According to independent MP Zali Steggall a major disruption is on the way; Australia needs a seat at the table and that requires a net zero commitment.
The prospect of a price on carbon might have derailed successive Australian leaders but it was never a political issue in the European Union, according BNP Paribas Asset Management chief sustainability strategist Mark Lewis.
“It never made headlines,” he said, speaking at Aware Super’s Climate Change Action Roundtable on Wednesday, offering a European perspective to a discussion framed around independent MP Zali Steggall’s Climate Change Bill that was reintroduced to parliament earlier this month.
Done at a “super national level,” the price of carbon is the same across the entire EU, Lewis told the meeting.
It is now high enough to push coal out of the mix but will need be raised to get the EU to net zero, which will require shifting industries such as transport and manufacturing away from fossil fuels and towards green hydrogen.
In recent research, Lewis recommended tripling carbon prices to around 79 Euros a tonne (AUD$127.85 a tonne) to encourage the necessary adoption of clean hydrogen.
“That price is consistent with putting the EU on a path to net zero.”
The Zali Steggall bill includes an economy-wide net-zero target by 2050, the creation of an Independent Climate Change Commission and national emissions budgets and plans for reducing emissions.
Lewis said that clear government targets like those proposed by Steggall kick-started the European revolution.
“Targets are needed as a reference point, and some public incentives at the start of the new technology so you start to get economies of scale.”
These conditions bring down the price of new technologies such as renewables, creating “self-reinforcing loops” for investment, he said.
This has been reinforced in the EU as many investors have “lost a lot of money in sectors that used to be safe, such as utilities”.
As such, renewables have become self-sustaining but now the challenge is applying the same treatment to green hydrogen and other necessary technologies to achieve net zero.
Australia could be left out on its own
Zali Steggall said that for the Australian government “delay is the new denial” when it comes to climate policy.
Steggall, who took part in the meeting, said that the bill was far from revolutionary and contained reasonable initiatives already enacted successfully in places such as the UK Germany, France, and New Zealand.
“My goal as an independent is to put a pathway forward that is down the middle, and that can achieve bipartisan support,” she said.
Steggall, described as “conversative but green”, said she represented the “sensible centre” on climate change action.
“The Climate Change Bill is an agreement that we lock in a safe future and outlines how to get there.
“This is a major disruption coming, and we need a seat at the table and that requires a net zero commitment.”
She said that this was the time for the Morrison government to “step up”.
“This isn’t a problem for 10 years time. We already have issues from bushfires … and we need to know that bushfire communities are building back better, that climate risk is being taken into account.
“These are the considerations that need to be built in now.”
Wai-Shin Chan, head of Climate Change Centre of Excellence and co-head of ESG Research at HSBC, said that the election of Joe Biden as the US President will spur nations experiencing climate paralysis into action.
“This shift will leave previously emboldened countries uncertain so that climate denial or inertia will be seen as a bad thing,” he said.
“There will be a risk of being left in climate isolation.”
Private sector can only do so much without certainty
Aware Super chief executive officer Deanne Stewart warned that without long term certainty provided by government as detailed in the climate bill, there is only so much the private sector can do to drive the transition.
The super fund, which was previously called First State Super before recently merging with VicSuper, has a net zero emissions target by 2050 and has recently announced plans to reduce the carbon intensity in its listed equities portfolio by a minimum of 30 per cent by 2023.
The move will see carbon intensive companies scrubbed from the company’s benchmarks.
“We know that globally the top 60 emitters are responsible for more than 50 per cent of the greenhouse gas emissions of share market-listed companies,” said Damian Graham, chief investment officer at Aware Super.
“Removing some of these companies from our benchmarks enables us to lower the carbon footprint of our portfolio, with only a modest change to our investment mix.”
He also said that excluding the major carbon emitters was good for returns.
“While many factors can contribute to the performance of companies and sectors, it is notable that the highest Australian listed carbon emitters excluded from Aware Super’s carbon constrained benchmarks returned 7 per cent a year over the past 20 years compared to an 8.5 per cent return for the ASX overall.”
Gas is not attractive
The super fund’s CEO Ms Stewart said that gas is off the agenda.
“It’s not seen as great long-term investment.”
She said that while gas will play a role in the transition and that some large scale gas projects may have to go ahead, from an investor’s perspective, major gas projects don’t stack up when assessed alongside other opportunities such as renewables.
Wai-Shin Chan agreed that gas was not a particularly attractive investment opportunity given his company’s commitments to becoming a net zero bank.
“It will be difficult to reduce the carbon footprint of our portfolio if we increase the fossil fuel footprint.”