The Albanese government’s fervour for renewable energy and red tape expansion looms large over the otherwise welcome decision to explore the construction of a new fuel refinery, and fundamentally undermines any effort for us to improve our sovereign capability.

Sovereign capability refers to a nation’s self-sufficiency in key sectors like energy, food, industry, and defence. It reflects the reality that supply chain stability, whether global or regional, cannot always be guaranteed. This has become obvious this year with the war in Iran.

Our declining sovereign capability gives context to why the Albanese government last week announced that it would undertake a pre-feasibility study to develop a new oil refinery in WA’s Pilbara region.

While a pre-feasibility study – an evaluation of whether an idea is worth evaluating further – is no guarantee the refinery will be built, it does signal a shift in mindset, given the government’s general hostility to emissions-emitting industries.

However, it’s difficult to see this move as a truly positive development given the necessary steps have not been taken to sustainably restore our sovereign capability in terms of energy.

Our ability to survive as an independent country is at significant risk. Our energy grid is less reliable, the manufacturing sector is in decline, and rural areas in the country, such as the Northern Territory, are becoming increasingly food insecure.

All these factors are tied to the obsession with Net Zero.

In 2002 Australia imported 11 per cent of its refined fuel, compared to about 90 per cent now. This has been brought into sharp focus due to conflict in the Middle East, and its impact on the Strait of Hormuz.

Improving sovereign capability requires a significant rethink in a range of policy areas, with a focus on cutting costly regulation which deters investment in primary industries and manufacturing.

There should also be corrective intervention in markets that have been fundamentally broken by decades of reckless intervention. This is most prominent in energy policy, where governments over several years have dismantled baseload power generation and supply in favour of wind and solar alternatives that are unreliable and have far greater cost volatility.

Simply announcing a pre-feasibility study into a new oil refinery goes nowhere near redressing this imbalance, nor does it address the fundamental barriers to our ability to function and survive as a country amid global conflict.

Net Zero is a direct threat to the industries which support our sovereign capability. This is because emission reduction targets can only be met by scaling down or shuttering projects in emission-intensive industries, the very industries which provide the critical goods we need to survive.

The federal government’s quasi-carbon tax on emission-intensive industries, the Safeguard Mechanism, mandates large projects and facilities reduce their emissions or purchase carbon credits to continue operating.

The last two oil refineries in Australia – the Ampol Lytton Refinery in Brisbane and the Viva Energy Geelong Refinery – are subject to the Safeguard Mechanism. Previous analysis by the Institute of Public Affairs revealed they will incur a safeguard carbon tax cost of up to $165.5 million to 2029-30.

Economy-wide the safeguard carbon tax cost will be $11.7 billion to 2029-30. Given the proposed refinery in Karratha would likely fall within the scope of the Safeguard Mechanism, these added costs will weigh against it in any feasibility study. The government risks making the project unviable before the first sod of soil is turned.

This cost makes it clear that the government must scrap both Net Zero and the Safeguard Mechanism if it is serious about improving our sovereign capability and fuel security.

Introducing and building a new refinery is a good idea, but far more needs to be done than paying lip service to it. Until government understands that policy settings are standing in the way of delivering the benefits that a new refinery would provide, it’s yet another case of one step forward, two steps back.

Saxon Davidson is a Research Fellow at the Institute of Public Affairs

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