An unedifying and fractious return to Parliament last week threatens to obscure the big challenges facing the country. Households and the federal government will be concerned that the Reserve Bank warns an interest rate rise may be necessary to counter higher petrol prices driven by war in the Middle East.
If the Prime Minister wants to reset the national debate with a cost of living fix, the easiest option on the table is household electrification. Getting households off gas and out of petrol cars is anti-inflationary. It has the added benefit of helping his government deliver its challenging 2030 targets for emissions and clean energy. The PM can get great advice on inflation reduction and climate policy from one of Australia's dearest friends this week when he meets US President Biden in Washington.
The cost of living solution in the age of climate change is household electrification. It is the only policy that immediately puts money in the pockets of voters. Dr Saul Griffith, my colleague at Rewiring Australia, calculated that if this country maximises rooftop solar, replaces combustion engine vehicles with EVs, and replaces expensive gas with electric heating, hot water and cooking, the consumer windfall could reach $30 billion a year by 2030.
If Australia moves in step with Bidenomics then our economy will benefit and no one in the economy will benefit more than households. Electrifying our communities could eliminate almost two fifths of emissions in the domestic economy. One in three households already has solar, which puts Australia in pole position to beat America in the consumer energy race.
There is no other policy available nor any new technology on the horizon that can eliminate emissions from fossil fuels at a negative cost. If there has ever been a silver bullet for climate policy and politics, electrification is it.
On Tuesday President Joe Biden will host Prime Minister Anthony Albanese at a state dinner at the White House and electrification should be on the menu. President Biden can talk proudly of his trillion-dollar Inflation Reduction Act (IRA). Its primary purpose was emissions reduction but the political formula that enabled it to succeed is that it emphasised inflation reduction.
Prime Minister Albanese's first IRA response announcement next week is likely to be subsidies for green minerals mining, processing and perhaps some more complex manufacturing. This is a vital policy. If the country cannot start new green export industries it is hard to see how it would stop expanding fossil fuel exports, let alone transition away from them.
The way I think of the political strategy behind the IRA is to see it as built on three key pillars. The first is subsidies for large scale clean energy and manufacturing. The second is household electrification tax credits for the mass market. The third is equity; a relatively modest $27 billion dollar fund targeting low income communities who are otherwise denied the chance to lower their bills and emissions if not for these income-contingent subsidies.
The Australian government has already started to respond to the IRA, with a detailed policy process currently underway and announcements already made. $2 billion was made available for green hydrogen production. $1 billion was rerouted from the Rewiring the Nation fund to a new Household Energy Upgrades Fund. $600 million in federal and matched state grants was allocated to electrification of social housing and there was $100 million for local government and $314 million for small business.
If the PM wants to deal jointly with energy transition and the cost of living he will have to double down with a major finance package for low and middle income households. Australian households have the most to gain financially from the electrification revolution because we have the world's cheapest clean energy - rooftop solar - competing directly with expensive gas and petrol.
This could be the first serious climate policy to win bipartisan support since June 2007 when John Howard begrudgingly acceded to support a carbon price. The Senate is currently conducting an inquiry into the "economic benefits of household electrification" which was proposed by NSW Liberal senator Andrew Bragg. It is hard to see the Opposition Leader Peter Dutton saying no to reducing energy inflation and eliminating fossil fuel emissions from households.
The government's role is to facilitate, not force. Consumer choice and opportunity will be the goals. Tens of billions in well designed federal finance could crowd-in hundreds of billions in co-investment from households and institutional investors.
Australia cannot compete head on with the trillion dollar IRA. But we do not have to. Our electrification potential is our unique competitive advantage. Australia's love affair with household solar means we are ready to win in the green global economy.