Is Working Toward Labor’s Net-Zero Decree Worth the “Damage” to Australia’s Manufacturing Sector?

Australia’s climate targets are now woven into the fabric of economic policy. The Albanese Government has a legislated 2030 target to cut emissions 43% below 2005 levels and to reach net zero by 2050. A central plank is the reformed Safeguard Mechanism, which sets declining emissions baselines for the country’s largest industrial sites—steel, cement, aluminium, LNG, chemicals and more.

At the same time, Canberra has rolled out the Future Made in Australia agenda—$22.7 billion over a decade—to capture “net-zero industry” opportunities (green metals, low-carbon fuels, critical minerals processing, batteries) and to crowd-in private investment.

Critics argue these “decrees” raise energy and compliance costs, accelerating factory closures. Supporters counter that standing still would be worse—because major markets are starting to tax the carbon in imports and subsidise clean industry at scale. So, is it worth it?

What’s actually happening in manufacturing?

Manufacturing employs about 5–6% of Australia’s workforce (roughly 860–930k people, depending on the measure and month) and has been under pressure for decades due to scale, distance, currency cycles and import competition. Recent surveys from industry groups show weak conditions, with many firms citing energy costs, skills shortages and trade disruptions.

Several high-profile industrial stress points—most prominently the Whyalla steelworks—have amplified fears. Whyalla entered administration in February 2025; governments stepped in with support while administrators sought a buyer. A BlueScope-led international consortium is now pursuing an acquisition, citing lower-emissions iron as the prize if the plant can be modernised.

Bottom line: parts of manufacturing are hurting—some of it cyclical (demand, input prices), some structural (scale, competition), and some linked to the transition (costs to decarbonise heavy industry). The pain is real—but it’s not new, nor is it solely caused by climate policy.

The cost side: energy prices, transition friction and compliance

• Wholesale power prices have been volatile. AEMO’s Q2 2025 report showed average NEM prices of $140/MWh (up 5% y/y) with sharp June spikes; that’s tough on electricity-intensive fabs. But by Q3 2025, AEMO reported prices fell to about $87/MWh on average (-27% y/y) as renewable output rose, illustrating how fast conditions can swing.

• Compliance and capex burdens under the Safeguard (measurement, abatements, on-site upgrades) are real, especially for trade-exposed producers with thin margins. Transition support exists, but firms must still plan, finance and execute the decarbonisation pathway amid market uncertainty.

• Technology choices are non-trivial. For example, producing green iron/steel domestically requires new processes (DRI + electric furnaces + hydrogen) and reliable cheap clean power. Even major miners like Rio Tinto have warned the economics are challenging in Australia today without stronger carbon prices or bigger cost declines.

Takeaway: the near-term costs—energy volatility, project risk, compliance overhead—are real headwinds for some manufacturers.

The flip side: the price of not decarbonising

• Carbon border taxes are arriving. The EU’s CBAM moves from its pilot to a levy on embedded emissions—core commodities like steel, cement, aluminium and fertilisers—starting its “definitive regime” in 2026, with updated EU rules now shifting full permit trading to 2027. Exporters who don’t decarbonise will face tariffs or admin burdens and lose share to cleaner rivals.

• Global subsidies are huge. The US, EU, Korea and Japan are pouring billions into clean manufacturing. Australia’s Future Made in Australia aims to keep us in the game (green metals, low-carbon fuels, batteries), but the counterfactual—no policy—risks hollowing out trade-exposed manufacturing as markets tilt toward low-emissions supply chains.

• Energy dynamics are improving as renewables scale. Higher renewable penetration is pushing down emissions intensity and (in many quarters) average prices, even if extreme peaks persist until firming, transmission and demand response catch up. The Capacity Investment Scheme is designed to underwrite new renewables and firming (batteries, demand response, some gas), with tenders rolling through 2025–27; states like NSW are also running firming tenders to shore up reliability.

Takeaway: doing nothing isn’t “free.” The world is pricing carbon at the border and subsidising clean industry. Australian manufacturers who don’t cut embedded emissions risk paying tariffs abroad or losing customers who are decarbonising their own supply chains.

Will decarbonisation grow manufacturing in Australia?

There’s a credible pathway in which decarbonisation expands parts of manufacturing:

• Green iron / green metals: Multiple analyses (OECD case study, NGOs/think tanks, industry bodies) argue Australia could convert a slice of iron-ore exports into low-emissions iron domestically, leveraging renewable resources if costs keep falling and infrastructure is built. The upside is significant—but contingent on policy stability, cheap clean power, and capital mobilisation.

• Low-carbon fuels and inputs: Measures under Future Made in Australia target low-carbon liquid fuels and green metals, signalling demand creation that could anchor new plant.

• Electrification and local content: As grids decarbonise, electricity-intensive processes can be reshored if Australia delivers reliable, moderately priced clean power plus firming. That’s exactly what the federal CIS and state RETA programs are trying to accelerate.

But: Success isn’t guaranteed. Large miners’ scepticism on near-term green iron economics is a reminder that cost curves matter—and that public support must be disciplined, time-limited and tied to performance.

So… is it “worth the damage”?

Short answer: Yes—if we treat the transition as an industrial strategy, not just an environmental one. The net-zero push introduces costs and disruption, but the alternative is a slow erosion of competitiveness as key markets impose carbon costs and competitors scoop up clean-industry subsidies. With targeted support and execution discipline, Australia can reduce the short-term pain and capture long-term manufacturing gains.

What makes it “worth it” in practice

1. Predictable, trade-sensitive carbon policy
   Keep the Safeguard Mechanism’s trajectory clear and bankable; shield genuinely trade-exposed, best-in-class sites from carbon-leakage via crediting and targeted support while insisting on real abatement over time.

2. Cheaper, firmer clean power—fast
   Scale renewables and firming (batteries, demand response, some peaking gas for now), and unlock transmission so new capacity actually connects. Falling average prices in Q3 2025 show what’s possible when supply ramps; we need that pattern sustained across seasons.

3. Focus bets where Australia has comparative advantage
   Prioritise green metals (aluminium, nickel, green iron in the right locations), critical-minerals processing, and components tied to our resource base—not every shiny project. Use the Future Made in Australia budget to crowd-in private capital on globally competitive terms, with strict milestone gates.

4. Speed up planning, skills and enabling infrastructure
   Approvals reform, port/pipeline/power corridor planning, and a skills blitz (electrical, mechanical, mechatronics, process) to avoid wage-spiral bottlenecks that erase cost advantages. (Industry surveys repeatedly flag skills and productivity constraints.)

5. Defend market access
   Align product carbon accounting with EU CBAM (and other emerging regimes) so exporters can prove low-emissions content and avoid border penalties.

A pragmatic verdict

• If we under-deliver on clean power, firming and logistics, then yes—some energy-intensive manufacturing will keep shrinking and the politics will sour.

• If we execute—lowering the cost of clean electricity, smoothing compliance, and backing sectors where we’re naturally competitive—then net zero becomes a manufacturing opportunity, not a death knell.

Given global policy momentum (EU CBAM, US/EU/Japan subsidies) and Australia’s own comparative advantages, pursuing net zero is more likely to preserve and reshape manufacturing than abandoning it. The question isn’t whether to decarbonise—it’s how to do it so factories can thrive here, not just offshore.

What to watch next

• CIS and state tenders for firming and renewables through 2026–27 (a bellwether for future power costs).

• Whyalla’s sale outcome and technology pathway (blast-furnace life extension vs. DRI/electric).

• EU CBAM rules finalisation and data demands on exporters in 2026–27.

If those break the right way, the net-zero “decrees” won’t “damage” manufacturing; they’ll force a difficult but ultimately productive transition—one that keeps Australian industry competitive in a decarbonising world.

• Prev