The Safeguard Mechanism is critical to Australia’s investment environment

Australia is now willing to step up and play its part in the transition to a net zero economy.

The eyes of the world are on Australia. Long considered a laggard on climate change policy, we are now seeing important steps being taken that will make Australia a more attractive location for global and Australian investors primed to invest in decarbonising the economy.

This is why the passage of the Safeguard Mechanism by the federal parliament is so critical, so vital. The reforms are both modest and important. To deny them passage would send an all too familiar message to global capital markets: Australia is unable to move forward and embrace the global investment race to net zero.

Investors are pleased to see much of the nation’s business lobby line up to support Climate Change Minister Chris Bowen’s Safeguard legislation. The Australian Chamber of Commerce and Industry put it best when it declared the Safeguard Mechanism will help drive down carbon emissions while providing business “with much-needed certainty”.

This last point is critical. For too long policy on climate change and energy transition has been hijacked by short-term opportunism and industry self interest.

Let’s put an end to the policy chaos and get behind a reform framework that was introduced by the former coalition government.

Certainty. Clarity. Continuity. Business and investors, whether local or based in New York or Tokyo, yearn for all of this and more.

Consider this: to reach net zero by 2050, the global economy will need to invest US$1.7 trillion every year for the next two decades.

By 2030 we need to be half way there.

That is the inescapable truth — and a very good reason why the federal parliament must support the passage of the Safeguard Mechanism. No ifs. No climate denial buts.

The Safeguard is arguably this year’s most important climate legislation, and a unique opportunity for Australia to change gears when it comes to directing capital to the businesses and projects that will decarbonise our economy.

However, it is far from perfect. In particular, the unconstrained use of carbon offsets flies in the face of investor expectations that companies should not use offsets as a smoke screen for a real decarbonisation. Mandated and clear standards for corporate net zero transition plans will promote investment in Australian businesses. It will build investor confidence that Australian companies are not using offsets to delay the roll out of new clean technology.

A lost decade of policy uncertainty and political cynicism has blocked investors from deploying capital in Australia at the speed and scale required to drive down emissions and modernise the economy so that industry can better compete in a changing global market.

Funding these opportunities will financially future proof and reward the millions of Australians who hold superannuation accounts and life savings. It will also protect the overall stability of our economy, the environment, and the communities they live within.

The government’s proposed update to the coalition’s Safeguard Mechanism is a sensible step in the right direction.

For investors to make their start we need parliament to make this start.

If parliament passes the amendments, more than 200 of Australia’s most polluting corporations will have their emissions capped and baselines reduced by nearly 5 per cent per annum. A carbon price will cover almost a third of Australia’s emissions.

This would be a historic climate win, and a powerful incentive for global capital markets.

It will send an unambiguous message to investors: Australia is now willing to step up and play its part in the transition to a net zero economy, driven by clean investment, which will be good for everyone. Win. Win. Win.

Rebecca Mikula-Wright is chief executive officer of the Investor Group on Climate Change.