Commonwealth Bank of Australia : Collaboration the way to achieving energy superpower status

Australia could be the energy superpower in a net-zero world, but financing the transition will require capital coordination, and the key to achieving that is continued collaboration between private and public sectors, according to a panel of experts at the AFR Business Summit.

Australia has an opportunity to become a major exporter of renewable energy, but that won't come without its challenges, according to a panel of experts who discussed the country's energy transition at the AFR Business Summit in Sydney.

On the panel, which was moderated by the Senior Resources Writer Angela Macdonald-Smith, were Commonwealth Bank Group Executive Institutional Banking and Markets, Andrew Hinchliff; Chair of the Carbon Market Institute, Kerry Shott; Managing Director and CEO of Orica, Sanjeev Gandhi; and Global Head of Strategy at Accenture, Muqsit Ashraf.

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Discussing the size of the task, the four experts agreed the transition to clean energy is still in the early stages, and the task ahead is significant, with around $3 trillion of investment required locally, and around $50-100 trillion globally.

Financing the transition

CBA's Andrew Hinchliff said Australia has come a long way over the course of the last few years, with the Chubb review ensuring our carbon markets are efficient, mandatory reporting requirements on their way, six sectoral glide paths that are due in August, and finance taxonomy coming out later in the year.

"All of these, essentially policy questions, allow certainty for capital to flow in. And the other big thing that needs to happen is the coordination of capital. When there's policy certainty, there are many different pools of capital - be it government philanthropy, growth, capital technology or VC capital banks, non-banks, and equity - all that needs to be coordinated in the right way with the right price signals to flow in there and allow it to flow efficiently in that $3 trillion number."

Mr Hinchliff said the investment required to achieve net-zero in Australia was equivalent to the investment made on the 2005-2015 mining boom, noting a lot of money was already flowing towards renewables, which can reduce Scope 2 emissions in other sectors. In terms of what would make capital flow more freely, Mr Hinchliff said continued clarity and certainty in policy settings would be key.

Competitive advantage

Carbon Market Institute's Kerry Shott highlighted that Australia has a competitive advantage in cheap, renewable energy, particularly in the northern parts of the country.

"I think what that means is that instead of just digging things out of the dirt, which we're very good at doing, we finally have an opportunity to become an exporter of energy-intensive goods - not manufacturing - but at least some addition to just simply mining.

"If you're going to build a big intense energy intensive export company, you need to probably put in your own private, huge renewable energy source, probably in Northern Australia with a bit of wind and a lot of solar.

"And if you've got a flexible production unit that doesn't matter whether you're on or off, you've got a huge opportunity. Things like aluminium which do need to run continuously have become much more flexible in their operations.

"And similarly, though, with data centres and other things that use a lot of energy, doesn't matter whether the sun's out continuously or not, you can back up with batteries and so on. I do think we've got an enormous opportunity."

Global perspectives

Accenture's Muqsit Ashraf, who recently returned from the 54th Annual Meeting of The World Economic Forum in Davos, highlighted the energy transition the world is currently undergoing, is unlike any of the transitions of the past.

"As we think about that in the context of the Australian economy, broadly speaking, and the ability to absorb higher economics, higher cost, sources of supply, there would be both innovation in business and technology, but also regulatory aspects that come into play including carbon pricing."

Ashraf said the there was a marked shift in dialogue over the last couple of years, particularly in the increased emphasis on solving for the so-called "energy trilemma" - sustainability, affordability and availability.

"We still live in a world where you have up to two billion people that are underserved in terms of energy, there are several 100 million that have no energy access, and the energy poverty levels have actually gotten worse over the last year or so.

"What that means for Australia as a major exporter of fossil fuels, and a big driver of energy security is of course that, there is investment needed to continue to provide for the needs of the world and security feeds into the sustainable development of the world. But then, of course, there is a huge opportunity with the vast resources Australia has to expand into new energies, Mr Ashraf said.

The jurisdiction challenge

Orica's Sanjeev Gandhi said the company started its journey to decarbonise well before the safeguard mechanism came into place, one of the reasons being it would give the company a competitive edge over the rest of the industry. But as a company that operates in more than 100 jurisdictions, Orica is facing a big challenge.

"We are subject to all kinds of jurisdictions and regulations. Because unfortunately, there is no global standard for ESG. Every country and every jurisdiction drive their own agendas positively for their own business environment and for their own economies.

"It's extremely expensive in our industry to decarbonize. So we obviously need a lot of government help.

"The challenge for us is we have to first invest before we get the returns out of those investments and that goes against a lot of our business cases and alternate projects that we have for growth. So it's a constant tussle and trying to balance doing good for the environment, while we're trying to justify to our shareholders and within the organisation that that's the right thing to do."

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