There were two key events in Sydney this week: BloombergNEF’s invitation-only Energy Transition and Sustainable Finance Forum and, nearby, an upmarket Green Finance breakfast with a globetrotting guest speaker, Sean Kidney. The Fifth Estate’s columnist Murray Hogarth shuttled between the two events and came away with “trillions” ringing in his head.
VALUES TO VALUE: The prestigious upper levels of Governor Phillip Tower, at 1 Farrer Place, command an amazing view to the east of the world-famous Sydney Harbour, and beyond that the Heads and the South Pacific Ocean.
On Tuesday morning, this view provided an extraordinarily relevant backdrop for global green finance guru Sean Kidney, a London based expatriate Australian who founded and heads the Climate Bonds Initiative, a leading player in the fast-growing space where big public and private money meets sustainability.
Looking out the floor to ceiling windows, Kidney told a breakfast audience of investors that the decades ahead would bring sea level rise and extreme heat to the vista below, and most importantly for them, intensely high-risk volatility to markets.
His good news story, however, is that investment in green bonds – to help fund renewable energy, clean transportation, energy efficiency and waste management, to bring a net zero global economy within reach by 2050 – is set to exceed $US 1 trillion this year.
In the increasingly deep-pocketed world of green finance and energy transition investment, talking in mere billions, or even hundreds of billions, has become “so last year”. Now, the risks and the opportunities are being calculated in the trillions, and the big end of town is paying a lot of attention.
Kidney name drops with style, citing recent meetings with top officials like US Treasury Secretary Janet Yellen, the Japanese government which he advises, and business leaders such as Jugeshinder “Robbie” Singh, chief financial officer at the controversial Indian conglomerate Adani Group, which is “getting into hydrogen” (and by the way, according to Kidney, Adani is doing so well out of solar that it will be exiting coal, including its huge and highly-disputed Carmichael mine in Queensland).
His perspectives and predictions flow thick and fast too.
Climate resilience will be a $US3 trillion ($A4.4 trillion) investment market by 2030. EV numbers will quintuple in two years, with oil consumption set to fall rapidly in response.
Relying on market forces is an “American utopian myth”, and governments will have to invest in relevant change.
Australia’s green bond market is weak, however, due to lack of liquidity. Hydrogen will work, but Australia needs to collaborate more closely with Japan. There’s too much attention on scope 3 emissions, which are highly complex. And the world has a reasonable shot at holding global warming at 1.8C, then getting it back down to 1.5C, mainly with global reafforestation.
“Momentum is now with us.” Kidney declared. “We are winning. Of course we have a lot to do. We’re only about 20 per cent of the way there.” And “there’, Kidney has written elsewhere, on his social media with its25,000+ followers, requires the world to invest at least $US90 trillion in the shift to low carbon and climate resilient societies, with 70 percent to be invested in emerging markets.
If you think those are big bucks, let’s go over the road.
Nearby at BloombergNEF
On the same morning as Kidney’s breakfast, with its breathtaking Harbour views on a sparkling late-winter morning, across the road at the equally prestigious address of 1 Bligh Street, a world-leading new energy and lower-carbon research advisory firm, BloombergNEF, has its offices high in the tower.
Its team and their guests enjoy spectacular views of the iconic Sydney Harbour Bridge outside and magnificent salt-water aquariums inside, filled with waving pale soft corals, blinking anemones, blue-lipped clams and brightly coloured tropical fish (with sub-liminal echoes, perhaps, of the world’s coral reefs and their climate vulnerability).
When it comes to trillions of dollars for sustainability and net zero, Kidney’s earlier event felt somewhat like a warm-up act for BloombergNEF’s Energy Transition & Sustainable Finance Forum, one of dozens of events it holds around the world each year, with hundreds of handpicked guests packed in for the all-day information session.
According to BloombergNEF, investment in the energy transition hit $US1.8 trillion in 2023, but to give net zero by 2050 a better-than-even chance, this needs to climb by a challenging 204 per cent for the 2024-2030 period, or $US5.37 trillion each year. Then rise again by another 46 per cent ($US 7.95 trillion) for each year 2031-2040, before easing back slightly (-6 per cent) for 2041-2050, at the investment and spending rate of $US 7.44 trillion each year.
Among other revelations from BloombergNEF’s top analysts, are global energy investment and spending price-tags of $US181 trillion between this year and 2050 for its less-ambitious “Economic Transition Scenario” (ETS), and $US 215 trillion for its more ambitious “Net Zero Scenario” (NZS), with the latter modelled to deliver broad-based net zero by 2050 within the range of the UN Paris Agreement, at a projected 1.75C of global warming.
It’s worth noting that 1.5C, the high end of the Paris Agreement target range for limiting global warming, increasingly appears to be treated as a lost cause, and the aim now is to at least do better than the Paris low end of 2C. Also, all experts are quick to warn that real harm from global warming, and the climate change it drives, is both inevitable and requires trillions of dollars more investment in adaptation measures for climate resilience.
The good news was that the ambitious scenario, which has a shot at getting the net zero by 2050 job done, at about 65 per cent confidence level, is only projected to cost 19 percent more than the weaker, patently inadequate alternative. A bargain at a mere $US 34 trillion in additional investment and spending, with electrifying transport by far the biggest line item.
The Australian edition of BloombergNEF’s 2024 New Energy Outlook report, which was released a day ahead of Tuesday’s forum, put this country’s share at $US 2.41 trillion for the NZS model, just 12 percent more when compared to the baseline ETS, at $US 2.16 trillion.
The opening session of the BloombergNEF’s forum was led by Kobad Bhavnagri, the firm’s urbane Global Head of Strategy, who is based in Sydney, and knows the Australian landscape very well. While telling a global story, Bhavnagri didn’t hesitate to make domestic connections for the forum’s Australian audience, assuring them that the challenges being faced here were also being experienced around the world.
Kobad Bhavnagri’s top five key global trends were:
- Renewables need to be built faster, but are facing bottlenecks (as the Australian experience clearly shows, especially for transmission infrastructure and large-scale solar and wind, both onshore and offshore).
- The clean transport transition has entered its hardest phase yet (including slowing sales growth for electric vehicles).
- Companies’ and commodity markets’ futures will increasingly be shaped by the energy transition (with China’s overwhelming dominance of energy transition technologies a crucial factor, which will shape global markets for years if not decades, as will growing uncertainty over demand for oil).
- Geopolitics is creating a more fragmented world (with rising anti-immigration sentiment representing an “alarming preview of the lack of social resilience for what lies ahead”, with projections of up to 3.6 billion people being highly-vulnerable to climate impacts; and right-wing politics, which typically opposes climate action and the energy transition, gaining ground at some elections in 2024, including the EU, and the biggest test, the US Presidential election in November, yet to come).
- Nature is rising rapidly up the agenda (with Bhavnagri saying that a $US 1 trillion a year was required to invest in biodiversity protection and nature repair, which means a current gap of $US 830 billion per year that needs to be filled).
For Australia, Bhavnagri sees an opportunity to fast-track electric vehicle uptake and reduce dependence on foreign oil being squandered, although it’s not too late to turn that around by taking advantage of a growing over-supply of energy transition solution technologies, including electric vehicles.
“Oil importers – China and India are great examples, and Australia should be, although unfortunately our politics have not bent that way – see the benefits of decoupling from this import dependence and they are embracing electric vehicles as a way to be able to reduce their reliance on a foreign and imported product,” said Bhavnagri.
“Countries that buck the protectionism trend and stay open, that are willing to buy from whoever can supply the best product at the best price will really stand to benefit. And for a country like Australia, that could mean that while others with tariffs and protectionism drive their capex and energy costs higher, we could lock in structurally lower capex and lower energy prices than many of our competitors by remaining open to trade with all.”
Which is a roundabout way of saying that killing off the Australian car making industry a decade ago may yet turn out to be a great opportunity, because we don’t have a domestic industry to protect from Chinese EV makers in a rampant over-supply mode. Europe and the US, meanwhile, and also Japan and South Korea, face having their car makers wiped out by competition from over capacity Chinese manufacturers offering better, lower-cost EVs, with protectionism on the rise (such as the recent US 100 percent tariff on Chinese-made vehicles).
Hold on tight. This energy transition is going to be a wild ride; however, we have many trillions of dollars devoted to driving it at the speed and scale required.
It is great to hear that there is so much capital looking for a ‘green’ home. However, I wonder how much of it is willing to take a below market rate return on capital? Not all of the transition required is going to provide a good economic return for the investor- even if it does turn out to be the cheapest pathway forward for society as a whole.