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Is Australia about to become a global ‘badboy’ on Climate Change?
With an election in 2022, Scott Morrison says he and Barnaby Joyce are coming up with a plan. Believable? Survivable?

This is both a policy and communications issue. After two decades of politicians shouting at each other, most Aussies are pretty tone-deaf to ‘climate catastrophe’ rhetoric.

But with COP26, it’s going to be ‘here we go again’ – and take note, this fresh acronym, COP26 – is going to be on the tips of everyone’s tongues by November.

#cop26glasgow is the 26th UN Climate Change Conference of the Parties in Glasgow on 31 October – 12 November 2021. It brings together almost every country – COVID permitting – and is being promoted as ‘the world’s best last chance to get runaway climate change under control’.

Sadly, Australia’s reputation is shaping up as part of the climate change problem, not part of the solution, with ScoMo coming across as “She’ll be right, technology will fix it”, without a sense of urgency, and looking for ways to avoid debate?

With a different policy and communications approach, COP26 host Prime Minister Boris Johnson is proactively headlining a “Ten Point Plan for a green industrial revolution to help the UK reach its climate commitments whilst creating thousands of highly skilled jobs”. The UK boasts it has already cut coal use for electricity from 40% to 2%. The UK has also committed to ending the sale of new petrol and diesel vehicles by 2030.

COP26, for Australia, has every potential to lead to humiliation globally and yet more anger and division at home, as we continue to have some of the highest emissions per capita of any country and are one of the biggest exporters of carbon-emitting fuels.

With an election due on or before May 2022, Morrison might have to pull off one of his ‘miracles’. After already fumbling the Canberra sex scandals and the vaccination rollout, #climatechange looks like adding to his woes.

Expert insights from , the Australasian Director of Energy Finance Studies for the US-based Institute for Energy Economics & Financial Analysis.

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Peter Wilkinson:

So, Tim, what does Scott Morrison face when he gets to Cop26, given Boris Johnson’s Ten Point Plan?

Tim Buckley:

Yes, it’s going to be very much about Australia being in the naughty boy corner and the embarrassment of a global laggard. A country with absolutely no commitment to the science, no delivery on investments and regulatory policy frameworks to accelerate the implementation of the Paris Agreement.

But also, I think we can look at the rest of the world and the massive transformation we’ve seen in the last six to nine months. Where countries are diametrically opposed as China or America career in Japan, all taking massive global leadership, massive ratcheting up of efforts. And it is a global problem, we need a global solution, and everyone needs to do their fair share of the heavy lifting.

Peter Wilkinson:

Well, a general response from Canberra to that is, “All that’s all theoretical and it’s hyperbole, and it’s more politics than substance,” coming back to Boris Johnson’s Ten Point Plan, which is fairly easy to read, is that hyperbole?

Tim Buckley:

No, you look at the tight coal, for example, where England was the founder of the coal industry and with the industrial revolution a couple of centuries ago, England is now on track to phase out the last coal-fired power plant. And we’re talking about in the next year or two, the absolute collapse in use and reliance on coal-fired power generation in England has been nothing short of staggering. Look at-in England’s offshore wind efforts, they are the largest developer of offshore wind in the world. They’ve done it commercially viable; they’ve taken a product that was very expensive a decade ago, they’ve deployed huge tens of billions of pounds of capital in this new technology, they’ve done it at a scale that’s unprecedented and it is now commercially viable. It’s built energy security for England for the UK. It is put England as a world leader on the map in terms of technology development and leveraging financial markets. And we now have countries as far from China and Vietnam and Japan, now looking to adapt that technology at a massive scale.

Peter Wilkinson:

Well, the defenders of the Australian situation say it’s all about coal because coal is so important to jobs and to our economy. What’s your response to that? And what do you think the Globe’s response to that is going to be?

Tim Buckley:

At the end of the day, it’s understandable why both sides of politics in Australia are somewhat bought and paid for by the fossil fuel industry. You look at Australia’s exports, number one is iron ore, number two is LNG, number three is coking coal, number five now is thermal coal. So, three of our top five exports are fossil fuels, we’re one of the three largest fossil fuel exporters in the world. So, the industry is very, very dominant and that has meant we have regulatory and political capture in the Australian context, but that’s the negative. That’s why we’re where we are, that’s why we’re in the dancer’s corner when we go to Cop26, that’s why we’re at climate laggard. And it’s embarrassing to be Australian at the moment because of that.

But I look at the end of the day, financial markets. And so, when Australia’s single largest export destination for fossil fuels, Japan, when they put out their basic energy plan as they did last month, it talks about a radical repositioning of the Japanese electricity and energy system. And by radical, I’m talking really radical, breathtakingly radical. And so, to give a few numbers, Japan’s Ministry of Energy trade and industry has forecast the coal use in the power sector in Japan in the next nine years will drop by 46%. And what really surprised the fossil fuel export industry in Australia, is that they forecast a 51% reduction in LNG use by 2030. Now, Japan is our number one buyer of thermal coal, they’re our number one buyer of LNG. And so, when your customer tells you, they want to have the use of your product within nine years, it’s almost irrelevant what Scott Morrison does.

Peter Wilkinson:

Yeah. So, I wonder how much of this is a policy issue and how much of it is a communications issue. Whether both governments that the coalition and Labor have simply stuffed up their comms. Had they been able to better persuade internally the way to go and had they have been better able to persuade to the electric the way to go that thing might’ve been a lot easier for them. [crosstalk 00:05:08] For instance, with the Gillard run government, it was fraught with internal politics. And so often, the electorate was just playing frustrated with the bologna that was going on in Canberra. And so wasn’t listening to the message that they were trying to talk about at the time.

Tim Buckley:

That’s true, and I think the national party has been enormously destructive, but they’ve been very effective at marshalling and building fear. That fear of the job insecurity, that the LNP again, has massively undermined job security in Australia.

Peter Wilkinson:

So, Tim, what is the opportunity for Australia?

Tim Buckley:

I think the opportunity is that Australia has hundreds of gigawatts of wind investment. That’s hundreds of billions of dollars of investment. We have hundreds of gigawatts of solar, at record low prices globally. That’s hundreds of billions of dollars of investment with [crosstalk 00:06:08].

Peter Wilkinson:

Do you mean potentially?

Tim Buckley:

Potential investment across Australia. And I mean, we’ve got the lowest population density in the world. We’ve got the best wind and solar resources, and so we’ve got the opportunity. Now, aluminium we’ve already demonstrated that aluminium is just congealed electricity. If we decarbonize the electricity system, then Tomato goes to being an exporter of green aluminium. That is an exporter of renewable energy plus a little bit of bauxite, and that is the value-adding. That’s how we actually move very low cost, world scale, renewable energy into countries like Japan, Korea, and China. And so, I see resource value-adding as an enormous multi hundred-billion-dollar investment opportunity, for increased value-adding on our exports and high-value employment for Australia. And that’s what’s going to change the political discussion, the dialogue.

Peter Wilkinson:

And when do you think that’s going to happen then?

Tim Buckley:

Well, Fortescue’s just delivered their results, briefing two weeks ago, and they highlighted that they have spent 120 million US dollars in the last 12 months on this investment proposition researching it out. They’ve also warned investors they’re on track to spend 600 million US dollars in the next 12 months. And they are getting that underway. They’ve already employed 400 people for, so from a standing start two years ago. Now I’m not a cheer squad for Fortescue at all. I don’t own any shares in them, and they will be a huge amount of investment, but I think Twiggy Forrest understands the magnitude of the opportunity and the competitive advantage Australia has. And so, they’re moving at a million miles an hour. So, I think it will happen in the next couple of years.

Peter Wilkinson:

Tim Buckley greatly appreciated. Thank you very much.

Video Transcript

Tim Harvey:

A sustainability-linked loan is really incentivising businesses that are already advanced on the environmental social governance, or more commonly known as ESG pathway but are really looking to stretch and go that extra step and do more. And we’re delighted to be able to partner with Stockyard Group in offering this sustainability-linked loan.

Peter Wilkinson:

This gets very quickly to the heart of the trust of the issue because as you know, this area is awash with green-washing.

Tim Harvey:

We’re very excited to be able to partner with Stockyard. Stockyard are already very well advanced on this pathway. But there’s really good auditing that goes with this as well. So, Ernst & Young, one of Australia’s leading accountancy and advisory firms, they’re really looking at this from an auditing point of view. Clearly, the bank has a sustainability team and the banks run its eye over it very closely as well. So, I think from a trust point of view, when you have the trust of the Commonwealth Bank, with Stockyard who have already strong credentials in this and independently audited by Ernst & Young, one of Australia’s leading accounting advisory firms. I think that really, really makes sure that this is standing up to the test.

Peter Wilkinson:

Yeah, well you’d know the degree to which CBA is trusted, but let’s talk about the EY auditing for the moment. So EY would be conflicted, wouldn’t they? Because they would do a lot of work for CBA, not in the sustainability area. So, the perception is that they’ll be giving you the kind of audit that you want, rather than the audit that you need.

Tim Harvey:

The audit that EY does is very much in conjunction with the customer and EY have a very credible at-arms-length sustainability team. And we’re very comfortable with the work that they’ve done in really testing what the client has already done.

Peter Wilkinson:

Did you consider using some of the global sustainability companies? There’s a Sustainalytics. I think there’s another world called MSCI. Did you think of using those that are completely arms-length?

Tim Harvey:

I think for us, one of the most important things was that we were looking at what Stockyard have done and really lining up with the Australian-based sustainability framework and the carbon-neutral plan that’s been set out by Meat & Livestock Australia. So, they are very much already advanced on that. EY has a very strong sustainability team here in Australia. So, we’re very comfortable with what one of Australia’s leading producers is already doing. And this is just putting the additional stretch around that, incentivising them on that additional stretch.

Peter Wilkinson:

So, let’s talk about the stretch then. What are you stretching them on?

Tim Harvey:

There’re three key areas, Peter. So, the first area is around animal welfare, greenhouse gas emissions. And then the third one is really around their own staff wellbeing and safety in the business. So, they’re the three key themes that they’re already doing in their business, but that’s where the stretch comes in around those three specific areas.

Peter Wilkinson:

So, Stockyard Group, amongst other things, is a large feedlot producer, which has its animal waste, has its greenhouse gas issues. So, what are you measuring on greenhouse gas emissions?

Tim Harvey:

The greenhouse gas emissions really capture scope 1 and scope 2 emissions. And scope 1 is obviously the emissions that are direct from the feedlot. So, it can be from their waste. It can be from their energy consumption. So, there’s a whole range of things that are captured under that. And I guess probably one of the things that we’ve really looked at it again, back to the Australian Beef Sustainability Framework, but specifically for Stockyards, it’s around scope 1 and 2 emissions.

Peter Wilkinson:

Yeah. But if they’re already doing that, what are you measuring their improvement specifically? What are you measuring or asking them to improve on in order to get a better deal with you?

Tim Harvey:

For Stockyard across those three key areas, animal welfare emissions-

Peter Wilkinson:

Just emissions for the moment. I’ll get to animal welfare.

Tim Harvey:

It’s really linked to a reduction across their emissions overall. So, scope 1 and 2. So without, sort of commercially in confidence, talking specific percentages for that business, what I would, point to is that there are really specific categories under the sustainability framework around waste management, around carbon sequestration. And what I would say, is that the beef industry has already reduced their emissions footprint significantly.

Peter Wilkinson:

Yeah. I know everyone’s working on it. So, you can’t go into detail because of client confidentiality, but public trust relies of course, on transparency. So, you’ve got a corporate affairs issue that you’re going to have to wrestle with there. So, what about animal welfare? So, in feedlots, what you want is, to use the vernacular, you want happy cattle from cradle to grave. Am I in the ballpark?

Tim Harvey:

For the animal welfare metrics, again, across the Australian Beef Sustainability Framework, there are absolute metrics that many farmers are already embracing today. So, some of the things, and again, not specific to Stockyard Group, but some of the things specific to animal welfare is around low-stress handling. So, some producers will have processes whereby when they’re moving livestock, cattle into yards, they’ve got ways of doing that to minimise the stress. So sometimes I’ve seen that they’re not forced, pushed hard with working dogs. So, I think that was one of the examples I’ve recently seen with a farmer.

Tim Harvey:

I guess one of the other examples I’ve seen is around transporting. So, when they’re moving from farms to different areas, to make sure that the carrier, in some cases, again, on the sustainability framework, that they have the TruckSafe code to really minimise stress.

Peter Wilkinson:

Yeah. Well, Stockyard Group have already been doing a lot of this, but have you got, for instance, an agreement that there’ll be no cattle prods. And there’ll be no dogs in yards. I mean, you need, again for the public to find this believable. Ultimately, you’re going to have to go public on this stuff and explain what you are actually measuring.

Tim Harvey:

We’re very happy. We’re very comfortable with what Stockyard already do. As I said, they are leaders, and people that they have-

Peter Wilkinson:

I know you are. I’m talking about the public and journalists who are a little more cynical than you folks who work inside the bank, who are excited about this deal. And if EY is doing an audit, won’t that audit need to be made public to gain public trust in what you’re doing?

Tim Harvey:

At this stage, the EY audit is not public. It’s commercial in confidence with the customer. But this is something that we’ve worked together with them, right at the inception. There’ll be regular checks along the way. So, this is not something sort of set up, set, and forget. So, it’s looking at what Stockyard are doing today. Where are the industry standards? What are we comfortable with our sustainability team? What are the independent experts in EY, who have independently looked at this, what are we comfortable with? And there’ll be sort of checkpoints along the way within that sort of three-year time horizon.

Peter Wilkinson:

Tim, thank you very much for this. I recognise this is a rapidly evolving space and what we’ll be doing in five years is entirely different to what we’re doing now. So, I appreciate your time today. Thank you very much.

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