Beyond its efforts to frustrate action at the Glasgow climate summit, Australia has been using international forums to ensure there will still be foreign funding for fossil fuel projects. By Mike Seccombe.
Australia’s climate change interference
Call it by its proper name: methane. It is the stuff that fuels our gas stoves and much else, often under the non-threatening euphemism natural gas, although it is no more or less natural than coal and it is a far bigger threat to the world’s climate than we long appreciated.
There is now two-and-a-half times as much methane in the Earth’s air as there was in pre-industrial times, and while it has a far shorter life in the atmosphere than carbon dioxide, over 20 years its global warming potential is 86 times greater.
And Australia is principally involved. Our fugitive emissions of methane more than doubled between 2011 and 2019, as a result of the rapid growth in our gas industry. Australia now is the world’s biggest exporter of methane.
At the recently concluded COP26 conference in Glasgow, most of the world finally got serious about addressing the threat methane poses to the planet. In the view of Richie Merzian, a former Australian government representative to the United Nations Climate Change Conference and director of climate and energy at The Australia Institute, Glasgow can be considered a success on the basis of two methane-related initiatives. This is despite other disappointments.
Indeed it was the fact Australia was conspicuously uninvolved in either of them that most starkly illustrated the Morrison government’s lack of commitment to combating climate change – more than the Morrison government’s stubborn refusal to increase its paltry 2030 greenhouse emissions reduction target, or its vague goal-without-a-plan to reach net-zero emissions by 2050.
One of those methane-related initiatives was the proposal from the United States and European Union for a global partnership to cut emissions of methane. More than 100 of the world’s governments signed on. Australia was not one of them.
That refusal, says Merzian, was perhaps the most obvious indication that “the world is going one way; Australia’s going the other”.
The second initiative, less noticed but also a major achievement at COP26, was an agreement between more than three dozen nations, including the US, Britain, Canada, New Zealand, Germany, France and many other major European economies, to stop state funding of all fossil fuels through their various development agencies.
Their joint statement promised to “end new direct public support for the international unabated fossil fuel energy sector by the end of 2022” and “to encourage further governments, their official export credit agencies and public finance institutions to implement similar commitments ... This includes driving multilateral negotiations in international bodies, in particular in the OECD…”
If implemented as promised, the pledge will see tens of billions in international public financing diverted from funding fossil fuel developments to renewable ones.
Australia did not sign up to the initiative, however, making us one of a relative few major advanced nations still willing to promote the financing of overseas fossil fuel projects – although there were a couple of other significant hold-outs, notably South Korea and Japan.
Taken together, they underline Merzian’s point that Australia is increasingly out of step with most of the world. Not only does the Morrison government remain committed to mining ever more fossil fuels, it also remains committed to government funding to support this, even as other national governments and the private sector are increasingly disinclined to invest.
“The Paris Agreement has three goals,” says Merzian. “The first one’s mitigation, the second one is adaptation, and the third one is aligning finance. Really, the last six months has been about that third goal, the most overlooked one – how do we realign finance to actually invest in the solution, rather than keep investing in the problem.”
But the Australian government is a big investor in the problem, and it wants other governments to keep investing in the problem, too, which is why it has worked assiduously against agreements such as the one signed by those dozens of other countries at Glasgow, says Luke Fletcher, executive director of the Jubilee Australia Research Centre, an organisation that tracks public financing of fossil fuel developments, both in Australia and overseas.
“There’s a pattern of behaviour by Australia … which was demonstrated at COP, but is also demonstrated in other fora,” Fletcher says. “It’s a wrecker role … running interference to make sure that the agreements are watered down.”
The government does not want to see Australia’s coal and gas industries deprived of a major source of funding for their polluting projects. A report released earlier this month by Jubilee shows why. It detailed the extent to which fossil fuel developments in Australia had been bankrolled by other nations’ government-owned entities, such as export credit agencies.
Between 2010 and 2020, at least $36.7 billion went to financing coal, oil and gas projects. Seventy-eight per cent of it came from credit agencies and most of it – some $28 billion – went into gas – that is methane – projects.
More than three-quarters of the money came from three countries: Japan (41.3 per cent), China (22.7) and South Korea (12.6).
The good news, from the point of view of the Morrison government and the fossil fuel industry, is that those three countries were not among signatories to the Glasgow agreement on pulling funding from all fossil fuels – although China had earlier announced it would no longer fund the construction of new coal-fired power projects overseas.
The bad news is that most of the other 25 per cent of funding for Australian fossil fuel projects came from countries that have signed on, and, as their joint statement said, they now are committed to pressing recalcitrant nations to join them. To do this, they will work through multilateral bodies such as the OECD to tighten the rules around funding by state financial institutions.
And Australia is fighting them all the way, says Fletcher. He cites several examples.
The first relates to something cryptically called the OECD “Arrangement on Officially Supported Export Credits”, a forum at which nations determine limitations on the financing terms and conditions through their state funding agencies. Australia is a party to it.
In October, shortly before the Glasgow summit, it was announced that participating nations had reached agreement to “end support for unabated coal-fired power plants”.
Note the word “unabated”. It leaves open the possibility of using the unproved – and in the view of many experts, uneconomic and unworkable – technology of carbon capture and storage (CCS).
“Australia was one of the countries that ensured weaker language and weaker ambition,” says Fletcher. “There’s also a debate about aid money going to fossil fuels, through the OECD Development Assistance Committee. And at the DAC, Australia has also been lobbying for as weak as possible language on funding new fossil fuel developments through the use of official aid money.”
The same thing is happening in other multilateral bodies. Australian representatives – often citing equity issues in relation to developing countries – argue strongly for new fossil fuel development over renewables. There is not much subtlety about it, either.
In September, for example, Australia’s representative on the board of the Asian Development Bank, Anthony McDonald, launched a scathing attack on the bank’s decision not to invest in coal.
He argued for new coal-fired generation, using CCS, to power the development of poorer nations in the Asia-Pacific region. Faith in CCS as a cure for climate change, of course, is the basis of the Morrison government’s “technology not taxes” sloganeering.
McDonald said a policy that focused on alternative energy sources amounted to “wishful thinking” and meant “sacrificing their development goals”.
He also effectively said the Paris Agreement target of limiting global temperature rise to 1.5 degrees, reaffirmed in Glasgow this month, was unattainable.
“The simple calculus of emissions pathways,” said McDonald, was that it was “just not possible to achieve the 1.5 degree target without significant contributions by developing member countries in the region”.
“At the same time, it is simply unrealistic to expect that regional DMCs could be expected to make the adjustments necessary to meet these targets…” he said.
McDonald’s strong advocacy of fossil fuels was all the more remarkable for the fact that in his role on the board he supposedly represents the interests not only of Australia, but also Pacific Island nations that face an existential threat from climate change.
Despite the efforts of the former Treasury department official, though, the development bank went ahead with a ban on new coal generation.
The reality is that as other countries are moving to wind back their support for fossil fuels, Australia is moving in the other direction.
In February 2019, the government gave Australia’s export credit agency, the Export Finance and Insurance Corporation, since rebadged as Export Finance Australia, new overseas infrastructure financing power, along with an extra $1 billion in investable capital.
Speaking in support of the legislative change, the assistant Trade minister, Mark Coulton, was enthusiastic about the prospects of increasing Australian exports.
The example he chose was telling: “In the energy sector, EFIC’s new power would enable it to finance the construction of LNG receivable terminals, leading to increased energy exports or engineering services.”
A few months ago, the government moved to further expand the remit of Export Finance Australia, allowing it to directly invest in projects.
As Trade Minister Dan Tehan announced: “An equity financing power will complement EFA’s existing suite of financing powers, comprised of loans, guarantees, bonds and insurance.
“This power will give EFA more flexibility to support important infrastructure investments in the Indo-Pacific or export-linked projects in Australia.”
To date, however, most of the agency’s support has gone to onshore projects.
Another report from Jubilee, entitled “Hot money”, details where much of it has been spent. Between July 2009 and June 2020, EFA provided some $1.7 billion in financing and re-financing for fossil fuels. In contrast, during the same period, EFA only provided $20 million in financing for renewables.
This massive commitment of public money sits uncomfortably with Morrison’s recent pronouncement that “climate change will ultimately be solved by can-do capitalism, not don’t-do governments seeking to control people’s lives and tell them what to do, with interventionist regulation and taxes that just force up your cost of living”.
But “can-do capitalists” are increasingly wary of investing in fossil fuels, and in their place we have an increasingly interventionist government seeking to prop up these businesses with taxpayer funds.
“The Commonwealth is the only shareholder of Export Finance Australia,” says Fletcher. “So although he borrows money on the capital markets, it’s all underwritten by the Australian taxpayer.”
And EFA is only one of the sources of public money. It’s difficult to establish exactly how much support the government is providing, in part because the money comes out of so many different pots, in part because it is unclear exactly how some funds are to be spent, and in part because of differences of opinion about what constitutes a subsidy.
Earlier this year, The Australia Institute calculated fossil fuel subsidies at $10.3 billion in 2020-21. But that included more than $7.8 billion in tax breaks for fuel, provided on the basis that the miners’ vehicles do not use public roads and therefore should not have to pay for them.
In May, the anti-fossil fuel group 350.org reckoned the Morrison government had committed between $509.5 million and $903.2 million for exploration subsidies, gas hubs, pipelines, CCS projects and amorphous “low emissions technology” partnerships in the nine months following its announcement of plans for a “gas-fired recovery”.
Since then, the government has announced its intention to spend a further $500 million through the Clean Energy Finance Corporation – if it can get the parliament to agree.
Suffice to say, the figure for government support of fossil fuels is into the many billions.
And yet, says Bruce Robertson, an energy market analyst specialising in gas, the evidence of capital flight from fossil fuels is unmistakable. “It’s getting harder and harder to fund fossil fuel projects, including gas.”
Not so long ago, he says, a big new project would involve a consortium comprising multiple big companies, “but now you’re not seeing the numbers of partners you used to in big gas projects”.
That worries bankers, because it concentrates risk. Previously, if one partner of a consortium “fell over or had troubles in one of their businesses somewhere” the others “were there to pick up the debt”.
Fewer partners means exponentially greater risk, which in turn means higher costs of finance.
“That’s on the private-sector side,” Robertson says. “And on the public-sector side of things, increasingly, we have export/import banks worrying about their social licence and carbon risk.”
Within Australia, the demand for gas is also tanking. The amount used for electricity generation has plunged 67 per cent. In the year to November, says Robertson, gas peaking plants – which the Morrison government says we need more of – only accounted for 1.1 per cent of total generation to the national electricity market, which is less than 10 per cent of their capacity.
“There are only three gas-fired [generation] projects on the go in Australia right now and all three are heavily subsidised,” he says. “In total, the federal government is subsidising gas-powered generation to the tune of $723 million, to build a massive 1700 megawatts of gas plants that we simply don’t need.”
Robertson details a litany of wasted public money in the government’s efforts to keep fossil fuels competitive, but the government’s continued spending of taxpayers’ money on CCS is at the top.
Around the world, three-quarters of CCS projects are devoted to enhanced recovery of oil and gas. That is, fossil fuel companies push carbon dioxide underground to force up more oil and/or methane, which in turn creates more carbon dioxide.
Such a project – Santos’s Moomba CCS project in the far north of South Australia – has just been given the green light. The company made the final decision to proceed only after it was approved to receive Australian carbon credit units through the government’s Emissions Reduction Fund – essentially a payment for polluting less than it otherwise would have – for 25 years.
At the current price of carbon credits of about $17 a tonne, Santos is in line to receive about $720 million in carbon credits over the life of the project.
The scale of this largesse, says Robertson, “is mind-blowing”. He says, “Santos’s business model has come to be all about harvesting government subsidies.”
At COP26 Australia did sign up to a commitment to end inefficient subsidies for fossil fuels, although Merzian and others note the weasel word that laggard countries such as ours fight to inject into climate agreements: “inefficient”. The adjective will likely be exploited to ensure Australia’s subsidies for many fossil fuel projects continue.
As Robertson points out, forums such as the COP rely on governments making commitments and keeping them.
“It’s really important to realise there’s a difference between political commitments and what actually happens. We can talk about pledges and we can talk about this and talk about the other,” he says. “When you have a government like ours, it doesn’t really matter.”
This article was first published in the print edition of The Saturday Paper on Nov 20, 2021 as "Australia’s climate change interference".
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