31 MARCH 2023

FINALLY, A CREDIBLE SAFEGUARD FRAMEWORK TO BOOST AMBITION & ACCELERATE TRANSITION |

Still far from perfect, the deal struck between the federal government and the Greens on the Safeguard Mechanism, with the support of the Teals and independent Senator David Pocock, is an historic step forward on the nation's decarbonisation pathway. The bill passed both houses of parliament this week.

Designed to compel Australia's 215 biggest polluters to reduce their emissions, and coming into effect from July 1, the SGM is a welcome breakthrough after a devastating decade of policy failure under the LNP federal government, which shamefully put Australia at the back of the global pack on climate ambition, hampered investment, and stalled the energy transition.

Most significantly, the government has put a hard ceiling on actual gross emissions. The overall result is a formally mandated 205 million tonnes cumulative emissions reduction by 2030 – with emissions to not exceed 1,233 million tonnes over the decade – and a 100 million tonnes by 2030 annual target. As the Greens contend, this hard cap and the zero baseline for new gas developments will increase the financial and policy hurdles for coal and gas expansion in Australia. The science is clear: there can be no new coal and gas if we are to avert climate catastrophe, as the IEA has confirmed.

There are also notable improvements on the government's original proposed legislation across a number of other fronts, including (but not limited to):

> a new 'climate trigger' in the safeguard bill, meaning Scope 1 and 2 emissions over a new coal or gas project's life must now be formally considered in the context of the EPBC Act, which governs approvals.

> the requirement that new gas projects are zero onsite emissions. 

> the requirement that any facility claiming more than 30% of reductions via carbon offsets explain its position.

> increased rigour in emissions monitoring and reporting, with the Climate Change Authority to review methane measurement, verification and reporting; and separate reporting of methane and nitrous oxide, which have much higher global warming potential than CO₂. 

Critically, the SGM legislation also establishes a credible and rising price on carbon, the key policy lever to drive an accelerated investment switch from polluting, extortionate and volatile fossil fuels to renewable energy and cleantech. 

Now, finally, we can move forward with certainty. We have a policy architecture that will work in concert with the government's other climate, energy and industry initiatives such as Rewiring the Nation, the National Reconstruction Fund, and the Capacity Investment Mechanism, to catalyse capital flows into renewables, infrastructure, critical minerals and clean manufacturing – and a framework on which to build further ambition.

>>> For a full analysis, see our Canberra Times op ed, and see our commentary across Radio National Drive, SMH, News Corp papers and elsewhere.

NEW REPORT: METHANE BOMB IS ~70% OF EMISSIONS UNDER SAFEGUARD SCHEME |

The provisions in the SGM to get the Climate Change Authority to consider better monitoring, reporting and verification for, and the potential separate regulation of methane arrive not a moment too soon, after a new report by eminent environmental scientist Professor Ian Lowe identified fugitive methane emissions from coal and gas production facilities as the massive elephant in the room. The report was commissioned by Lock the Gate and its release supported by CEF.

Short-term warming effect of methane from fossil fuels in Australia and implications for the Safeguard Mechanism finds that direct methane emissions from fossil fuel facilities make up ~70% of total greenhouse gas emissions covered under the SGM, when the global warming impact is calculated over 20 years. Methane devastates the climate. It is 85 times more potent than CO₂ in the short term.

The report further finds the Clean Energy Regulator's current practice of calculating methane's impacts over a 100 year timescale dramatically understates its near term global warming potential (GWP); and that there is no technically feasible way to draw down methane from the atmosphere and no “like for like” offsetting is possible.

The only credible path to emissions reduction under the SGM is responsibly accounting for the short term impacts of methane, requiring fossil fuel facilities to mandatorily avoid methane emissions, and restricting new fossil fuel entrants to the scheme. 

As noted above, we are heartened to see a start on these fronts in the SGM legislation.

>>> See our commentary on the report on Sky News, Radio National Drive, syndicated via AAP to Canberra Times and 100+ mastheads, in Renew Economy, and in News Corp. Also see Ian Lowe's op ed in Renew Economy.

MACQUARIE GROUP TOPS BIG 5 ON GREEN FINANCING, BUT STILL BANKROLLING COAL AND GAS | 

In the fifth instalment of CEF’s climate finance analyses of Australia’s Big 5 banks, Nishtha Aggarwal reviews Macquarie Group’s climate impact across its four business lines: Macquarie Asset Management (MAM), Macquarie Capital (MacCap), Banking and Financial Services (BFS), and Commodities and Global Markets (CGM).

CEO Shemara Wikramanayake’s leadership shines above her competitors, as the only Big 5 exec conspicuously advocating for the government to improve policy to facilitate green projects. This, combined with Macquarie’s leadership in climate capabilities across renewables, batteries, grid modernisation, commodities, power purchase agreements, etc, means the Big 4 have a way to go to catch up with Macquarie.

The Group’s combined global 107GW portfolio of clean energy is unrivalled among major Australian financial institutions. However, we find its dominance in conventional energy markets undermines its climate commitments by contributing to a global warming trajectory above the critical 1.5 degree pathway of the Paris Agreement.

Further, while Macquarie discloses the full impact of its green financing (both on and off book), it is not anywhere near as thorough in its disclosure of fossil exposures, which are limited to on-balance sheet lending and equity.

Stay tuned for a cross-sector assessment of Australia’s Big 5 banks, which will compile the FY2022 published climate finance findings across ANZ, NAB, CBA, Westpac and Macquarie.

>>> Read the full Macquarie analysis, and see our previous briefings on CBA, NAB, ANZ and Westpac.

ON CHINA, "DRUMS OF WAR" & AUKUS DEAL CLOUD CLIMATE THREAT TO NATIONAL SECURITY | 

The recent outburst of “drums of war” rhetoric around China in Nine papers apart, relations between Australia and China have notably improved since the election of the Albanese Government, notwithstanding the AUKUS submarine deal complicating the geopolitical landscape. 

Climate Energy Finance’s Xuyang Dong examines Australia's national interests in the contexts of renewed attention to the security threat arguably posed by China, the AUKUS pact, climate change and the energy crisis.

She finds that the Australian electorate cares about the economy and issues such as resilience in the face of the impacts of the climate and energy crisis as much as they are concerned about countering China. Diversifying Australia’s security strategy to encompass these concerns is inarguably important because China is no longer the only, or major, threat to the world – or to Australia. 

>> Read the full analysis here, and see coverage in the South China Morning Post.

CRITICAL MINERALS – COMING SOON |

We expand our focus on Australia's once in a century, multi hundred billion dollar opportunity in critical minerals and energy transition materials, with a new analysis of the earnings growth of ASX-listed lithium miners operating in Australia, also summarising their capex into global lithium assets and mapping Australia's continued expansion of its global position as a world leader in supply of this key critical mineral. For background see our major report released earlier this month: A Critical Minerals Value-Adding Superpower.

Also watch this space for our new report on the massively burgeoning South Korean battery industry, and the huge opportunity for Australia to partner with South Korea as a supplier into the US under Biden’s transformative Inflation Reduction Act (aka Climate Bill), which favours trading partners that have established Free Trade Agreements with the US, such as Australia.

ADANI WATCH |

The Adani saga continues in the wash up of the Hindenburg allegations that the conglomerate has pulled the "world's biggest corporate con". Watch out for a major media report on Adani next week, and see our extensive analyses so far here.

In our latest media on the topic, Tim Buckley provided commentary for an Associated Press story (syndicated globally) on how the Group's existential crisis may present opportunities for other players to accelerate the energy transition in India; and stories in the Wall Street Journal and Forbes on the elusive elder brother behind the company’s opaque dealmaking.

OUR WORK |

CEF director Tim Buckley has been presenting on the global energy transition to a range of stakeholders, including UBS, the University of Sydney and Moir Group. View his presentations here. We have also been active in analysis of key issues – see Our Work.

MEDIA |

See our ongoing commentary on a range of topics, including the NSW election and the IPCC's latest report in Media.

PREVIOUS NEWS UPDATES |

Our previous newsletters covering major energy news can be accessed here. Our highlights tracking progress in 2022 and our 2023 wishlist are here.

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

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.