Australia should chase stronger 2030 climate targets or risk tariffs and lost investment, institutional investors warn

Australia should chase stronger 2030 climate targets or risk tariffs and lost investment, institutional investors warn
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  • Institutional investors and asset consultants have welcomed Australia’s commitment to hit net zero greenhouse gas emissions by 2050.
  • But the technology-heavy plan could be damaged by the nation’s 2030 emission reduction targets.
  • Investors must be convinced that this decade’s emission reduction goals are strong enough before deploying their capital.
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Institutional investors regard Australia’s plan to reach net zero emissions by 2050 as a tentative step in the right direction, but fear a weak 2030 target may leave the nation exposed to global disinvestment and punishing carbon tariffs.

After years of pressure from climate advocates, Prime Minister Scott Morrison unveiled a “uniquely Australian” commitment to net zero by 2050 on Tuesday.

The 129-page outline makes the “uniquely Australian” choice to leave extractive industries well enough alone, with Morrison saying the scheme “will not cost jobs, not in farming, mining or gas.”

Instead of carving away at Australia’s massive fossil fuel interests or legislating new emission reduction targets, the plan suggests advancements in green technology will result in emissions falling by 70 per cent of 2005 levels by 2050.

The plan hinges on billions of dollars in government investment into those technologies, including ultra low-cost solar power, ‘clean’ hydrogen production, and the speculative field of carbon capture and storage.

A further 30 per cent of forecast emission reductions have been chalked up to “global technology trends” and unspecified “further technology breakthroughs”.

Australia’s abundance of renewable energy sources could entice major institutional investment in the great green transition.

But securing that investment could be a challenge, given the plan’s 2030 emission reduction target.

The plan introduced no changes to the federal government’s plan to reduce emissions by 26 to 28 per cent of 2005 levels by the end of the decade. Instead, it suggests green technology could reduce emissions by up to 35 per cent.

That is despite a scientific consensus that global emission reductions of around 50 per cent are needed in the next few years to keep temperatures from climbing 1.5c.

Australia’s international contemporaries have already locked in more ambitious 2030 goals. The U.S. and the U.K. are chasing 50-52 per cent and 68 per cent reductions, respectively.

Remaining out-of-step with international markets may lead international capital elsewhere, hampering any green technology boom, according to Investor Group on Climate Change CEO Rebecca Mikula-Wright.

The IGCC, representing investors with trillions of dollars in funds under management, welcomed the long-awaited 2050 commitment.

However, “investors require interim targets to provide confidence for investment decisions in the short and
medium term,” Mikula-Wright said.

“Australia not updating its 2030 target in line with commitments under the Paris Agreement is of deep concern to investors.”

Modelling conducted by the IGCC suggests Australia could lose out on $43 billion in investment by 2025 if it carries on its current pathway, instead of strengthening its climate credentials.

“Business as usual on Australia’s current 2030 emissions target remains an acute financial risk to the Australian economy,” she said.

“Investors are likely to continue to seek short-term investment opportunities in other markets at a cost to the Australian economy.”

Further financial risks face Australian exporters should they be hit with carbon tariffs or border adjustments, where importers add charges to protect domestic producers subject to harsher emission reduction requirements.

“The PM’s net-zero pledge is a step in the right direction,” said Rachel Halpern, head of sustainability at asset consultancy JANA.

“However institutional investors will be looking to understand whether this pledge will be regarded as sufficiently robust to avoid Australia being slapped with carbon tariffs by the US and the UK.”

Halpern echoed the IGCC’s position, suggesting “significant institutional capital will need to be directed at climate solutions” for the federal government’s plan to become viable.

“We are keen to see what the government does to encourage investment in these emerging technologies,” she said.

Australia will soon have its chance to woo institutional investors at the landmark COP26 climate conference in Glasgow, which has the explicit goal of mobilising public and private finance to fight the crisis.

It is there that a uniquely Australian plan will face decidedly global scrutiny.