Turnbull’s renewable fund can drive much-needed investments

The fund will accept lower investment returns, which means a higher level of risk than what the government expects from the CEFC.

Carbon pricing is the key to clean energy.

ARENA was mandated to give grants to clean energy research and development projects. These decisions are risky, but they could reduce the cost of low-emission technology if successful.

Early movers face obstacles, and the carbon market so far has not provided a clear long-term message for investors. Government funding is, therefore, justified.

The CEFC was created as a result of a compromise made to ensure the former Labor government passed climate change legislation. It was modeled after Britain’s Green Investment Bank. The different situations of Australia and the United States were not taken into consideration.

The CEFC could intervene in the market without a proper assessment to determine if the benefits were greater than the costs. This was a solution in search of a problem.

The CEFC could play a part, but we must first define what problem it is trying to solve. This is not about reducing carbon emissions. Climate policy is concerned with this.

ARENA is designed to provide funding for R&D for clean energy technologies.

The private sector is financing clean energy projects in Australia.

There is a lack of projects which offer the required financial return to investors.

Climate change policies that are credible should have a direct or indirect impact on the price of emissions. The government’s Emissions Reduction Fund is yet to fill this void. We had an inferior version between 2012 and 2014.

Political insecurity and poor design have led to real challenges for the Renewable Energy Target in delivering its intended investment. State-based feed-in tariffs on household rooftop solar provided expensive and lesser support.

The CEFC’s record is mixed. The CEFC has a mixed history. Underwriting green investment bonds such as those issued by NAB were able to address an obvious market failure.

We need low-cost technologies

The Clean Energy Innovation Fund is intended to give a new mandate, which will focus on higher-risk and more innovative investments that CEFC does not currently support. The fund is also encouraged to consider non-renewables and storage, which are outside of ARENA’s current remit. This is a positive development.

It would be a tragedy if ARENA’s higher-risk technologies were to disappear due to the need to generate a return. It would be ironic if the fund retained the CEFC mandate that the government wanted to terminate but weakened ARENA, which enjoyed bipartisan support.

The government has announced that the new fund is aimed at technologies like large-scale solar energy with storage, offshore energy, biofuels, and smart grids.

The Solar Flagship Program of the Labor Government was a failure despite the focus on large-scale storage and solar. The fund is seeking to return its investment. It’s making slow progress in the world.

It remains to be determined whether the announcement made today will result in a smart use of public funds to spur innovation and drive down emissions through real market failures or if the need to cut costs will lead to a combination of wasted money and lost opportunities.