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Senate to inquire into carbon risk, despite Coalition objection

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The Australian Senate is to begin an inquiry into carbon risk disclosure in Australia, following a proposal by the Greens after the ground-breaking Paris climate agreement reached late last year.

The inquiry is due to report in June and will study carbon risk disclosure practices among Australian companies, regulatory oversight, international practise, and Australia’s involvement in the G20 Financial Stability Board discussions on carbon risk impacts.

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“The Paris Agreement finalised in December 2015 has fundamentally changed the investment landscape,” said Emma Herd, the head of The Investor Group on Climate Change (IGCC), which represents most major investment houses and superannuation funds.

“When 195 nations agreed to a goal of limiting global warming to 2°C moving towards 1.5°C, it immediately became clear that all companies will need to stress test their commercial strategy for a two degree scenario and disclose to the market the risks and opportunities for their business.”

The inquiry will focus on corporate disclosure, although given the decisions at state and federal level in recent weeks, it might also want to focus on the carbon risk for the Australian economy as a whole.

New data this week revealed that Australia was increasing its emissions at a faster rate than any other developed economy, and was not likely to peak its emissions before 2030. The lack of new funding for Direct Action means that there is now no policy in place to reduce emissions. Investment in renewables remains at a standstill.

Meanwhile, the Queensland state government has given environmental approval for the giant Carmichael coal project in the Galilee Basin, although that $16 billion project will not go ahead unless it gets financing from private banks.

The Coalition, despite its apparent embrace of the Paris climate agreement, voted against the inquiry, with Liberal Party Senator Scott Ryan saying “the government does not support additional red tape.” The motion was passed with support of Labor and some cross-benchers.

The vote came as the Parliamentary Budget Office confirmed that the Coalition still intended to dismantle the Australian Renewable Energy Agency, booking savings of $1.2 billion if it can get it passed the Senate. Legislation to that effect has been prepared, but not yet tabled anew.

“The reality is the change in Liberal leader to Malcolm Turnbull hasn’t changed the Liberals’ anti-renewables agenda,” Labor climate spokesman Mark Butler said in a statement.

The establishment of the Senate inquiry was also welcomed by the Climate Institute, which noted that Australia has one of the most emissions-intensive economies in the world.

“We are also more exposed to the effects of climate change than any other developed country,” Climate Institute chief executive John Connor said

“Many investors are realising that the world has changed and that the drive to get to net zero carbon emissions will bring opportunities and risks. However others are still unaware of how the shift to a climate-safe economy will challenge many of the old assumptions behind financial and investment policy.

Herd also noted that the Australian economy was heavily exposed to the regulatory, physical and market risks of climate change.

“The time is right for a stocktake of current practice to better understand how Australia is managing carbon risk across the financial system and where the economic impacts sit,” she said.

“Many countries have begun introducing mandatory carbon risk reporting for business. More and more companies are voluntarily reporting on the carbon impacts across their operations through a variety of mechanisms.

“Institutional investors are actively engaging with companies to better understand how climate change will impact their returns”.

One of the key events at the Paris climate conference was the establishment of  Task Force on Climate-related Financial Disclosure (TCFD) established by Bank of England Governor Mark Carney and chaired by Michael Bloomberg. Australia’s Reserve Bank is among its members.

Carney last year warned that investors face “potentially huge” losses from climate change action that could make vast reserves of oil, coal and gas “literally unburnable”.

Carney has focused on the “carbon budget” – a concept promoted by Australia’s Climate Change Authority, Carbon Tracker and others, but ignored by the Coalition government and most in the fossil fuel industry. It suggests that only one fifth to one third of the world’s proven reserves of oil, gas and coal could be safely exploited.

“If that estimate is even approximately correct it would render the vast majority of reserves ‘stranded’ — oil, gas and coal that will be literally unburnable without expensive carbon capture technology, which itself alters fossil fuel economics,” Carney said.

Carney said in Paris that he wants a market structure that will bring about “an ordered transition” to a zero-carbon economy. He pointed out that the 185 national climate targets tabled for Paris contain real information about where governments and the world are headed.

He said that it is legitimate for investors to ask companies “what’s your strategy for net zero (emissions)?”

Australian Greens Deputy Leader and Climate Change Spokesperson Senator Larissa Waters said Australians need to know where their money is invested.”

“Companies make it hard work to find out whether your superannuation and savings are helping to address global warming, or are actually making the problem worse.

“If the money from Australian banks and Australian superannuation funds keep flowing into fossil fuels, we will keep exacerbating global warming and blow our cash on what will certainly become stranded assets.”

Waters said she was particularly looking forward to questioning the Future Fund about what processes it is putting in place to protect the nation’s savings from the risk of the carbon bubble.

Whish-Wilson said France has established mandatory disclosure for investment banks and various share markets around the world are moving to mandatory disclosure likewise. “This inquiry is a critical stocktake of where we are at and where we need to head.”

 

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  • Farmer Dave

    This is an important enquiry, and the Greens are to be congratulated on moving to have it established. Giles, your point about the need to look at the carbon risk of the whole Australian economy is spot-on; however, a thorough enquiry without that specific item in its terms of reference can still ask the important questions of the fossil fuel incumbency and their owners and investors. I am not surprised that the Coalition opposed this enquiry; their members on it will be forced to pull their heads out of the sand and to ramp up their level of cognitive dissonance even further. It is too easy for them to dismiss issues raised by the Greens; it will be much harder for them to dismiss John Hewson, if he gives evidence through his role in the Asset Owners Disclosure Project. How can they ignore the concerns of Mark Carney from the Bank of England, and other such stalwarts of the global financial industry? Yet ignore such people they must if they are to toe the party line. What price intellectual honesty and courage?

    The news on the continuing desire to abolish ARENA is alas too predictable. Those who continue to believe that Malcolm Turnbull really wants to adopt better policies if only his party’s right wing would let him are due for a long, slow period of disappointment, I fear.

    • Chris Fraser

      I fear that the abolition-prone LNP just want the private sector to carry the whole country in its renewable energy investment. As a Government, they simply DONT want to be involved !

      • Suburbable

        Great point. Ive been spreading that message myself

    • Ron Horgan

      I had hoped that Turnbull would subtly change Abbotts policies.
      Long slow disappointment duly reported.
      Turnabbot government has to go.

  • Tim Buckley

    The Australian stock market performance of the LNP’s favourite fossil fuel companies is warning enough. How much more shareholder wealth destruction does Santos, Origin, Whitehaven Coal and BHP have to deliver before the boards of either these companies, or the Australian industry funds that allocate capital to these companies, recognize the financial risks of stranded assets is real. Bank of England Governor Mark Carney has made this issue so clear even an Australian member of parliament might be able to understand. Technology, global shifts and climate science go hand in hand. The outcome is clear and inevitable, so why is our government so committed to keeping their collective heads stuck in the coal mine hole?!

    • Radbug

      The crunch time will arrive when a Super fund, up to its neck in non-written down investments in fossil fuel-based stranded assets, & faced with exploding claims from the exploding numbers of retiring Boomers, goes bankrupt. And it will only be the first casualty. The Hong Kong property market is in a state of melt-down, posing massive loss implications for Australian banks as this melt-down in property values reaches the Australian market. Too big to fail becomes too big to save. Shock & Awe: BHP & Rio’s credit ratings have been downgraded. Adani’s dreaming if he thinks he can raise 16 biggies in this investment climate.

    • AtomicSprings

      It’s because vested interests don’t have any vision for Australia in a post-carbon world. As the entire economy is captured by the fossil fuel interests it may be appropriate to create a new term such as “sovereign capture” to convey how difficult it is for Australia to decarbonise.

      I recommend changing your super portfolios to 100% foreign equity unhedged. This will significantly reduce your exposure to fossil fuels and deliver further gains from exchange rate changes due to a weakening terms of trade. As for debt securities just read Krugmans views on longterm interest rates and liquidity trap risks.

  • lin

    The Lib/Nats and their “conservative” backers really hate it when almost everyone but them accept that we are changing the climate, and we need to do something about it. Temperature and sea level keeps rising, regardless of their hysterical hand-waving.
    It’s a battle between reality and fantasy, and these idiots are on the losing side.

  • Reality Bites

    This Inquiry is a complete waste of time. We already know the answer the Greens convened agenda will arrive at. Why not put effort in to more important things like tax reform or health? Even if the Senate Inquiry does arrive at any conclusion, like it or not, the Coalition is the Government and most likely will have an increased majority after the election. Most of the voting public are smart enough to realise what a stunt is and the Greens will most likely only inflame further distrust of their biased and unworkable position. In fact go ahead and make the Coalitions day!

  • Les Johnston

    With AGL pulling out of NSW coal seam gas, it would suggest the Senate inquiry might find its supporters come from certain parts of the fossil fuel industry. Maybe the fossil fuel industry will use the inquiry to seek greater subsidies to assist it with unforeseen transition.