Tuesday, 3 December 2013
Clean Energy Finance Corporation (Abolition) Bill 2013; Second Reading
I rise to speak in the debate on the Clean Energy Finance Corporation (Abolition) Bill 2013. As expected, I will not be supporting this bill. I hope government senators and members listen to this debate and consider the benefits of the Clean Energy Finance Corporation.
Senator Abetz has just talked about a number of things in relation to car manufacturing. He might want to check his facts. As I understand it, the additional cost of a Toyota car is $115 and the additional cost of a house is $465, not $5,000. The AMWU is about jobs for the future. If you talk to the AMWU—a union that I am a proud member of—you would know that they have for a long time been arguing about jobs for the future for our members and also for future generations.
So I hope those opposite can put aside their ideological opposition to government co-financing and see the potential of the Clean Energy Finance Corporation. We have a bipartisan emissions reduction target in this country. We have agreed that we must reduce Australia's emissions by at least five per cent on 2000 levels by 2020. We clearly are not agreed on a path to achieve that target. We on this side want to stimulate private sector investment and use market based mechanisms to reward innovative businesses and send a price signal. This argument is based on many rigorous assessments conducted by Australian and international professionals on how to achieve emissions reductions at the least cost for our economy. At this stage the Australian people are unsure what those opposite believe. On one hand there is a fierce belief in the market over government control, yet on this, the fundamental issue of our generation, they want to throw out the market and revert to the dangerous pastime of picking winners.
This first debate is on the Clean Energy Finance Corporation, a body that is assisting companies and organisations finance clean energy technology and energy efficiency measures through commercial loans, not government grants. It is a body that is forecast to achieve a positive return to taxpayers of $2.40 per tonne of abatement, a remarkable achievement that no-one could have predicted when the corporation was founded just a few months ago. It is an achievement that we will no doubt be hearing a lot about today and into the future as we all grapple with the best ways for government to set policies and implement programs to reduce carbon emissions, which is how we can preserve jobs, preserve growth and prevent carbon shock in future years.
I have participated in the Senate Environment and Communications Legislation Committee inquiry into these repeal bills. It was definitely a quick and nasty inquiry. The chair, Senator Williams, did a fine job at the hearing keeping everyone to time; however, that time was too short. It was not fair on the witnesses, the organisations and the individuals who sought to make a submission and it was not fair on the Australian people. The coalition government referred the suite of repeal bills to the committee to examine the costs of pricing carbon on households and businesses. We, the opposition, referred the bills on the basis of examining how they fitted with Australia's long-term climate change obligations. Put simply, we start from and continue to see this problem through very different lenses. On one side the coalition government see climate change in terms of purely the here and now, while on our side we see the problem in terms of the medium to long term.
As important as any 2020 target is the need to have in place a pricing mechanism for emissions reductions beyond 2020, with a target for reductions at 2030 and 2050. We want to ensure the transition is a smooth one, but we acknowledge that we have to start somewhere. The former Labor government put in place a suite of measures to address climate change, including the establishment of Low Carbon Australia and subsequently the Clean Energy Finance Corporation. The value of the Clean Energy Finance Corporation extends beyond carbon pricing. The current clean energy legislation has put in place a clear path for Australia to transition to a low-carbon economy. Fundamental to that passage is government's role in fostering the development and rollout of clean energy in Australia. Labor established the Clean Energy Finance Corporation to facilitate finance for renewable and clean energy technology investments.
I would like to note at this point the depth of the submission that the CEFC provided to the Senate inquiry. I thank the staff at the CEFC for the efforts in providing this detailed information and I encourage all members and senators to read it. It covers the role of the corporation, the policy rationale for introducing the corporation, and its expected use-by date; the impact of abolition, including the cost to the taxpayer; and some comprehensive case studies on how the corporation is investing taxpayer dollars to reduce emissions and turn a profit. The corporation currently has 39 investments in its portfolio. Its investments are secured through facilitating comprehensive commercial loans. So far, it has co-invested $536 million with $1.55 billion of private sector funds. This $2.2 billion investment will deliver approximately four million tonnes of abatement and achieve this at a negative cost—a profit—of $2.40 per tonne.
The CEFC has been able to coordinate finance for emissions reduction that benefits business, provides returns to private sector investors and achieves a profit to government. The CEFC has funded projects that will generate or support over 500 megawatts of clean electricity. These investments are across a broad range of technologies, including wind, solar, energy efficiency and low-emissions technologies. Importantly, the CEFC's investments will deliver an estimated annual carbon abatement of 3.88 million tonnes.
The CEFC has demonstrated that it actually has the capacity to make investments that would account for 50 per cent of the five per cent emissions reduction target. The CEFC invests in projects that are demonstrating the benefits of proven technologies in the Australian market. Its team of financial experts, all with significant experience with major banks and financial institutions, conduct comprehensive risk assessments and financial evaluations of projects. This analysis then allows them to demonstrate to the private sector its confidence in a project. As the staff members are drawn from the private sector, they utilise their networks and contacts to build confidence in clean energy projects. So far, the CEFC has been securing $2.90 of private sector investment for every dollar it invests—a fantastic leverage rate indeed. The investments to 20 August 2013 carry an average yield of 7.33 per cent, and this compares very favourably to its cost of finance, the five-year bond rate, which on average was 3.11 per cent—well over double the return.
Beyond the first few projects, the pipeline for the CEFC looks good. Its submission outlined that it had conducted discussions with 37 proponents for projects worth some $4.5 billion, while initial assessment is underway of a further 142 projects. Together, this investment pipeline comprises almost 200 projects and $15 billion of opportunity. That is a $15 billion pipeline of investment, and we have barely taken the training wheels off the corporation. The CEFC's investments assist in building Australia's clean energy supply chain capability, funding projects in regional and rural Australia and supporting 21st century jobs in local communities. Many industries are benefiting from their financing, including agribusiness, property, manufacturing, utilities and local government.
I commend Ms Jillian Broadbent, the chair, and Mr Oliver Yates, CEO, together with their team, for the quality of their submission, their evidence and, more importantly, the quality of the work they are doing every day to help financiers appreciate the benefits to their business of investing in clean energy and energy efficient technology. The hearing was a difficult forum where, despite the best explanations from the CEFC officials, some government senators could not comprehend the purpose of the CEFC. The officials had to spend most of the hearing explaining that private investors need the coordinator to come to the table with some skin in the game—that chief financial officers would not turn up if the CEFC was not a co-investor in a project, and that the CEFC is much more than just a $10-billion government bank. Mr Fabian from the Investor Group on Climate Change summarised the need for the CEFC thus:
Investors do not turn up for chat; they turn up when there is a deal to be done. If we know that the counterparty can make the investment more attractive, then we are interested. We are not just going to come along for a bit of a chat about what might occur or what investment might take place.
Mr Yates highlighted the importance of financing in the corporation's role:
We need the ability to deploy cash so we are a real participant in the market, so that we can participate equally and on level terms with the private sector, so that we can actually facilitate transactions.
So where does this leave us?
The CEFC cannot operate without providing finance. It cannot leverage the private sector funds. The projects that it has financed so far—$2.2 billion worth of investment—will see over four million tonnes of abatement achieved, at a profit to the taxpayer. This seems to be a good program. The market does not provide the service required by all sides to achieve the bipartisan emissions reduction target. A government corporation utilises innovative financing to provide such a service and return a profit to the government—surely the new coalition government would seriously consider keeping this corporation as part of its direct action policy? Unfortunately, as is occurring all too often with this new government, ideology is getting in the way of good policy. Meanwhile, the emissions reduction fund will, as far as we are aware, consume billions from the budget, billing general government revenue for abatement, taking money off education, off health and off programs for families. It is clear that coalition senators have been unable to see past their free-market blinkers and appreciate the role that the CEFC plays in facilitating investment in renewable energy that would otherwise be missed by normal commercial banks.
As I mentioned earlier, the CEFC provided some quality case studies to the inquiry. I thought I would read one for the Leader of the Government in the Senate, as I imagine he has firsthand knowledge of the building in question. The CEFC has invested in a lighting upgrade for the Civic Centre in Kingston, Tasmania, which has cut the building's lighting energy costs by 75 per cent. The Kingborough Council replaced the building's fluorescent lighting system with more energy-efficient LED tube lighting, to make energy savings of more than $11,000 a year. The council covered the $45,000 up-front cost with finance from Low Carbon Australia, now the CEFC. The 20-year life expectancy of LED lighting, compared with four years for the old fluorescents, means that the council is also saving on its maintenance costs. I congratulate the member for Franklin, Julie Collins, on her work assisting the council with this loan. I urge the Leader of the Government in the Senate to venture up the road to the council chambers and flick the light on.
There have been a range of comments made by those opposite to deride the work of the Clean Energy Finance Corporation. Once again, the detailed submission of the corporation brought these to the attention of the committee, and I would like to take some time to share these with the Senate. On 'crowding out of private sector investment': the CEFC has actually done the opposite and encouraged investment where links were not being made. Ms Broadbent said to the hearing:
I think we have got evidence that there has certainly been crowding in rather than crowding out, because new financial institutions have come to participate in the market, being encouraged by a government owned entity's participation.
It is a fascinating concept, 'crowding in'. Where there is a market failure—