The Gillard government would do well to remember the ghost of the disastrous Victorian Economic Development Corporation when it is scoping out its new $10 billion green bank, which will be bankrolled by taxpayers as part of the new carbon tax program.
THE Gillard government would do well to remember the ghost of the disastrous Victorian Economic Development Corporation when it is scoping out its new $10 billion green bank, which will be bankrolled by taxpayers as part of the new carbon tax program.
The VEDC was set up as a venture capital fund in the 1980s to pick winners. It collapsed ingloriously due to poor management, a lack of transparency and a blatant inability to pick winners. Tricontinental Bank was another government-inspired bank that lent money to entrepreneurs, only to collapse in a heap in 1990.
In the case of the Clean Energy Finance Corporation, it is already carrying the hallmarks of being half-baked, agenda-driven and creating profound distortions in the renewable-energy market.
Indeed, Greens senator Christine Milne admitted yesterday that Treasury had not had time to properly assess the $10 billion package. "They didn't get that information in time to model it. Treasury modelling takes a long time to do, the nitty gritty of this agreement was really worked out in the last couple of months and Treasury have not modelled it," she said.
The new bank will kick off in 2013-14, and will provide finance for projects through commercial loans, concessional loans, loan guarantees and equity.
About $5 billion will be allocated for investment in renewable technologies, wind, solar power, geothermal and wave energy, and the other $5 billion will target general clean energy investment, such as low-emissions cogeneration technology.
Not surprisingly, this decision to pick winners and exclude others has created immediate distortions on the ASX, with stocks in the "winner" category soaring. These include Carbon Conscious, a carbon offset company, which closed 9.7 per cent higher at 34? Silex, which has a solar division, jumping 6.8 per cent, CO2 up 8.2 per cent Petratherm, which is a geothermal company, soaring 15 per cent, wind farm group Infigen Energy up 5.4 per cent, and Carnegie Wave Energy rising 23 per cent. Not bad for a day when the overall market was down 1.6 per cent.
It is a fund/bank that shadow finance minister Andrew Robb labelled a slush fund. "The fact that this fund will be banned from investing in carbon capture and storage highlights how this is a cynical political exercise," he said.
He has a point. Given Australia is a big exporter of brown and black coal it is difficult to comprehend why the CEFC has decided to exclude carbon capture and sequestration technologies, gas and biomasss.
Carbon capture and sequestration technology is a means of mitigating the contribution of fossil-fuel emissions to global warming. The process is based on capturing carbon dioxide from large point sources such as fossil-fuel power plants and storing it in such a way that it doesn't enter the atmosphere.
Given so much of Australia's wealth is created through carbon, and iron and steel requires coal, it is foolhardy to ignore it.
To put it into perspective, every year Australia exports more than 300 million tonnes of coal, along with liquefied natural gas, which generates almost $70 billion in revenue.
While the Gillard government has tried to brush it aside, saying it has been looked after through different schemes, the reality is different. The CCS Flagships Program committed $1.8 billion a couple of years ago to the fund but it has so far only invested $100 million, according to Peter Cook, the chief executive of the Co-operative Research Centre for Greenhouse Gas Technologies.
Carbon capture and sequestration technologies have been given financial support in several countries including Britain, the US and Canada. In 2009, the British government included in its budget specific measures to encourage the development of carbon capture and sequestration technologies. It stated there would be no new coal without carbon capture sequestration demonstration from day one and full-scale retrofit of carbon capture sequestration within five years of the technology being independently judged as technically and commercially proven.
To exclude certain technologies from access to funding prompted a backlash from the industry, raising justified concerns that it would polarise the market. The fear is that all the projections of bodies such as the International Energy Agency clearly show that we will need carbon capture and sequestration for at least 20 per cent of the global mitigation effort in the coming decades. "If we do not include CCS in the overarching clean energy package and the Clean Energy Finance Corporation, we run the risk of taking a highly polarised approach to lowering our carbon footprint," according to Cook. "Without inclusion of CCS there is no solution to the greenhouse issue.''
Likewise, Australia has almost half the world's uranium reserves yet it is banned from using it to reduce emissions.
The government will have its work cut out when it comes to setting up the $10 billion fund. Besides polarising the industry before it has even begun, it will need to pick the right board and management to ensure it doesn't suffer similar fates to organisations that were set up in New Zealand and Australia. It will also need to make sure it is not open to political influence.
It will have to do this against the backdrop of the findings of the Productivity Commission's sobering report on Carbon Emission Policies in Key Economies in May. After assessing eight countries, including China, Britain and the US, the Productivity Commission found the impact of policies to encourage small-scale renewable generation are substantially less cost effective and have led to relatively little abatement. Put simply, they are uncompetitive and expensive.
aferguson@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What is the proposed $10 billion green bank and why should everyday investors pay attention?
The Gillard government's proposed $10 billion green bank (part of the carbon tax program) is a taxpayer‑backed fund due to start in 2013–14 that will finance clean energy projects via commercial and concessional loans, loan guarantees and equity. Investors should watch it because its funding choices can shift market demand, create winners and losers on the ASX and influence valuations in renewable and clean‑energy sectors.
Which technologies will the green bank invest in and how is the money allocated?
According to the article, about $5 billion will be allocated to renewable technologies such as wind, solar, geothermal and wave energy, while the other $5 billion targets broader clean‑energy investment like low‑emissions cogeneration. That split means direct support for both pure renewables and other low‑emission projects.
Why are some technologies like carbon capture and storage (CCS), gas and biomass excluded, and what does that mean for investors?
The Clean Energy Finance Corporation (CEFC) has excluded CCS, gas and biomass from its investment scope, which critics say is politically driven and risks polarising the market. For investors, exclusion of widely discussed mitigation tools such as CCS could limit the pool of funded projects and create sectoral bias in investment flows.
How did the green bank announcement affect ASX clean‑energy stocks and what should investors infer?
The announcement produced immediate market distortions: companies seen as 'winners' jumped (examples cited include Carbon Conscious, Silex, CO2, Petratherm, Infigen Energy and Carnegie Wave Energy), even while the overall market fell. Everyday investors should infer that policy announcements can cause rapid, sentiment‑driven moves and that political picking of winners can magnify volatility.
What lessons from past government banks like the Victorian Economic Development Corporation (VEDC) should investors remember?
The VEDC (an ’80s venture fund) and Tricontinental Bank both failed amid poor management, lack of transparency and an inability to pick winners. The article warns investors to be wary of government funds that lack strong governance, are open to political influence, or repeat those mistakes.
Has Treasury fully modelled the $10 billion package, and why does that matter for investors?
No — the article quotes Greens senator Christine Milne saying Treasury had not had time to properly model the $10 billion package when the deal was finalised. For investors, that suggests the economic and market impacts may not be fully understood before rollout, increasing policy and planning uncertainty.
What governance and transparency risks should retail investors watch for with the new green bank?
Investors should watch board selection, management quality, transparency of decision‑making and safeguards against political influence. The article stresses that getting governance right is crucial to avoid repeating past public‑sector funding failures and to reduce the risk of poorly targeted or costly investments.
How do international approaches to CCS and the Productivity Commission findings affect investor view of the fund?
The article notes other countries (Britain, the US, Canada) have backed CCS financially, while Australia’s CCS Flagships Program has under‑invested relative to commitments. It also references a Productivity Commission report finding small‑scale renewable policies can be costly and less effective. Together, these points suggest investors should consider both global policy context and cost‑effectiveness when assessing the likely success and market impact of the new fund.
Call 1300 880 160
Start a chat
Schedule a call
