Warning to Nationals on net zero failure

RBA’s warning that climate-conscious investors will ‘significantly divest’ from Australia backed by Josh Frydenberg, Labor and Andrew Forrest.

Andrew Forrest has urged the Prime Minister to go it alone on a net-zero target and risk a Coalition split if the Nationals resisted the change. Picture: Tony McDonough

The Reserve Bank’s warning that climate-conscious global investors will “significantly divest” from Australia has received backing from Josh Frydenberg, Labor and billionaire iron ore miner ­Andrew Forrest, as the economic case builds for the Nationals to ­accept a 2050 net-zero emissions target.

The threat of financial markets shifting capital away from Australia in a global march to carbon neutrality has dominated talks between Scott Morrison and Barnaby Joyce, as the Liberals and Nationals attempt to strike a net-zero deal before the UN climate change conference in Glasgow.

Mr Forrest, who has heavily backed hydrogen and solar projects across the country, used a National Press Club speech on Thursday to urge the Prime Minister to go it alone on a net-zero target and risk a Coalition split if the Nationals resisted the change.

Josh Frydenberg. Picture: Gary Ramage

The Australian understands the geostrategic risk of China growing its influence in the Indo-Pacific region and among South Pacific nations has been raised to secure support from Nationals and conservative Liberal MPs.

Moderate Liberals are privately threatening to revolt against a net-zero plan if it fails to include a fixed 2050 target. Government MPs said that, while Mr Morrison was pushing for a firm target, Emissions Reduction Minister Angus Taylor – a member of the party’s Right faction — had suggested to colleagues the government could eschew a hard target at Glasgow so long as the net-zero plan was credible.

Nationals MPs will receive a detailed briefing on the climate action plan at their party room meeting on Sunday after cabinet this week discussed Mr Taylor’s net-zero submission, understood to be about 900 pages long.

A decision on the Prime Minister’s net-zero plan, which is supported by economic and ­emissions modelling, is likely to be pushed beyond Tuesday’s meeting of the joint ­Coalition ­partyroom after all government MPs are briefed and are able to have their say.

In a major speech ahead of COP26, RBA deputy governor Guy Debelle said on Thursday “investors will adjust their portfolios in response to climate risks”.

“There is a risk we will see more of these divestment decisions sooner rather than later,” Dr Debelle said “Governments in other jurisdictions are implementing net-zero policies. Both of these are effectively increasing the cost of emissions-intensive ­activities in Australia.

Scott Morrison. Picture: Getty Images

Barnaby Joyce. Picture: Gary Ramage

“So, irrespective of whether we think these adjustments are ­appropriate or fair, they are happening and we need to take account of that. The material risk is that these forces are going to intensify from here.”

Dr Debelle warned that “simply shutting down parts of the economy is unlikely to deliver a socially optimal transition”.

“It is not necessary today to go down such a path, though the time we have before such a path might be necessary is decreasing,” he said. “Investing in a reduction in carbon emissions can still be an important part of the transition, even if the immediate outcome is not zero emissions.”

The internal Coalition debate over the government’s long-term emissions reduction strategy, outlining a pathway to net zero by 2050, has focused on opposing ­demands from moderate Liberal and Nationals MPs and the electoral impacts of going too hard or slow on climate action.

Moderate Liberals said if the Nationals rejected the plan, Mr Morrison must take a 2050 target to Glasgow anyway. “First and foremost he is the leader of the Liberal Party,” a Liberal MP said.

Chris Bowen. Picture: AAP

Mr Frydenberg, a senior moderate who holds the inner-­Melbourne seat of Kooyong, said the push to net zero had affected how banks and investors allocated “their assets into the way they price risk”.

“That movement is underway,” the Treasurer said. “It’s a long-term structural shift; it is not a short-term shock. Australians need to be very conscious of the impacts of that change in financial markets because Australia heavily relies upon foreign investors. I want Australia not to be disadvantaged by those movements internationally but actually to be advantaged by them. And I want us to capitalise on the opportunities that are being presented to our economy by a low-emissions ­future.”

Mr Frydenberg said the Coalition was considering the Glasgow climate package in a “methodical and evidence-based” way. “There is a strong economic aspect … with respect to net zero and a lower emissions future. What Australia chooses to do into the future will have a big impact on our economy in a positive way,” he said.

Writing in The Australian, opposition climate change spokesman Chris Bowen says if the Coalition fails on net zero “we should not kid ourselves into thinking our global customers will wait another few years for the Liberals and Nationals to set another meeting to talk about making a plan”. “While the Coalition dithers on a ‘will we, won’t we’ on net zero, countries the world over, and the capital that feeds our economy – is talking about the next 10 years,” Mr Bowen writes.

“Targets, decisions and investments for the next decade, will ­determine the role and prominence of nations in a new global economy. The jockeying we see globally is about climate of course, but it’s also about economics and the changing geopolitics of energy.”

Mr Forrest said: “If we miss ­declaring carbon neutrality at COP26, we’ll eventually be forced to make it anyway, just as the Reserve Bank observed.

“But by then our markets and our financings will dry up, and the stain that leaves, that we simply didn’t care, that we ignored our youth, we got the politicians we deserved, will count against us forever. And that’s not fearmongering. We … are watching international investors pulling the pin on Australian projects now, can you blame them?”

Mr Forrest has directly lobbied Mr Joyce and Nationals senator Matt Canavan on net zero.

Nationals’ deputy leader David Littleproud said there would not be “universal agreement” at Sunday’s partyroom meeting. “If the majority of the room get to a position where we can understand a plan that protects regional jobs, particularly those in the resource sector, and that agriculture won’t pay the bill but in fact can be part of the solution, then we’ll pragmatically look at that,” Mr Littleproud said.

With central Queensland Nationals MPs concerned about the climate pivot, Mr Littleproud conceded the LNP can’t “afford to lose any seat anywhere”.

Moderate Liberal MP Trent Zimmerman said the government’s goal had to be “to get to net-zero by 2050”.