Tuesday, 3 December 2013
Clean Energy Finance Corporation (Abolition) Bill 2013; Second Reading
I begin my contribution to the second reading debate on the Clean Energy Finance Corporation (Abolition) Bill 2013 by acknowledging the discussion that we had yesterday in this place when we separated the package of bills out to be debated separately. The Leader of the Government in the Senate, Senator Abetz, said he had a mandate for this package of legislation. Well, I can tell you there is no mandate. We can repeal the carbon tax without abandoning the important principles of a holistic framework to manage carbon emissions in this country. We can have an ETS that commits us to binding targets and lets business work out the most efficient ways of cutting emissions. We can do this without abandoning the Clean Energy Finance Corporation, which is in fact the most efficient form of direct action that I have seen. We can also keep transparency, independent advice and good governance by retaining the Climate Change Authority.
Despite the shallow rhetoric of the coalition stating that it believes in climate change and that it supports action, it is very clear that nothing could be further from the truth. If the coalition government did believe in climate change then it would not be putting our nation in a position where we fall behind in playing our part in global action and—this is a very important point—we leave the Australian economy exposed in the future to unnecessary costs because we have failed to take adequate action. That action should include responding to the need to invest in renewable energy in this country and the need for more efficient energy generation from fossil fuels. These are core tasks of the Clean Energy Finance Corporation.
In putting forward this legislation, the coalition not only seeks to do away with the carbon tax—and I support doing away with it—but it also wants to do away with an emissions-trading scheme and the other vital tools that we need in this nation to address climate change. The Clean Energy Finance Corporation is one such tool. Despite the very successful operation of the Clean Energy Finance Corporation, this bill seeks to abolish it. It is a great shame to me that coalition senators have been unable to see past their so-called free-market blinkers and appreciate the very important role that the CEFC plays in the market in facilitating investment in renewable energy and other more efficient energy generation, with the cutting of emissions and energy consumption, which would otherwise be missed by normal commercial banks.
The coalition want to abolish the Clean Energy Finance Corporation for purely political reasons, with no logic and just negativity. Shallow, narrow arguments were put forward in the second reading speech, all of which can be dismissed when you look at the evidence. The coalition, for example, argue that the CEFC is full of risky ventures, when nothing could be further from the truth. We have a $10 billion fund generating a return to the taxpayer—a negative cost of abatement of $2.40 per tonne—with legislated-for good governance. Did you hear that? That is $2.40 generated as income for each tonne of abatement versus what has been put forward within what we know of the very spurious direct action policy, where we have not seen any costings or any analysis, where in effect you pay polluters. With a negative cost of abatement, the Clean Energy Finance Corporation are generating a return on investment. As they point out, the discipline of debt when it comes to cost abatement is very significant. It is the discipline of debt and the importance of that discipline versus paying the polluters to cut their emissions, where you just hand them some money to cut their emissions.
It seems incredible to me that those opposite would want to overlook these important economic principles in abandoning the Clean Energy Finance Corporation. The direct action fund is a $3 billion fund where we will pay polluters to reduce emissions, so that is abatement that will cost us, as opposed to the return to the taxpayer generated by the Clean Energy Finance Corporation. The thing is that the Clean Energy Finance Corporation makes investments to reduce emissions. We can reduce a lot more emissions through a $10 billion fund. It creates an asset that is owned and leverages more funds. Think about that: a $10 billion fund which is able to leverage a whole range of other investment versus the $3 billion fund of the coalition.
What the CEFC does is a good model and stakeholders know it. Stakeholders that gave evidence regarding the important work of the Clean Energy Finance Corporation to the Senate Environment and Communications Committee, which I am a member of, gave very compelling evidence and they argued very strongly that the Clean Energy Finance Corporation should be retained. It is but one part of a complete package for addressing climate change. We have not only priced carbon to reduce emissions but we have also put together a suite of policies, including the CEFC and the Australian Renewable Energy Agency. What we have here with the CEFC is a body which is able to facilitate comprehensive commercial loans and is set to fund emissions reductions at a negative cost—that is, it turns a profit. On the other hand, what we have from the coalition is an emissions reduction fund that will consume billions from consolidated revenue without a return to the taxpayer.
We know that since it began operation the CEFC has been very successful in providing loans to organisations. It has had the capacity to make investments that would account for 50 per cent of the five per cent emissions reduction by 2020, at a profit to the taxpayer of $2.40 a tonne. That is pretty impressive, and I cannot believe that those opposite would want to abandon this organisation and do away with it, unless of course they do not believe in targets, unless of course they do not actually believe in climate change and do not believe that it is important for our society and our economy to make a contribution to lowering emissions and going on a low emissions pathway. The Clean Energy Finance Corporation has $546 million in 47 projects in partnership with major trading banks, which means we have got private finance, private sector co-financiers, where we are leveraging and multiplying the available funding for investment by three to one. It is very impressive. We have leveraged from a little more than $500 million an additional $1.5 billion in private sector co-financing. This has created over $2.2 billion worth of renewable energy projects, of projects which help big companies lower their energy consumption. It has delivered around four million tonnes of abatement—and, as I said before, at a negative cost.
This is an absolutely brilliant record. It represents a return to the taxpayer and it is a return that is misrepresented in the explanatory memorandum to this bill, where the impact on both the fiscal and cash outcome of the budget is underestimated in terms of the benefit to the taxpayer of retaining the Clean Energy Finance Corporation. As Mr Yates described in estimates:
Our price per tonne is actually negative $2.40. The reason it is negative is that when we lend we earn a profit on that lending activity. Corporations use that money that is lent to become more efficient by reducing their energy costs and by reducing their energy usage they actually reduce emissions. It works very well that we lend. The taxpayer receives a return because we are running profitably on that money and the company receives a better return because they are actually becoming more efficient.
It is really important to recognise that what we are doing with the Clean Energy Finance Corporation is not just about renewable energy; it is very importantly about helping major corporations in this country lower their energy use. That can require a big investment. It is something that can be co-financed with the CEFC and with the banks, and in turn those corporations are able to repay the government and repay the banks with the efficiencies from their lower consumption costs. It is an incredibly effective model and about the most effective form of direct action that you could dream up. This is very important model, earning a profit to reduce emissions.
The former Reserve Bank board member who is chair of the CEFC, Ms Jillian Broadbent, said at estimates:
Instead of paying something, when you do a reverse auction you might say we are taking the lowest price, we move into the positive price. So for every tonne of emissions that we manage to encourage to be achieved, it has a return to the government of $2.40 per tonne.
So taxpayers are actually benefiting from the reduction in emissions.
We have heard from many stakeholders about the importance of what the Clean Energy Finance Corporation does. Nathan Fabian, who is the chief executive officer of the Investor Group on Climate Change, summarised in evidence for us the importance of the CEFC. He said that there are now 14 co-financing organisations around the world and they are needed for these important reasons:
Firstly, government cannot sufficiently finance low carbon alternatives to meet a two-degree outcome and private capital is needed. Secondly, the low-carbon investment market is relatively young and so deal flow needs to be supported. Thirdly, capacity in the finance sector must be increased through the experience of financing investments. Fourthly, financial participants welcome investment opportunities presented in new markets by an objective third party, even more than by investment banks.
This is particularly important because that is what the Clean Energy Finance Corporation is set up to do. It is set up to be that independent, objective third party, but it also has the expertise and governance to deal with energy issues, whether they be renewable or about creating greater energy efficiency. Mr Fabian goes on to say:
Lastly, co-financing organisations can actually earn financial returns for governments, delivering abatement at negative costs—and we think this is appealing and makes sense to all parties. Given the government's infrastructure agenda, we think dismissing co-financing as a useful policy instrument may be premature.
This is something that has been reiterated by many other submitters to the Senate economics committee. I do not have time to go through today all of the excellent evidence that they have put forward, but I will touch on what the Responsible Investment Association of Australasia submission highlighted. They said that the CEFC is not a novel idea and that, as was pointed out by Mr Fabian, many other countries are deploying similar financing models. The co-investment model, he says, is a prudent and cost-effective way to allocate limited funds and to leverage private investment to do the heavy lifting in the investment into a low-carbon transition. Again, the CEFC is actually earning a return on the government's cost of funds; taxpayers are gaining a significant return over and above the actual costs of funds.
Chair of the CEFC, Jillian Broadbent, went on to tell estimates:
… there really is an appetite for progressing emissions reduction, but it does need an advocate and it needs an encouragement to get on with the job, because the market has been very immobilised by the lack of bipartisan policy in this space.
This is exactly the gap that the CEFC has been highly successful in filling. It has had that expertise and that leverage there. It has had the understanding of clean energy investments alongside the capital required to get that extra investment out of the banks and make an important array of renewable and energy efficiency projects viable in our nation. This is going to be a great loss, if the Clean Energy Finance Corporation is repealed, because there will be billions of dollars of investment that we will forego, which will really put us way behind the eight ball in dealing with climate change and the need to adjust our economy in this country.
Industry, as Ms Broadbent pointed out, is actually looking for leadership on this issue. So let us get on with it. It is an example of government providing real, tangible leadership in response to a need for solutions. I think that we in this place—perhaps, unsurprisingly, other than those on the other side of the chamber—would all want to see those solutions being developed in partnership with the private sector. The CEFC was put in place to deal with imperfections in the market and it is clearly achieving that.
As Mr Yates, CEO of the CEFC, pointed out:
…we actually provide targeted monetary policy. When the government wants to encourage activity in one sector, it uses a very broad tool such as overall interest rates. By having an organisation such the CEFC, we are able to deliver a targeted monitoring policy to the clean energy sector, including those people who want to take action to reduce emissions and become more efficient. We can ensure that they have access to capital efficiently and at a lower cost.
So it is an incredibly efficient way of doing things.
I am not going to have time this afternoon to go through all of what I want to say in the 20 minutes that I have, but I will be pleased to save some of those issues for the committee stage of this bill. But what I want to say is that the CEFC, the Climate Change Authority and the emission trading scheme in the suite of bills all have separate and very important attributes. You could in fact retain the Clean Energy Finance Corporation and the Climate Change Authority and do that alongside direct action. They would be meaningful things to do, and it is an important reason to separate these bills. But the coalition is full of political warriors, not for any free-market ideal or any demonstrated ideological rationale, but simply because it is driven to remove all rational policy, however meritorious, because it was delivered by a Labor government.
In conclusion, I move the following second reading amendment:
At the end of the motion, add:
", but the Senate expresses concern over the impact that the abolition of the Clean Energy Finance Corporation will have on investment in renewable energy projects."