13 SEPTEMBER 2023

DIESEL SUBSIDY CAP COULD SUPERCHARGE MINING EV INDUSTRY 

___Our new report finds that without a cap, the diesel rebate to mining will cost a staggering $37bn to 2030 in lost tax revenue, nearing twice the entire funding of the flagship Federal Rewiring the Nation program___

CEF's new report, co-authored by global EV supply chain analyst Matt Pollard – Fuel Tax Credit Scheme and Heavy Haulage Electric Vehicle Manufacturing in Australia – urges the Federal government to cap the diesel Fuel Tax Credit (FTC) subsidy for the mining sector at $50m annually per consolidated group.

The Fuel Tax Credit Scheme is the largest fossil fuel subsidy in Australia. Petroleum – of which diesel is the main component – accounted for 88% of the $12.4bn of Federal budgetary assistance to the fossil fuel industry in 2021, making Australia one of the G20’s largest providers of subsidies for fossil fuels.

To 2030, mining sector FTC subsidies will total a staggering $37bn. This cost to the Australian taxpayer is unconscionable, and the continuation of the rebate in its current form is both inconsistent with Australia’s emissions reduction commitments, and a major headwind to electrification of the mining sector’s heavy haulage fleet.

Australia should cap the diesel FTC subsidy for the mining sector at $50m annually per consolidated group.

Only 8 mining firms would be impacted in FY23: Fortescue Metals Group, Rio Tinto, Hancock Prospecting, BHP, Glencore, Peabody, Yancoal and Anglo American.

There would be zero impact on the agricultural sector, nor any inflationary impact on freight.

CEF’s new modelling shows that this FTC cap would raise >$14bn in revenue to 2030.

Tim Buckley: "We propose that 100% of the tax revenue gained from the FTC cap be directed into a special purpose fund within the National Reconstruction Fund. Revenues in the fund should be invested to scale domestic manufacturing of electric vehicle zero-emission technology across Australia’s world-leading mining sector, electrifying Australian mining industry transport and driving embodied decarbonisation into our bulk commodity exports."

Read our full report. 

See Tim’s interviews on ABC TV News Breakfast and AusBiz, our op ed in RenewEconomy, coverage syndicated widely via AAP in Canberra Times 1, Canberra Times 2 and more.

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HIGH-POWERED ALLIANCE URGES $100BN CLEANTECH BOOST 

We were pleased to partner this week with the Smart Energy Council, First Nations Clean Energy Network, the ACTU, the Australian Conservation Foundation, New Energy Nexus, Rewiring Australia and CANA at the SEC’s Australian Renewables Summit in Canberra, to launch a joint call for $100 billion national strategic public capital investment in Australia’s generational opportunity to lead on global energy transition. 

We called for an urgently needed response in the firm of a nation-building Renewable Industry Package responding to international policy developments in decarbonisation, principally President Biden’s game-changing US Inflation Reduction Act, which has turbocharged the green revolution in the US.

Complementing this intervention, CEF and Climate Capital Forum founder Blair Palese launched a new blueprint – An Australian response to the IRA – detailing how this $100bn of capital should be invested to crowd in ~$300bn of private investment to drive transition and deliver the unprecedented economic, social and climate mitigation dividends.

The $US800bn IRA is the largest subsidy program in world history and has catapulted the US into the global energy transition race. On the industry side it has pulled onshore an unprecedented boom in public and private investment into mining, refining, manufacturing and deployments of zero-emissions technologies of the future.

It also injected a massive demand-side stimulus into the US economy including low cost financing for electrification of homes and businesses, direct electric vehicle rebates, and multiple incentives programs to electrify appliances and buildings. It is a model of the immense benefits of strategic public sector investment at scale in economy-wide decarbonisation, reindustrialisation and cleantech supply chain, 

Our world-leading resources and renewable energy potential provide the opportunity for Australia to become a driving force in the global green economy while slashing emissions in line with the science to maintain a safe climate.

Tim Buckley: "Without significantly greater investment, we simply won’t be able to build the industries of the future, reduce emissions, create jobs or strengthen national prosperity and social equity. We need a far more integrated and ‘big picture’ approach to our IRA response commensurate with the scale of Australia's massive renewables, cleantech and value-added energy transition materials export opportunity."

See coverage in the AFR, Guardian, ABC AM, Renew Economy & more.

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NSW COAL ROYALTIES BOOST: BETTER LATE THAN NEVER

CEF welcomes the politically courageous announcement by the Minns government in NSW last week that it will increase the state’s coal royalties by ~25%  to generate $2.7 billion over four years from 2024.

CEF has long called for NSW coal royalties reform, as we we wrote in The Guardian in June.

NSW Treasurer Daniel Mookhey said the government would use the extra revenue to provide cost-of-living relief and to rebuild essential services, including housing supply, filling nursing positions, out-of-home care for state wards, and ensuring there are enough teachers in schools.

From July 1, 2024, the new rate for open-cut mining will be 10.8%, while the rate for underground mining will be 9.8% and the rate for deep underground mining will be 8.8%. The rates are currently 8.2%, 7.2% and 6.2% respectively.

CEF has repeatedly urged NSW to follow the leadership of Queensland.  QLD Treasurer Cameron Dick’s progressive coal royalty scheme, from 7-40% of revenues depending on coal prices,  introduced at the height of coal price hyperinflation, delivered a >$10bn largely one-off bonanza to the state budget, enabling the government to apply a $550 electricity bill rebate for all households ($1,072 for more vulnerable homes) – more than any other state, thereby offsetting the fossil fuel-driven energy price crisis – and to boost spending on essential services.

CEF prefers the Queensland government’s progressive royalty approach, given it only applies in full less than once a decade or even more infrequently, at times of coal export sector super-profits, but an increased share, as in NSW' move, is definitely a good start. 

The previous flat 6-8% coal export royalty rate in NSW was overdue for review and uplift. The NSW decision shows the government finally standing up to the self-serving, climate science-denying coal lobby and acting in the public interest to ensure a more appropriate return to the people from the use of finite sovereign public assets, and appropriately applying the proceeds to alleviate the energy poverty the fossil fuel industry has inflicted on everyday Australians as it extracts war-derived superprofits.

Tim Buckley: "It is imperative that the revenue generated by the boost in NSW coal royalties is not used to subsidise the continued operation of coal power, including the end-of-life Eraring coal power station due to close in 2025, but applied to reduce cost of living pressures and underpin essential services, as the government has said it will do. Nor should the intervention be leveraged to justify yet more coal mine approvals."

See our media coverage in the Newcastle Herald, syndicated widely via AAP, Renew Economy, InQLD and elsewhere.

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NO CASE TO BLOW PUBLIC FUNDS ON EXTENDING CLUNKER ERARING

The NSW government last week released the findings of the O’Reilly NSW Electricity Supply and Reliability Review. The report finds that any reliability risks around the slated 2025 closure of Australia’s biggest coal power clunker, Eraring, only apply “should new network and firming infrastructure not arrive on time”, and acknowledges that an extension to Eraring “is only one solution and the NSW Government has other options to mitigate these risks if required”.

NSW Energy Minister Penny Sharpe’s view, expressed as she released the report, that there is a case for extension of Eraring’s life beyond 2025, is concerning. For one thing, it’s high time the myth of the centrality of end-of-life, expensive, high-emissions coal power to energy security was busted. In 2022, forced outages at Australia’s ageing coal power fleet meant coal capacity fell way short of forecasts, crippling the national electricity market.

Keeping this decrepit carbon bomb on life support as it enters terminal decline – and paying its operator hundreds of millions in public subsidies to do so – is totally unjustified.

The NSW Government will now engage with Origin Energy to quantify the massive new subsidies required to delay Eraring’s shutdown.

Public investment in the NSW energy sector must instead be directed to accelerated energy transition. To its credit, the government last week announced key measures to do this. It confirmed that delivery of the NSW Electricity Infrastructure Roadmap – the State's 20 year plan to transform the electricity system – will be a priority and that it will accelerate approvals processes for the renewables rollout. There is a $1bn commitment to the state Energy Security Co to help deliver community batteries and rooftop solar. 

The government will also prioritise the development of a new Consumer Energy Strategy to “unleash the potential of households and businesses to embrace small-scale renewables”, and will leverage Federal Energy Minister Chris Bowen’s Capacity Investment Scheme, which drives investment in large scale firming infrastructure. Additionally, the government committed to engaging existing spare capacity in the grid to connect distributed and infill renewables across the state.

Tim Buckley: "Clean, deflationary renewable energy is key to solving consumer cost of living pressures driven by the hyperinflation of fossil fuel commodities. Decoupling from coal pollution is critical to meeting the state’s emission reduction targets as the climate crisis escalates.

"Premier Chris Minns and Minister Sharpe should now act with political courage and rule out public subsidies to extend Eraring beyond 2025 and redouble their efforts to speed NSW' energy transition. That will be a sign of leadership in the public interest. And, As CEF's recent the lights will stay on."

CEF actively shaped the conversation on Eraring. Read our op eds in the AFR and the SMH.

See our other Eraring media from page 2 here, including in the AFR, Capital Brief, Channel Nine News, ABC 702 Sydney, The Guardian, ABC online, Michael West Media and more.

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NET ZERO TRANSITION PLANNING FOR FINANCIAL INSTITUTIONS

CEF consulted with NSW Treasury, the NSW Office of Energy and Climate Change and the Sustainable Finance Unit of Commonwealth Treasury to provide input into their decision on whether a nationally consistent approach to transition planning is needed and what guidance would assist businesses and financial institutions in transition planning. Climate related financial risks are characterised by radical uncertainty and we therefore need governments to actively steer market actors in the transition. 

Financial institutions allocate capital with a view to minimising risk and maximising returns. Contributing to Australia’s net zero transition, however, requires them to also consider the impact of their lending and investment decisions on national decarbonisation imperatives. Creating the right carbon price signal would be key. 

A nationally consistent approach to planning the transition must be accompanied by shifting financial incentives to facilitate a managed transition, for example by ceasing all fossil fuel subsidies and using best practice measures to address the green investment gap and crowd-in private capital by incentivising early investments and ensuring the right price signals, particularly on carbon emissions. 

Importantly, to seize the magnitude of its investment, employment and export opportunities, Australia needs another $100bn of patient public capital and incentives – such as advanced manufacturing tax credits supporting domestic supply chains – to derisk the decarbonisation strategy and crowd-in $200-300bn of private capital.

Our collective measure of success will be how well we allocate scarce resources – atmospheric, land, water, human and financial – to support the net zero transition.

Read our submission, by CEF’s financed emissions analyst, Nishtha Aggarwal: Net Zero Transition Planning Workshop – Financial Institutions

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IKEA LEADS GLOBAL RETAILERS' MOVES TO GET GAS OUT OF HOMES

Paul Oosting attended IFA Berlin, the world's largest home appliances and consumer electronics trade show, earlier this month. Home electrification was a major theme, with the shift by retailers away from gas gathering pace. 

Appliance manufacturers are carrying a large exposure in their Scope 3 emissions from the use of sold products, particularly gas cooktops, alongside legal and regulatory risks from the mounting evidence of the damaging health impacts of combusting methane in the home. 

Ikea is leading the way in the Netherlands and will end sales of gas cooktops from the 1st of January 2024. In a statement Ikea said "by only offering induction hobs (cooktops), we want to stimulate the market and consumers to switch to electric cooking. In order to accelerate the energy transition in the Netherlands, we must dare to make choices like these.” 

This opportunity was opened up by the Dutch government, which in 2018 banned new homes from being connected to gas and set a policy to retrofit 1.5 million homes to remove gas by 2030. 

Similar moves are underway in Australia led by the ACT and, most recently, Victoria which announced a ban on new gas connections from January next year. Pressure is now on other jurisdictions to provide policy certainty for the end of gas use in homes whilst commercial attention is on which manufacturers and retailers will move first to seize the new market opportunity in retrofits and integrated home electrification solutions.

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NOTE ON CEF TEAM ABSENCES IN SEPTEMBER / OCTOBER

Please note CEF director Tim Buckley is now away on long-delayed leave and mostly offline until the week commencing 9 October, when he will be playing catch up.

Annemarie and Nishtha will also be on leave in September and early October.

We appreciate your understanding that responses may be delayed. 

MEDIA |

We were active in commentary on a range of energy topics. See our other media here. Highlights include:

Tim Buckley's commentary in a major ABC investigation exposing claims by the former boss of WA's EPA that former Premier Mark McGowan pressured him to remove the state's tough emissions targets.

A story by the chief political correspondent of Australian Community Media for the Canberra Times with Tim Buckley as the sole spokesperson detailing the concept and benefits of “orchestration” of distributed and consumer energy resources.

OUR WORK |

See more of our latest work.

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.