By JUSTIN BULL
March 20, 2014
A changing political landscape in Australia has clean tech investors fleeing the country, worried that there will be no market for low-carbon investing in coming years. Political leadership at the federal level – led by Tony Abbott, head of a conservative coalition government since September 2013 – has reneged on policy commitments from previous governments that provided certainty for investors and energy producers.
The current government has embraced policies that assume the world will never take action on climate change and thus ensure carbon will never have a price. Investors are rightly worried. Tim Buckley, former Citigroup chief analyst in Australia, said, “We are worse than stalling; we are actually investing in assets that I think will become stranded as a result.”
Buckley’s concern is that that Australia’s massive new investments in assets that promote fossil fuels – from offshore LNG to coal mining to iron ore extraction – will leave the country with an industrial model fundamentally incompatible with a low-carbon future.
But the global economy is shifting away from fossil fuels. China is scrambling to reduce pollution and combat environmental issues, and is encouraging developed countries to do so as well. The United States, meanwhile, is investing in more renewable energy than ever before.
If Australia’s story sounds familiar to Canadian readers, it should. Canada is also an export-oriented resource economy, and the Harper government has shown no appetite for taking meaningful action on climate change. Instead, the federal government has backed efforts to further develop fossil fuels by building pipelines to reach new export markets and expand the scale of activity in Alberta’s oil sands.
Canada also faces the risk of “stranded assets." When the world decides to take meaningful action on climate change, some fossil fuels will simply have to remain in the ground. And these assets, rather than represent future earnings for their owners, will instead be stranded, economically and ecologically unrecoverable. Given that the oil sands projects can take almost 25 years to generate a positive cash flow, the risk to Canada’s economy is real.
Fortunately, politicians in Ottawa are not the only people pulling the levers of Canada’s economy. Provinces and municipalities have significant opportunities to promote clean technology with policy certainty, direct procurement, and putting a price on carbon. Canadian investors should carefully consider Australia’s actions as a cautionary tale.
Photo Credit: U.S. Embassy