Australia’s energy paradox

Australia is embarking on some of its most ambitious industrial policies in decades. Through the Future Made in Australia plan and broader efforts to strengthen sovereign capability, the government is investing billions to expand domestic manufacturing, critical minerals processing, and green industries.

Yet one uncomfortable question sits in the centre of all of this: where is the reliable energy required to power these industries coming from?

Nations that build a thriving industrial base combine policy with secure, affordable, and dependable energy. But while Australia seeks to build its industrial base, it has not always matched its ambition with a long-term strategy or sustained investment in the energy systems needed to support it. A genuine sovereign energy strategy should therefore consider not only emissions, but also reliability, firming capacity (the ability to back up intermittent sources), domestic capability, fuel security, industrial heat, and the cost profile required by manufacturers. It must also consider the infrastructure, supply chains, and international partnerships required to sustain these systems over the long term.

Lessons drawn from COVID-19 and those currently observed through the disruptions in the Middle East highlight the importance of resilient supply chains and trusted partnerships. Australia possesses many of the minerals that will underpin future industries, including lithium, nickel, copper, and uranium, but the strategic advantages increasingly depend on the ability to process them. This is Australia’s energy paradox: despite our resource wealth and ambition to become an energy superpower, much of the strategic and economic value creation still occurs offshore through processing, refining, and manufacturing.

Case Study: Western Australia demonstrates the energy paradox
Western Australia shows what Australia could become industrially, and what holds it back. The state is a global heavyweight in iron ore, liquefied natural gas, and critical minerals like lithium and nickel. It ships raw materials that feed steel production, batteries, clean energy technology, and advanced manufacturing worldwide. Western Australia is also a trusted energy partner for places like Japan and South Korea. But despite all that natural wealth, most of the economic value is captured elsewhere. Australian iron ore leaves the country before it ever becomes steel. Lithium concentrate heads overseas for refining before being turned into battery chemicals or cells. Rare earths and other critical minerals end up in foreign processing and manufacturing chains. That’s where the real long term economic value is captured – the skilled jobs, the intellectual property, the industrial know-how. What’s left is a persistent value gap – Australia makes money from digging things up, but the higher-value downstream activities go to countries that have the industrial setup and reliable energy systems to handle energy-intensive processing and advanced manufacturing. Closing that gap isn’t just about economics, it’s strategic.

If Western Australia wants to be more than a raw materials supplier, it needs abundant, reliable, and competitively priced energy. Enough to support mineral processing, green metals, advanced manufacturing, and future industries at scale. Do that, and the state could turn resource wealth into real industrial capability, sovereign resilience, and more influence across the Indo-Pacific.

Moving beyond the quarry

If Australia wants to move beyond being a quarry to becoming an industrial nation, it must solve the energy challenge that sits at the centre of these activities. The demand for energy is increasing as we invest in domestic defence industry expansion through the Defence Industry Development Strategy and the Integrated Investment Program. Australia is also building its domestic AI and data centre capabilities, all of which depend upon reliable, high-quality electricity. This means that as digital infrastructure becomes increasingly important to economic and national security, electricity reliability is no longer only an energy issue, it becomes a foundation for resilience.

Energy is not the only challenge facing Australian industry. Approvals, investment certainty, and workforce availability remain important constraints. However, none of these challenges can compensate for a lack of abundant and reliable energy.

These sectors have largely relied on the backbone of the Australian energy system being coal generated electricity (61 per cent) and natural gas (32 per cent). As our ageing coal fleets are phased out, maintaining system reliability is becoming increasingly complex. This matters because industrial investment decisions are made decades in advance. Manufacturers need confidence that reliable power will be available not just today, but throughout the life of their assets.

Energy security is more than simply having enough electrons in the grid on an average day. It increasingly encompasses industrial capability, critical supply chains, infrastructure resilience, and building trusted international partnerships. It means having an energy system that can support strategic industries through heatwaves, supply shocks, geopolitical disruption, and periods of low renewable output. For households, short periods of volatility are inconvenient. For heavy industry, defence manufacturing, minerals processing, and data centres, they can determine whether a project is commercially viable at all.

One form of dependency for another

Sovereign energy also means Australia should not simply replace one dependency with another. If Australia moves away from domestic coal and gas generation only to rely heavily on imported renewable components, imported fuels, imported batteries, or foreign-controlled supply chains, it risks replacing one form of dependency with another. Currently, Australia’s renewable infrastructure relies heavily on technology and component parts imported from China, requiring ongoing dependencies to provide renewable generators.

Regional energy security strategies

Australia’s energy challenge does not exist in isolation. Across the Indo-Pacific, governments are increasingly prioritising energy security as a foundation of strategic resilience. While their energy mixes differ substantially, China, South Korea, and Japan share a common principle: energy security is treated as a strategic national objective, rather than merely an environmental or market question. China’s latest 5-year plan relies on sovereign energy to be a self-sufficient global tech powerhouse. For decades, South Korea has continuously built out sovereign nuclear power plants and continues to invest in this growth. Japan’s approach demonstrates how energy security can be linked with broader economic objectives. Its 7th strategic energy plan relies on the S+3E principle – Safety, Energy Security, Economic Efficiency and Environment – recognising that decarbonisation must occur alongside grid stability in this transition.

Recommendations

Five key priorities come to mind:

• Reliability must be treated as seriously as decarbonisation: Australia’s emissions reduction objectives are important, but so too is ensuring sufficient dispatchable generation, firming capacity, and industrial-grade power. A low-emissions system that cannot support manufacturing competitiveness will struggle to deliver the economic outcomes policymakers seek.
• Energy security must become a national strategic priority: Just as governments routinely assess defence readiness and supply-chain resilience, energy security should be viewed through the same lens. Industrial capability ultimately rests upon energy capability.
• Build sovereign capability: long-term resilience will depend not only on energy production, but also on refining, processing, manufacturing, infrastructure and capability. Countries that support these activities will be better positioned to secure economic and geopolitical advantages from the energy transition.
• Pursue an ‘all of the above’ approach to energy security: renewables, storage, transmission, gas, and nuclear power generation each have roles to play. The objective should not be ideological purity, but a system capable of delivering affordable, reliable, and sovereign energy to households and industry alike.
• Strengthen Indo-Pacific energy partnerships: Australia’s energy security should not be viewed in isolation. Our partners within the region and emerging economies embarking on nuclear power programs, renewable energy production and advanced manufacturing could benefit from Australia’s energy security. Australia has an opportunity to become the Indo-Pacific supplier of both resources and higher value processed products. This requires investment in our strategic partnerships. A stronger Australian energy system will not only underpin our industrial ambitions but also strengthen the resilience of regional energy supply chains and reinforce Australia’s role as a trusted strategic partner.

Australia has all the ingredients to become a clean-energy industrial powerhouse. We possess the resources, capital, technology, and ambition. Yet industrial policy cannot succeed in isolation from energy policy.

The success of Future Made in Australia ultimately depends on a broader question: can Australia build the secure energy systems, industrial capability, and strategic partnerships needed to capture the full value of the industries it hopes to develop?

Reliable, affordable, and sovereign energy is the foundation. But energy alone is not enough. Australia must also develop the workforce, infrastructure, technology, and manufacturing capability required to move further along the value chain. At the same time, strong partnerships with trusted Indo-Pacific nations will be essential to attract investment, share technology, strengthen supply chains, and create enduring markets for Australian products.

Without this foundation, Australia risks remaining primarily a supplier while others capture the real value. Australia could follow the path seen in European economies, where energy insecurity has contributed to industrial decline and investment moving offshore. The factories, jobs, and value-added industries that Australia hopes to attract will simply be built elsewhere.

About the author
Jasmin Diab, CSC, is a Senior Research Adviser: Nuclear Technologies at the Perth USAsia Centre, and the Managing Director of Global Nuclear Security Partners Australia.

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