Just weeks ago, the Intergovernmental Panel on Climate Change declared a “code red for humanity” and warned that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach”. This followed advice in May 2021 from the traditionally conservative International Energy Agency that investment in new coal, oil and gas projects must cease for the world to have any chance of keeping global heating to 1.5 degrees.
Australia cannot continue to ignore these stark warnings. We must get out of fossil fuel projects at home and abroad.
Since 2009, Export Finance Australia (EFA) has invested at least $1.57 billion in fossil fuel projects, including providing guarantees for financially risky projects like the Wiggins Island Coal Export Terminal and the Gladstone LNG plant adjoining the Great Barrier Reef. Without restrictions on fossil fuel investment, this Bill risks more public money being used to prop up coal, oil and gas projects and accelerate the climate crisis.
The Department of Foreign Affairs and Trade (DFAT) has recently commissioned an independent review of the infrastructure investment operations of the EFA. The EFA’s Environmental and Social Review Policy is also currently under review, with submissions noting the need for more robust analysis of potential investments.
Given global signals on climate action and recognition of adverse environmental, social, and financial impacts on fossil fuel investment, it is premature to expand the financing options available to EFA while these two critical reviews are underway.
Recommendation
That the Government delay introduction of the Bill until the independent review of infrastructure investment operations and the review of the Environmental and Social Review Policy have concluded.
Climate finance risks
The DFAT / EFA submission notes that broadening financing powers to include equity will allow investment in a greater range of infrastructure projects, and at an earlier stage of development. The Explanatory Memorandum for the Bill states:
Equity investments are a suitable form of financial support for important projects that support Australia’s national interests, when other financing tools are either unavailable or inadequate.
As the global transition to net zero emissions gains pace, fossil fuel companies, banking and insurance institutions are finding it more difficult to access finance. Even if finance is secured, fossil fuel projects still face high risks of becoming stranded assets as global markets move to sustainable energy options.
Jubilee Research Australia has found that export credit agencies providing guarantees or early-stage loans can give unwarranted confidence to private lenders by “de-risking” large fossil fuel projects that they might otherwise avoid.
This Bill, like recent amendments to the Northern Australia Infrastructure Facility Act, will allow more public money to be used to prop up coal, oil and gas projects that the private sector deems too risky. This could “leave the Government holding a stake in stranded fossil fuel assets long after the market has lost interest in investing in them.”
DFAT / EFA advised that “equity power, if enacted, would be used sparingly and that a majority equity position would be taken only in exceptional circumstances.” The Ministerial Statement of Expectations will also be updated to prevent EFA from taking majority equity stakes unless there are “compelling reasons otherwise”. However, no detail has been provided as to what exceptional circumstances or compelling reasons would justify significant investment.
In response to questions on notice, DFAT / EFA confirmed that “the Government is responsible for decision making, and is liable for any losses, on the National Interest Account.” Given this government’s stubborn, negligent attachment to coal and gas, any extension of EFA’s financing options must be qualified by explicitly prohibiting investment in fossil fuel projects.
Recommendation
The Government amends the Bill to expressly prohibit EFA investment, including refinancing and equity investment, in fossil fuel projects
Aligning EFA with international peers
When introducing the Bill, the Minister said:
This reform will align Australia with other countries, like the USA, China, Japan, Canada and South Korea, which are already making equity investments in our region to support their development and commercial objectives.
Many of these countries have also taken measures to prohibit export finance agencies investing in fossil fuel:
President Biden has directed the US export credit agency to “identify steps through which the United States can promote ending international financing of carbon intensive fossil fuel-based energy”.
In March 2021, the UK Government banned its export credit agency from funding any new coal and gas projects overseas.
In April 2021, Denmark, France, Germany, the Netherlands, Spain, Sweden and UK launched the Export Finance for the Future Coalition, with each country committing “to massively increase support for sustainable projects and to assess how to best phase out export finance support to oil and gas industries”.
South Korea has committed to end public financing for overseas coal-fired power plants.
If the government is serious about aligning Australia with other major economies, it will restrict the EFA’s capacity to finance fossil fuel projects.
Transparency
The joint Jubilee Research Australia, ACF and ActionAid submission objects to the lack of transparency around EFA investment activity and calls for removal of the EFA’s exemption under the Freedom of Information Act. Limited access to this information undermines efforts to audit the effectiveness of funded projects or to assess the return on investment of public money.
The supplementary DFAT / EFA submission outlines existing disclosure practices, and notes the need to keep confidential commercially sensitive details of its investment.
It is clear that current practices fall short of the transparency expected for investment of public funds. The Productivity Commission has previously recommended that the FOI exemption be removed, and noted that the FOI Act already includes protections for national security and commercially sensitive data. Other jurisdictions, including the UK and US do not provide a blanket exemption from disclosure for their export credit agencies. There is no justification for Australia to maintain the exemption.
Recommendation
That Export Finance Australia’s exemption from the Freedom of Information Act be repealed
Environmental and social impacts
The Jubilee Research Australia, ACF and ActionAid submission criticises EFA’s process for assessing the impacts of funded projects, including prioritisation of Australia’s interests over those of the host country, lack of gender analysis, and lack of consideration of a project’s contribution to global emissions reduction efforts.
The current independent review of the Environmental and Social Review Policy must ensure EFA policies align with international best practice regarding these issues.