Jillian Broadbent

27 November 2013 – The Clean Energy Finance Corporation has hit the national headlines in fightback mode after chairman Jillian Broadbent told the Abbott government the CEFC model was more “fiscally responsible” than Direct Action’s government handouts.

Ms Broadbent, responding to a Senate inquiry into the abolition of the carbon tax on Tuesday, didn’t mince words.

The CEFC provided loans, which were repaid, with interest. It was therefore “a more fiscally responsible path to encourage the industry to be self-sufficient and wean itself off this government handout,” she said.

In an interview later with the ABC Ms Broadbent said that the $536 million invested by the CEFC so far had achieved four million tonnes of emissions abatement – more than 50 per cent of the annual rate of emission reductions that the government has to achieve to reach its emissions target.

Direct Action, said Ms Broadbent was a form of grant, and it is going to be looking at the lowest cost for making those grants.

We’re actually not a cost at all, but an earning. So every emission that we’re achieving has a return to the government of $2.40, if it’s consistent with our current portfolio, whereas they’re not going to get submissions where “We will pay you $2.40 if you let us pursue this investment”. So it’s very hard to compare a positive return with a cost.

The government had projected savings of $760 million over four years if the CEFC was abolished. But because the CEFC is making money, the losses could be $1.5 billion.

As flagged in a number of recent articles by The Fifth Estate there is not much support from property industry practioners for Direct Action. Some think it could loom as a public relations disaster, along the lines of the insulation scheme for the previous government.

Direct Action benefits the larger property companies who have the resources to apply for funding and wait for the payback from government funds, while smaller companies lacked the capacity in time and resources to benefit from the scheme, industry observers say.

It has its supporters, namely the Property Council and the Australian Built Environment Council, but that’s because it believes it can influence the way the Direct Action scheme can evolve. However, it could be a long wait. Critics say the scheme is months behind schedule and could take until 2015 to be ready to rollout.

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Asked why the market could not deliver the same results as the CEFC, Ms Broadbent told ABC’s Lexi Metherill:

“Well I think the financial sector’s experience with clean energy isn’t sufficiently practised for them to have a great appetite to participate. So we tend to be the catalyst to bring them to the table, and either by persuasion or arm twisting, get them to progress these activities.”

Ms Broadbent likened Government’s Direct Action proposal to handouts. She said it was wrong to say that the CEFC “crowds out private investment and takes risks with public money”.

 “I certainly don’t think there’s been any crowding out in any of our investments that we have made. In fact, there’s been a crowding in, where we’ve had three international institutions who’ve participated in the market for the first time, encouraged by the fact that there was a government-owned entity there at the table and being a co-financier,” Ms Broadbent said.

She said the CEFC was only a cost to the budget to date because it had not been in operation long enough.

“It’s currently a cost to the budget because it’s only invested $500 million and the earnings on that are only just covering our operating costs. But should we be able to continue to invest – and we are continuing to invest at least until the act is repealed – then we’ll certainly be covering our operating costs within 12 months.”

Derided as the “Bob Brown Bank” the CEFC in a short time has proved the critics wrong, with Ms Broadbent and CEFC chief executive Oliver Yates telling the inquiry that the $10 billion CEFC was exceeding all expectations, The Australian Financial Review reported.

The CEFC was

“delivering substantial abatement while making a return to the taxpayer’’. Its abolition would cost taxpayers up to $200 million a year in lost revenue.

“It will cost the taxpayer more to shut down the CEFC than it will save,’’ Ms Broadbent said.

Asked why the CEFC was still being slated for abolition, she said: “You’ll have to ask the government that’’.

South Australian Liberal senator Anne Ruston asked the officials why the CEFC’s role could not be replicated by a private bank with no taxpayer exposure, Fairfax Media reported.

Ms Broadbent said: “I would have asked myself the same question before I embarked on this journey.” She said it soon became apparent having a ­dedicated loan facility focused on clean energy technology and run by people with commercial banking expertise had led to a much larger than expected response from the energy sector.

Mr Yates said there were “numerous transactions’’ that would not have happened without the CEFC because the banks would have considered them too small, too novel, too complex or just shied away because they had not been tried in Australia before.

CEFC chairman Jillian Broadbent’s opening statement to the Senate inquiry into the abolition of the carbon tax:

I thank the Committee for inviting the Clean Energy Finance Corporation here today to provide evidence into the Committee’s inquiry into the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 [Provisions] and related bills.

The Clean Energy Finance Corporation has made a comprehensive submission, and has confined its remarks exclusively to the one bill that concerns it, the Clean Energy Finance Corporation (Abolition) Bill 2013 (‘the Abolition Bill’)

As a concept, the Clean Energy Finance Corporation was conceived by the original Multi-Party Climate Change Committee process and had a further extensive scrutiny by an Expert Review Panel, of which I was privileged to be Chair. More than 170 submissions were received and 80 consultations undertaken and this information considered by the Expert Review.

Having conducted that Review, it is worth quoting some comments I made in my letter of transmittal to the then responsible Ministers:

The establishment of a $10 billion fund dedicated to invest in clean energy will catalyse and leverage the flow of funds for commercialising and deploying renewable energy, low emissions and energy efficiency technologies. In this way we will be preparing and positioning the Australian economy and industry for a cleaner energy future.

The then Government accepted the report and the Parliament legislated to create the Corporation with the Clean Energy Finance Corporation Act 2012 (‘the CEFC Act’). The importance of outlining the historical sequence is to reiterate for the Committee that the foundation of the Corporation was underpinned by a solid base of evidence.

That evidence which supported the CEFC’s establishment has been soundly reinforced by the experience and results of our 15 months of operation:

  • The Australian Government has used the medium of the Investment Mandate to instruct the Corporation to use commercial rigour and avoid excessive risk

  • The Board has adopted a conservative approach to building its investment portfolio – principally focused on debt investments on terms matched by private sector co-financiers and with a minimum of funds invested in equities

  • The CEFC is making money for the Commonwealth over and above the cost of funds – which mean the taxpayer is getting lowest cost abatement

  • The Board has put in place a rigorous system of risk management, investment selection and corporate governance;

  • Each CEFC investment is required to provide positive externalities and demonstrate how it successfully addresses market barriers; and

  • Not one of the CEFC’s investments – or before the CEFC, those by Low Carbon Australia – has fallen into default after three years of collective experience.

    But perhaps the best argument for the CEFC is what it has actually achieved in short order:

    • CEFC funded projects involve over 500MW of clean electricity generation capacity installed or supported, covering renewables and Low Emissions Technologies

    • The CEFC has developed a total portfolio of $536 million and through our co-finance partners have invested in projects over $2.2 billion in value

    • The CEFC is delivering abatement at negative cost (i.e. benefit) to the taxpayer of $2.40 per tonne of CO2 abated (net of government cost of borrowing)

    • The CEFC is investing across a broad range of technologies including wind, solar, bioenergy, energy efficiency and low emissions technologies

    • The CEFC invests in projects that are demonstrating the benefits of proven technologies in the Australian market

    • The CEFC has conducted active discussions with 37 proponents for $4.5 billion in projects and initial assessment of a further 142 projects together representing 179 projects and $14.9 billion of opportunity

    • The CEFC has 39 investments in the portfolio to 20 August 2013

    • The CEFC’s investments will deliver an estimated 3.88 million tonnes of

      CO2-e abated annually

    • CEFC investments assist in building Australia’s clean energy supply chain capability

    • The CEFC is funding projects in regional and rural Australia, supporting

      21st century jobs in local communities

    • Many industries are benefiting from CEFC financing, including

      agribusiness, property, manufacturing, utilities and local government

    • Co-financing is integral to the CEFC strategy. Through matched private

      sector funds of $2.90 for each $1 of CEFC investment, the CEFC has been able to catalyse over $1.55 billion in non-CEFC private capital investment in projects and programs to deploy renewables and to improve energy efficiency.

    • The 11 investments originated by the CEFC to date exceed the five-year Australian Government bond rate. The CEFC investments to 20 August 2013 carry an average yield of 7.33 per cent. The five-year bond rate across the portfolio was 3.11 per cent.

If the CEFC is abolished, there is no provision for transition to another scheme or program. The staff will be terminated within 28 days of passage if not prior and a highly-functioning, commercially-skilled pool of expertise will be lost to the public sector.

Without the CEFC as a focused fund to work with the sector to address market gaps, the economy will likely experience a real pullback of emissions-reducing project investment, market barriers will persist and the positive budget outcomes from this emissions abatement will be foregone.

In summary:

  • The CEFC is delivering all of the presumed benefits;
  • The commercial approach taken by the CEFC has meant that the presumed negatives of such a fund have not been realised
  • The CEFC has exceeded its expectations and is delivering substantial abatement while making a return for the taxpayer
  • It will cost the taxpayer more to shut down the CEFC than it will save.
  • The CEFC is an efficient and effective way to assist the Government meet its targets under Direct Action.
  • The CEFC model has proved a highly valuable policy tool. We have invested 5 percent of the CEFC’s total $10 billion fund. If the full amount were to be invested with a like emissions reduction outcome and the same level of co-financing participation, then this would contribute 60 percent of the total abatement required to meet the bi-partisan 2020 national abatement target, and at the same time deliver a net positive return to the taxpayer of over $200 million per annum.

I thank the Committee again for the invitation to give evidence and make myself, Mr Yates, Mr Powell and Ms McDonald at the Committee’s disposal for questioning.

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  1. Gillian and Oliver
    Thank you for your explicit comments and benefits of keeping the status quo and informing the Government of what the majority of Australians who take pride in Australia’s beautiful environment and desire to reduce pollution and life destroying harmful Co2 emmissions

  2. Just some thoughts on this and the other recent Direct Action related articles….
    – I know it is not really comparable, but kind of has echos to many other sustainability businesses that were axed during the GFC, they may have had logical financial justifications etc etc….but if the new business leaders are against you…….
    – One door closes another opens….gee with a 25% ROI (spend $760 to get $1.5bn in 4 yrs) the CEFC can have my Super….could they morph into a successful energy saving business or trust fund?….would be a pretty cool sort of “told you so”!
    – They wouldn’t be alone…..other businesses doing this include to Honeywell, Johnson Controls, Schneider (formerly ECS), Dalkia, Siemens, TES, Ergon, Energy, EP&T, Ecosave, COzero, VAE Group and numerous other companies in Australia.
    – Whilst we don’t know the detail of the part of Direct Action dealing with the auction of emissions credits I think is kind of obvious that the real benefit to Australian business will be the exposure and experience they will gain of regulated carbon trading systems – a pretty important requirement for their on going engagement in international trading mechanisms.
    – True, there will be relatively high individual transaction costs for initial participants in the auction, but the real fun will start post auction where open trading will occur….and I’m sure we will see smaller entities club together to leverage their positions.
    – There was some unqualified criticism of descending auctions in one of the articles – I can’t see why, surely this is the most efficient and useful (i.e. true price discovery) means of auctioning the emissions allowances?
    – Lastly, I know we don’t hear much about agriculture and land management here, but the increased support to Carbon Farming Initiative by Direct Action may be a really good thing. Practices such as forestry and pasture cropping have tremendous capacity to sequester atmospheric CO2.