Australia-China trade tensions could accelerate a low-emissions future of bio-fuel exports

Nancy Xie

What happened?

As part of ongoing China-Australia tensions, China increased tariffs on Australian wine by 212 per cent in November 2020 as an interim measure against alleged anti-dumping. In March 2021, China confirmed these tariffs would remain for at least five more years. This has followed a string of other trade-related sanctions imposed by China such as an 80.5 per cent tariff on Australian barley.

China represents around 34 per cent of Australia’s export revenue from alcoholic beverages (including wine), and around 54 per cent from barley. Whilst rallying consumers in Australia’s allied countries to buy Australian wine and barley may help in the short-term, it is unlikely that this can fully offset the volume normally destined for China.

However, these amounts are minuscule if we look through a different lens at the same data. The same volume of alcoholic beverages and barley represent only 0.29 and 0.14 per cent respectively of Australia’s total export revenue. While China is Australia’s largest export market, representing almost 40 per cent of export revenue in 2019-20, the bulk of this 40 per cent is actually from iron ores and concentrates (56 per cent), ‘confidential items of trade’ (13 per cent)–being anything on the confidential commodities list, and coal (9 per cent).

Nevertheless, we can’t ignore the economic impacts that the tariffs have had on Australian farmers and wineries that rely heavily on exports for their livelihoods. Nor would it wise for Australia to ignore the trade tensions, and China’s grievances at the root of these tensions. Instead, Australia should be building a better alternative.

What’s the alternative?

Airing dissatisfaction and making demands will not stop China from imposing further trade sanctions. Waiting years for a decision from the World Trade Organization (WTO) on whether China’s tariffs violate international trade agreements is not a practical solution either.

Australia needs to look elsewhere not just for wine or barley, but on what its export portfolio could look like without China. Although losing China as a trading partner will be a significant blow to the economy, it is also an opportunity for Australia to reposition itself as a low-emissions goods exporter.

Exporting low-emissions goods would position Australia for current and future demand, as increased global momentum towards net-zero emissions. This includes net-zero commitments from four out of Australia’s top five export partners and seeing a climate bill making its way through Parliament. We are seeing more regulation in favour of such exports too, such as the proposed EU border tax on high-carbon products.

In the near term, farmers and wineries will be left with an excess supply of barley, grapes, alcohol and any other agricultural commodities impacted by China’s trade sanctions. These excess supplies can be redirected to produce bio-fuel. While it is easier to simply export the raw commodity or use it as animal feed, bio-fuels are a good alternative for excess supply, turning it into a higher-value product and helping the agricultural sector transition to a low-emissions future.

Why and how would we pivot agriculture to bio-fuel production?

Bio-fuel will be in high demand in a low-emissions future. According to the Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA), global annual bio-fuel production is forecasted to increase tenfold to 840 gigalitres by 2060, after taking into account electrification and other efficiency gains in transport. Australia is well-placed to meet part of that demand. Some of the technology required to produce bio-fuels can be found in agriculture (for example, fermentation machinery used in wine-making) and most agriculture labour and skills are transferrable.

Increasing bio-fuel demand combined with transferable agricultural skills and technology translate into a golden opportunity for Australians impacted by the tariffs. CEFC and ARENA estimate that a national bio-fuels production target of 20 gigalitres each year could provide long-term employment for up to 250,000 Australians, mostly in regional areas. This is a little short of replacing the 326,000 workers employed by Australian farms employed on average. However, the latter figure also includes farmworkers in commodities not impacted by the Chinese tariffs.

Are bio-fuels alone enough to save Australia’s export economy?

Bio-fuels are by no means a silver bullet solution. It has its challenges such as tensions between using farmland to produce fuel instead of food and arguments that the process of processing plants into fuel consumes more energy than it provides. The government should consider bio-fuels as one of the multiple investments in their portfolio of low-emissions strategies or export goods. Investments in bio-fuels are necessary to make the transition a reality, such as for lowering the cost and energy consumption of making bio-fuels, building any additional infrastructure required, and education programs to support those in impacted industries to acquire any further skills and knowledge needed.

Bio-fuel production also complements other, larger low-emission export opportunities outside of agriculture. Australia is well-positioned to export minerals required in a low-emissions future such as iron for steel used in wind turbines or lithium in reusable batteries. In a National Hydrogen Strategy, the government also recognised Australia’s potential to export ‘green’ steel and aluminium, produced using hydrogen and Australia’s abundant renewable energy instead of coal.

Australia should start implementing these future-ready solutions now, without waiting to see how Australia-China political relations, trade tensions and the WTO dispute resolution process plays out. Refocusing agriculture on bio-fuels is one of the multiple opportunities ripe for the picking to reposition Australia as a low-emissions goods exporter.

Nancy Xie is accelerating environmental sustainability in the EY Global Corporate Responsibility team. She has a risk consulting and legal background, and has previously volunteered with the International Program at the Environmental Defender’s Office NSW. Any views expressed here are her personal views only.