28 August 2024 | Jennifer Parker
Breaking down the figures of Australia’s ambitious nuclear-powered submarine project and debunking the myths of cheaper alternate capability options.
Image: Chief of the Nuclear Powered Submarine Taskforce Vice Admiral Jonathan Mead AO, RAN, Minister for Defence Industry, the Hon. Pat Conroy MP, Australian Deputy Prime Minister, the Hon. Richard Marles MP, Minister for Defence Personnel, the Hon. Matt Keogh MP, and U.S Rear Admiral Richard Seif on board United States Navy Submarine USS Asheville during a visit to HMAS Stirling, Western Australia
Australian ambition to acquire nuclear-powered submarines is not a new concept. From a strategic, operational and tactical perspective, it makes sense, given Australia’s vast maritime domain and extensive maritime vulnerabilities. Aside from the obvious hurdle of United States support, the question has always been one of opportunity cost, or put crudely, ‘bang for buck.’
Cost of nuclear-powered submarines
To address the ‘bang for buck’ question, you must start with the ‘buck’: how much will Australia’s acquisition of nuclear-powered submarines cost? If yelled into a press pack, you would quickly hear the answer $368 billion — but that answer would be wrong.
Cost comes in many forms: impacts on workforce, infrastructure, defence industry and timeframes are all encompassed in the ‘cost’ of the project. But let’s talk monetary cost for a moment — the eyewatering $368 billion initial price tag. It’s tempting to argue that you can acquire a B-21 for just under a billion dollars,1 yet we are paying $368 billion for 8 submarines. This is an emotive comparison, but it is one that is invariably wrong. For want of a better analogy, its comparing apples and oranges.
A key problem with discussion around defence project costs is that the arguments are almost invariably comparing different metrics. To understand cost, it is critical to understand key variables, including the time period it is over and whether the costed amount includes sustainment, infrastructure, workforce costs etc. These are seemingly mundane but exceptionally important issues.
So with that in mind — what does the government’s quoted $368 billion dollars cover?
Significantly, the projected cost of Australia’s nuclear-powered submarine pathway is not $368 billion dollars — it’s $244.7 billion over a period of 31 years from 2023-24 to 2054-55.2 The difference between the $244.7 billion and the quoted $368 billion is a $122.9 billion contingency figure, representing 50% of the project.
Contrary to the persistent comments that $368 billion dollars is likely an underestimate, it is in fact a deliberate 50% overestimate.
Every defence project in the Integrated Investment Program (IIP) is allocated a contingency. Contingency amounts are effectively unfunded reserves that can be drawn on with approval should an ‘unforeseen’ event occur.3 Think of them as a margin applied for project risk.
Most defence projects in the IIP are assigned between 5-10% contingency. DEF 1, the project name for Australia’s plan to acquire nuclear-powered submarines has been assigned a 50% contingency. This means the risk is acknowledged in the funding profile. Contrary to the persistent comments that $368 billion dollars is likely an underestimate, it is in fact a deliberate 50% overestimate.4
Does this mean that costs won’t change? No — AUKUS is highly complex and the cost estimate spans 31 years, so the notion of identifying the ultimate cost with certainty is laughable. But it does mean that the risk has been accounted for to date.
The amount of $244.7 billion accounts for much more than the acquisition of 8 submarines. It includes the whole of program costs — like workforce, infrastructure, regulatory requirements, and the cost of sustaining these submarines and their supporting facilities until 2055.
This is important to understand because, when critics argue that Australia should acquire B-21 Bombers at a cost just under a billion dollars an aircraft5 or a French Barracuda class conventional-submarine at $2.5 billion per submarine,6 the quoted price for alternative capabilities doesn’t include the cost of the whole program or the cost of sustaining that program.
Is AUKUS eating the defence budget?
When it comes to cost, long term costs are invariably less reliable. So, whilst it’s important to put the often quoted ‘$368 billion’ dollar figure into perspective, a more accurate assessment is the cost over the near to medium term.
Delivery of the submarine optimal pathway is costed at a window of $53-63 billion dollars from 2024-25 to 2033-34, including acquisition, sustainment and supporting infrastructure.7 The breakdown of this figure is not publicly available, but reportedly contains whole of program costs, including those entailed with both the execution of Submarine Rotational Force West (SRF-W) and the delivery of the first Virginia-class submarine. These 2 capability milestones are significant because they debunk the erroneous claims that AUKUS won’t deliver submarine capability for 40 years.8
Whilst it’s important to put the often quoted ‘$368 billion’ dollar figure into perspective, a more accurate assessment is the cost over the near to medium term.
In response to the 2023 Defence Strategic Review (DSR), the announcement of the AUKUS submarine optimal pathway and the planned expansion of the surface combatant fleet, the current government announced in May 2024 that it would increase the Australian defence budget by $50.3 billion over the decade.9
The 2020 Defence Strategic Update (DSU) agreed a defence budget growth profile of 5-6% per annum, which would have equated to an uplift of approximately $716.4 billion over the decade.10 The uplift in the defence budget announced in May 2024 will provide for defence spending of $765.4, providing approximately an additional $49 billion beyond the DSU growth profile over the next 10 years.11
The Attack-class submarine program that preceded AUKUS was expected to cost approximately $30 billion over the next 10 years.12 The nuclear-powered submarine optimal pathway costs an additional $33 billion over the same timeframe.
The increased defence budget committed to by the current government more than accounts for the gap between the planned Attack-class spend and the AUKUS submarine optimal pathway. Overall, the AUKUS Pillar 1 spend over the total decade roughly accounts for 7-8% of the defence budget.13 Defence’s most expensive project, yes — but eating the defence budget? Hardly.
This isn’t to say that the defence budget is adequate or increasing in the right timeframe — it just means that AUKUS Pillar 1 isn’t consuming the defence budget. Of course, the acquisition of nuclear-powered submarines won’t address all of the Department of Defence’s capability issues — but that’s a different conversation.
But are there cheaper alternatives?
Well — yes, but not any that would deliver the same degree of capability and control over those capabilities that Australia desires.
There has been a plethora of alternatives put forward. Proposed alternatives include outsourcing the functions required of Australian submarines to a permanent UK and US presence, effectively giving up Australia’s ability to operate submarines becoming a “pit stop power”;14 acquiring 40 conventional submarines;15 acquiring B21 bombers — the list goes on. Some have suggested ceasing the acquisition of submarines altogether and investing in combatting climate change, healthcare and education. There is neither space, nor the desire to breakdown every proposed alternative here, so I’ll address some key elements.
Australia’s 2020 DSU, 2023 DSR and 2024 National Defence Strategy, alongside the strategic documents of Australia’s allies and partners, have one thing in common: a recognition that the world order is changing rapidly and that conflict in the Indo-Pacific, although not inevitable, is increasingly possible. Whilst national social welfare and combatting climate change are incredibly important, they will not protect Australia’s national interests in a worsening strategic environment.
On the outsourcing question — it is simply not logical that Australia, an island nation, would outsource its maritime security. There is a reason Australia has established its submarine service 3 times in its history; every time we have considered foregoing the capability it has become apparent that they provide an asymmetric advantage for a maritime nation.
There is a reason Australia has established its submarine service three times in its history; every time we have considered foregoing the capability it has become apparent that they provide an asymmetric advantage for a maritime nation.
The argument that the current capability plan to acquire nuclear-powered submarines should be replaced with the acquisition of B-21s or additional conventional submarines is a dangerous one. AUKUS, whilst in essence a capability transfer pact, is also central to Australia’s deterrent signalling. The signalling effect of AUKUS cooperation has been palpable, marked by China’s extensive efforts to release misinformation about the pact and lobby the International Atomic Energy Agency to obstruct it.
Whatever its risks, right now Australia’s plan to acquire nuclear-powered submarines is on track.16 Whilst it may not always remain so, changing course without a catastrophic failing of the plan would fundamentally undermine the signalling element of AUKUS and the trust Australia’s AUKUS partners hold in Australia.
Submarines provide a vast array of capabilities from intelligence to surveillance and reconnaissance to mine-laying to maritime strike to land-strike to anti-submarine warfare. In the maritime domain they are unrivalled. Whilst acquiring B-21s could substitute some of the strike elements of submarine operations, they would fail to fulfill the remaining functions. Could a series of capabilities address the spectrum of these functions? Maybe. But not with the versatility of submarines and there is no guarantee that a collection of these mythical capabilities would be cheaper. This is not to say that Australia should not invest in long-range strike options such as B-21s, but it should not do so at the expense of submarines.
As for the suggestion of a greater number of conventionally powered submarines, a number of challenges make this proposal imprudent. Major impediments would include crewing, industrial capacity to build them or buy them in a strategically relevant timeframe, and most significantly, the likelihood of this being a more expensive approach than the AUKUS pathway. The unique nature of Australia’s maritime domain and the distances and depths involved mean that Australia cannot just operate any submarine, invariably it needs to be larger and more capable than the average conventional submarine. Australia’s operating environment is dramatically different to that of submarine producing countries like Japan and Germany.
Let’s remember — Australia went down the path of attempting to acquire 12 conventional submarines from France. This was not orders of magnitude cheaper than Australia’s planned acquisition of nuclear-powered submarines.
At the time of cancellation, the acquisition cost for the French Attack-class submarine was listed as $90 billion, which did not include sustainment, supporting facilities or a contingency allocation.17 The life of type sustainment costs until 2080 were quoted as $145 billion, but again this did not include supporting costs such as infrastructure and workforce.18
The nuclear-powered optimal pathway is costed at $244.7 billion until 2055. The Attack-class fleet of conventionally-powered Barracuda submarines was costed at $235 billion until 2080, but this was known to be an underestimate.19 With rough maths you can see that increasing an order like this from 12 to 40 conventional submarines would be no cheaper than Australia’s nuclear-powered submarine pathway and clearly unsustainable from a workforce perspective.20
Capability speed
The Attack-class program with all its challenges was due to deliver its first submarine in 2036 and its final submarine in 2054.21 Under the nuclear-powered submarine optimal pathway, Australia will have Australian sailors and officers operating from HMAS Stirling in US and UK submarines from 2027. This is of course not ideal, as the tasking of SRF-W will not be controlled by Australia. However, from a wider regional perspective, SRF-W will have a net regional effect far earlier than the previously planned 2036 timeframe of the first Attack-class submarine.
Under the optimal pathway, Australia will be operating two Virginia-class submarines, with a third on its way, before the first Attack-class submarine was due to be delivered. The optimal pathway will provide a capability quicker than Australia’s abandoned plan to acquire conventional submarines, and most certainly quicker than any new plan could deliver at this point.
So, does the current optimal pathway provide ‘bang for buck’?
Australian-owned and operated submarines are critical to Australia’s defence as a maritime nation. The current plan, whilst expensive and risky, is presently on track and delivers capability to service earlier than any prior plan. Whilst it is more expensive than the Attack-class project, it is not orders of magnitude more expensive nor is it ‘eating’ the defence budget. At this point in the journey, it certainly does provide ‘bang for buck.’
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