Materials and energy are at the heart of manufacturing. Modernising how we use them is central to building an advanced manufacturing economy that realises more potential from our resources and supports our national resilience, economic recovery and environmental sustainability.
The move to more sustainable solutions for materials and energy is happening around the world. Companies committed to greener supply chains—including manufacturers and their customers—collectively wield over $5 trillion in combined purchasing power. Over 1,100 companies worldwide have now pledged to reduce emissions in line with the Paris Agreement, often by working with their manufacturing suppliers and manufacturing customers. These global demand megatrends are reshaping the landscape for manufacturing, accelerated by market and policy pressure to reduce emissions and waste, the scale of public and private green investment, and the falling cost of technology. Australian manufacturers are well positioned to use our unique industrial advantages—combining innovation, abundant clean energy, material resources, and onshore industrial base—to become competitive global players.
Global markets are gradually transforming from a ‘throughput economy’ (relying on virgin inputs and generating waste) to a ‘circular economy’ (where materials are reduced, reused, recycled and remanufactured). Since July 2019, over $14 billion of public circular economy investment has been announced globally. Private investors are also showing interest in financing the circular economy and driving demand for sustainable manufacturing. Citi has announced a $250 billion fund to invest in environmentally beneficial activities, including recycling. Australia is part of this shift. Our Waste Export Ban and National Waste Policy are stimulating manufacturing solutions for major waste streams along with industry-led initiatives such as the National Packaging Targets, adopted by 75% of the packaging market.
In 2020, the world committed around $640 billion to clean energy technologies. This was a record amount, 9% higher than 2019 despite the economic disruption of the COVID-19 pandemic. Venture capital and private equity investments in renewables and storage rose by more than 50% as technology costs continued to fall. On a pure energy generation basis, wind and solar photovoltaic are now the cheapest new electricity source for countries representing around two-thirds of the world’s population, and almost three-quarters of the world’s GDP. These accelerating energy investment trends are opening new opportunities for manufacturers.
Australia is aligned with these energy trends. In 2019, we deployed renewable energy at 10 times the per capita global average and faster than any other G20 economy. The Commonwealth expects to invest $18 billion domestically in low emissions technologies over the decade to 2030. Prospective clean energy ‘megaprojects’ commencing operation later this decade would be among the largest energy projects ever built, and could provide significant opportunities for domestic manufacturing.
The Australian advantage
Australia has the key elements to capture manufacturing opportunities that flow from these trends. We now need to bring it all together and make it happen.
We have barely begun to tap the abundant remanufacturing potential of our waste streams, especially for plastics, glass and e-waste. Less than 5% of our plastic consumption is currently recycled. CSIRO estimates we could capture up to $3 billion value each year through lithium battery recycling alone.
We have exceptional natural resources which offer significant green manufacturing potential. Our clean energy resources are unrivalled in the developed world. We are also a top producer of critical minerals, rare earths and important base metals that the global energy transition demands. Manufacturing batteries, electric vehicles, solar panels and wind turbines needs specific materials. These include copper, lithium and nickel—all commodities where Australia has world-leading reserves.
We have outstanding research capabilities and innovative people, and a track record for contributing globally significant technologies. For example, by some industry estimates, solar photovoltaic (PV) technology developed by UNSW is now used in almost 80% of today’s global solar PV manufacturing.
The scale and speed of market transformation in clean energy and recycling—supported by government policy and private investment—positions Australia to create, scale-up and produce manufactured solutions in these growing sectors. Industry and government collaboration can build on the Modern Manufacturing Strategy (MMS) and other elements of Australia’s domestic policy environment to make this happen.
As well as creating prosperity and stable, well-paying jobs for Australians, manufacturers will be part of the solution for major environmental challenges. They will keep waste out of landfill and oceans, and help reduce emissions in Australia and the world.
Industry structure: understanding the current landscape
Manufacturing in recycling and clean energy is an emerging area.
While the quantitative data to track and describe the sector is still under development, important industry players for recycling and clean energy manufacturing include:
- ‘greentech’ startups and SMEs developing advanced intellectual property
- established, usually larger, manufacturing businesses transitioning their facilities or product offerings to take advantage of new technology and market trends which demand more sustainable ways of using energy and materials
- consumer-facing brands who are driving demand for clean energy or recycled solutions to meet customer and shareholder expectations.
Generally speaking, small players possess the focus and agility to design and develop innovative products. Big players possess the capital and reputation to commercialise and scale these innovations quickly. Driven by these core players, industry growth can generate flow-on opportunities for other manufacturers (for example contract fabricators) to ‘spin in’ to recycling and clean energy.
Barriers to scale
In the recycling sector, large vertically-integrated companies who collect, process and remanufacture waste occupy a strong market position that helps provide the volume, stable demand, and economies of scale needed to make recycling activities viable. This market structure, and the complexity of logistics and processing systems designed around it, can deter new market entrants or make introducing innovations difficult. More competition in materials processing could help drive down costs and improve quality of feedstocks for remanufacturing. Policies such as the waste export ban could also change this market structure by encouraging new business models and create opportunities for new kinds of business collaboration.
In the clean energy sector, Australia captures only a small fraction of the supply chain for wind, solar and battery projects. Technologies for manufacturing many low emissions commodities, and the markets that value these characteristics, are still emerging. The extreme competitiveness and low margins of the global industry, combined with the relatively small scale of Australia’s domestic market, has made clean energy manufacturing opportunities hard to capture. This could change given the potential scale of future market niches (for example, clean hydrogen export) and the potential for innovative products (such as from greentech startups) to offer compelling customer propositions that capture export opportunities.
Finding demand is a common barrier for emerging manufacturers in recycling and clean energy. Co-investments that reduce production costs, bring together manufacturers and their customers to create new products for unmet needs, or that help manufacturers tap the potential of large projects or large customers, are key. These need to work alongside other policy mechanisms that enable, shape and create markets for green products, such as standards, product certification, and government procurement.17
Co-investments that reduce costs, will increase demand. This in turn will create incentives to invest, unlocking economies of scale, reducing prices further and stimulating more demand. This can complete a virtuous circle that supports greater scale and improved cost competitiveness in an emerging industry.
For recycling, the key challenges relate to building market acceptance for recycled material—by consumers, manufacturers and industrial designers. Product and market development can improve the outlook for investments that improve the cost and quality of materials, or bring more recycled feedstock into production.
While demand for recycled materials is growing quickly, in absolute terms it remains small compared to the volume of waste material we produce. Greater market acceptance—from the end consumer all the way back through the manufacturing chain—is needed for demand to grow. For upstream manufacturers—for example recyclers and material processors—this lack of demand has deterred investments that could address costs and quality issues. This is even the case for recycling technologies which are already available and commercially proven overseas. Further downstream, the cost and quality of recycled materials compared to virgin inputs have made them difficult for manufacturers to use in the products they make. If manufacturers can develop markets for their products, this will improve the outlook for investments needed to break this sequencing dilemma.
Through the National Waste Policy Action Plan, governments and industry are investing in better collection, sorting, processing and transport systems, generally operated by large companies with extensive infrastructure including material recovery facilities (MRFs). This is reducing contamination and the cost of post-consumer material streams, but while essential, it is not sufficient to seize opportunities. We also need post-MRF manufacturers (or ‘remanufacturers’) to step up, and invest in retooling processes to shift to secondary materials or designing compelling products that can meet customer needs better than current offerings. This part of the manufacturing chain is much less concentrated, presenting opportunities for emerging new entrants. The MMS can help manufacturers build this capability and work with end-customers to design and manufacture products which meet their requirements.
For clean energy, the challenges relate to tapping into the demand on offer from global markets and large-scale investment, and developing manufactured products that meet untapped customer needs, attract investment and capture market share in a highly competitive and innovative sector.
Investor and market appetite for clean energy in Australia and around the world is undeniable, but Australia is yet to convert this into large-scale manufacturing opportunities. Most of the manufactured inputs required by large projects—mostly solar PV and wind—are currently made offshore. Australia’s domestic supply chain for clean energy components is undeveloped. Adoption of clean energy for industrial manufacturing is often an early-stage proposition, especially in heavy manufacturing processes.
Globally, clean energy is an extremely competitive industry. While this has contributed to plummeting costs that are critical to the market’s continued development, returns on capital are being pushed lower and lower, which has put pressure on manufacturers in the industry. In this context, it is critical for competitive Australian firms to effectively differentiate their products, develop strong brands, and command market premiums.
As clean energy investment in Australia continues to grow and reach into world-leading niches (such as export-oriented renewable energy, distributed renewable energy, remote energy, clean heat and hydrogen) there is scope to tap into advanced manufacturing opportunities flowing from large-scale projects and innovation needs. For example, adapting technologies for Australia’s rapidly changing electricity system or harsh climate conditions could be opportunities for companies to develop exportable products in valuable niches.
Success will be underpinned by innovation and novel products—risky areas for private finance to go without public risk sharing. The Government provides a range of support mechanisms across the clean energy innovation chain including funding through ARENA and commercial finance through the Clean Energy Finance Corporation. These work alongside Commonwealth and state government clean energy policies that stimulate clean energy demand. But there are areas of weakness in accessing finance for late-stage commercialisation and taking new innovations to impactful scale. The MMS could support the collaborations required within industry to scale quickly and grasp these opportunities.
Additional barriers to scale for recycling and clean energy are discussed in Road map in context.
4 BloombergNEF ↵
5 BloombergNEF ↵
7 BloombergNEF ↵
8 BloombergNEF ↵
9 BloombergNEF ↵
10 Departmental calculation based on data from IRENA’s Renewable Energy Statistics 2020 report and World Bank population data ↵
14 Australia has the highest per capita solar resource in the G20 and some of the world’s best wind resources on our coasts. These provide a natural advantage for energy-intensive green manufacturing and for development of technologies to harness renewable energy. Sources: Technology Investment Roadmap (2020), National Hydrogen Strategy (2019) ↵
15 EU Commission (2020), United States Geological Survey (2019) ↵
16 CSIRO has found Australian research, development and demonstration strengths in solar, hydrogen, bioenergy, grid integration, carbon capture and storage, circular economy and advanced materials. Source: CSIRO Circular Economy Roadmap (2021), Technology Investment Roadmap (2020), CSIRO Hydrogen RD&D: Priorities and opportunities for Australia (2019). ↵