The $10 billion Clean Energy Finance Corporation has launched a vigorous defence of its mandate in what might be the last throw of the dice for the besieged green investment bank.
In a submission to the Senate inquiry into the Coalition’s bill that seeks to abolish the CEFC, the institution argues that the new government has misunderstood the purpose, the potential, the costs and the structure of the organisation. In fact, pretty much everything about it.
The Coalition has vowed to dismantle the CEFC, which it has variously labelled a “green hedge fund”, the “Bob Brown Bank” and an institution that would only invest in projects that other banks would not touch. It says it is wasting taxpayers money.
But the CEFC says this is wrong, on all counts. It claims it can deliver half the abatement targeted by the federal government, and still turn a profit to the government. It will add rather than subtract to the budget balance, and ensure that tens billions of dollars of private capital is invested in Australia.
It released its submission on Monday and will argue the point forcibly when CEO Oliver Yates and chairwoman Jillian Broadbent appear before the Senate committee on Canberra today.
The claim about its emissions reduction potential is a striking one, given the concern about the ability of Direct Action to meet even the 5% emissions reduction target, let alone a 15% to 25% which many say is the minimum required for Australia to play its role in addressing climate change.
The Abbott government’s proposed emissions reduction fund will cost around $3 billion, involve the handing out of grants to polluters and will not generate any returns to the government. In effect,the ERF is a dumb version of the CEFC.
Worse, if the targets are not met, or the country needs to be more ambitious, the government appears to have no choice but to buy permits overseas, effectively using taxpayer funds to finance overseas projects. The CEFC says it can unlock tens of billions of domestic investment.
In its submission, the CEFC says it can “theoretically achieve” reductions of 64 million tonnes of CO2e (carbon dioxide equivalent) of emissions reductions in the year 2020, which represents about half of the total required to meet the 2020 abatement target.
Not only that, it will achieve this with a positive return to the taxpayer. The 3.9 million tonnes of abatement it has achieved already has come at positive return of $2.50 a tonne, and it expects to deliver a surplus to the government’s cash-strapped federal budget.
As this table below suggests, on an investment case of $5 billion, the CEFC would boost the government’s annual Fiscal Balance by between $125 million and $186 million per year, and its underlying cash balance by $110 million and $171 million.
The CEFC also takes aim at some of the Abbott government’s other direct criticisms. This includes Environment Minister Greg Hunt’s claim that the CEFC is nothing more than “green hedge fund”. The CEFC says this is nonsense, because it had invested zero dollars in hedging, derivatives or guarantees.
As for the allegation that it would “crowd out the market”, the CEFC says the opposite is true. It is bringing in $2.90 in private funds for every dollar it invests.
It disputes Treasurer Joe Hockey’s labeling of it as “high risk”, saying once again that the opposite is true, as borne out in the Low Carbon Australia portfolio.And it disputes the claim that it will result in no new renewable energy, pointing to the critical role it plays in financing, and in bringing new technologies such as the solar thermal Sundrop Farms investment, and solar PV in remote cattle properties owned by Australian Agricultural Co.
The CEFC also suggests this is a bad time to be closing down an institution like the CEFC, and creating doubt about the future of renewable energy and emission reduction policies.
“There are a number of energy choices for Australia to make in the very near future and the choices made now are likely to affect the energy mix for the next twenty years and beyond,” the submission notes.
“We are a small, high cost country that cannot afford the luxury of an inefficient transition. Fluctuation in policy settings adds cost because they add risk. This is in addition to the ordinary risk levels that are inherent in the sector.”
Those costs, of course, will be passed on to consumers. Numerous companies and analysts have made the same point – the added investment risk created by trashing policies such as carbon pricing, emissions targets and renewable energy offset the presumed savings of such measures.
It also says that industry is just starting to learn how it can become more efficient, protect itself against volatile and rising future energy costs. And there was potential for Australia to become a world leader in some technologies.
“Companies are just starting to understand that they can produce and consume energy on site at a cost that is significantly cheaper than grid based solutions,” it notes. “Innovation in our economy is starting.
“We are seeing manufacturers seek out their own supply of energy and turn what was previously waste into fuel. Australia could be a global innovator as all economies will face this transaction.”
The CEFC has received proposals for finance from all sectors of the economy as they grapple with the challenges this fundamental structural change is bringing. It has already committed some $536 million, for total investment of around $2.2 billion, and as at August 20, it was in active discussions with around 37 project proponents, who were seeking CEFC finance of over $2 billion for total project costs of more than $4.5 billion. It had received a total of 170 proposals for projects with an estimated value over $14.9 billion.
It uses this graph to illustrate in which sectors its pipeline of projects lies ….
And this one to illustrate where the opportunities lie to reach Australia’s emissions reduction target. The variety of industry is important, as it illustrates that the CEFC does not see itself as a mechanism to finance wind farms and solar farms only.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.