OPINION | As an expat who lives in Europe, it is difficult to do anything but despair over Australia’s abject failure to develop a comprehensive, forward-thinking energy policy.
That said, no amount of moaning with fellow expats and crying into our warm beer about the country of our birth’s lack of long-term vision is going to solve the problems we face. We need action and we need it now. We urgently need to find a way forward on energy transition and climate policy or risk being left behind in one of the biggest and most significant shifts of our time.
Ten years of policy inconsistency is leaving the country exposed to economic risks. The impasse on the most fundamental of the Finkel recommendations – a clean energy target – is symptomatic of a national political direction far removed from the 21st-century realities of climate, carbon and sustainable development.
This decade-long political rollercoaster has lowered Australia’s national horizons at a time when a multi-decade perspective is vital. It has made companies less willing to adjust their strategic planning for a carbon-constrained future and made institutional investors hesitant to take larger, longer-term positions to hedge underlying carbon risks, which would also position them for longer-term value creation from investing in the innovation and technology required for a different kind of future.
The death of coal
In mature economies, new investment in thermal coal capacity is fraught with downside risks from every direction. Coal is regarded as the least-attractive energy option from an emissions reduction and carbon budget standpoint. That domestic and offshore investors are unwilling to commit capital to new coal-based energy capacity is seen as mainstream and prudent, rather than controversial.
In April, the UK had its first 24 hours of coal-free power generation since the dawn of the industrial revolution. Coal supplied only 9 per cent of national power there in 2016 and the last remaining plant will close in 2025. China and India are increasingly taking the lead amongst emerging economies in shifting towards a cleaner, less carbon intensive development path. China, in particular, is leading the world in green finance initiatives, including green bonds to help combat the country’s environmental degradation. Meanwhile, in India, recent auctions for contracts to construct and run solar plants have made prices for solar energy drop as low as those for coal-fired power, tilting the economics of the power market towards renewables.
A nation that relies on thermal coal as a long-term source of export earnings is doubly at risk as global energy decarbonises. That doesn’t mean the use of all fossil fuels must end tomorrow, but it does mean we need to plan for a different future. This takes time, vision, co-operation and long-term thinking. Keenly forward-thinking Norway has the highest per-capita number of electric vehicles and plans to phase out fossil-fuelled cars by 2025. France and the UK have also set timetables. This is enabling new industries to develop, new jobs to be created, and new technologies and innovation to flourish.
Squandering Australia’s strengths
Australia has always been a smart country. One of our biggest competitive advantages is the nation’s financial system, with its strengths in funds management and $2.3 trillion pool of retirement savings. To invest large sums of capital, however, investors need some policy certainty. If the current national vacillation on energy policy continues, Australia risks becoming a laggard rather than an innovator, looking from the stands at the global and regional shifts towards green finance, or investing our money in other countries’ futures and not our own.
The most recent report from the Australian Council of Superannuation Investors (ACSI) revealed that fewer than half of Australia’s largest listed companies have a climate-change policy or emissions-reduction target. Analysis from Market Forces has found that 82 per cent of Australia’s largest retirement funds have provided inadequate evidence that they have considered climate risks in their portfolios. This isn’t surprising when you consider the lack of direction coming from our policymakers.
Outside the bubble of Australian politics, the mainstream view, reflected in the Financial Stability Board Task Force on Climate-related Financial Disclosures, is that climate change poses a systemic risk to the global financial system. Australian corporations and institutional investors have not been granted immunity. The unresolved imbroglio over climate has both business and funds management in a holding pattern.
The world is on the move. The biggest global shift of our time – moving from high-carbon economies to low-carbon economies – is happening. The world is looking to reduce its emissions aggressively while, at best, Australia’s emissions reduction targets are mediocre. The latest figures show Australia’s greenhouse-gas emissions have actually risen recently, which makes meeting our Paris Agreement targets even more difficult.
From afar, atmospherics around the national conversation on emissions targets seem to envisage them as an endpoint, rather than simply the first way station. There are few G20 nations replete with long-term investable capital, technological capability and perpetual sun, wind and waves, as Australia can boast. Yet our political discourse is anchored to a last-century mindset, while the prosperity to be gained from moving on sustainable investment, clean technology and green finance is being taken up by others.
There is a structural opportunity cost to Australia’s current path of delay and diffidence. Continued inaction will park the nation in the 21st century’s slow lane, leaving it to be overtaken by the future. A sad state of affairs for a country with so much potential.
Australians deserve better.
Fiona Reynolds is managing director of the Principles for Responsible Investment. PRI is a United Nations-supported initiative. It has 1800 members worldwide, representing US$70 trillion in assets under management. Its mission is to create a sustainable financial system.