CEDA State of the Nation 2011
Canberra
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Good morning ladies and gentlemen, thank you for the invitation to address you on this brisk Canberra morning.
The theme of this year’s conference, “Rethinking Australia”, is well chosen.
But before discussing where we might be going let us consider where we've come from.
In 1900 about 22 per cent of Australia's gross domestic product came from agriculture, now that’s down to around 4 per cent; 10 per cent came from manufacturing which following a dramatic increase after the second world war now accounts for around 9 per cent.
Mining generated around 9 per cent of GDP in 1900 and after declining until around 1960 has since grown steadily to about 10 per cent today.
Most importantly in 1900 about 55 per cent of Australia's GDP came from the provision of services. This had grown to 76 per cent of GDP in 2010.
In short, the Australian economy is constantly evolving.
Australia and world demand
So, where to now?
Resources and energy have always gone hand in hand.
Historically, thermal coal has been the primary fuel source for the world’s electricity.
But since electricity was first generated from centralised power stations, energy sources have diversified considerably – a trend that will only accelerate in coming decades.
Looking more broadly than just the electricity sector, oil is the dominant fuel for world energy supply today.
Gas is daily increasing its slice of the energy pie.
We have seen the emergence of nuclear power globally as a source of clean, baseload electricity.
And today renewable energy, from wind, solar, tidal and geothermal, has the fastest growth rate of any power source in the world – albeit it from a relatively low base.
Of course these are global trends and energy mixes vary considerably from country to country, as indeed does access to electricity itself.
But these global energy trends very much reflect the evolution of Australia’s resources sector.
Australia has developed strong coal, uranium and petroleum industries to meet global demand, capitalising on the abundance and diversity of our natural resources.
We are a major supplier in each of these commodities, as well as others such as iron ore that are so vital to development.
The current record level of investment in our mining sector is a clear demonstration of how world demand drives Australian resource development.
Improvements in technology and forecast increases in global demand for LNG for example have spawned a huge new coal seam gas to LNG industry in Queensland.
Demand for all energy sources, including coal, will continue to rise.
For instance the IEA predicts that global coal demand will increase by 17 per cent between 2008 and 2015 under a scenario taking into account policy commitments by countries made as part of the Copenhagen Accord.
Australia will benefit from this increased demand.
The strength of our economy and the growth in our resources sector puts Australia in an enviable position.
So in thinking about Australia’s resources sector there are three goals we need to keep in mind.
The first is how we maintain Australia’s place as a key supplier.
This goes to the issues of competitiveness, productivity and increasing capacity. In the context of increasingly footloose global capital it is critical that we maintain Australia’s attractiveness as an investment destination.
The role of Government in this is clear.
We are focussed on:
- increasing productivity;
- building capacity by investing in infrastructure
- pursuing necessary economic reform;
- nurturing innovation;
- building skills and the capacity of our workforce;
- while at the same time streamlining regulation, in essence, ensuring Australia remains a great country in which to do business.
Through this year’s Budget we are directly addressing many of these issues.
Let me highlight just one example.
The Government is introducing Enterprise Migration Agreements for large resource projects.
This shows how flexible and responsive government policymaking can meet the needs of industry to support major capital investments.
We will implement this initiative in partnership with industry and last Friday I met with companies and relevant Government departments to begin this process.
The second goal is effectively capturing and spreading the benefits from the development of our resources to lock in Australia’s economic prosperity for the long term.
Mining investment has skyrocketed as a percentage of Australia’s GDP – from 1.5 per cent back in 2000 to 4 per cent of GDP now – and is higher than it has ever been in Australia’s history.
Capital expenditure in mining is projected to outstrip that of the non-mining sector for the first time in the next few years.
We have seen a marked shift in our export market shares over the last decade that will continue as China and India continue their growth.
The projected increase out to 2030 of the middle class in the Asia Pacific is almost five times that of any other region.
Increased consumerism and outbound travel – the hallmarks of increased wealth - are evidence of this occurring now.
While acknowledging the discrepancies between different sectors in the economy here at home, it is important not to lose sight of two important facts.
First, as I outlined earlier the mining sector comprises around 10 per cent of the economy as against the services sector which accounts for approximately 76 per cent.
And second, that the benefits from mining are already being felt broadly.
The strength of the mining sector contributes to our low levels of unemployment.
It is no coincidence that the employment participation rate in Queensland and Western Australia has been consistently higher than that of other states.
As well as direct job creation in mining, there are also more and more opportunities being created in the support services, everything from cleaners to caterers to accountants and of course in construction.
Growth in mining employment has been matched by growth in employment in the services sector.
But the benefits are more widespread than that.
As the Reserve Bank Governor noted last week, almost all of us are shareholders in the mining industry through our superannuation schemes.
Good mining profits are providing a return on these investments.
As Glenn Stevens said although "we don’t get this income to spend directly now…it is genuine income and a genuine increase in wealth."
And of course the Government’s resource taxation reforms capture and spread the benefits of the boom even further.
They will allow us to use revenue from the good times in mining and petroleum to fund more superannuation savings, additional infrastructure and help every business in Australia with a tax cut as well as additional write offs for small businesses.
This brings me to the third goal for Australia’s resources sector, sustainability - making the good times last as long as we can while at the same time preparing for fundamental changes in the future.
These days being environmentally sound, socially responsible and commercially viable are inseparable concepts for resource developments.
Companies and governments alike are increasingly being held accountable for delivering sustainable mining outcomes – and so we should.
Gone are the days where we produce and consume raw commodities without consideration of impacts on the environment, specifically in terms of greenhouse gas emissions.
Which brings me to our changing energy future.
Clean Energy
Clean energy technologies, like carbon capture and storage, provided we can realise their potential, will prolong the viability of traditional energy sources in an increasingly carbon constrained world.
Extending the application of CCS technology will make countless industrial processes more sustainable and more competitive in the long run in an environment where there is a price on carbon.
CCS technology is already being used effectively in the petroleum sector. It is a proven technology and one that warrants further development.
That’s why the Government is contributing its support through the CCS Flagships program and the Global Carbon Capture and Storage Institute.
A week ago I announced the first $52 million in funding from the CCS Flagships program for the Collie South West Hub project in Western Australia.
The Collie project will be a world leading commercial scale CCS demonstration project.
To give you an idea of its potential, the project could in one year capture the equivalent emissions from around 454,000 passenger vehicles, or 178,000 households.
But CCS isn’t the only technology the Government is pursuing, we are providing support to test the full range of renewable energy technologies.
In terms of solar, where we are seeing a welcome decrease in costs particularly in solar PV, the Government on Saturday announced the two successful projects from round one of our Solar Flagships Program.
Over $770 million in Government funding to help build two of the largest solar power stations in the world right here in Australia.
400 megawatts combined, enough to power over 115,000 homes.
With the changing global energy mix it is imperative that Australia remains at the forefront of new developments.
Projects like these two large scale solar developments are key to achieving that.
We need to do everything we can to secure a share of the fast growing clean energy market.
Our abundance of fossil fuel resources is matched by our abundance of renewable energy resources.
And if we want to derive economic benefit from the development of renewable resources in the same way that historically we have done from our fossil fuel commodities we need to invest where our strengths lie - in researching, developing and deploying new technologies.
That means making the technological breakthroughs and nurturing them through the demonstration stage to commercialisation and ultimately deployment at scale.
The Government is supporting clean energy technology right through the innovation chain.
We are committed to a market-based approach and putting in place a policy framework through the expanded Renewable Energy Target and a price on carbon to drive investment.
These provide opportunities for Australia in terms of jobs and prosperity.
Toward Future Energy Discovery
Energy security is the end game, for Australia and as it is for others.
All our work centres on delivering that most important outcome.
As I said at the outset, resources and energy go hand in hand.
Continued exploration for mineral resources is fundamental to maintaining energy security.
So today I am pleased to release a key part of that work.
It is a report by Geoscience Australia (GA) called Toward Future Energy Discovery.
It details the outcomes and achievements of the Government’s five-year, $134 million Energy Security Initiative and the results are impressive.
This work gives new impetus for energy and mineral exploration activity across the country and provides important input to Government policy making for Australia’s energy future.
Results from both the offshore and onshore components of this work are already paying dividends.
Industry has committed more than $600 million in offshore exploration in initial three year work programs with proposed secondary programs worth an additional $1 billion.
Onshore, additional exploration expenditure is estimated to exceed $300 million.
And in a first for any continent, GA commissioned an Australia-wide airborne geophysical survey.
The competitive edge this gives Australia should not be underestimated.
No other continent in the world has been so extensively mapped in such detail.
The fresh insights it provides into Australia’s mineral potential will help reduce the cost and risk of exploration for companies and is expected to attract further investment in years to come.
Conclusion
In rethinking Australia from an energy and resources perspective we need to focus on enhancing our competitive advantages.
Now is the right time to be doing that.
When it comes to resources – not just in commodities but also in the skills to exploit them profitably - we are a global leader, and we need to hold that position.
In energy more and more opportunities are opening up, we need to seize them.
Thank you.