Global climate initiatives put pressure on Australia

Green deals in the US and Europe have piled pressure on Australia to boost clean energy investment, an investor group says.

Developments in California, Denmark, the Netherlands, South Korea and German, show the potential to build ‘thriving climate industries’ with the right policies.

The US Inflation Reduction Act and the European Green Deal have put Australia under increasing pressure for more policy moves to encourage local investment in clean energy, according to a new report by the Investor Group on Climate Change.

It warns Australia faces competition for investment in global capital markets as other jurisdictions provide more incentives for investment in green energy and the transition to a lower carbon world.

Developments in California, Denmark, the Netherlands, South Korea and German, show the potential to build “thriving climate industries” with the right policies. The report argues the federal government needs to identify priority climate sectors for Australia and develop specific transition plans for them.

“Institutional investors, many of whom have set targets for ‘climate solutions’ investments and collectively manage trillions of dollars, are not finding attractive enough opportunities to invest in Australian transition industries,” the report says.

“In the US alone, since the passage of the IRA, around $40bn in new investment in the electric vehicle, battery and solar manufacturing sectors has been announced and over $2.5 trillion new investment has been projected to 2030,” it says.

The report says that while Australia has made “significant progress” in its policies on renewable energy and climate change, it has not yet built an innovation system which properly supports the “newer and more innovative climate solutions” which will be needed to transition the economy to net zero.

It also recommends updating the mandates of the Clean Energy Finance Corp and the Australian Renewable Energy Agency to “make investments with more risk tolerance in the priority sectors”.

A boost should also be made to the goals of the Emissions Reduction Fund to increase incentives for businesses, households, and landowners to proactively reduce their emissions.

The chief executive of the Investor Group on Climate Change, Rebecca Mikula-Wright, said Australia should not attempt to match the scale of subsidies now available for clean energy globally.

“The nation can’t outspend the US and others, but we can outsmart them and use our unique resources to realise our competitive advantage,” she said.

“Australian institutional investors stand ready to provide capital to scale to businesses that will move climate action beyond renewables, but that eco system can’t grow in a vacuum.”

She said the government had the opportunity of being able to learn from policies offshore.

Pollination’s head of impact, Zoe Whitton, said Australia had the potential to create new growth industries around the demand for clean energy solutions created by the US IRA and Europe’s Green Deal, with the right policy settings.

The report comes after the executive chairman of the Fortescue Metals, Andrew Forrest, cautioned Australia had a year to come up with policies to match some of the incentives in the US Inflation Reduction Act for the shift to green energy, or risk seeing more local capital go offshore to take advantage of the incentives.

The iron ore billionaire said Europe was now looking at ways to follow suit to meet the competition from the US in terms of incentives to invest in green energy projects.