The New South Wales Treasurer expects to make life more difficult for the Australian fossil fuel industry Energy

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When New South Wales treasurer Matt Keen toured the Hunter Valley coal mine a year ago, managers complained about the difficulty of renewing insurance for their pits.

In light of the conclusion of the COP26 Climate Summit in Glasgow this weekend, those challenges will become even more difficult, Kane now predicts.

“Glasgow accelerated where the market was already trending,” he said. “The fossil fuel industry will find it more difficult to obtain insurance, raise capital or refinance its operations.”

Those sentiments, from the state treasurer to most of Australia’s thermal coal exporters, have echoed in post-Glasgow comments by Australia-based analysts who track investors and legal trends.

Among Glasgow’s achievements is the decision to pressure member states to return by COP27 in Egypt next year – rather than wait another five years – to raise emissions reduction targets in 2030. Analysts said Glasgow’s settlement rules for international carbon markets under Article VI of the agreement Climate Paris could also benefit Australia as a buyer and seller of carbon credits.

“The shift in global economic realities is certainly the water in which a cup is swimming,” said Tennant Reed, senior advisor at Industry Australia Group. “The economics of coal for energy is already very unfavorable.”

Other shifts that emerged in Glasgow included the growing global competition for leadership in the race to produce hydrogen from renewable energy to replace oil and gas.

“I think there is a caveat for Australia,” Reed said. “We cannot assume that just because we have high-quality renewable resource centers … that we will automatically become an energy superpower.”

Emma Heard, climate change partner at consultancy EY, said the media had naturally focused on the final hours of “drama and theater” to settle the Glasgow text, but much had already been achieved in the past two weeks.

Progress included the creation of the International Sustainability Standards Board to demand high-quality, transparent, reliable and comparable reporting by companies on carbon and other environmental reporting. “This will also be a huge part of accelerating the business,” Heard said.

The fact that Covid did not derail Glasgow was a positive in itself. She said a report last week by EY found that the pandemic had in fact increased their focus on climate change.

The market decided

One senior investment officer told Heard that “when everything is uncertain, you look at long-term trends because they become a safer bet.”

“And the market has decided that one of those key long-term trends is decarbonisation.”

The cops “set the standards,” said Erwin Jackson, policy director at the Climate Change Investor Group. These now include discussing a warming limit target of 1.5°C instead of 2°C, raising ambitions for 2030, and an end to fossil fuels, even if Glasgow’s official text settles on “phasing out” rather than “phasing out” coal.

Prime Minister Scott Morrison speaks at United Nations Cop26 in Glasgow. Photo: Reuters

Jackson said investors are already demanding annual rates of return of 40% for investments in coal and 20% for oil, compared to just 10% for solar and wind projects, due to the greater risks associated with fossil fuels.

“[It’s] Maybe better than I thought we’d get two years ago, said Jackson. But the Morrison government’s refusal to change Australia’s 2005 emissions target of 26% to 28% was a far cry from sending a contradictory note.

“It all gives investors the confidence to make long-term investments,” Jackson said. “The danger for Australia is that we haven’t updated the 2030 target, you’re undermining their confidence.”

Martin Wilder, co-founder of climate change consultancy Pollination, said legal action against fossil fuel companies is already increasing, and Glasgow will only add to that.

Companies that sign zero net targets – including many in Glasgow – should prepare for legal action if they do not follow through. “In the past six months, the issue of green washing has become massive,” he said.

The Carbon Markets Institute welcomed the Cop26 result, saying that it “provided a platform for greater international cooperation and established a governance framework for international emissions trade capable of achieving high integrity.”

“Bothing Australian and voluntary global carbon markets will now need to align appropriately with these rules to ensure that verified emissions reductions and other social and environmental benefits are achieved in industrial decarbonization and natural climate solutions,” the institute said.

However, Malte Meinshausen, an assistant professor in the University of Melbourne’s School of Climate and Energy and a former police negotiator, said he was “extremely skeptical” about the market agreement, not least because it allowed the use of credits created under the Kyoto Protocol. .

“I think that leaves the door open for all domestic targets that are just being mitigated, so the real work on the ground may really suffer,” he said. “It has always been proven that cross-border trading schemes in the past undermine the integrity of the system.”

In short, though, the Glasgow policeman made “moderately appropriate steps forward but with many more steps in the marathon still to be done”, Mainshausen said.

Separately, a study found that the cost to the Australian economy of reaching net zero by 2050 has fallen by 80% in just eight years, thanks mostly to lower renewable energy prices.

Modeling from the University of Victoria’s Center for Policy Studies compared business as usual with the transition to the zero path and found the difference was barely discernible.

“Reducing greenhouse gas emissions is like buying an insurance policy: we incur a cost (loss of GDP) to reduce risk (catastrophic climate change),” Professor Philip Adams’ report said. “However, if it only costs 1% of income, as estimated in our model, taking out an insurance policy is a very good option.”

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