22 July 2014 — BRIEF: Australia is becoming increasingly globally isolated and economically vulnerable, as countries like Korea and China move toward national emissions trading schemes, a new report warns.

The Institute for Energy Economics and Financial Analysis investor briefing note details the implications for Australian fossil fuel investment taking into account regulatory, market, technological and reputational risks resulting from the ongoing transformation of global energy markets.

“In the same week that Australia repealed its ETS, both China and Korea took decisive action in the opposite direction, joining other major trading partners in acting on climate change, thereby placing Australia in a highly isolated and vulnerable position,” IEEFA Tim Buckley director of energy finance studies, Australasia said.

Korea last week announced it would maintain its 2015 ETS implementation timetable while China announced the creation of a committee of experts to oversee expanding the existing seven ETS pilot programs into a unified national program, he said.

“Following on from US President Obama’s Clean Energy Plan last month, these announcements by Korea and China suggest that almost all of Australia’s major trading partners are progressing carbon reduction initiatives,” Mr Buckley said.

“The repeal of the Australian carbon price seeks to artificially stimulate more investment in fossil fuels at a time when demand and prices around the world are directing capital in other directions in the energy sector.

“The repeal may have some short term stimulative impact but is unlikely to reverse the broader global market trends, which are overwhelmingly against fossil fuels and in favour of renewables. The risk of continued investment in fossil fuels leaves Australia exposed to a portfolio of stranded assets, combined with a failure to capitalise on the financial opportunities of favourable market conditions for renewables.”

Mr Buckley said the federal government was placing billions of dollars in investment at risk by ignoring that coal export markets such as India and China were taking steps away from fossil fuels. In China, for example, 67 per cent of new power stations were non-coal, he said.

“Australia’s resource-dependent economy is increasingly exposed to substantial risk due to the government’s failure to heed global market trends, combined with a ‘head in the sand’ approach to international action on climate change,” he said.