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Wednesday, 30 May 2012
Page: 6260


Mr FRYDENBERG (Kooyong) (12:53): I rise to speak on the Clean Energy Finance Corporation Bill 2012 and related bills, the Clean Energy Legislation Amendment Bill 2012, the Clean Energy (Customs Tariff Amendment) Bill 2012 and the Clean Energy (Excise Tariff Legislation Amendment) Bill 2012. While the latter bills will see the scope of the carbon tax cover LPG, LNG and CNG, it is the Clean Energy Finance Corporation Bill to which I will give my primary focus.

This $10 billion new initiative, colloquially known as the 'Brown Bank' given its genesis with Bob Brown and the Greens, is fervently opposed by the coalition as it is an indulgent, expensive, misguided, big government idea. Not only will it distort the market in the renewable energy technology space and put a brake on existing players in that market but it will also see the loss of billions of dollars of taxpayers funds at a time when this government's economic mismanagement is driving the country further into debt.

In the time available I want to make the following points. Firstly, I will analyse the inherent contradictions in the explanatory memorandum outlining the key features of the Clean Energy Finance Corporation and shine a light on the devastating impact the CEFC will have on the government's bottom line. Secondly, I will explain how market distortion under the CEFC will actually occur. Finally, I will point to international experience with similar government-supported renewable energy investments as a warning sign of what the Australian taxpayer should expect.

Firstly, to the bill itself. The explanatory memorandum sets out that the Clean Energy Finance Corporation has:

… the power to invest in financial assets for the development of Australian-based renewable energy technologies, low-emission technologies and energy efficiency projects.

It sets out the corporation's power to ensure:

… at any time on or after 1 July 2018, at least half of the funds invested at that time for the purposes of its investment function are invested in renewable energy technologies.

It also has:

… the power to enter into investment agreements itself, and make investments through subsidiaries.

A special account for the purposes of the Financial Management and Accountability Act 1997 is established which will see this CEFC special account credited with $2 billion a year for five years. Funds returned to the corporation from its investment will be available for reinvestment. The explanatory memorandum explicitly states 'the corporation will make individual investment decisions independently of the government'. But this sentence does not sit comfortably with me, with the point made a few lines down in the explanatory memorandum:

The Bill gives the responsible Ministers powers of direction over the broad mandate of the Corporation …

It then goes on to say:

The investment mandate may include, but not be limited to, directions on matters of risk and return, eligibility criteria of investments in renewable energy technologies, low-emission technologies and energy efficiency projects, allocation of investment, limits on concessional investments, types of financial instruments in which the Corporation may invest and broad operational matters.

To any independent observer this must seem an incredibly broad mandate which is at the discretion of ministers. The potential here for political decision making is real and disconcerting. The explanatory memorandum goes on to say that in applying its mandate:

It is expected that the Corporation will apply a commercial filter when making its investment decisions, focussing on projects and technologies at the later stages of development. By adopting a commercial approach, it is expected the Corporation will invest responsibly and manage risk so it is financially self-sufficient and achieves a target rate of return.

Again, there is a contradiction. This commitment to applying a commercial filter does not sit comfortably with the government's explicit intention in setting up the CEFC, as announced by the Treasurer and the Minister for Climate Change and Energy Efficiency in a press release on 12 October 2011:

The objective is to overcome capital market barriers that hinder the financing, commercialisation and deployment of renewable energy, energy efficiency and low emissions technologies.

If the market will not take a favourable commercial decision to invest in these technologies then how can the government apply their own so-called commercial filter and reach a different decision—namely, to invest? It just does not make sense. You are either a commercial entity competing in the private sector or you are a publicly funded entity with non-commercial goals. You cannot be both.

The government goes on to say in the explanatory memorandum:

The Corporation is intended to be self-sustaining once mature.

Why, then, does the explanatory memorandum outline a hit to the fiscal balance of $1,346.4 million over the forward estimates, suggesting:

… a prudent recognition that some investments will not be recovered.

This includes operating costs of the CEFC as appropriated, loss provisions on loans from the CEFC to renewable energy projects and the concessional component of loans to renewable energy projects. If this corporation is to be so-called 'self-sustaining', why is it projected to lose so much money? I put it to this House that $1.346 billion loss may end up being the tip of the iceberg when the losses of this corporation are extended over its life.

This will extend to many billions of dollars falling on the taxpayers' shoulders. This is because even these numbers of $1.346 billion are predicated on the CEFC having a very high success rate with its strategy of 'picking winners'. In testimony before the House of Representatives Standing Committee on Economics on 28 May this year, senior bureaucrats from the Department of Finance and Deregulation said they are predicting that only 7.5 per cent of investments each year are not recovered—when my colleague the member for Moncrieff, Steve Ciobo, put to them that a 92.5 per cent success rate was extraordinarily high and a 7.5 per cent default rate extraordinarily low, they said it was their 'best guess'. We have to remember we are talking about billions and billions of dollars that will be spent on this new slush fund, and we deserve much more than the bureaucrats' 'best guess'. In fact, the Australian people deserve a lot more scrutiny of these bills than they have been allowed—particularly the bare 150 minutes which was given to the economics committee to debate this new $10 billion body.

When talking about the transparency and scrutiny of the CEFC, it is important to note that the government has hidden the corporation from its budget bottom line, just like with the $50 billion NBN, which was so-called 'off balance sheet'. This $10 billion Clean Energy Finance Corporation is also off the balance sheet because they are treating it as an equity investment in the forlorn hope that the government is going to get a commercial return. I will tell you they will not get these commercial returns.

The second point I want to make is about the distortions that this Clean Energy Finance Corporation will have on the renewable energy market. Both the government and the opposition are united in their support for a 20 per cent renewable energy target. This target has driven and will continue to drive investments in the renewable energy sector. But, by setting up this $10 billion fund to pick winners and assist technologies that the commercial markets will not support, they are basically saying to other players in this market who are existing under the funding constraints that we currently have, 'You will be disadvantaged.' It is these existing players who are going to be the real losers from the CEFC body. What is more, the $10 billion will not produce additional renewable energy other than what this existing 20 per cent commitment is going to. So you are going to have $10 billion spent by this government picking winners with no net environmental gain.

Third, I mention the overseas and domestic experience with governments stepping up to fund and finance renewable energy technologies. In the United States there was the failure of the $700 million Solyndra project, the collapse of Beacon Power after the US Department of Energy gave them a loan guarantee and the unravelling of Solar Trust of America after receiving a $2.1 billion line of credit from the US government. In Queensland there was the ZeroGen project collapse, which received $100 million of co-investment from the Beattie government. There was the $700 million Solar Flagships program, which has failed under this Labor government.

You see this is the government that gave us the Green Loans program. This is the government that gave us the failed Green Start program. This is the government that came up with the wonderful idea of cash for clunkers and the citizens assembly. And there was the daddy of them all: more than $2 billion wasted on pink batts and then another $500 million spent trying to clean up 70,000 roofs. Tell me if you believe that this government with their record should be trusted with $10 billion of hard earned taxpayers' money in picking winners. What about the roads that need to be built? What about the new ports to get our exports off to their markets? What about the hospitals? What about the schools instead of this $10 billion Clean Energy Finance Corporation, which is about picking winners and a political deal?

Finally, in order to understand the context of this announcement you have to understand why it was agreed to in the first place. You have to look back to the formation of the 43rd Parliament, because the Prime Minister did not win an outright majority. In fact, we the coalition were the ones who deserved to form government. So this Clean Energy Finance Corporation is the product of the backroom deal between the Greens and Labor in order to win the Greens vote in this House and in the Senate. That deal is behind the Prime Minister's backflip on 'no carbon tax under a government I lead' and that deal is behind the government's decision to provide this $10 billion for this Clean Energy Finance Corporation.

In conclusion, this is an experiment—a $10 billion experiment—which Australia cannot afford to take. Born out of political weakness rather than a product of a considered policy process, this Clean Energy Finance Corporation will saddle Australian taxpayers with a huge financial burden as billions of dollars are wasted on uncommercial projects in the coming years. International experience shows that governments are not designed to pick winners, particularly in the renewable energy space. What is more, with this bill currently before the House there is scope for unwarranted ministerial direction in pursuit of political not commercial goals; there is the potential to distort the existing renewable energy market to the disadvantage of those players operating under the current constraints; and there is the inherent failure of this initiative to increase the production of renewable energy over and above the already bipartisan commitment to 20 per cent. It is for these reasons, as well as the obvious, blatant political manipulation which is behind the Clean Energy Finance Corporation, that I join with my colleagues in opposing the bills before this House.