Wednesday, 4 December 2013
Clean Energy Finance Corporation (Abolition) Bill 2013; Second Reading
I rise today to support the Clean Energy Finance Corporation and to speak against its abolition. The Clean Energy Finance Corporation is one of the institutions that came out of the multi-party climate committee negotiations on how to address global warming.
We are living in a period of climate emergency. Every day, virtually, there are new scientific reports showing that the world is on track for four degrees or more of warming, and that is an unliveable planet. That is the fact of the matter. Today, there is a new report out from the Australian National University saying that even trying to constrain global warming to less than two degrees is not enough, that two degrees is not safe and that we need to constrain it to less than that. This means going back to a 350 parts per million scenario.
The point here is that we have run out of time as a planet to address this issue, and we have to get on with it. The emission reduction cuts that we make have to be deep and they have to be fast. We knew that as we were negotiating in the multi-party climate committee for a clean energy package. The Australian Greens wanted to see Treasury model a 350 parts per million scenario, which would have given a carbon price that is much higher than the one that we really have. In fact, the two Treasury models were for 450 and 550 parts per million. The $23, $24 and $25 price, that has been the fixed price, is the 550 parts per million scenario. If it had been adopted at the 450 parts per million scenario, the price would have been more than $50.
The whole point here is that when you adopt an emissions target it has to be consistent with the science and the time frames. It has to be able to drive the transformation in the Australian economy to the low-carbon economy. In other words, drive hard and fast out of fossil fuel power into renewable energy power. That is the critical factor. You have to decouple economic growth from the use of fossil fuels and decouple economic growth from non-renewable resource extraction and environmental degradation. That is the key challenge in the transformation.
When the government and the multi-party climate committee, as a majority, determined that it would be the 550 scenario that would reflect the price, the Greens said, 'In that case, we need a substantial financial institution that will be able to assist in the funding of renewable energy at scale and fast enough, because that price will not drive the transformation in the time frame we have; therefore, we need, in addition to the Renewable Energy Target, an institution able to fill that role.' That is where the $10 billion going into the Clean Energy Finance Corporation came from. It was to set up the equivalent of what the United Kingdom had done with their green bank, as it was then known—now, the UK Green Investment Bank. That was the first of its kind in the world, and that was the model that the Australian Greens took into the multi-party climate committee to say that that is what we need to do in Australia.
Of course, since the establishment of the UK Green Investment Bank and the Australian Clean Energy Finance Corporation, we have 12 other countries that have adopted similar bodies to attract private sector capital to projects that drive down greenhouse gas emissions. The point here is: if we abolish the Clean Energy Finance Corporation then we are going to see substantial sums of money flow offshore. In fact, Nathan Fabian of the Investor Group on Climate Change said in the hearings we had just recently that half a trillion dollars' worth of investment in low emissions projects are at risk with the scrapping of the Clean Energy Finance Corporation. He went on to say that money and investment in skills will either sit on the sidelines or go to other markets.
The Clean Energy Finance Corporation which has been set up is working brilliantly in this space. It has been far more successful than I had even hoped it would be—it is one of those real success stories in Australian politics where the parliament has set up an institution which is doing its job. It is leveraging private-sector finance, with the government as a co-financier through the Clean Energy Finance Corporation, and it is investing in technology which is renewable, energy efficient, clean and creating jobs. Not only is it doing that specifically but, as a co-financier, it is giving confidence to finance markets to lend in this space. That would not be happening otherwise.
Let me give you some figures. In its first year, the Clean Energy Finance Corporation leveraged $1.55 billion in private finance from $536 million of its own investments. That is a pretty impressive sum. Within its first year of operation, it generated investments responsible for 3.9 million tonnes of CO2 equivalent abatement annually and that was generated at a negative cost of approximately $2.40 per tonne—pretty impressive. It has 179 proposals for projects in the pipeline and those 179 proposals have an estimated value of $14.9 billion of investment in clean technology. These are all good news stories: good for jobs, good for investment—particularly in rural and regional Australia—and great for addressing the climate challenge. Its investments are a diverse mix across the economy and across the country in agribusiness, property, manufacturing, utilities and local government. Its portfolio of contracted investment is presently expected to earn an average return of approximately seven per cent, around four per cent above the Clean Energy Finance Corporation's benchmark return of the government five-year bond rate. These returns cover the operating costs of the CEFC.
So I am really stretched to understand why the government is so intent on removing and closing the Clean Energy Finance Corporation when it will not save the government any money to close them down. It will actually come at a budgetary cost and end a vital public policy tool that provides long-term benefits across the economy. That is why the only conclusion I can reach is that it is being done out of pure ideological spite. There can be no other explanation for it. I have not heard a single specific argument raised as to anything that the CEFC are not complying with, in terms of their investment mandate, and I have heard only complimentary things said about them both in the public arena and financial circles. You would be hard-pressed to find anyone who is not going to acknowledge that Jillian Broadbent as chair of the board and Oliver Yates as CEO have done a great job with the Clean Energy Finance Corporation. What is more, we are hearing financial institutions say that they will be really worried if this institution disappears, because of its convening and co-financing power. It can bring together the players in the financial sector that nobody else can or will, and by doing that it is building confidence and its profile.
I want to go through the sorts of investments the CEFC has been involved in. If you have a look at the breakdown, it has done over $2 billion for utility-scale renewable energy generation, $2 billion for energy efficiency in the building, manufacturing and commercial sector, $700 million for solar PV projects and $268 million for the mining sector. While not all of these projects will move to completion with the funding, the number of projects that have approached the CEFC for co-financing is indicative of the strength and breadth of demand. In terms of economic impact on the energy sector, it is critical that we make the transition out of fossil fuel energy and into renewables. The Clean Energy Finance Corporation is facilitating Australia making that change. Its unique financing role and ability to take a long-term risk position, providing depth and diversity in the financing of infrastructure, is really assisting.
The other reason I simply cannot understand why the coalition would want to get rid of the Clean Energy Finance Corporation is that it is successfully reducing emissions. There is no-one who can point to how direct action is going to reduce emissions. Yet, if we kept the Clean Energy Finance Corporation and let it keep on doing its work, it would do the heavy lifting for the coalition in the direct action space—it is already bringing emissions down. I would like to go into some detail on that.
The Clean Energy Finance Corporation undertook some analysis of what its continued activity could contribute to the achievement of the 2020 abatement target under direct action. Based on its existing portfolio mix, if it invested $10 billion over the next four or five years in a mix of projects like that of its current portfolio, it could achieve 64 megatonnes of CO2 emissions reductions in the year 2020, which represents about half of the total required to meet the 2020 abatement target.
In reality, as the CEFC says in its report, we could expect to see some levelling off, but, even by being conservative and applying a heavy discount for this assumption, the contribution that the CEFC could make is still substantial, and this abatement could be achieved at a positive return to the taxpayer—that is, lowest cost of emissions reductions. How could you go past that? How could you go past an institution which, at no cost to the taxpayer, can reduce emissions to that extent?
I will go through some of the criticisms that have been made. The government has said, 'Oh, well, the Clean Energy Finance Corporation is crowding out the market.' That is totally wrong. What we have seen with the CEFC is that, rather than crowding out the market, we would suggest that it is actually crowding in market finance—not the other way around. Almost every investment that the corporation has made has included co-financiers, and they include many of Australia's major financial and commercial entities. In fact, the CEO of Sundrop Farms, one of the companies that had a project funded, said:
I want to thank you personally and the CEFC team more broadly for making this deal real. Your pivotal role has been the difference. The equity community has been highly impressed and in fact has been mobilised by CEFC's involvement as a debt provider. We would not be here without you and our commitment to the CEFC is absolute.
Sundrop Farms is a South Australian rural project outside Port Augusta. So we have jobs, economic activity, rural Australia and the CEO saying: 'I want to thank you because the CEFC has been the difference. It has allowed that debt to be provided.'
In terms of risk, lots of claims have been made that this is a risk and that they are lending money in a risky way. But, in fact, they cannot do that—it would be against their investment mandate—nor is it what they are doing. That is demonstrable by the work that they have done to date. In terms of their being a 'green hedge fund', that is another accusation that is completely wrong. It is not borne out by the facts. They are not a hedge fund in any way, shape or form. The $536 million invested has zero dollars in hedging, zero dollars in derivatives and zero dollars invested in guarantees. They are not a green hedge fund, and the government should not continue to completely misrepresent what they are doing.
In terms of the CEFC giving too much concessionality in the loans they are making and not having a commercial focus, that is wrong again. They have motivators to offer concessionality, but they differ from the private sector because they are a public-purpose institution. They can offer a discount to achieve good public externality, such as technology expansion and development, research and then take-up, demonstration effect, financial leverage, expansion of investor base, market capacity, sector skills and emissions reduction. They have built the consideration of positive externalities into the investment process through their investment policies. The leadership role that they have played has been exemplary. As the CEFC say, 'Concessionality may be warranted when the cost of the benefit the recipient receives is exceeded by the benefit of the positive externalities that are created.' They are doing an amazing job in that regard.
As to the claim by the government that the CEFC do not generate any renewable energy, that is quite wrong. They are supporting renewable energy around the country. For example, they have co-financed a solar PV installation by the Australian Agricultural Company across a number of its regional and remote facilities. Obviously, that highlights the potential for business across the country to reduce costs and increase competitiveness through greater use of solar PV and other renewable energy sources.
When you sum up the Clean Energy Finance Corporation, it is bringing down Australia's emissions, it is investing in renewable energy and energy efficiency, it is creating jobs and it is building a whole lot of new capacity in the financial markets to address the climate challenge. On that basis, it would be so wrong for the government to tear that down. It would be wrong in the context of the climate challenge, and I will come back to that.
If you accept the science and you know the world is on track for four degrees, you know that Australia has to do a lot more and faster. Two-thirds of the fossil fuel resources—that is, coal and gas—have to stay in the ground, not be extracted; not coal ports, not coalmines, not coal seam gas: no.
Renewable energy and energy efficiency are where we need to go, and fast. That means we need these institutions to get these projects up and running in a very short time. They have demonstrated that that is exactly what they can do. To tear this down is part of what I think will be a crime against humanity. Wilful blindness to the science of climate change and the impacts that is already having and will have on future generations is nothing other than a crime against humanity.
I went to a breakfast this morning at the CSIRO discussing extreme weather events and their cost. If you look at the extreme costs of extreme weather events, by removing the price on carbon you are saying to the big polluters, 'You can pollute all you like and you can maximise the profits to your shareholders, but you are going to socialise the cost to the whole community.' It is the Commonwealth's budget that will have to stump up because the overwhelming losses from these extreme weather events are not insured for. It is the Commonwealth that has to stump up with the flood levy, and it will be the Commonwealth that has to stump up every single time there is an extreme weather event, because they are costing us billions.
That is why, when you have an institution—which is not costing the government money—bringing down emissions, rolling out projects and jobs and economic activity and at the same time addressing the issue of climate change, it is immoral to get rid of it. That is why the Greens will never agree to it. It is one of the very bright lights in addressing climate change in Australia. Apart from the actual projects, the contribution it is making to the climate literacy of financial institutions and the way it is developing confidence in those institutions through its convening and co-financing role are something that is irreplaceable. That is why the Greens will never agree to the abolition of the Clean Energy Finance Corporation.