NEW EU LEGISLATION ESCALATES PRESSURE ON AUSTRALIA TO SEIZE CLEANTECH OPPORTUNITY

Plus: Safeguard Mechanism moving towards enactment; how Federal intervention limited retail electricity price hike; breakthrough on carbon emissions pricing in NSW; shortage is in the gas cartel’s ethics, not supply; China insights in the pipeline

LANDMARK EU MOVE SIGNALS GLOBAL DECARBONISATION RACE IS ACCELERATING |

The global race to decarbonisation massively escalated overnight with new regulations designed to turbocharge and onshore cleantech in the European Commission nations, following the US’s game-changing Inflation Reduction Act, which is spearheading the energy revolution there. The challenge is now on for Australia to accelerate investment and leverage its competitive advantages as a value-adding energy transition materials and renewables superpower – or miss the boat.

The EC’s Net Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA) are direct climate and investment strategy responses to the landmark US legislation, marking a significant surge in ambition in the global race to accelerate the energy transition to deliver on climate science. The opportunities for Australia are enormous, as is the pressure on the Albanese government; leaving it to free markets won’t work. 

Australia’s trading partners -- from China to the US, to India’s PLI, Japan’s GX Roadmap and EU -- are intervening, strategically, publicly and at massive scale. Australia needs a new concerted public finance and policy response to crowd-in our $3.3 trillion private pension capital and to seize this “once in a century” opportunity. Australia must move fast and strategically, as highlighted in the Climate Capital Forum blueprint. 

The CRMA establishes the policy framework to onshore mineral and metal processing and scale clean energy and battery technology supply chains within the EU. Core ambitions are to ensure supply chain diversity and security, reduce overdependence on any one country, build regional industrial capacity and encourage accelerated investment in the massive new capacity to deliver on the energy transition.

>>>Read our analysis in Renew Economy: EU’s new Net Zero Industry & Critical Raw Materials Acts dramatically escalate pressure on Australia

SAFEGUARD MECHANISM MOVES TOWARDS ENACTMENT, WITH TEAL & GREEN ENHANCEMENTS |

The Safeguard Mechanism has had a fair degree of criticism, but to CEF it brings a much needed high, and rising, price on carbon emissions for major industrial emitters (29% of Australia’s total within-border emissions) – the exact signal needed to mobilise capital at the scale and speed of the climate and energy transition challenge.

This week we talked with Allegra Spender MP, as she answered her community’s questions. Allegra spoke with Sea Forest, a brilliant Australian cleantech startup betting on the ACCU review to create a potential path to commercialisation of asparagopsis supplement from seaweed, if this technology can be proven up.  This is a potential multi-billion dollar annual revenue generator in Australia and NZ alone and a case study in the power of innovation and finance to solve the climate crisis, with the right policy framework.

THERE IS NO GAS SHORTAGE. THE GAS CARTEL IS SHORT ON ETHICS & INTEGRITY |

The Australian Energy Market Operator’s Gas Statement of Opportunities (GSOO) highlights looming supply risks and potential shortages, ignoring both its own data showing gas use in the National Electricity Market (NEM) has declined 20% since 2019, and its forecast that gas use is expected to decline another 60% by 2025. Accordingly, the AEMO conclusion that more supply is needed to solve rapidly declining domestic demand is entirely counterintuitive.

There is no gas shortage; rather, there is an utter and complete shortage of ethics from the war-profiteering multinational gas cartel. East coast production has trebled in the past decade, as domestic demand has declined. In its pursuit of ever greater profit, the gas industry has prioritised exports. Having established massive new export capacity at Gladstone, the industry is now restricting domestic supply to gouge consumers and extort higher export parity pricing, even as demand declines.

The key to the problem: LNG exporters continue to draw on independent domestic gas producers for supply to make up for the shortage in their own production for export. Regulatory approvals a decade ago relied on the proponents’ own assertions of having zero impact on the domestic gas market. They misled the regulator, and need to be held to account for the massive cost this failure has inflicted on all Australians. The government needs to compel the industry to work with integrity to prioritise domestic supply. Bringing into effect and enforcing the proposed mandatory code of conduct is long overdue.

>>>Read our critique of AEMO's GSOO in Renew Economy: There is no “gas shortage”, just a shortage of ethics and integrity from gas cartel

AS REGULATOR FLAGS 20% ELECTRICITY PRICE HIKE, ACCELERATED ENERGY TRANSITION ONLY PERMANENT SOLUTION TO PRICE PAIN|

The 20% rise in retail electricity prices in NSW, SA and southeast Queensland flagged by the Australian Energy Regulator this week, and anticipated by major retailers, is fortunately well down from the threatened increase that forced federal energy minister Chris Bowen’s hand last year, resulting in an unprecedented energy market intervention in December 2022. At that time, the Albanese government capped domestic wholesale coal and gas prices, an action that was clearly justified. Prices would have risen some 40-50% in the absence of the intervention. However, the hoped-for reduction to just a 10% rise in retail electricity prices from July 2023 has not materialised, due in part to continued outages at our aging, unreliable coal power station fleet.

The previous federal government failed to accept and act on the climate science and the obvious energy security risks of trying to extend end-of-life coal power plants. That now exacerbates the energy price train wreck smashing Australian retail and business customers. When can we expect relief? Retail electricity prices will likely start to decline beyond 2024 as significant new clean energy generation capacity comes online. Meanwhile, the price hike is a clarion call for accelerated climate and energy policy implementation to build out investments in regional Renewable Energy Zones (REZ), rooftop solar, induction cookers, heat pumps, batteries, electrification of everything and improved energy efficiency, particularly in our $9 trillion housing sector.

>>>Read our op ed in The New Daily: As regulator flags ~20% hike in retail electricity prices from July, accelerated energy transition only permanent solution to price pain

MOMENTUM BUILDS: NEW NSW TREASURY GUIDELINES FACTOR PRICE OF CARBON EMISSION IN FOSSIL FUEL PROJECT ASSESSMENTS | 

Treasury’s new “NSW Government Guide to Cost-Benefit Analysis (TPG23-08)” is a surprising pleasure to read. There in black and white is something of a breakthrough: a requirement that proponents of projects greater than $10m in value factor in the costs of Scope 1 and 2 carbon emissions, using existing credible carbon market pricing, such as the EU emissions trading scheme (ETS) price of €101/t (~A$160/t).

There is a clear need for a well-regulated, high and rising price on carbon emissions. To mobilise finance at the scale and speed required, pricing of all carbon emissions is required, by Australia and our trade partners alike. This move to mandate use of a NSW carbon price -initially set at A$123/t - makes the federal climate and energy minister Chris Bowen’s Safeguard Mechanism proposal of a capped A$75/t look very fossil fuel industry friendly. However, either is infinitely better than what we had under the previous government i.e. nothing. 

>>>Read our op ed: Momentum builds: New NSW Treasury guidelines factor price of carbon emissions into assessment of fossil fuel projects

COMING SOON: National security is not limited to defence. Australia’s economic and strategic ties with China are inseparable | 

The “drums of war” rhetoric apart, relations between Australia and China have improved since the election of the Albanese Government. In a coming commentary to be published next week, Climate Energy Finance’s Xuyang Dong examines the national interest in the contexts of the AUKUS defence pact, climate change and the energy crisis.

MEDIA & ANALYSES |

CEF director Tim Buckley has been active in the media on a range of topics. See all our media here. Our broad range of analyses are here.

__

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

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.