Wednesday, 4 December 2013
Clean Energy Finance Corporation (Abolition) Bill 2013; Second Reading
Where there is a market failure, government intervention and investment can support and encourage private sector investment rather than discourage it. On that I turn to the Emissions Reduction Fund. Would this crowd out or crowd in investment? Would it encourage investment, or is it simply doling out grants? Almost every investment by the corporation has included co-financers that encompass many of Australia's major financial commercial entities. Would these entities—the big banks, investment funds et cetera—be interested in supporting a government grants program? Indeed, would they even have been asked?
The supposed party of the market appears to be doing its best to exclude the market from this vital area of investment and policy into the future. It is clear that demand for the CEFC in the market remains high. The question is: why abolish it? Is it about risk? Claims have been made that the CEFC invests taxpayers' money in high-risk ventures. Treasurer Hockey claimed in his second reading speech that the CEFC was investing in high-risk ventures. I am sure the Treasurer is actually aware of the Australian government's own direction to the corporation, which clearly states that the CEFC must invest 'across the spectrum of clean energy technologies'. It must in aggregate 'have an acceptable but not excessive level of risk relative to the sector'. It is not allowed to venture into the high-risk arena, so it has not. Its portfolio is mostly in relatively low-risk loan-based transactions, and none of Low Carbon Australia's loans are in default after three years in operation. In addition, to protect taxpayers into the future the CEFC has rigorous procedures in place. The CEFC knows finance and it knows risk. Further, not all projects make it to financing, with numerous checks by staff and the board ensuring that only the best investments are made. It is a sophisticated institution and it is embarrassing that the current Treasurer, Mr Hockey, has not bothered to move beyond the rhetoric.
Soon after the election, in seeking to beat his chest and show that he could be an anti-environment Minister for the Environment, Mr Hunt said that the CEFC was a 'giant green hedge fund' and demanded that the institution stop issuing finance. I would rather take on board the advice of the CEFC and Mr Fabian from the Investor Group on Climate Change on the role and purpose of the corporation. Firstly, the CEFC claimed that it is not in any way acting like a hedge fund with its $536 million of investments—no dollars are invested in hedging, derivatives or guarantees—while Mr Fabian noted at the hearing that the business model of the CEFC is not an investment banking business model; it is not there to maximise the returns for the broker. It is this distinction, that a finance corporation can exist to seek to grow a market rather than simply grow profits, that appears to be the real issue for those opposite—and that it is supposedly a great green hedge fund experimenting in all sorts of unviable projects.
A further slight on the CEFC purported by those opposite is that it is undercutting the market by providing concessional loans. This is despite it being established that there is insufficient private sector appetite for engaging in the type of finance provided by the CEFC and the basic fact that many private sector providers also offer discount rates. The facts are that the CEFC has only provided discounts amounting to $14 million, or just around 2.5 per cent of the total funds it has lent. This proportion seems very low and indicates that the rate of a loan has not been an issue for the clean energy industry, but the availability of finance is the issue. Plainly, the CEFC cannot be accused of undercutting the market. The facts are clear.
A final attack on the CEFC that I will use my time to debate is the notion that the CEFC does not produce any clean energy. The argument goes that as there is a renewable energy target of 20 per cent, why do we need to spend $10 billion of borrowed money? Basic maths shows that 20 per cent is not 100 per cent. Also, the renewable energy target is quite narrowly defined so cleaner energies, such as gas, quite rightly do not comply. Therefore, there is a strong potential for the CEFC to finance renewable and cleaner energy outside of the RET. The CEFC provided for the inquiry two examples of clean energy investments which are not RET-supported. Interestingly, both investments seek to lower energy costs for rural and regional users. Clearly, there are still a lot of questions to be answered, and I request that the chamber take these to the committee stage.
In conclusion, the CEFC is allowing Australia to get chief investment officers of renewable and clean energy projects and bank officials around the table talking about the deals they can do. Abolishing the CEFC comes at a huge cost to the taxpayer. It is reckless and irresponsible to remove this tool from a policy suite in tackling climate change.