26 MAY 2023

__HISTORIC AUS-US ENERGY COMPACT TO SUPERCHARGE AUS CLEANTECH & RENEWABLES |

Last weekend at QUAD, US President Biden and Australian PM Albanese announced an historic and potentially groundbreaking bilateral agreement – the Australia-US Climate, Clean Energy and Critical Minerals Transformation Compact. 

Subject to passing Congress, as the name suggests the Compact is a landmark statement of strategic policy intent that will increase cooperation between the two countries on climate and clean energy with a focus on critical minerals and cleantech supply chain. 

A key takeout, as described by PM Albanese, is that Australia will be treated as a domestic supplier under the US ~$800bn Inflation Reduction Act (IRA), suggesting the opening up of access for Australian companies and projects to huge investment opportunities (we’d suggest this will only be for Australian projects supplying into the US).

In the absence of an agreement of this nature, the overwhelming critical mass of the IRA's funding program – an unprecedented stimulus that is massively crowding-in private capital to the US – has been pulling investment away from Australia at a definitive inflection point in the accelerating global energy transformation.

Critically, the Compact is framed as a strategic defence- and security-related initiative, geared to securing critical energy supply chain diversity in a period of increased volatility in the US-China relationship, and with China leading the world on decarbonisation by a significant margin. This imperative should boost the likelihood of Congress approval.

CEF was first with analysis of what this game-changing Compact means for Australia in the context of the IRA, and for our potential as a zero-emissions trade and investment superpower.

>>>See our media commentary on the Compact: Tim breaking down the topline implications in a concise 3 minute explainer on ABC TV News Breakfast; our comprehensive op ed in Renew Economy, Tim's extended interview on the detail on Aus Biz and more.

>>>Also see our commentary across Ninefax papers on Resources Minister Madeleine King's announcement last week of $50 million in funding for critical minerals projects. 

CEF hopes this quantum will grow many fold. We estimate a national interest-oriented public financing commitment of ~$100bn is needed to de-risk and crowd in the $200-$300bn in private capital required to position Australia in the global energy transition race  – a significant advance on the $40bn committed so far through various programs including the NRF, Rewiring Australia and Hydrogen Headstart.

With appropriate government investment commitment and de-risking, there is a golden opportunity here to leverage Australia's world-leading $3.4tn superannuation pool, the fourth largest such pool globally, to supercharge our transition, a key call in the Climate Capital Forum’s roadmap to decarbonisation.

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__ONE YEAR OF FEDERAL GOVERNMENT'S 'PRAGMATIC GRADUALISM': LEAVES LNP LUDDITES FOR DEAD, BUT MUST GO HARDER |

In a feature for the AFR reviewing the achievements of the Albanese government, published ahead of the announcement of the new Australia-US Compact, CEF director Tim Buckley said he was frustrated by the government’s "pragmatic gradualism" a year into its term: '“It lacks the ambition the climate science dictates, and has meant an insufficient policy and fiscal response to the US IRA.” If Australia fails to use its status as one of America’s free trade partners, others like South Korea “will, with both hands, and we will remain the dig-and-ship nation of old.“'

While there is still much greater room for climate ambition – CEF endorses MP Zali Steggall's call for 75% by 2035 – the newly announced Australia-US Compact negotiated by the government has potentially changed the global geopolitical and investment dynamic around energy transition in Australia's favour. This is a key strategic development and an achievement of the Albanese government that CEF applauds.

We will be reviewing the Compact's passage through Congress with interest, and working with partners domestically to advocate Australia act now to seize its once in a century opportunity to lead the world in value-added critical minerals, energy transition materials and clean tech, embodying decarbonisation in our exports by processing and manufacturing onshore using our abundant renewables. And to stop wasting capital, time and energy approving yet more planet destroying fossil fuel projects.

As for the government's other achievements in its first year, Tim notes that the Safeguard Mechanism’s “credible, rising price on carbon emissions is exactly the right policy signal finance and corporates need to have the clarity to plan and invest" in decarbonisation.

>>>Read the full AFR story with Tim's commentary on the first year of the Albanese government here. 

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__ENERGY REGULATOR FLAGS PRICE HIKE HALF WHAT IT WOULD HAVE BEEN WITHOUT FEDERAL INTERVENTION |

The Australian Energy Regulator (AER) has put forward default market offers (DMO) for retail electricity price rises from 1 July of 20-25% for NSW, Queensland and SA and 25% in Victoria, foreshadowed in the draft proposals in March.

While this is terrible news for Australians already smashed by fossil fuel energy price hyperinflation and rising interest rates, these increases are about half the projected hike absent the Albanese federal government's interventions to cap wholesale fossil fuel prices in December 2022 and provide cost-of-living support in the May 2023 budget.

We expect that this could well be the peak in absolute electricity and gas prices at the retail level. There is a massive lag in the system in passing through the hyperinflation of fossil fuel commodity prices that occurred in 2022, which has squeezed up electricity prices to record highs. Since the start of 2023, LNG and coal prices have come down significantly, with thermal and coking coal down another 10-20% in recent weeks.

Unlike inflationary fossil fuels, firmed renewables are progressively deflationary – and that’s good news for energy bills in our zero-emissions future. We expect solar module prices to decline by 10% per year over the rest of this decade. A halving of installed solar costs by 2030 will accelerate the energy transition and progressively unwind the fossil fuel cost of living crisis.

The only solution to permanently lower power prices is to decouple our economy from polluting, inflationary fossil fuels and accelerate the transition to cheap, clean firmed renewable energy. In the meantime, the federal government has stepped in with energy bill rebates, and a budget package to improve domestic and business energy efficiency and speed electrification. All of this is taking place in the context of a rapid global shift to decarbonisation – a race in which Australia must engage emphatically with bold policy and significant capital investment to reap the benefits for reduced energy prices, investment, trade, exports and jobs.

We explore energy market dynamics and this context in detail in our op ed responding to the AER DMO. 

>>>Read our op ed on the energy price hikes; Tim's interviews on ABC Newsradio and ABC Melbourne will be posted on our website.

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__APPEA GAS SHILLS TALKFEST: MORE HOT AIR ON “NEW GAS” FURPHY & CCS |

As climate science denying APPEA members and foreign tax haven-based lobbyists gathered last week for the annual gas shills’ jamboree and talkfest, we took a look at Resources Minister Madeleine King’s keynote address.

We deconstruct the baseless claim that we need more gas. This perspective only holds if the Minister lets the foreign multinational gas cartel continue to starve domestic gas supply by prioritising their LNG exports and gouging Australian consumers on price. Most nations require their energy producers to clearly serve domestic needs as the top priority, and export the residual. Not so when the Multinational Gas Cartel sets the rules here!

Further, there would be a surplus of domestic gas supply if only the gas industry electrified their Australian operations, recouping the 8.4% of  Australia’s world leading gas production burnt by the gas industry itself. Redirecting all of this to domestic customers would increase domestic supply by 40% relatively quickly with zero sovereign risk or contractual change to exports.

>>>Read our op ed on the gas supply myth in Renew Economy – Developing new gas projects is 100% the wrong answer – and see the AAP story headlined by CEF and syndicated across 100+ mastheads, Gas claims ludicrous as energy transition fires up.

The APPEA gabfest also produced the unsurprising revelation that Chevron's much-vaunted giant Gorgon CCS plant, the biggest in Australia, is upholding its unblemished record of spectacular underperformance, operating at 30% of target rates.

Despite the assiduous defence put forward by industry and some parts of government, this is yet more evidence that the industry needs to put up, and show evidence of this tech "solution" working consistently and commercially at scale, or shut up, and pivot investment and strategic focus to actual decarbonisation. Amongst other things, this may take the form of investing some of its war superprofits in powering its operations using renewables, and reevaluating the investment case for gas expansions in the light of growing SGM tax liabilities.

>>>See our commentary on CCS on ABC Online and via AAP in Canberra Times and other mastheads.

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_BNP PARIBAS EXCLUDES FINANCING NEW COAL AND GAS |

Last week, BNP Paribas (BNPP) released its oil and gas financing policy committing the bank to excluding the financing of new oil and gas fields, and making it the second largest bank in the world, after HSBC, to make such a commitment. The move places the bank within European best practice on oil and gas climate commitments.

While there is plenty of room to remain skeptical – please see the detail in our op ed linked below for further nuance – the recently strengthened oil and gas exclusion policies by major financiers could herald a new source of momentum for the decarbonisation transition. And as capital momentum away from financing these historically important fossil fuel sectors continues to build, that should assist in building the financing capacity into zero emissions solutions.

>>>Read our analysis of BNP Paribas' move by CEF's Nishtha Aggarwal.

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__CEF TRACKS CHINA RENEWABLES SURGE |

As we reported in our last newsletter, during the first quarter of 2023, China’s decarbonisation trajectory saw a record 50 GW of renewables capacity added, 84% of total newly installed. Coal power was 8.1 GW, just a 14% share. Simultaneously, China accelerated its push into EVs with its new record high 29% EV share of passenger vehicle sales.

>>>The analysis by CEF’s China energy policy analyst, Xuyang Dong, has now been published in US-based Climate and Capital Media.

Watch this space for updates as we track trends in monthly electricity generation and capacity adds data from the National Bureau of Statistics, and continue to review China's escalating decarbonisation pathway.

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MEDIA |

See our latest media including commentary on the Snowy Hydro debacle. We need to see board accountability at the flagship infrastructure project. Its total cost, likely to be $10-15bn, is a straight-up massive new tax on consumers thanks to the incompetence of the previous government and the current board. 

OUR WORK |

We remain active in analysis of a range of key issues – see Our 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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Tim, Annemarie, 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.