3 NOVEMBER 2023

WAITING FOR THE DOUGH: FEDERAL GOVERNMENT YET TO LAUNCH AMBITIOUS IRA RESPONSE

In a major address, Australian Treasurer Jim Chalmers this week prioritised a uniquely Australian response that “complements” but does not “copy” the US's landmark climate and energy policy, the ~$1 trillion Inflation Reduction Act (IRA). The IRA has turbocharged the energy transformation in the US and attracted unprecedented private capital into the country, reindustrialising and greening the US economy and threatening to pull capital investment away from Australia at a critical juncture in the energy transformation.

Alongside the Climate Capital Forum, Smart Energy Council, Australian Council of Trade Unions (ACTU), Saul Griffith’s Rewiring Australia, First Nations Clean Energy Network, ACF, Clean Energy Council et al, we have called on the government to invest an additional $100bn of strategic public interest capital in the short term into an Australian renewables industry package. This would “crowd-in” ~$300bn private capital, commensurate with the scale of our huge domestic and export opportunities.

We applaud the Treasurer’s focus on 4 key industry development opportunities that reflect the priorities identified by CEF and partners: refining and processing critical minerals; manufacturing of generation and storage tech, e.g. batteries; renewable hydrogen and its derivatives like ammonia; and green metals including green iron. See our recent analysis of the green iron opportunity; our report on Australia's potential as a value-adding critical minerals superpower; and our report on leveraging synergies with South Korea to bring battery manufacturing onshore.

These are industries where Australia can lead the world and exercise our significant comparative advantages. As the world races to decarbonise and China dominates global supply chains, there is a geopolitical imperative to secure domestic supply chain capacities in these sectors to diversify risk. This won’t happen if we leave it to the free market.

We also support the Treasurer’s emphasis on the crucial role of skills, technology, planning and regulation to activate and deploy the capital investment needed to underpin these industries, and his refocusing of the Productivity Commission to guide our country towards a successful net zero transformation.

We need to see details, but the Treasurer’s assertion that a total of $225bn capital investment is needed by 2050 is too low by orders of magnitude, this timeframe is too late, and it reveals a too-cautious federal policy mindset that risks forgoing Australia’s opportunity to position itself as a leader in global cleantech.

Further, delaying capital commitments to the May 2024 Budget betrays a lack of appreciation of the urgency of the challenge.

This is a global race to the top, with countries and blocs like the EU, Japan and Canada having already responded to the IRA with public investment on an epic scale. And we are starting behind after a lost decade under the LNP denialists. It has been 14 months since the IRA passed. By the May budget it will have been ~21 months. We need substantive commitments in December's MYEFO, and for the government to go further again in May 2024.

| Read our full analysis.

| Tim Buckley in an AFR story quoting our collective $100bn ask, interviewed on ABC’s The Drum (package at 32:00) & on ABC Radio’s PM.

| Our op ed in PV Magazine.

Albo goes to Washington

The Treasurer's speech followed Prime Minister Anthony Albanese’s state visit to the US last week hosted by President Biden.

Given the enormous potential of the US-Australia Climate, Critical Minerals and Energy Transformation Compact, agreed on the sidelines of QUAD in May, we had hoped to see a dramatic surge in ambition.

But, notwithstanding the 4,400 word communique the two leaders issued,  there was little coming out of the Albanese-Biden meetings by way of new investment, apart from the $2bn boost to the federal Critical Minerals Facility in EFA. There remains the prospect of Congress approving that Australia be treated as a domestic supplier under the Defense Production Act, which could mean access for Australian companies and projects to the IRA's massive capital pool – significant, but still unresolved. This is a key national security opportunity, and need.

| See our oped in Renew Economy reviewing the PM’s trip, the global decarbonisation and geostrategic context, and how Australia can remake itself as a zero-emissions leader. 

| Tim Buckley on ABC TV’s The Business re an onshore battery industry.

| Tim’s interviews on Sky News, and on ABC RN Drive (~7:20).

| CEF’s reaction to the $2bn critical minerals announcement on AAP and syndicated widely 

| Our joint CEF and Climate Capital Forum media release. 

New CEF team member to focus on Australian response to IRA 

We are delighted to announce that next week Amanda Caldwell will be joining us to work with CEF and the Climate Capital Forum on achieving an appropriately ambitious and timely federal funding and policy response to the US IRA, aligned with the scale of Australia’s opportunity. Amanda has extensive senior experience in engagement, strategic communications and stakeholder management, including as head of communications for former chief scientist Dr Alan Finkel and the current incumbent Dr Cathy Foley. We can’t wait to work with Amanda to further accelerate our impact on this key objective. You can reach Amanda on amanda@climatenergyfinance.org

__

NSW CLIMATE BILL – THE CURIOUS DISAPPEARANCE OF A 2035 TARGET

The NSW government’s Climate Change (Net Zero Future) Bill 2023 is a positive step in the right direction toward guiding principles and targets to address the critical need to act on climate change, minimise its costs and adverse impacts, and promote sustainable economic growth. 

We applaud the proposed establishment of the independent Net Zero Commission to provide advice and recommendations to the Minister on emissions budgets and progress towards targets, and to help achieve a whole-of-government approach.

However, we note the Paris Agreement was adopted at COP21 in 2015. NSW has failed to deliver Paris or science-aligned policies, targets and in the subsequent 8 years, an irreplaceable loss of time to build momentum.

The proposed Act sets targets of a 50% emissions reduction by 2030 and net zero by 2050. This is entirely insufficient. We urge the government to introduce an accelerated 2035 interim target of at least 75% – a floor of 75 by 35 as Zali Steggal has articulated. Instead, Premier Minns’ government proposes walking back the previous NSW LNP government’s regulated 70% by 2035.

Whilst still not aligned with the climate science – this demands net zero for NSW, Australia and the developed world by ~2038, allowing time for the developing world to deliver net zero by 2050 – this would flag that NSW is committed to an acceleration of ambition after the wholly inadequate efforts over the last decade.

Strong legislated targets are also the necessary policy architecture to transform the state’s electricity system and to facilitate economy-wide decarbonisation, and a key investment signal to leverage private capital, with the huge benefits that flow from this. For example, when it introduced its updated Net Zero Implementation Plan with a 70% by 2035 target, the previous NSW government said it anticipated that the economic impacts of the Plan would attract more than $39bn in private investment and support more than 13,000 jobs by 2035, mostly in the regions. This also suggests there should be bi-partisan support for including a more ambitious 2035 target in this proposed Act.

Further, this Bill does nothing to implement the International Energy Agency’s (IEA) repeated call that we stop approving new fossil fuel projects with immediate effect. While the government says consenting authorities are already required to consider climate and intergenerational equity, and there is a separate inquiry underway to consider improvements, NSW continues to approve new fossil fuel projects that the state – and the world – cannot afford as the catastrophic impacts of the climate crisis ramp up.

| Read our full submission.

__

BIG BANKS GREENING AUSTRALIA’S $10trn HOUSING STOCK  

Modernising the nation’s $10tn housing stock promises to ease cost of living pressures and improve the health and comfort of homes, whilst helping to solve climate change. Homes account for more than 10% of national emissions and 24% of the nation’s electricity consumption. 

Australian banks are the main entry point to financing home energy performance upgrades. With a combined 46% mortgage market share, CBA and Westpac have powerful levers to help decarbonise the sector. 

We await Westpac’s FY2023 results and updated climate commitments next week to see how ambitious Australia’s second largest mortgage provider will be in addressing some of society's most pressing challenges.

As the sector establishes decarbonisation targets on their mortgage books, such as CBA’s 2030 emissions intensity reduction target of 60% by 2030, banks are incentivised to make finance more accessible for home energy performance upgrades. Two ways they can achieve this is through financial product innovation and advocating for the right policy/regulatory settings. 

For example, Bank Australia’s EcoPause option allows customers to pause their home loans for three months to afford eligible energy efficiency upgrades. Regulatory nudges may include a proposal for a prudential guidance that would enable banks to increase existing housing loans under agreed conditions to finance energy efficiency retrofits and upgrades, as proposed by the UTS Institute of Sustainable Futures last month. 

CEF's Nishtha Aggarwal looks at how some industry innovators are changing the home electrification and decarbonisation game.

| Read the full analysis: Big banks take on greening Australia’s $10tn housing stock

| Also published in Renew Economy.

__

CHINA MONTHLY ENERGY UPDATE – RE BOOM CONTINUES, POTENTIAL TO GREEN THE BRI

Based on our analyses, CEF’s position is that China could well pull forward its NZE by 2060 pledge by a decade, and that China’s acceleration of zero emissions investments of late brings forward peak emissions to before 2030. However, we expect a 5-10 year plateau thereafter, before an accelerated decline as the economy pivots from heavily energy intensive sectors towards less energy intensive consumer and technology exposures. 

Our new China Monthly Energy Update by CEF's Xuyang Dong shows that China’s massive, world-leading renewables expansion remained strong in September, with 22.6GW of zero emissions capacity added. This brings the total newly installed capacity including wind and solar this calendar year to 187GW,  83% of total new capacity, a 105% yoy increase. Hydropower continued to recover in September, reaching 139TWh, up  41% yoy. 

There was a 2.8% yoy increase in thermal power capacity. China added 5.2GW of new thermal power in September alone, bringing the total newly installed thermal power from January to September to 39GW, a 67% yoy increase. This continued expansion is the paradox at the heart of China’s massive global leadership on energy transition.

On the economic front, China’s recovery regained momentum by the end of third quarter, with a 9.2% increase in electricity demand in the month.

China celebrates the 10th anniversary of its massive Belt and Road Initiative (BRI) with a pledge of $107bn over the next five years. CEF looks to a greening of the BRI as China works with emerging markets and developing economies (EMDEs) to deploy zero emissions domestic energy capacity. 

China also continues to invest in diversifying its renewable raw materials supply chain.

China’s massive scaling-up of solar manufacturing has changed global solar dynamics triggering a rapid and accelerating price deflation of solar components and taking prices to record lows, as we detail in our analysis.

| Read the full report

| See our previous Monthly Updates and our Solar Pivot report tracking solar price deflation.

__

SUSTAINABLE FINANCE TAXONOMY: GOOD GOVERNANCE KEY TO AVOID A CAN OF WORMS

Treasury's consultation on its sustainable finance strategy proposes key priorities to strengthen the ability of Australia’s financial markets to allocate capital to decarbonising Australia’s economy.

One of these priorities is a sustainable finance ‘taxonomy’ that will establish what economic activities warrant the special consideration by green and transition-labelled finance pools focused on mitigating the effects of climate change.

The potential capital leverage for a credible and widely adopted taxonomy includes Australia’s $3.5tn superfund pool, the banking sector’s collective $400bn in sustainable finance targets, as well as the Government’s proposed Green Bond program. 

However, development of the Australian taxonomy has been outsourced to the Australian Sustainable Finance Institute, a finance sector body whose Board of Directors and members represent financial institutions, which in turn provide the majority of funding. 

As CEF's Nishtha Aggarwal writes, for credibility and widespread adoption, the taxonomy must be built on scientific principles, empirical evidence and robust governance practices that ensure that rigour is not compromised by conflicts or vested interests.

| Read the full oped.

__
COP31 BASECAMP – THE TREK TO 2026 BEGINS

This week’s COP31 Basecamp – delivered in partnership with CANA, Community Council for Australia, WWF-Australia and The Climate Reality Project – brought together 200 delegates from Australia and the Pacific in a capacity building and visioning exercise for COP31 in 2026 in the context of Australia's and Pacific nations’ bid to host it.

The opportunity is one of great significance. This could accelerate Australia’s progress toward net zero in line with limiting warming to 1.5 degrees, and bring much-needed climate technology, investment and infrastructure to our Pacific neighbours.

CEF analyst Nishtha Aggarwal presented on a panel on what that transformation might look like, what long-term, inclusive and meaningful outcomes a COP 31 might deliver for the region beyond 2026, and the challenges we need to overcome to achieve these. The event also featured roundtables on indigenous inclusion, community led resilience, climate finance and investment, industry, nature positive policy, and the movement beyond fossil fuels. A summary will be published by ImpactX.

It marked the formal start of collaborative discussions to bring Australian and Pacific Island people together, key to our collective success in getting the most for our region out of the 3-year pathway to COP31 and beyond. __

OUR MEDIA |

See our latest media.

OUR WORK |

See more of our latest work, including presentations on global decarbonisation and capital shifts.

PREVIOUS NEWS UPDATES |

Our previous newsletters covering major energy news can be accessed here.

Our highlights tracking decarbonisation progress in 2022, and our 2023 wishlist, are here.

__

Feel free to get in touch anytime at the email below, and enjoy your weekend! 

If you wish to be removed from this email list, please just let Annemarie know any time or unsubscribe at the link below. 

Annemarie for Tim, Paul, Nishtha, Matt, Xuyang (see more on our team here).

This newsletter is not intended to provide, and should not be relied on for, tax, legal, investment or accounting advice, nor is it an offer or solicitation of an offer to buy or sell, a recommendation, endorsement, or sponsorship of any security, company, or fund. CEF is not responsible for any investment decision made by you. Unless attributed to others, any opinions expressed are our current opinions only. Certain information presented may have been provided by third parties. CEF believes that such third- party information is reliable, and has checked public records to verify it wherever possible, but does not guarantee its accuracy, timeliness or completeness; and it is subject to change without notice.