There was a lot of heat in the debate about the Clean Energy Finance Corporation over the weekend, but not much light.
On Sunday, Fairfax papers reported the Abbott Government had directed the CEFC to stop funding new wind farm projects.
Social media was livid. Tony Abbott was waging a “war on wind power”. How dare the Abbott Government presume to interfere with such a virtuous independent market program to tackle climate change?
That reaction was, to put it mildly, a load of nonsense. The Government’s direction to the CEFC is not unprecedented interference in an independent body. Nor is the CEFC a “market” mechanism. The CEFC is a government program whose funding policies are set by the executive.
Yes, the Coalition wants to abolish the CEFC outright. But it can’t. So the Government says it would rather the CEFC focus on funding innovation rather than established technology. There are a lot of objectionable things in Australian politics. This doesn’t rate.
The CEFC’s enabling legislation – which was written and introduced by the Gillard government and passed without Coalition support – allows the sitting government to do exactly what the Coalition is doing now. As noted in an explanatory memorandum authored by the Gillard government:
It is appropriate that the Government, as manager of the economy and owner of the Corporation, have a mechanism for articulating its broad expectations for how the Corporation’s funds will be invested and managed by the Board.
So each year the government is required to provide the CEFC with an investment mandate direction.
The memorandum specifically nominated “allocation of investments between different types of clean energy technologies” as one of the areas in which ministers might issue a direction.
What independence is provided by the CEFC Act is a requirement that ministerial directions not be contrary to the CEFC’s statutory obligations, and that ministers must not direct or prevent CEFC investments in specific companies. All fair enough.
With these provisions, the Gillard government gave itself the statutory leeway to direct the CEFC’s investment direction. If it didn’t want an Abbott Government to have the same leeway, it should have written the legislation differently. It knew the Coalition was opposed to the CEFC.
Anyway, that discretion is entirely proper. The CEFC is not an ethereal, non-political part of the Australian social fabric. It is the result of a four-year-old political compromise, designed to funnel money into one particular sector of the economy as part of the quid pro quo for theGreens’ carbon tax support.
So it’s a little bit silly to hear (as we did over the weekend) that by changing the CEFC’s mandate the Abbott Government is “picking winners”. That’s exactly what the CEFC was designed to do. The CEFC was designed to pick winners. It was designed to choose investments that it felt were not being adequately funded by open capital markets.
And the CEFC legislation already favours specific technologies. The body is not allowed to invest in carbon capture and storage or nuclear power. Nor can it invest in non-Australian projects. This last constraint seems a little peculiar if you think the CEFC’s ultimate goal is to reduce carbon emissions – a global, not a national, problem. But foreigners can’t vote.
Because it is not driven by the profit motive in a competitive market, the CEFC has to rely on non-market criteria on which to evaluate alternative investments. Right now that is done by these folk – the board of the CEFC. All the Abbott Government’s no-wind mandate does is constrain their criteria some more.
The idea that the CEFC is a “commercial” operation is nonsense. If it makes a profit consistently then it is a good candidate for privatisation. Why should the government own a profit-making financier? Why would it need to?
The CEFC got upset earlier this year when the Abbott Government asked it to lift its investment returns, asking it to “consistently outperform the market by a large margin”. But if the CEFC can’t beat the market with its government support, then the case for its continued existence is pretty weak.
Australia has a long history of government-owned banks like the CEFC – banks designed to push money into politically favoured sectors.
Who now remembers the Commonwealth Development Bank or the Australian Industry Development Corporation? Or the Commonwealth Bank’s Mortgage Bank Department and Industrial Finance Department? Or the joint public-private ventures of the Australian Resources Development Bank, the Primary Industry Bank of Australia, or the Australian Banks’ Export Refinance Corporation?
These banks were abolished or privatised because Australia came to recognise that markets allocate capital better than bureaucrats.
Right now there is a majority in the Senate preventing the abolition of the CEFC.
But it is almost inevitable that one day parliament will end the CEFC. Just as it ended all its other special development banks.