How to prosper in a net zero world - CCA hosts panel discussion

The need for strong ambition, global action, transparency, integrity and the commercialisation of early-stage emissions reductions technologies. These were the themes from a virtual panel hosted at the Australian Pavilion at COP26, by Climate Change Authority Chair Grant King, last night (AEDT). Following on from the Authority’s recent papers: Paris Plus: From cost to competitive advantage, and Trade and investment trends in a decarbonising world, the Authority brought together the perspectives of the Reserve Bank of Australia, business and investors, with Climate Change Authority CEO, Brad Archer.

Mr Archer set the scene for the panel focusing on the extent of emissions embedded throughout the Australian economy. Almost 40 per cent of Australia’s domestic emissions are generated through production of exports, yet the fossil fuels purchased and burnt overseas produce three times as high emissions as those generated within Australia. We are also carbon exposed as a net importer of investment, with more than a third of net direct investment in Australia being in the mining sector. 

Guy Debelle, Deputy Governor of the Reserve Bank of Australia, discussed the macro risks of climate change including both the physical risks to the country and the risks of transition, especially the impact of our major trading partners moving quickly to net zero emissions. He highlighted how there is an early mover advantage and that Australia has significant opportunities to remain an energy exporter, but this will need to be in renewable energy.

In speaking of the cost to local communities of the impacts of transition, he highlighted that those regions where costs may be borne, such as coal mining communities, can be areas where the opportunities are greatest. He cited Port Augusta as an example, which has moved effectively into renewables from an emissions intensive base.

On the opportunities side, he opened the conversation to the need for information and transparency around emissions. In particular, the use of the guide from the Task Force on Climate-Related Financial Disclosures (TCFD) as the most appropriate way to disclose climate risk, noting the speed with which it is being brought into global accounting standards.

Jennifer Westacott AO, CEO of the Business Council of Australia, spoke of the increase in momentum and the level of ambition across industry. She spoke to the Business Council of Australia’s recent report, based on consultation with 70 of Australia’s top companies, which urges a more ambitious 2030 emissions reduction target of between 46 to 50 per cent below 2005 levels.

The two challenges she sees for Australia are to decarbonise our domestic economy, and to grow exports. Ms Westacott sees good news for Australia with reports that we can scale up investment and production in areas currently highly emissions intensive. As an example, Tesla has indicated it will move to purchase $1 billion a year in Australia’s rare earth minerals. She also quoted the Grattan Institute’s estimate that the revenue for rare earths could be 2.5 times the value of coal today.

Stephen Fitzgerald AO, Chairman and Founding Partner of Affirmative Investment Management, highlighted the extent to which the finance sector has a critical role to play and has accelerated its focus through organs like the United Nations Principles for Responsible Investment. With such strong momentum he reflected that Governments that lack ambition, or the metrics required to participate in such investment, will be excluded from one of the biggest opportunities in debt and equity in our lifetime – $120 trillion.

The impact bond market saw $1 trillion in new issuances in 2020-21, with the recent Spanish green bond 12 times oversubscribed, and the UK’s inaugural Green Gilt, just closed, was the most subscribed ever in its class.

He stated that investment flow will see increasing benefits for low emissions companies from higher market share and more sustainable business models. Companies need to set net zero targets and set a plan on how to decarbonise, including scope 3 emissions, and through practical metrics such as by linking remuneration to carbon reduction.

In conversation, Grant King opened by asking how can we attract more funding for early stage research and development in low emissions technologies in Australia. The panel noted longstanding challenges with early stage R&D, but highlighted the intense appetite for low emissions investment opportunities. We need to ensure all parts of the R&D ecosystem, from early stage through to commercialisation, are working well together, and engage with companies with high ambition in hard-to-abate sectors which is where much of the innovation will come from. The funding mechanisms of the Australian Renewable Energy Agency and the Clean Energy Finance Corporation were raised as entities that can be leveraged for investments beyond the energy sector. The risks of public investment displacing private investment were raised, with the suggestion that governments should remain focused on funding early-stage technologies that aren’t currently commercially viable.

The discussions closed around the importance of upholding the integrity of carbon offsets, the need for accurate and consistent emissions measurement and the risks of greenwashing for environmental outcomes and corporate reputations. More work needs to be done on the development of taxonomies to guide sustainable investment in Australia, a challenging area given the need to achieve consistency with international approaches while tailoring them to Australia’s circumstances. 

The panel recognised the substantial magnitude of the challenges, but were united in their view that the opportunities for Australia in a net zero world are substantial and are only growing. 

A recording of the panel discussion is available for download here.

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