Off the bat, I think I should address the elephant in the room…
I am entirely aware, given the audience here today, I might not be everyone’s favourite politician. But I do think when it comes to climate change, it is worth putting our differences aside.
As a nation, we can all win from net zero.
Australia is fortunate to have a natural endowment which enables us to be a leader. We can literally ship the sun.
The economic imperative is becoming clear. At some point in the future, our trading partners will choose to stop buying our fossil fuels.
We have to ensure that no Australian, and no Australian community is left behind. It is unquestionable that some communities will require special attention and support.
I am optimistic about our national net zero economy but we cannot gloss over the challenges, that is not leadership.
The upcoming climate change conference is different. 80% of the globe’s emissions are now covered by net zero pledges.
Today I want to address where we are, the new challenges and what you can do as asset owners to help Australia through this transition.
Australia’s net emissions are coming down. We are 20% down on 2005 levels, with a long way to go.
Our emissions come from three major sources and are split by around a third each. They are electricity, industry / transport and agriculture (and miscellaneous).
I have been heavily influenced by Professor Alan Finkel and his recent essay “Getting to Net Zero”. Finkel says Australia can significantly cut our total emissions by tripling solar and wind energy production to replace fossil fuels.
We can knock off more than the first two thirds through broader use of existing emerging technologies.
The thing I like about Finkel’s work is that it breaks down the emissions challenge into bite size chunks. He shows the path forward and how it can be achieved.
Net zero is a very important economic objective for Australia. Zero is zero, but it is net zero which is the goal.
There will still be emissions from things like cement production and farming. But the emissions need to be eaten by soil carbon or Direct Air Capture. Australia should have a unique carbon capture advantage given our land mass.
Our commitment towards net zero emissions has been well and truly flagged. Australia signed onto net zero at the 2015 Paris COP.
Prime Minister Morrison said in February 2021 that “Our goal is to reach net zero emissions as soon as possible, and preferably by 2050.”
This is something that only the executive government can commit our country to. It can’t be done without the support of the Prime Minister. Without questioning the sincerity of the member, a private members bill like the bill proposed by the Member for Warringah is simply a time wasting exercise.
To meet our ambition, we are deploying capital and a roadmap through Minister Angus Taylor’s portfolio of Emissions Reduction to achieve it.
Based on Finkel’s work and supported by others such as Grattan and the Business Council, it's clear we can get a deeper cut by 2030 of at least 40% on 2005 levels.
Independent consultancy Climate Analytics estimates the Australian states alone will deliver a 34% cut through their own actions, as seen in the state of New South Wales.
The Morrison Government continues to invest in projects which will drive our emissions down through the Australian Renewable Energy Agency.
To drive emissions further down, the tech roadmap focuses on new technologies such as hydrogen which will be critical.
Hydrogen is an exciting new source of energy that can power our homes, transport and factories.
That’s why the Morrison Government has outlined a hydrogen strategy. As a result, we now have large corporate and industry leaders such as Fortescue Future Industries (FFI), which wants to make green hydrogen the most globally traded energy commodity in the world.
FFI is planning to deliver 15 million tonnes of renewable green hydrogen by 2030. Australia can be a hydrogen superpower.
$15 billion in the past 4 years has been invested into large renewable energy projects.
Renewables have made it. Renewables were responsible for 24% of total generation in 2020, an increase of 3.7% from 2019.
For one hour in October 2020, South Australia was wholly powered by solar - 77% from rooftops and 23% from large farms.
A 100% renewable energy future is within sight. To get there, we need firming capacity. That is where pumped hydro comes in.
The Morrison Government is powering ahead with the $5.1 billion Snowy 2.0 project. 4,000 jobs will be created in my home state of New South Wales.
We face two significant challenges getting electricity emissions down to near zero - these are getting more renewables built and transmission.
There is a strong consensus that broader use of solar and wind is essential for getting to net zero. Rooftop solar has been a revelation in Australia. A new system is added every six minutes.
On some days, Finkel says rooftop solar and batteries could supply up to 50 per cent of peak daytime demand.
Andrew Bleakers of the ANU says:
“Australia can match the USA emissions target for 2030 (a 50% cut on 2005 emissions) by making a 40% cut in our current emissions. The main requirement is doubling the solar and wind deployment rate, which is straightforward at low cost using existing technology.”
Australia is reducing electricity emissions and prices simultaneously. Effectively that means that if Australia is able to install solar and wind faster, then emissions from electricity will fall quickly while the prices remain low.
If we double the deployment of low-cost solar and wind, we could reach zero fossil fuel energy by 2040. All power could be electrified and this would drive a 70-80% reduction in emissions across the first two thirds.
Both the state and federal governments are doing the right thing in creating a renewable energy zone in the Hunter Valley.
There is more we can do here. We can encourage the private sector to install rooftop solar and batteries in all appropriate buildings and we could do the same in every public building like hospitals and public schools. We could also investigate making these options available to lower income households through rebates and tax concessions.
Transmission is key. Without broadscale transmission you can’t smooth out the local weather. If the sun doesn’t shine or it isn’t windy, then there is no chance of relying on renewables.
Get transmission right, and the market will deliver rapid, significant and cheap emissions reductions. It's like building a new highway or the NBN - get rid of congestion to unleash large-scale economic opportunities.
This is true for homes as well as large scale renewable energy projects. One broader issue here is getting the new generation technologies and their batteries to work with the grid.
This is an exciting space. Google has an affiliate called X which is developing a technology to electrify the grid. This is led by Audrey Zibelman in San Francisco, the former CEO of AMEO.
But we will likely see solar energy exported. For example, the giant Sun Cable development is expected to show that Australia can export its sun through an undersea cable.
For this reason there is legislation before my Senate Committee which is designed to facilitate these major projects, one of which is an offshore wind project in Gippsland, Victoria.
Offshore wind will ultimately provide 3,000 new jobs according to Accenture - many of which will be generated in coal communities.
These are just two of the big challenges, there are of course many others such as the further development of hydrogen and ammonia.
There is of course the electrification of the fleet, further development of sequestration and many other emissions reducing factors.
The finance sector has helped Australia prepare for the change through both early commitments to net zero and product innovation. The ANZ Bank’s 2020 commitment to net zero is simply delivering the truth that global capital markets will not support unsustainable practices.
This is consistent with the warnings issued by the Treasurer Josh Frydenberg that global capital markets will not fund Australia if we take the wrong turn.
In my role as a Senate Committee Chair, I have seen the benefit of Buy Now Pay Later and FinTech on powering the clean energy transition. Research consistently shows that upfront cost is one of the biggest barriers to adoption.
BNPL Brighte estimates over the past year around 15-20% of all solar installations were financed by BNPL.
It is important that you align the interests of your beneficiaries with the economics of climate change. You have done the right thing in pushing for net zero emissions.
This has always been my view. I said in 2015 in an opinion piece in the Financial Review that:
“The concepts underpinning traditional investment methodology apply equally to all matters of environmental, social and governance (ESG) risk factors. An environmental or social externality will generally have an economic cost. Therefore, issues surrounding fossil fuels… should be considered through an economic lens.”
Asset owners must continue to look at the world this way but also help us with a few other important matters.
The immediate challenges on broader uptake of existing technologies and work on batteries could be further supported by your sector.
This should be easy for your members who are investing discretionary, non-superannuation capital.
When you are investing non-superannuation money, you have more flexibility and more licence to experiment because you are not captured by the best financial interests test.
Where you invest discretionary capital, managers could adopt a target of 15% of invested capital going to support the transition.
However, superannuation funds have a tighter mandate than non-super funds under Australian law.
This means super funds can pursue a net zero approach, through applying an ESG lens to portfolio construction, as I said in 2015.
That’s because it’s a pursuit of an economic purpose. Super funds cannot pursue non-economic objectives because of their legal guidelines. It is now unlawful for super funds to do anything other than to invest for the benefit of their members.
The transition for many communities will be challenging. The non superannuation asset managers and owners could do the country a big favour by investing into these areas.
Josh Frydenberg said only a few weeks ago, “if you support the objective of net zero, do not walk away from the very sectors of our economy that will need investment to successfully transition.”
Historically, economic transitions away from textiles or carmaking for example have been seen as problems for governments. However it is private investment which creates jobs in regional communities and it is private investment which can help drive the transition.
Governments have a role in ensuring that new publicly owned energy generation assets are built in affected communities but also where it connects into the national grid, just like the project that both the national and the NSW government are supporting in the Hunter.
Governments have a moral duty to support affected communities and a moral duty to be honest about the future. That’s leadership.
We do not want to repeat the mistakes of the past where taxpayers funded $30 billion subsidies for carmarking between 1997 and 2002. That was not leadership.
Let me be clear, structural adjustment funds should be deployed by the government. It’s a price we should be willing to pay but it should be focused on the future, not the past.
Global demand for coal will taper off in the coming decades. As the RBA has warned, Australian coal projects could become stranded assets.
At the same time, demand for metals such as lithium and copper will soar. That’s why the mining sector supports net zero. It’s important that workers should have every opportunity to transition just as coal workers are transitioning from coal to offshore wind in Gippsland.
Heavy industry will be present in these communities as it should. We’re going to see it with not only mining but also offshore wind.
In my own state, I have travelled to coal mines and coal fired power stations in the Hunter Valley. I understand the value of jobs and industry in regional Australia, I grew up picking fruit in the Goulburn Valley.
Jobs are more than jobs, they are purpose and identity. We can’t see jobs as just a commodity or a number.
Our agriculture sector is in a prime position to benefit. The peak farming body, National Farmers Federation says they support “an economy-wide aspiration of net zero emissions by 2050.”
The NFF sees the opportunity for sequestration and the participation of farmers in carbon markets. That’s because it’s a new market for farmers.
Much of this hinges on the role of vegetation and soil carbon which is another key opportunity for asset owners to consider. If this is done properly, we could do even better than net zero emissions by sequestering the emissions of other nations. This is a unique advantage Australia possesses.
A key reason why agriculture should not be excluded from Australia’s targets and plans for net zero is that we need agriculture to ultimately focus on offsetting its own emissions, not from other parts of the economy.
This new revenue could support the economic development of Indigenous communities, such as in Western New South Wales, where Aboriginal Land Councils have significant holdings but few other opportunities.
None of these challenges are beyond the scope of Australia. We are now on the path to get to net zero and beyond. In the coming weeks, the Morrison Government will release the plan to confirm our commitment. No other government in our history will have put forward anything as broad and as concrete.
We all need to work together. Big business is on board. And asset owners managing trillions of our workers' money are in a unique position to do their part and help the country get to this important economic and environmental objective. Your discretionary capital must help Australia deliver this reform for our future generations to prosper.
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