The cost of energy will drag on the Australian economy until growth-oriented policies are put in place

The Australian Bureau of Statistics released its consumer price index (CPI) for the September quarter, in late October, which included this: the main contributor to the increase in annual inflation was a 23.6 per cent rise in Electricity costs. We also know that the price of natural gas on the East Coast has almost quadrupled in 14 years: The market price in Sydney for gas was $3.45 per gigajoule in 2011, rising to $12.75 in 2025.

More pain is expected in the energy markets in the years to come because our energy system suffers structural problems and energy is an industrial input cost. Most businesses – manufacturers in particular – do not have a choice about energy use. They use a certain amount each month, to make the products they sell.

Businesses At Risk

The threatened closure of the Tomago aluminium smelter in NSW, is an extreme example: 40% of the plant’s total operating costs are expended on electricity. Other manufacturers have also been affected by energy prices, including Incitec Pivot (fertiliser), Qenos (plastics) and Oceania (glass). Orica (chemicals and explosives) has warned that its Australian operations are at risk if energy costs and supply are not made more reliable, and BlueScope Steel has made similar warnings.

Ironically, this situation emerges as Australian manufacturing manages to stay on its feet. In the latest Australian Bureau of Statistics figures, manufacturing turnover rose 7% in September, to cap a rise of 14.2% in the 12 months to September 2025. Our sector employs around 900,000 people, and we contribute more than 12% of total exports by value.

But we have to be realistic. When heavy industry cannot operate here because of energy prices and supply, we in the small and medium-sized segments know that there are deep problems to overcome.

Manufacturers Left Stranded

In our business – a manufacturer of greases, oils and industrial additives – we rely on gas and electricity for the processes that employ 170 people. We have plans to shift some of our electricity usage to renewables, but our two biggest consumers of gas – our boilers and odour-control systems – are gas-dependent and their replacements are expensive. Government agencies that fund energy policy – such as ARENA – are not focused on decarbonising industrial processes.

This will become more challenging for the mid-sized manufacturers as we count-down to ESG reporting requirements that start for us in 2028. We got in early and started our benchmarking, but most mid-sized manufacturers wouldn’t know where to start. Many of these business owners are wondering what’s the point in investing in ESG reporting when energy costs could make their business unviable by 2028.

The biggest challenge we encounter – besides the gas and electricity costs themselves – is our ability to plan.

We strategically plan for five years into the future, and our capital expenditure commitments typically require a 20-year pay-back period. To what extent can we meaningfully plan along these timelines when government energy policy and wholesale offers don’t extend further than three years into the future?

The cost-of-living pressures in Australian households in the past four or five years are felt keenly in manufacturing. However, while households can adjust to price rises week-to-week, manufacturers have to fully cost their future capacity planning, a very difficult task when the price of electricity and gas is volatile and hard to predict. Do you commit to building a new production line with a 20-year life – at great cost – with the risk that running it in three or five years’ time will be uneconomic? If companies like Rio Tinto, Qenos, Incitec Pivot and Orica are resiling from future capacity commitments due to energy costs, what are SMEs supposed to do?

Australian Made

We use Australian-made inputs in our lubricants and oils, where we can, and we’ve succeeded with locally-produced lithium and canola oil in our low-carbon products. However, the increased production costs (including energy) of making things in Australia is comparatively reducing the prices of the imported ingredients. It’s a vicious circle.

It seems the federal government has a decision to make: does it want manufacturing in this country? Does it want the jobs and the exports, and the skills and economic multiplier that comes with businesses that make things? 

If the answer is ‘yes’, then Canberra must construct an energy strategy that gives certainty of supply and stability of prices, rather than simply announcing targets for emissions and renewables. We’re a sophisticated nation – we can have a pathway to decarbonisation and also a plan for industry. We’re blessed with energy resources, sunlight and wind, and we grow the world’s smartest people. Which means we have the capacity to reduce emissions and also have an affordable and reliable energy system.

It’s time to rise to the economic challenge, just as surely as we’ve all responded to the climate crisis.