The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 April 2012

Press conference

Joint press conference with the
Hon Greg Combet MP,
Minister for Climate Change and Energy Efficiency and
Minister for Industry and Innovation,
and Ms Jillian Broadbent AO,
Clean Energy Finance Corporation Review Panel

Canberra

SUBJECTS: Clean Energy Finance Corporation; Toyota job losses; polls; Budget preparation

TREASURER:

It's good to be here this morning and it's good to see everybody who is fresh, bright and bushy tailed this morning. We've got Jillian Broadbent with us this morning and of course my colleague, Mr Combet, for a very significant launch, I think. We're releasing the expert review on the Clean Energy Finance Corporation which has been chaired by Jillian. A very significant piece of work. A very significant and important part of our clean energy package which was released some time ago.

This review will be an essential part of a wider package which is going to mean that we are putting in place significant reforms, every bit as significant as the great reforms of the '80s and '90s that have underpinned our present prosperity. Because in the future, productive economies, competitive economies, will be those that are powered by clean energy. The Clean Energy Finance Corporation is going to play a critical role in driving investment that we need to deploy new technology.

Now Jillian has led this expert review but we've also had important contributions from Ian Moore and David Paradice who are up the back. I wanted to thank all of them today for what has been an enormous piece of work, a lot of hard work, a lot of consultation. The panel, I think, has received something like 170 submissions. They have held meetings right around the country. The consultation here has been quite extensive and I think it's fair to say that the report captures a lot of the views that were put to the panel and then reaches a number of very important conclusions.

What the report does is put forward a framework for the operation of the Clean Energy Finance Corporation over the coming years, because we know that the carbon price is going to drive a massive transformation in our electricity generation sector, something like $100 billion in terms of new investment in renewables over the period to 2050.

Now I've made the point that a first-class, first-world economy in future can only be powered by clean energy and what this report identifies is that there are financial barriers that can impede that transformation. What we need to do through the Clean Energy Finance Corporation is get in there and get rid of those barriers so we can get some of these new technologies developed. So the corporation will facilitate the transformation of our economy by altering the risk landscape for investors. Really, that's what it is all about. This will open up new opportunities for business to invest in clean energy.

Now the report maps out a three-part framework. The corporation will focus its investment on renewable energy, low emission technology, and energy efficiency and it will do all of this through a commercial filter. It will focus on projects and technologies at the latter stages of development and it will invest responsibly and manage risk. We expect it to achieve a target rate of return at the long term bond rate and it will be financially self-sufficient. As I said before, it will identify those financial barriers that determine whether an investment can be structured and whether it can overcome the financial barriers that have been identified.

So I would like to say today that we're accepting all of the recommendations that have been made in this report. We're seeking passage of legislation in the coming budget sittings and I would most particularly like to throw to Greg and then to Jillian.

COMBET:

Thanks very much Treasurer, and of course the release of the Clean Energy Finance Corporation expert review report is another very important step in the implementation of the Government's Clean Energy Future package.

The package as a whole of course represents a very fundamental economic reform that will reduce greenhouse gas emissions in our economy. It will drive investment in renewable energy and in low emissions technologies. And make no mistake, that this is a reform that is necessary for the future competitiveness of our economy. The economies that in the future efficiently price carbon, that reduce their emissions intensity, that drive investment in low emissions technologies – those are the economies that are going to have the edge in the future. Now that's especially the case in the Asia Pacific region. Just imagine if we stand still, we end up with out-dated technologies, highly emissions intensive businesses, all the time while China charges ahead with innovation and the development of renewable and low emissions technologies. In those circumstances, we would risk profound competitive disadvantage in the years ahead and potentially trade penalties due to our inability or unwillingness to reduce our greenhouse gas emissions. Now the Clean Energy Finance Corporation is a very important part of the package of measures that the Government is introducing to meet exactly that challenge.

The carbon price of course will commence on the 1st of July, providing the incentive to large greenhouse gas emitters to cut their pollution and to invest in clean technologies. The Large Scale Renewable Energy Target of course will take us towards 20 per cent of our electricity supply coming from renewable energy sources by the year 2020, only eight years away.

And the Clean Energy Finance Corporation will work with private sector players to facilitate investment in renewables, in low emissions and energy efficient technology as well as the manufacturing companies that produce these technologies. These are major economic reforms and ones that are extremely important for future generations and our economic competitiveness in the future.

BROADBENT:

Over to me. Well our panel was asked by the Government to propose an implementation plan, an operating framework and an investment mandate for the Clean Energy Finance Corporation, and it has been done so on the basis that it is financially self-sufficient and it intends to make minimal call-on for budgetary assistance. The fund would be dedicating its own fund and catalysing co-financing from the private sector to maximise the flow in to the clean energy sector.

Since, as the Treasurer said, since October we have undertaken our own research of similar funding bodies that exist internationally. We have consulted very broadly with industry and we have received a number of submissions which have been extremely helpful in forming the basis of this review. There are a number of working models for funds like this internationally and it has been most encouraging that they have all been very enthusiastic about sharing their experiences and learnings with us and I think we can leverage off those experiences and learnings and for the benefit of Australia going forward as the CEFC becomes operational.

To comment on the obvious, but energy is critical to economic growth and I think that's why energy policy always has a high level of government engagement and government policy initiatives. And as you transition from a traditional energy source to a green energy source, it too requires a large amount of capital and a large amount of government involvement and encouragement. And because of the scale of investment required, it does require a private and public sector cooperation to achieve the end outcome. Australia, as a result of its abundance of low cost fossil fuels has always had a very low cost of electricity. We have one of the lowest costs of electricity in the world. And as we, that has been for the Australian economy a significant competitive advantage. It is very important that we retain that competitive advantage as we move to a global environment where - which is carbon constrained - and where we remain competitive with a low cost of energy.

We are, as everyone would be aware, a late starter in the path to our transition to clean energy. Renewable energy is more expensive than black energy, it requires considerable investment but once operational, the input costs are low. And in order to achieve this, because of the large scale of capital investment required, there are significant barriers to the mobilisation of that capital, that and the newness of the industry itself. Through our consultations we were made aware of the significant barriers to this mobilisation of capital being principally the availability of funds, the tenor of funds available and the cost. Banks and financial institutions are very hesitant to invest in new industries. They haven't got a history of experience. It is complex and it takes a long while for them to develop the background and understanding of risk required when there aren't enough demonstration effects to build up that knowledge. The Global Financial Crisis has, in itself, had a significant impact on the mobilisation of this capital, and there's been quite a fall in the appetite for investment in this sector since 2008.

The CEFC can have a very positive role in our transitioning to a cleaner energy environment. It's part of a whole of Government package and through the mobilising of funds – its own and, as I said, those of the private sector – into the clean energy sector it will enable and facilitate the development of the skills, the technology and the deployment of the renewable energy technologies across the field. It takes time, there is a very long lead time in all energy projects but early action towards this transformation to increased renewable energy minimises the ultimate cost and disruption to the economy for making that adjustment. No action in this area leaves us very vulnerable to the future.

The CEFC is intended to mobilise private sector skills and discipline for a public policy outcome. The details of the way we would pursue that are outlined in the review and I leave it to you to read. Thank you.

TREASURER:

Could we just start with questions about the Clean Energy Finance Corporation and when we've had those questions we can go onto general questions and Jillian can leave.

JOURNALIST:

Can I just ask first about, you talked about the barriers in the market. The long-term finance (inaudible) problem of the GFC. How do you think the CEFC would actually overcome those? Is it a question of the CEFC being perhaps being prepared to take on the risk element in a co-financed deal or, given current state of the market, it might be coming in earlier than private sector financiers (inaudible)?

BROADBENT:

There are a number of reasons why a transaction would be acceptable to the CEFC and perhaps not to a commercial financier and they are that we have a focus in the clean energy sector. So a lot of financiers don't want to undertake the knowledge development to enter that field and many of them, unfortunately, are downscaling their teams that they've dedicated to that area. So we have a focus on the clean energy sector. We have specifically appropriated funds to invest and a lot, because of the tenor required in the clean energy sector, a lot of the banks are finding there's a reduced appetite for long-term investment generally in the market. So banks can't raise the long term funds and they're under pressure to match the long-term liabilities and long-term assets have to be matched with long-term liabilities. So we have specifically appropriated funds so we're not placed with that constraint.

We're also prepared to assume, as a government body, that there will continuation of existing government policies, namely the carbon tax and the RET, which again private financiers, because of the constant change in government policy in that field, are hesitant to do so.

We have a lower rate of return expectation. We're expecting to have the return of the government's cost of funds and we put a value and recognition of the benefits that come from initiating an investment and the flow-on affects to subsequent investments. So the externalities that come from developing an industry we recognise, which a private sector investor can't do.

JOURNALIST:

(Inaudible) existing policies including the carbon price will continue but at the point when the corporation starts making investments that will be, you know, there will be an election looming (inaudible). Are you worried that proponents of projects that might be wanting investment will hold off, will be put off by that uncertainty? How quickly do you think that first $2 billion can be invested or handed out? And how much appetite will there be in that environment of uncertainty to push ahead with projects like this?

BROADBENT:

I think there'll be no limit to the appetite. It's a matter of how we proceed and we've got to put in place the appropriate private sector disciplines to do so. So it's more a matter of assessing each investment prospect on a case by case basis.

JOURNALIST:

But why would that not impact on the appetite of proponents if they're not sure that a carbon price, which would be essential for their operational costs for their sums to add up going forward, is going to even be there…

BROADBENT:

Well, not all of the – it's very hard to say what's the full population of projects that can be considered but not all of them, if you get into low emissions and energy efficiency – not all of them are dependent on a carbon tax. I mean a carbon tax is the main price driver but there's a growing appetite, as the price of electricity has been rising, for those projects to get underway. So I don't have a problem about there being an appetite for the funds.

JOURNALIST:

Can I just ask you also, the Coalition (inaudible) refers to the corporation as a $10 billion slush fund. Can you just comment on that?

BROADBENT:

I can only comment to say I have never heard that description applied internationally. Most of the funds have bipartisan support in all the countries in which they have operated and been successful in nurturing an industry that's critical to their nation and needs to be developed. It's also designed to be the only budget funding that's required is in the establishment costs and it's intended to be financially self-sufficient. So I don't quite see it that way when you apply the financial disciplines that we intend to put in place.

JOURNALIST:

Just to clarify the earlier question. If the carbon tax were to be removed, scrapped, are you saying the projects funded under this would still be viable?

BROADBENT:

It's very hard to say what projects we're looking at. It's got to be considered on a case by case basis. In the five months we've been undertaking this review a lot of it has been focusing on the barriers to financing rather than going into individual financial models per project. So I can't say what projects will or won't go ahead. We're not in the stage of analysing those.

JOURNALIST:

Will the corporation take the approach when analysing each case by case project whether or not it is dependent on the carbon tax?

BROADBENT:

Yes. Yes.

JOURNALIST:

So there will be some that are dependent on the carbon tax?

BROADBENT:

Yes, I'm sure there will be.

JOURNALIST:

Is there an expectation that some of the projects that the corporation may fund will fail?

BROADBENT:

There's never an expectation that things will fail but as a financier you have to be prepared to put in place stringent guidelines and goalposts and try to assist the project in progressing but some things don't turn out the way you planned.

JOURNALIST:

What happens in that case, from the corporation's point of view? Do you set yourself milestones and pull out if you think it's not going to get there?

BROADBENT:

Well, it's very hard to generalise about that and you'd know from financing experience, sometimes you ride through with the borrower or the project and sometimes you make an assessment that this isn't worth sticking with. But it is very much dependent on the particular circumstances of the transaction and the model that we have in mind is very much a co-financing model. So we're not there on our own making that assessment. It's a collective decision of the financiers if things start going wrong. What else, are we prepared to put further funds in, what are the factors that changed the dynamics or the feasibility project from when it was first approved.

JOURNALIST:

Ms Broadbent, can you talk us through the goalposts and the stringent criteria a little bit? What sort of things are you putting in place?

BROADBENT:

I think it's pretty hard to be clear about that, it's just trying to adopt the financial disciplines that banks and investors have in assessing projects. I mean, initially I imagine it's going to be more loans rather than equity because equity will take some time to work into. But those practices exactly, looking at the financial flows, looking at the stress testing for certain circumstances and changes in the parameters. So I think they're fairly tried and true practices how they apply to these projects when we haven't seen them yet, it's hard to be specific about it.

JOURNALIST:

How quickly do you want to get the funds out? So you get $2 billion a year to five years. So what's the leverage? (inaudible)

BROADBENT:

I think the important thing is to get funds out to the right place and comply with the right criteria rather than get them out.

JOURNALIST:

There has been a bit of criticism of the fund just in terms of skewing the market and picking winners and creating commercial distortions. Can you just address that?

BROADBENT:

Well, I think because of that criticism, the panel in its review has been made very sensitive about that and we'll be operating in anticipation of not trying to disturb the market. So we've done a lot of homework in that regard. As far as picking winners goes, we see it as being, we're trying to select projects that are viable and that can repay the capital and service the debt. But it's more a matter of creating real options for the Australian economy and energy generation rather than picking winners.

JOURNALIST:

Mr Combet, the Government's modelling assumes that carbon capture and storage will account for 30 per cent of our energy needs by 2050, I think, and yet it is explicitly excluded from funding under the corporation. Can you explain why that is?

COMBET:

Essentially because we have other policy mechanisms in place and funding in place to support Carbon Capture and Storage. The development and commercialisation of that technology is very important for this country given the emissions intensity of our economy and the dependence we have, for example in the electricity generating sector on the use of coal as a fuel source. So you will recall that the Government has done a number of things. There is support for Carbon Capture and Storage projects specifically through Minister Ferguson's portfolio, a considerable amount of funding put aside and we also set up the Global Carbon Capture and Storage Institute. I was in Europe recently and I having some discussions with other countries in relation to that. There's no doubt that those projects are proving pretty difficult to prove up and commercialise but the work continues nonetheless. It wasn't something that was agreed within the prevue of the Clean Energy Finance Corporation through the Multi-Party Climate Change Committee process. That is the fact. But the Government has got the measures that I averted to in place to support CCS because it is an important technology.

Finally just on that. Don't overlook the fact that the largest Carbon Capture and Storage project in the world is currently under development at Gorgon off the northwest shelf and that is a large scale commercial part of the LNG operation at Gorgon that will, in time of course, sequester a considerable amount of waste carbon dioxide from the LNG processing. So that where the circumstances come together on a large project such as that, CCS is a viable technology.

JOURNALIST:

Mr Combet, there have been calls recently to scrap the RET or change it. Can you categorically rule out doing that?

COMBET:

We're very committed to the RET and particularly the Large Scale Renewable Energy Target is a very important component of our capacity to reach 20 per cent of our electricity supply coming from renewable energy sources.

On the Small Scale Renewable Energy Target which pertains in relation to, for example, support for the installation of PV panels on domestic rooftops, it is the case that we have been winding down the level of support for that for some time. About this time last year I took steps to reduce the level of support. That support is coming off further on the 1st of July this year and fundamentally, as you would have seen out of discussion emanating from the business forum and COAG last week, the Government and the States are commencing a dialogue about how we might rationalise some programs that have been instituted in various jurisdictions because now we have a carbon price coming into the economy, it is the lowest cost, most efficient way of driving emissions reductions, investment in cleaner technologies and renewable energy. And we're in a position with a carbon price coming in, the Large Scale RET in particular, the operations of the Clean Energy Finance Corporation and other reforms we're making to, I think, gradually remove a number of these other schemes that have grown up in State jurisdictions and I note some of the State Governments are notwithstanding their Coalition governments, are saying exactly the same thing.

TREASURER:

Okay have we exhausted all of the Clean Energy Finance Corporation questions? Thanks very much Jillian.

BROADBENT:

Thank you.

TREASURER:

Okay – up the back.

JOURNALIST:

Just about the Toyota sackings. Are you comfortable with the way that's being handled? Are you comfortable with workers essentially being frog-marched by security and also what can you, can you tell us what the Government is doing to help the workers at Altona?

TREASURER:

Well, we have to do everything we possibly can to assist those workers as we would in any instance like this and it did look particularly unpleasant. So I was quite concerned with what I saw and what I read. Minister Shorten, I think, has expressed the views of the Government about that. What we will do is what we do with anyone who has been put in that position, is that we will move to give them the most support we possibly can within the framework of our existing job search services and so on.

JOURNALIST:

Mr Swan, the Prime Minister seems to be falling behind Tony Abbott on a range of personality issues like trustworthiness. Are you concerned about the fact that the Prime Minister seems to be losing the battle with Mr Abbott in terms of the polls and what does the Government need to do differently to try and lift its stakes?

TREASURER:

Well, I'm about to bring down my fifth budget and I'm about to head off to my 20th G20 meeting and all the IMF and World Bank meetings and that's what consumes me and that's what consumes the Government, is the future policy agenda. We don't get deflected by the weekly, fortnightly or monthly diet of opinion polling which appears right across the media, almost every week or every fortnight. What the Government is doing is getting on with the very big reforms which will secure our prosperity for the future and that's what drives us.

We were asked a question before about the Clean Energy Finance Corporation where it was run down by the Opposition in the same way that they talk down the economy day in, day out. What we're going to do is the right thing by our economy, the right thing about future job creation, the right thing about future prosperity and get on with doing the hard work. Mr Abbott can continue with his wrecking ball tactics that we've seen, particularly in relation to reducing carbon emissions, in relation to the Clean Energy Finance Corporation and just about everything else.

JOURNALIST:

How does the framing of the budget get affected by the change in the Greens and the position with Senator Milne taking over?

TREASURER:

It doesn't get affected at all. It simply doesn't get affected at all by a change of leadership in the Greens because what we're doing is the right thing by Australia. I'm about to head off to a meeting of the G20 and I'll sit around the table and we'll look at the relative strength of economies around that table, particularly developed economies, and I will be sitting there saying I'm coming from a developed economy which has a budget coming back to surplus, which has an unemployment rate of 5.2 per cent, which has a pipeline of investment in resources of something like $455 billion and everybody around the table will say what a terrific outcome and it's great to see you're implementing your medium-term fiscal strategy in those circumstances by bringing your budget back to surplus.

If I was to sit there and take the advice of the Greens or a lot of other people around the place in commentariat world, they would say you are nuts if you're not coming back to surplus on that timetable.

JOURNALIST:

Is there a pragmatic question here, Treasurer, which is that you still have to get the budget through the Parliament and Senator Milne's position suggests that you may have to tactically reconsider the way you do that and the measures that might be in the budget within that surplus target.

TREASURER:

The Government will not be in any way deterred from doing the right thing by the Australian people and getting the economic settings right for the future. Coming back to surplus is an economic imperative. When you look around the world, when you look at all of the global uncertainty, when you look at the changing nature of the global economy, when you look to Europe and see what is happening there in terms of sovereign debt and problems in the financial system, the right thing to do in this environment is to send a message to the world about the strength of public finances in this country and that you've got a Government with the guts and determination to implement a medium-term fiscal strategy which is what the world is crying out for in other developed economies.

Ms Milne said that we shouldn't be coming back to surplus and said that she based that comment on some of the commentary from the IMF. Well, I've got to tell you, I'll be seeing Christine Lagarde from the IMF and I know her view would be that a country in our circumstances should be bringing its budget back to surplus in the circumstances in which we find ourselves. So we're doing it because it's the right thing given the global circumstances. It's the right thing in an economy where growth is around trend, where unemployment is 5.2 [per cent] and where there is a big investment pipeline. On top of all of that, it provides maximum flexibility to the Reserve Bank to cut interest rates should it deem it necessary.

JOURNALIST:

So you'll be evoking your agreement with the Greens on confidence and supply to get to surplus through and the budget through as you deliver it on May 8?

TREASURER:

This isn't a matter of the Greens, this is the right thing by the country, by the economy, and by the people and that's what we will be doing. And we've done it every day we've been in power. You see, this country didn't go into recession. We avoided a recession because the Government moved in a decisive way to protect our people, to keep the doors of small business open, to support employment and we copped a lot of criticism, particularly from the Opposition, about the actions we took which have strengthened the Australian economy.

When I go to the G20 I'll be sitting around the table and I will be sitting there saying the Australian economy is 7 per cent larger than it was prior to the global financial crisis. I will look across to Tim Geithner of the United States and their economy has only just got back to the same size it was prior to the global financial crisis. They've got an unemployment rate of 8 per cent plus. I will look across at the British, the British economy is 4 per cent smaller than it was prior to the global financial crisis with an unemployment rate of 8 per cent plus. I will be sitting there with an economy which is 7 per cent bigger which has an unemployment rate of 5.2 [per cent], which has an investment pipeline the likes of which few other developed economies have ever seen, and I will be sitting there saying that's why we're implementing our medium-term fiscal strategy.

JOURNALIST:

Why isn't the Government getting a political dividend from this Mr Swan, looking at the latest polls?

TREASURER:

Let me say, I mean there's a variety of reasons why you could make that sort of analysis and I am not a commentator. So what I can say is that we did get the political dividend for that because in the last election it was recognised that the decisive actions that we took saved this country from recession and that's why Greg Combet and I are now standing here today as Ministers, because of that economic outcome which was unparalleled across other advanced economies.

The fact is that we have lost a lot of political skin because we've once again had the guts, the foresight, and determination to stand up and put forward a package the likes of which we've been talking about today. And frankly, I couldn't look my grandkids in the eye in 30 years time or 20 years time and say back there in 2011 and 2012 we squibbed it putting in place the clean energy package because of a few bad opinion polls.

What we are doing is entirely in the same nature of what occurred in Australia in the 80s and the 90s – very big reforms. You lose some political paint as you go through but the fact is that at the end of the day the electorate will pay on those who have the qualifications, the foresight, the vision, and the determination to deliver economic prosperity.

JOURNALIST:

For 18 months Labor has been saying that the polls will turn around when the carbon tax package has landed, and the mining tax package is landed, when Kevin Rudd's challenge is seen off? The polls simply haven't turned around for Labor.

TREASURER:

You're sort of getting a bit ahead of yourself, aren't you?

JOURNALIST:

(Inaudible) voters have simply made up their minds?

TREASURER:

All this instantaneous analysis and commentary. I'm not into it. The fact is the carbon price is not in yet. It hasn't actually started yet. Yes we've got the legislation through on the MRRT but it doesn't start just yet. Look, the fact is long-term reform takes a long time. It doesn't actually fit into some short-term polling schedule or commentary.

JOURNALIST:

Mr Combet, has the Government made a decision about advertising accompanying the carbon price?

COMBET:

No, no decision has been made but can I just reinforce something related to the Treasurer's last comment. Last week, this concerns the implementation of the carbon price, last week the independent pricing tribunal in New South Wales confirmed that the average cost for the introduction of the carbon price and electricity prices in New South Wales, the average cost per household was $3.30 a week – bang on the Treasury modelling and completely consistent with the household assistant package that the Government has announced and that will begin to be introduced very soon.

I think that once we introduce the carbon price it will be seen that Tony Abbott's scare campaign, his fear-mongering is all baseless and people will see it is a properly structured package. It will cut our emissions as the carbon price takes effect in the economy. It will drive investment in cleaner energy sources and it will be seen as a very important economic reform that places this country in a good competitive position in the future and we will see reforms of this nature through.