New Energy Expert Insights: Net-zero by 2050: The Green Light for Green Energy

With COP 26 underway and Australian Prime Minister Scott Morrison in attendance armed with the Nationals recent agreement to provide in-principle support for the Australian Government to commit to net-zero by 2050 (net-zero), Hamilton Locke took the opportunity to discuss with Richard Mathews Australia’s reluctance to commit to a net-zero target has affected Australian renewable energy businesses’ ability to invest in overseas markets and attract inbound investment.

Having recently retired, Richard Mathews corralled the support of over 70 former Department of Foreign Affairs and Trade officials and diplomats under the banner “Diplomats for Climate Action Now” to deliver a letter to the Australian Government expressing their collective concern regarding the risk to Australia’s key strategic and economic interests that was being caused by the Government’s failure to commit to net-zero.  And as a former diplomat, Richard Mathews saw firsthand how failure has hampered Australian businesses looking to export their renewable energy technology and expertise to overseas markets, including in Indonesia.

Below we discuss with Richard some of the practical issues faced by Australian renewable energy businesses, particularly in the green hydrogen industry, as a result of Australia arriving late to the net-zero party and the opportunities that now present themselves with Australia committing to net zero.

What changes for Australian renewable energy businesses, and particularly the green hydrogen industry, now that the Australian Government is attending COP26, and has now committed to a net-zero target?

Essentially, Australia can talk the talk all it wants but without that commitment to net-zero our overseas partners, both governmental and corporate, were always questioning our commitment to the renewable energy industry. Without that commitment, there was always going to be doubt and uncertainty amongst our partners. Now with the Australian Government’s commitment to net-zero, the perception that Australia is not committed to the renewable energy industry will recede and countries will be more open to working with our renewable energy businesses.

Richard provides a real-life example of the interest international communities have in Australia’s capabilities in the renewable energy space and the opportunities Australia must capitalise on:

“When I was Consul-General in Makassar, we hosted a renewable energy seminar and there was considerable interest from across Indonesia’s provinces in Australia’s capabilities to support renewable energy projects, especially in isolated communities where importing fossil fuels was expensive. These communities had plenty of wind and sunshine, so were very interested in renewable energy. But at the time there was little government support for renewable energy exporters. Now, with the commitment to net-zero by 2050, that should change for the better.”

How has the lack of long-term emissions targets affected Australian renewable energy companies’ ability to attract inbound international investment?  How has that outlook now changed?

The lack of a long-term emissions target was a problem for not only investors but also communities. Coal mining communities around Australia such as those in Gippsland were none the wiser on what their future was going to look like. Or what the future for Hunter Valley coal miners was going to look like during the transition, and this seems to be an overlooked factor in the transition process. Now with the commitment to net-zero, communities such as these can begin to plan their transition to renewable energy technologies with the certainty that there is an international market for these technologies in terms of exports and inbound investments.

Until recently, the lack of a firm commitment to net-zero from the Government had created an inverse sovereign risk in terms of whether or not to make an investment in Australia’s renewable energy industry.

For example, look at international companies like Adani. Adani invests not only in coal but also in renewable energy projects. Australia’s reluctance to commit to net-zero has resulted in these international companies making a bet each way in Australia. As a result, there has been continued investment in coal at the same time money has been going into renewables. Therefore, the lack of a net-zero commitment had been diverting investment dollars that would have otherwise been bound for the renewable energy industry into the fossil fuel industry.

Adani’s current investment in Queensland is an example of this, while more recently their announcement of $20 billion investment into renewable energy gives us a taste for the international investment opportunities that await the Australian renewable energy industry as confidence grows in our commitment to net-zero.

This hesitancy by international groups to invest in Australian renewable energy due to our lack of policy commitment to achieving net-zero is supported by the recently released report by The Investor Group on Climate Change which provides that, along with Saudi Arabia, Australia is one of the least attractive destinations for green investment among the G20 countries.

How does it affect Australian businesses’ ability to export renewable energy technologies and their expertise? How important are strong diplomatic relations regarding Australian renewable energy businesses’ ability to deal with international counterparts and operate internationally?

Australia’s reluctance to commit to net-zero has historically affected our ability to export renewable energy technologies and expertise in two ways:

1. Without the access and support of the Australian diplomatic core which required a commitment to net-zero to be ‘unlocked’, Australia’s ability to export renewables has been more difficult than it needed to be; and
2. If Australian renewable energy businesses have managed to get their foot in the door internationally, they have come up against renewable energy businesses from countries that had already committed to net-zero, which had resulted in Australian businesses essentially fighting with one hand tied behind their backs. Host countries have tended to prefer renewable energy businesses which had the backing (both financial and political) of their home country.

This issue is not only prevalent at a political level, but also at higher corporate levels as well. With government backing, potential partners will be more interested in what Australia is doing and know that we are not just talking the talk, so to speak. It increases confidence that government support is available if problems arise, and it also opens opportunities regarding complex cost problems associated with imports and tariffs. Without government backing and funding, it remains difficult for potential partners to feel confident that Australian renewable energy companies can effectively do business without any constraints which then provides a transact execution risk.

What are some practical steps Australian renewable energy companies can make to forge strong ties with international companies and governments?

The Australian renewable energy industry needs to keep pushing the Government to commit to stronger short-term emissions targets. Groups like the AI Group and Business Council of Australia continue to push hard to try to get the Government to commit. While a commitment to net-zero will make it a lot easier for renewable energy companies to build stronger international ties, this process will be accelerated by stronger short-term targets that leverage Australia’s current superior natural resources such as solar and wind.

In the meantime, renewable energy companies should also be looking internally to State and Territory government incentive schemes and grant programs. Most State and Territory governments, for example, have released green hydrogen funding programs and are looking to reduce emissions significantly by 2030, which is a massive practical step for Australia internally. For example, NSW has progressed immensely over the past year and a half under the guidance of Matt Kean in their proposal and developments of different state-wide hydrogen hubs and New England specifically as a renewable energy hub.

How should Australia make climate change, renewable energy and the green economy a broad focus of our foreign policy?

We have been competing with other international renewable energy businesses and other countries who have diplomatic support because they are in the “net-zero circle”. Now that Australia has committed to net-zero by 2050, entry into this circle will open doors that have otherwise been shut to Australian renewable energy businesses.

While Australia has been slow to commit to net-zero, in many ways change is occurring with the technology plan that the Government is looking to implement, with most of the funding being directed towards green hydrogen developments. In relation to foreign policy, with the direction that net-zero provides, the Department of Foreign Affairs and Trade and Austrade should start gearing up to support Australian renewable energy businesses’ efforts to export green technology and our green expertise.

The Australian diplomatic core must channel the expertise and firepower they used to drive Australia to be a major player in the coal industry, to catapult Australia into being a major global player in the renewable energy sector. For many years one of the critical KPI’s for our diplomats related to their success and support for the coal and gas industry. There is the will and capacity to shift this focus to the renewable energy sector. Building bilateral and regional relationships in these areas and building capacity to negotiate and support Australian renewable energy businesses will play a critical role in helping Australian renewable energy businesses crack international markets.

We risk missing out on opportunities if we do not act effectively on promoting Australian renewable energy capabilities. In recent months, the Green Economy Agreement with Singapore has been a good start and hopefully, there are more positive outcomes ahead. Now the green light has been given, the Department of Foreign Affairs and Trade and Austrade should move quickly and become a proactive supporter of Australian renewable energy businesses throughout the world and within the region which will help to secure new opportunities.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.