The Clean Energy Finance Corporation (CEFC), alongside the Australian Renewable Energy Agency (ARENA) are the only current federal policy levers that exist to drive down emissions and prepare the foundations for the jobs‑rich transition that will come from modernising and cleaning up our domestic and export economies.
Unsurprisingly, they are the only institutions left largely intact from the Gillard-Greens power-sharing Parliament, following the climate destruction inflicted by the Liberal-National Government over the last seven years.
Supporting this bill as currently drafted will weaken the independence of the CEFC with the Energy and Emissions Reduction Minister able to insert himself in the middle of investment decisions. Furthermore, the creation of a legislated definition of ‘low-emissions technology’ will allow the Minister to overrule the current CEFC Board’s control over what it considers to be eligible investments in non-renewable technologies.
By any measure, the CEFC has been an incredibly successful Green Bank. Owned by the Australian people, it has invested $8.2 billion of public money to generate a total $27.8 billion of economic activity to support jobs, new infrastructure and de-risk technologies that appear on the horizon.
It has also made significant profits from its carefully chosen investments, with total retained surpluses of $1.7 billion that the CEFC has been able to recycle into future clean energy technologies. Such a structure allows the CEFC to permanently bring forward the next-generation of technologies and commercialised abatement opportunities into the mainstream world of Australian finance.
In a time when banks are overwhelmingly focused on a mix of both safe and speculative investments in real estate and a finance industry predominately focused on financing itself, the CEFC is so rare, because it is a bank driving productive investments in those Australian businesses that are focused on modernising and improving the shape of our economy.
There is no justified reason to interfere with the undisputed success and transparency of the CEFC, by allowing the Minister to insert himself into the decision-making process, interfere with what types of investments should be made and open up the CEFC to invest in loss-making gas projects, instead of profitable clean energy investments.
The Australian Greens support additional funding available for the CEFC to invest in removing the grid constraints and driving down the prevalence of marginal loss factors that are inhibiting investment in renewable generation (alongside the intentional policy chaos and market intervention by the Liberal‑National Government). However, it should not occur in exchange for a loss of CEFC independence and to open up the Corporation to poor loss‑making gas projects as the bill currently allows for.
The government has made it clear that it wants the CEFC to deliver its Underwriting New Generation Investment (UNGI) program. Given that the shortlisted projects are eligible, and will be seeking grants rather than loans or equity positions, these are likely to be loss-making investments for the CEFC. They are not projects that the CEFC would invest in if it retained its independence.
The entire process of the UNGI program as well as the selection of the shortlist has been completely hidden from public view, meaning that the Parliament has no idea how much the government plans to spend on each project.
However it is anticipated that the great bulk of the $1 billion allocated for the Grid Reliability Fund will have to be spent on funding the government’s program, rather than on the projects the CEFC Executive and Board determine are the best projects to invest in.
To enable the UNGI program to be funded through the Grid Reliability Fund, the removal of the statutory safeguards around loss-making investments and the removal of the 50 per cent investment requirement in renewable technologies are included in the bill. These are not improvements on the CEFC’s current functions and transparency.
Recommendation 1
The government should introduce separate legislation to authorise spending on its UNGI shortlist rather than force the CEFC to finance the loss-making shortlist from its limited $1 billion in new funding.
Currently the Board determines what is eligible for ‘low-emissions technology’ funding and it is a relatively tight test, requiring gas infrastructure to achieve an emissions intensity of lower than 50 per cent of the national electricity market average. Proposed subsection 60(4) would allow investment in ‘low‑emissions energy systems’, opening up an easier funding pathway for gas-fired projects than what the Board’s current guidelines allow.
This amendment, in combination with the Minister’s ability to set investment mandates that directs investments in certain sectors, means that the government could effectively force the CEFC to invest a portion (for example 45 per cent) of the CEFC’s total money into gas projects.
As this exchange in the Committee hearing from Deputy Secretary of the Department, Jo Evans made clear:
Senator HANSON-YOUNG: So does this bill give an avenue for the minister to direct a certain percentage of the [CEFC’s] funds to go towards gas?
Ms Evans: Using the investment mandate, the minister can already give general guidance on how he would like the CEFC to invest its funding, so I suppose there is some prospect that it could, in the investment mandate, have some sense of a proportion of funding that it would like to put towards gas…
Fossil gas is a dangerous greenhouse pollutant, and where leakage rates of production exceed 3 per cent, it is a dirtier fuel source than coal. The Australian Energy Market Operator has made clear in its Integrated System Plan (ISP) that our energy system does not require any new gas generation and that renewables and storage technologies will deliver a 100 per cent renewable grid at a cheaper price than gas.
As energy publication RenewEconomy noted 'under no [ISP] scenario does the amount of gas burned for electricity in Australia’s main grid increase over the coming decade. It is more likely to fall significantly.'
Had the Liberal and National parties not accepted at least $3.9 million in donations from the gas industry since 2012, they would not be forcing our public institutions to encourage more gas extraction. The expensive and dangerous path of increasing gas generation in Australia’s energy system should not occur, not least of all with the CEFC as an unwilling conduit.
Recommendation 2
Proposed subsection 60(4), which would overrule the CEFC’s Board’s definition of ‘low-emissions technologies’ should be removed from the bill to ensure the integrity and independence of the CEFC’s investment decisions.
Recommendation 3
The proposed amendment to section 4, which would give the Minister regulation making power to allow loss‑making investments and effectively direct the CEFC to fund the UNGI program should be removed from the bill, keeping the current definition of ‘investment’ in place.
Recommendation 4
Due to the Minister’s presumed ability to determine sector specific funding requirements through setting the Investment Mandates, the CEFC should be updated to align with the Regional Investment Corporation Act 2018 so that Investment Mandates issued by Ministers are instruments disallowable by the Senate or the House of Representatives.
Under the Act, the CEFC is able to provide funds to ARENA out of its retained surplus. The bill would prevent the CEFC from re-investing profits earned from Grid Reliability Fund investments into ARENA. There is no policy rationale provided by the government to restrict the autonomy and independence of the CEFC. This provision should be removed from the bill.
Recommendation 5
Given the current funding bottleneck of ARENA with no new funds available and the absence of any overarching rationale, the proposed limitations of CEFC profits being able to be paid to ARENA under the proposed amendment to subsection 50(2) should be removed from the bill.
Fossil gas is a dirty source of energy that will exacerbate and hasten the climate emergency. There is no place for dirty energy within the portfolio holdings of a clean energy institution.
Recommendation 6
To avoid doubt, the inclusion of ‘fossil gas’ and ‘coal’ should be inserted alongside carbon capture and storage, nuclear power and nuclear technologies as prohibited investments under section 62 of the Act.
Senator Sarah Hanson-Young
Deputy Chair