlikely to disappear quickly, and we are well-placed to supply the rapid growth in Asian steel output.
Priorities should be lifting skills and enhancing, rather than destroying, the flexibility of the labour market.
Even so, let us assume the growth prospects of these current major exports are limited. Should we therefore be subsiding new renewable-based industries as the likely future growth industries?
No, would be my answer. We are better off ensuring that energy here is as cheap as possible, that our labour market is flexible, our skills base is high, and that our tax system is competitive for capital, labour and resources.
Rather than being in technology, our future export growth industries may be in existing industries such as education, tourism, medical products, gold and rural products. We are already good at them. We have the advantages of location, people using both English and Asian languages, climate, expertise and mining skills.
Yes, there could be rapid growth in mining in areas where we already produce metals that supply inputs to renewables production overseas, such as lithium, copper, rare earths and tin. Whether we have the energy costs and skills to process these metals is another matter.
It is quite possible that, as in the past, not much processing of these minerals will take place in Australia because we are not cost-competitive, and is more likely to occur in major markets. Green steel seems an unlikely early starter on any scale, given it would be competing with existing steel producers in Asia using cheap fossil fuel power, but who knows for sure?
We are already seeing existing manufacturing and processing firms closing and more will do so. We now have higher energy costs, 5 per cent a year emission cuts required of large firms, and more regulation of the labour market. Wasting subsidies on industries with poor growth prospects is not the way to succeed. Some manufacturing may continue and expand in specialist areas like mining services and medical products, or where bulk production close to markets provides an advantage, as in bricks or cement.
I suspect our future will be in services such as education and tourism as well as rural products, along with producing some new minerals that will be in high demand. That suggests our priorities should be improving the education system to lift skills and enhancing, rather than destroying, the flexibility of the labour market. Cutting corporate taxes across the board may be preferable to investment incentives that favour capital intensive industries or renewables. Attracting and retaining high-skilled labour with competitive income tax rates is important in a globally mobile world.
Policy should focus on improving the underlying competitiveness of the economy and letting entrepreneurs develop the most profitable industries. Subsidising government-favoured industries will lead to dead ends that penalise industries that could be competitive.