The Latrobe Valley’s Doomed Green Dreams

The Latrobe Valley and Gippsland Transition Plan claims to be a road map for the transition to renewable industries, yet it has more potholes than Gippsland roads. The Transition Plan was developed by the Latrobe Valley Authority, a government instrument of only six years standing and without demonstrated long term experience in attracting and bedding down new, large scale and technologically complex industries.

Minister for Regional Development Harriet Shing said “This plan reflects the optimism, achievements and ambitions of the region. It recognises Gippsland’s strengths and opportunities and sets a course for long term prosperity and liability.” This spin sounds great, but what is the reality? Well, according to the same Ms Shing when pressed in parliament, the reality is far less optimistic: “I am under no illusions – none whatsoever,” she responded, “about the difficulty of this task.”¹

I challenge the minister to put the regional optimism to the pub test. Walk into any Latrobe Valley pub, or meet a work crew at lunch, and you’ll be unlikely to encounter much optimism; indeed, any optimism at all. The Latrobe Valley and Gippsland Transition Plan is a document that is

♦ long on idealistic rhetoric and short on substance.

♦ long on vague recommendations (the ‘who, when and how’ are generally not specified).

♦ silent on SMART[1] key performance indicators for the measurement of progress.

♦ lacks a strategy supported by strategic, financial or economic analysis of potential options.

♦ devoid of a risk and reward appraisal of options.

♦ does not show that the transition outcomes will deliver superior outcomes to the status quo.

What’s not included: The Transition Plan fails to define the new sustainable industries, nor compare their sustainability, economics and job creation with our existing industries. Cottage industries won’t cut the mustard. Under the Transition Plan we need large-scale, internationally competitive new industries to replace the thousands of jobs being lost in mining, power generation, forestry, papermaking and sawmilling.

The Transition Plan fails to acknowledge that the growth of Victoria into a modern society was leveraged off well-planned investments in reliable and affordable energy, paper, timber and agricultural production. This was accomplished by hard working Gippsland people over many decades with government support. The Transition Plan ignores the lessons of history, is selective in its acknowledgement of Gippsland’s strengths, and the so called ‘course for long term prosperity’ lacks a coherent strategy on how to get there. The Transition Plan also fails to acknowledge serious constraints and impediments to implementing the transition. It does not, for example, provide adequate commentary on how to deal with:

♦ Scarce availability of cleared land (most of Gippsland is native forest, and cleared land is either too expensive, too far from manufacturers or markets or too steep for plantations.

♦ Soaring electricity prices that are no longer internationally competitive for new manufacturing options.

♦ Investor confidence that has been dashed by sovereign risk.

♦ Patient capital may now only be mobilised with taxpayer-funded subsidies.

♦ Obtaining the ‘public licence’ to operate the ‘transition’ Industries will be very challenging. No one wants a windfarm nearby or a new transmission line through their farm.

♦  A new group of activists replacing the activists the government caved in to.

The Transition Plan makes 52 recommendations focusing on the transition, including education and training pathways to local employment, but fails to specify where the new ‘local jobs’ will come from.

Doomed to fail and fail badly: According to the spin, the Transition Plan is to build on the Latrobe Valley Authority (LVA’s) work since 2016 to support communities. Latrobe communities are unlikely to place much faith in the LVA, given the number jobs in Latrobe LGA are down 8 per cent over the last decade despite the LVA spending $300 million of taxpayer funds on the ‘transition’ over six years. Jobs are up 11 per cent to 37 per cent in other Victorian regional centres.[2]

The current budget for the LVA’s work on the transition is only $7.2 million, of which $6.5 million is consumed by the 32 staff, effectively leaving the LVA just $700,000 to drive the Andrews government’s huge, risky and  extraordinarily challenging transition.  

Funding for regional Victoria appears to have declined from $8 billion to $5 billion over the last three years and many rural programs have closed, including the Regional Infrastructure Fund, Stronger Regional Communities, Regional Tourism Infrastructure Fund, Latrobe Valley Economic Facilitation Fund, and Ride High Country Fund. Ironically funding for Tiny Towns has been retained but if the Transition Plan fails there will be more Tiny Towns to support in rural Victoria[3].

Some of the key unknowns not answered by the Transition Plan are:

♦ What exactly are the new industries into which we will transition?

♦ Where will the new industries be located and how much scarce land will they require, including for associated infrastructure?

♦  Will these new industries be internationally competitive or will they require subsidies?

♦  What are the ‘opportunity costs’ of those subsidies – e.g. what vital health, triple 0 service, affordable public housing and other services will we forgo to fund the subsidies?

♦ How truly sustainable are the new industries on a rigorous ‘cradle to grave’ analysis and are facilities in place for responsible recycling and disposal of spent components?

♦ Are the components manufactured in democratic jurisdictions with renewable energy and not with coal fired power or energy sourced from Russia?

♦ What are the forecast cost imposts on consumers of electricity and timber and will the Victorian Government need to continue to subsidise power bills, given the recent 25% hike in retail electricity prices is only a quarter of the movement in wholesale electricity prices over the last year?

The plan states that the “Transition to a clean energy economy will lead to increased prospects for agriculture, construction and manufacturing, requiring a skilled workforce.” Well, that transition has been underway for a decade and funded by the LVA for about half that time, yet the number of jobs in Latrobe, South Gippsland, Wellington and East Gippsland local government areas has shrunk. Employment is down by 8 per cent for Latrobe LGA over the last eleven years. By contrast other regional and rural areas not subject to a government driven transition of Greater Shepparton, Greater Bendigo, Ballarat, Mildura and Wodonga have experienced job growth of 11 per cent to 37 per cent. Geelong recorded growth of 39 per cent and Melbourne LGA 44 per cent[4].

Scuttling high-paid jobs: The Transition Plan is correct in stating that the industries the government is closing down are “industries such as mining, power generation and forestry are major economic contributors.” The industries being abandoned provide high paid jobs and considerable production-induced jobs in support industries and consumption-induced jobs in service industries. Agriculture/forestry/fishing; manufacturing; mining and electricity/gas/water/waste deliver 36 per cent of Gippsland regional output. They deliver above average regional output per employee and also higher remuneration per employee (apart from agriculture/forestry/fishing). The high Output per employee and high remuneration per employee translate to above average production induced and consumption induced employment multipliers and deliver substantially more flow-on jobs. These jobs deliver economic benefit to the region that is not possible with industries with lower output and remuneration per employee (Table 1).

The Transition Plan provides no detailed information on the type and remuneration of jobs in the transition industries, but makes some optimistic comments on tourism. The Gippsland community is unlikely to want to rely more heavily on a transition to tourism (nor agriculture or fishing) given their low region output and particularly their low regional output and low average remuneration per employee (Table 1).

The regional output and remuneration per employee for forestry is better than agriculture and fishing. However, the potential for the sector has been amputated by the recent ‘closure’, resulting in a loss of 1 million m3 pa of logs from the native forests, plus the 50,000 hectare decline in the plantation estate over the years since the Andrews Government Forestry Plan was launched.

To fill the equivalent of a 100,000ha shortfall in required plantation supply, the Andrews Government has promised only a token 14,000ha. Even this will be a struggle to achieve without considerable taxpayer subsidies, given the lack of suitable and affordable cleared farmland within economic haul of mills and markets.

The agriculture/forestry/fishing; manufacturing; mining and electricity/gas/water/waste industries rely on ‘scale economies’ to be internationally competitive and are also highly integrated, such that the loss of raw material supply (e.g. cessation of the native forests wood supply) can have a dramatic impact on the viability of downstream manufacturing (e.g. paper and sawn-timber production).

The Transition Plan is misleading in stating the existing mining, power and manufacturing industries “are not large employers compared to other sectors.” This simple statement ignores the substantial production induced multiplier effect (typical of capital intensive industries with large output per employee) and consumption induced multiplier effect (typical of industries with high remuneration per employee).

The Gippsland community deserve to see the comparable estimates of regional output for the transition industries. Currently utility scale batteries, solar farms, onshore wind farms and offshore windfarms rely heavily on imported components (local content currently only 5 per cent). After construction these renewable installations employ only handfuls of people, in contrast with the thousands currently employed in the power industry.

Utility scale solar, onshore wind farms and transmission easements all will compete with plantations and farming for scarce land. For example 2000MW of onshore wind power would need about 48,000ha[6].   

A shambolic ‘transition’: The plans of the Australian Market Energy Operator (AMEO) for the transition to renewables in Gippsland and Western Victoria have been criticised by experts with considerable experience in transmission of electricity. The Victoria Energy Policy Centre (VEPC) analysed electricity transmission issues associated with Gippsland renewables and concluded that AEMO “has hobbled renewable generation in Gippsland for no good reason.”⁶

VEPC also criticised AMEO’s VNI West plan for Western Victoria, suggesting the AMEO plan will cost $5 billion more and deliver a $1.124 billion per annum increase — $28 billion over 25 years — in our electricity bills, and require a tenfold increase in length of new easement, and host 11 per cent less renewable capacity (Table 2).

Looks like the Victorian Government, in its reckless hast on energy transition, has hitched its renewable wagon up to the wrong horse.

John Cameron is a forestry and business consultant who lives in the Latrobe Valley

[1] Specific, Measurable, Achievable/agreed, Realistic/results oriented & Time bound.

[2] Source: comparison based on annual means from SALM Smoothed LGA jobs data files. 

[3] Public Accounts and Estimates Committee, Thursday 8 June 2023.

[4] Source: comparison based on annual means from SALM Smoothed LGA jobs data files. 

[5] Source: REMPLAN ABS 2021 Census Place of Work Employment (Scaled), ABS 2020 / 2021 National Input Output Tables, ABS June 2022 Gross State Product, and ABS 2021 / 2022 Tourism Satellite Account.

[6] Mountain, B.R., Bartlett, S., Edwards, D. (2023). “No longer lost in transmission: Expanding transmission need not be at the expense of land-holders, renewables investors, communities, consumers and the environment”. Victoria Energy Policy Centre, Victoria University, Melbourne.