30 JUNE 2023

__AUSTRALIA CAN BE A BATTERY PRODUCTION POWERHOUSE: OUR NEW REPORT DETAILS HOW |

Our new report, "A value added critical minerals bilateral agreement for Australia and South Korea", argues Australia can and should leverage our world-leading critical minerals to capture value and develop a battery export industry onshore, seizing the capital investment and supply chain opportunities unleashed by the game-changing US Inflation Reduction Act. But we need get smart about it, by partnering with world #2 battery producer South Korea, boosting REIPs, and upscaling domestic investment. The report recommends that the federal government:

1. Initiate ambitious critical minerals bilateral investment and trade discussions with South Korea with a view to an Australia-South Korea Compact. These negotiations should aim to develop a response to the IRA that accelerates joint investment into high-value battery manufacturing, builds value-added critical minerals supply chains, and deploys the latest cleantech.

2. Commit to a focused, sizable and urgent domestic response to the IRA that properly reflects the scale of Australia's opportunity. We estimate $100bn of strategic national interest public capital is needed to crowd $200-300bn of private investment into critical minerals value-adding and cleantech. We have the funding instrumentalities to do this – the CEFC, the Future Fund, ARENA, NAIF and the EFA.

3. Allocate capital to enhancing and scaling Renewable Energy Industrial Precincts (REIPs) – dedicated clusters for new industry manufacturing and export powered by 100% renewables. Regional export hubs across Australia would attract public-private co-investment and enhance Australia and South Korea's global position in the battery value chain, leveraging our respective expertise in mining, minerals processing and material manufacturing.

4. Establish globally-competitive stationary and EV storage manufacturing plus heavy haulage EV capability onshore via the South Korea partnership. Korean firms are rapidly seeking to diversify their battery industry from EVs to stationary storage, and with a 26% share, Korea is the second-largest global battery manufacturer after China. Establishing battery hubs in REIPs provides a pathway for Korean firms to scale stationary storage, and also to develop heavy haulage mine equipment EV capacity here, diversifying supply chain from China’s dominance and catalysing Australia’s downstream capabilities.

>>> Read the full report, by CEF EV supply chain analyst Matt Pollard and CEF director Tim Buckley, here. 

>>> See some of our media on the report, including Tim's Sky News Afternoon Agenda interview with Kieran Gilbert, which also ran in The Australian and news.com.au; a story via AAP in Canberra Times and 100+ mastheads; an op ed in Renew Economy; and Tim's AusBiz interview.

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__ NEW FEDERAL CRITICAL MINERALS STRATEGY: STRONG ON PARTNERSHIPS, BUT INVESTMENT MIA |

Federal Resources Minister Madeleine King released the Australian Critical Minerals Strategy 2023-2030 last week. The news is mixed. The focus on leveraging international trade agreements and partnerships to position Australia in the global supply chain is on the money. So is the centring of First Nations and ESG considerations including social licence.

However, the new funding – $500m to the Northern Australia Infrastructure Facility (NAIF) to support downstream processing – represents a drastic underinvestment in the sector.

It fails to respond both to the scale of Australia's opportunity as a potential world leader in value-adding our geostrategic minerals reserves onshore using our abundant renewables, and to the ambition of our trade partners and competitors the world over. This is evident in a growing array of landmark initiatives such as the game-changing ~$US800bn Inflation Reduction Act, and US Department of Energy Loan Programs Office (LPO) funding, which are actively reshaping global energy dynamics as we speak.

This is a global race. We need to get serious, boost our urgency and ambition, or forgo our once in a hundred year opportunity for leadership in the global energy transition and the unprecedented benefits for Australian exports, jobs, investment and, critically, for action on climate.

>>>Read our comprehensive analysis of the Strategy here

>>> See our media including a Canberra Times op ed, Tim's interview on ABC TV's The Business (also including his response the AEMO's view that energy transition investment is too slow), and a Renew Economy op ed.

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__THE GREATEST DECARBONISATION SHOW ON EARTH: ANNOUNCING OUR NEW MONTHLY CHINA ENERGY UPDATES |

China continues its massive global lead in energy transition. Our new Monthly China Energy Updates track the transformation, reviewing new data from the National Energy Administration, National Bureau of Statistics and other key sources. We put the context and nuance around the biggest story in global clean tech as energy policy and investment increasingly shape geopolitics, and vice versa, against a backdrop of escalating climate change.

The first 5 months of CY2023 shows that despite a significant rise in thermal power amid drought-driven declines in hydropower and increasing heatwave-driven electricity demand, coupled with economic headwinds meaning supply has been prioritised over transition, China’s overall determination to decarbonise and its trajectory of rapid deployment of renewables remains largely intact. This is evidenced by its continuing global leadership in solar, onshore and offshore wind, hydro, as well as batteries and EVs.

China targets peak emissions before 2030, and carbon neutrality before 2060. CEF sees an opportunity for China to peak its reliance on coal nearer-term (albeit from a higher coal power peak than we expected) as it continues to dramatically scale up its renewables and electricity sector decarbonisation ambition.

On EVs China charges ahead. May alone saw a total of 689,000 EV sales, a 62% yoy increase, totalling 2.8million EV sales YTD in 2023, up 108% yoy.
There are huge opportunities for Australia to capture more value by urgently mobilising significant energy transition capital into our critical minerals opportunity. But we need to go beyond digging and shipping unprocessed lithium and value-add our world-leading supply of critical minerals and transition materials onshore, playing to our strengths as a potential zero-emissions trade and investment superpower.
 
While China and the developed world decarbonise, green finance for emerging economies’ decarbonisation is needed to meet the climate challenge. As we note, China has played an active role in financing emerging economies through its Belt and Road Initiative. While rich countries strategically focus on countering China’s dominance in global energy supply chain, greater attention could be paid to complaining less and doing more.

>>>Read our June update by CEF China energy policy analyst Xuyang Dong here, and catch up on previous China updates here.

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__ SUSTAINABLE FINANCE FRAMEWORK IN THE WORKS BUT QUESTIONS REMAIN |

The Australian Sustainable Finance Institute is partnering with the Climate Bonds Initiative to develop Australia’s first sustainable finance taxonomy, feeding into Treasury’s mandate to develop an Australian sustainable finance strategy, with development overseen by the Council of Financial Regulators.

It's critical we get this right. It's an opportunity to deepen Australia’s green finance markets and catalyse opportunities presented by surging global momentum in sustainable finance. A well designed taxonomy will provide a strong signal to investors that sustains long-term investor interest in sustainable finance markets, directing capital into climate solutions and nudging misaligned firms to improve their performance. The Taxonomy is also likely to enable performance tracking against net zero capital allocation, incentivise new measures to provide reduced cost of capital, and be used to enhance the credibility of public and private sector commitments to emissions reductions.

However, the Taxonomy design phase raised concerns around governance and integrity, which CEF is tracking into the development phase. In particular, in our view large financial institutions involved in Taxonomy governance and ASFI funding present a potential conflict of interest, especially where the entity has publicly promoted plans to support the self-defined “transition” of large oil and gas companies. This effectively amounts to self-regulation, and is at odds with a credible transition that requires the cessation of fossil fuel expansion as identified by the IEA, including financing for such expansion.

ASFI is now inviting expressions of interest for the Taxonomy Technical Expert Group (TTEG). The TTEG mandate is limited to “providing input” and “endorsing deliverables” developed by ASFI. In our view, its role would better be positioned to contest technical proposals in the development phase and provide recommendations on how to better achieve the Taxonomy’s objectives.

On the positive side, the Taxonomy will be strengthened by this week's momentum on sustainable finance disclosure standards here and internationally. The International Sustainability Standards Board (ISSB) issued its first two International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, and at home, Treasury opened round two of consultations on mandatory climate-related disclosures in Australia.

Watch this space for updates.

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__FOSSIL SHILLS AGITATE TO DELAY COAL CLOSURE: WE CALL BS |

Pressure is mounting from the coal lobby and its publishing arms in the Australian media on NSW Energy Minister Penny Sharpe to delay the projected closures of Eraring coal power station in 2025 and Vales Point in 2029. The hysterics are self-interested and misleading.

Our new comprehensive analysis, coming soon, shows scheduled closure is entirely doable with appropriately targetted decarbonisation policy, there are more than enough proposed renewable projects in the investor pipeline, and investment capital is zero problem, assuming the grid connection and approvals processes can be expedited to incentivise both early final investment decisions and timely construction, with due attention to ESG and social licence considerations.

Watch this space.

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__IN OTHER NEWS…

Finally, we are delighted to announce Paul Oosting, leading movement strategist and former national director of GetUp!, is now consulting to CEF as Special Advisor, working on reforms to Your Future Your Super to align superannuation rules with forward looking benchmarks, so as to crowd-in capital to zero-emissions solutions and away from the sector's rear-vision ties to fossil fuel legacy assets. 

CEF previously worked with executive director of Diplomats for Climate Action Now, Janaline Oh, on our special report, Five urgent reforms to boost Australia’s climate finance in a rapidly decarbonising world, which addressed the need to reform super. We also would reference CEIG’s excellent work in this space.

MEDIA |

We were active in commentary on a range of energy topics, including the major speech by AEMO CEO Daniel Westerman that flagged the need to accelerate investment in energy transition. See our other media here.

OUR WORK |

See our latest work, including Tim's presentation to this week's Smart Energy Council Critical Minerals Summit in Perth.

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.

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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.