Australia could lose $265bn in green investment without zero emissions target

Australia could miss out on as much as $265 billion in new green infrastructure investment by 2050 if the federal government fails to embrace a zero emissions target, according to a new analysis published by the Investor Group on Climate Change (IGCC).

The new report, published by the investor group on Monday, found that Australia could generate as much as $63 billion in new private investment in green infrastructure over just the next five years, including in renewable energy projects, green hydrogen, manufacturing, electrified transport and carbon sequestration, by strengthening its emissions reduction targets.

Modelling commissioned by IGCC found that if Australia’s federal government was to adopt a net zero emissions target, the total investment opportunity could amount to more than $1 trillion by 2050, but would fall significantly short of this under the Morrison government’s current policies.

If the federal government were to maintain its climate policies and targets in their current state, green investment would be as much as $43 billion lower over the next five years, with lost opportunities growing to $265 billion by 2050, compared to what could be achieved under a scenario aligned with the goals of the Paris Agreement.

The modelling – done by consultancy Energetics – considered an ‘orderly transition’ scenario, where Australia adopts a stronger 2030 emissions reduction target and a commitment to zero net emissions by 2050. This was compared to a ‘hothouse’ scenario, where Australia maintained its current national policies.

The modelling found that more ambitious climate change targets encouraged substantial new investment across the clean energy, exports, manufacturing and transport sectors.

Total investment in new green infrastructure could grow to more than $1 trillion by 2050, including $385 billion in new renewable energy projects, $350 billion in green hydrogen production and exports, and more than $100 billion in new green transport infrastructure.

“Investors, companies and governments will need to work together to create a trajectory to achieve a resilient net zero emissions economy by 2050, including deeper emission reductions over this decade,” IGCC CEO Emma Herd said.

“If we get this right, Australia could reap the benefits of $63 billion in fresh private investment over the next five years, and over $1 trillion by mid-century, in domestic opportunities alone. If we continue as we are, we’ll leave billions of dollars in investment opportunities behind.”

“The billions of dollars in investment opportunities associated with an orderly transition to net zero emissions would support the jobs, livelihoods and wealth of millions of Australians for decades to come,” Herd added.

The IGCC represents a range of institutional investors, including most of Australia’s superannuation funds, and works to build a greater understanding of the financial risks posed by climate change.

Members of the IGCC have a combined $2 trillion worth of investments under management and have placed growing attention on the need to assess the risks posed by climate change, both in terms of physical and financial impacts, in the management of long-term investment portfolios.

The report suggests that the adoption of stronger commitments by the federal government to reduce Australia’s greenhouse gas emissions could provide a strong investment signal that would help support an economic recovery.

The IGCC said that much of this investment would benefit regional Australia, with Australia’s best wind and solar resources located in rural parts of Australia, and a green hydrogen industry could be built upon existing energy export facilities in regional Queensland and Western Australia.

“Many of these prospects are in regional Australia with multi-billion dollar opportunities in carbon farming, renewable energy, transport infrastructure and advanced manufacturing,” Herd said.

The IGCC added that strong targets would help to unlock private investment in new green infrastructure projects, and would not necessarily need large amounts of public funding, particularly in a period when governments are already battling with the costs of economic stimulus.

“Governments will be more fiscally challenged in coming years after deploying immediate COVID-19 relief. Mobilising private capital is therefore critical to economic recovery and unlocking net zero investment opportunities,” Herd added.

The report directly questioned the merits of a gas-led recovery, finding that the contribution the gas sector to rising global emissions would see investors question its suitability as a long-term investment.

“As a result, global capital markets will increasingly scrutinise the climate risks associated with gas, leading to preferential investment in true zero emissions alternatives. This is borne out in the Energetics modelling which shows no large scale investment in gas power generation or infrastructure under either scenario as renewable energy and storage are cheaper alternatives,” the report says.