Two years ago, we were in the middle of an acrimonious debate on climate. Then came a global pandemic, the Glasgow Pact, further extreme weather events and natural disasters, conflict in the Ukraine, disrupted energy supply and changes to government. More recently, a panel discussion between our CEO and business leaders observed that climate transition planning and action are now the new normal.

The CEDA event, titled ‘Australia’s climate choices’, was moderated by Dr Pradeep Philip, Lead Partner, Deloitte Access Economics. Panel members were Anna Skarbek, Climateworks Centre, Julie Shuttleworth, Fortescue Future Industries, Sally Reid, Commonwealth Bank of Australia and Dr Kate Wilson, NSW Department of Planning, Industry and Environment.

Against a backdrop of a global energy crisis and rising interest rates, the economic case alone for decarbonisation has become weighty enough to propel the transition to net zero into key planning strategies across every sector. Climate risk, transition, opportunities and distribution have become centre stage in corporate, government and public narratives, with discussions now centred around the how, rather than the whether or why.

Recently returned from the UK, Anna Skarbek offered some insight into the seemingly incongruent tensions of an urgent call for energy and accelerated focus on exiting fossil fuels. She noted that despite significant challenges and tensions including the crisis in the Ukraine and a short term scramble for energy supply to heat European homes over the next two winters, the net zero transition now looks unstoppable. Long term signals are firmly focused on the energy security benefits of renewables and this narrative is now loud enough to outweigh concerns that a short term scramble for supply might lead to long term fossil fuel reinvestment.

So what of investing in fossil fuels? How is the finance sector balancing short term energy needs with the trajectory to net zero? Global finance expert Sally Reid indicated that, while banks must respond to short term energy security requirements, their commitment to net zero also means the energy mix is changing and will continue to change. This is because finance must make good quality, long term strategic investments, lending into the dominant themes. Sally added, ‘Australia is going to need to have an efficient energy sector. That means we need to have a comparative advantage. That means that the benefits in solar and wind in terms of the cost per megawatt hour will be better long term investments.’

While the transition will be complex, Sally noted, ‘the direction of travel is absolutely clear.’ Investment opportunities are significant, including lithium and copper and cobalt and nickel – the componentry that goes into batteries and solar panels and wind turbines. As well as in the transformation of our energy mix including hydrogen, and in other new energy sources and technologies.

Turning to the business trajectory, one of the world’s biggest mining companies offers a compelling example. Julie Shuttleworth acknowledged Fortescue was a heavy emitter at present, yet their net zero ambition was high: net zero by 2030 for scope 1 and scope 2 emissions, and by 2040 for scope 3 emissions. She said rather than wait for answers from technology, Fortescue was developing it themselves, including hydrogen powered trucks in the technology demonstration stage, battery electrics for trucks, and converting a ship to run on ammonia. The company has a further ambition – to supply decarbonised energy to the market in the form of 15 million tonnes of green hydrogen per year for those hard to abate sectors, to support global decarbonisation. All this is in response to shareholder demand and the good business sense in creating jobs, protecting against rising fossil fuel prices and protecting the planet.

For governments, aligning policy to net zero means change – which risks rattling the electorate. In NSW this challenge is being met through focusing on the many opportunities and the economic benefits of a decarbonised economy. For example, the energy infrastructure roadmap centres around benefits to the regions and the fact that renewable energy sources are now the cheapest sources of energy. Dr Kate Wilson said, ‘And the fact that this is clean energy is… (talked about)…as almost a secondary product.’

To counter some of the potential pitfalls of transition, notably in the form of fossil-fuel reliant jobs, NSW is again focusing on the regions where this risk is greatest. Alongside long-term investment in these areas, the government is also establishing clean manufacturing precincts and considering the development of hydrogen hubs in place of a retiring coal-power industry. By engaging with communities to co-design the future, the NSW government further acknowledged that inclusivity and consultation were vital for the transition to succeed. Kate said this meant investing in ‘working with the community and coming up with ideas for actually establishing new, clean, green industries that are going to prosper in the financial world.’

Inclusivity is, of course, key to solving a challenge which Pradeep described as a ‘deeply structural’ issue rather than a ‘climate crisis’. As with the pandemic, impacts from climate change are not geopolitical or class dependent. So if change is inevitable, how do we take all people on the decarbonisation journey, ensuring that nobody is left behind?

Anna Skarbek pointed to the Ukraine crisis as having signalled the need to manage our energy transition in a way that ensures vulnerable consumers are included in transition discussions.

‘What that does is also hopefully raise the volume on another signal, and that is around leaving no one behind and managing the energy transition towards net zero in a way that ensures that vulnerable consumers, particularly thinking about heating homes in winter, for example, are included in transition discussions – so it’s not just the physical infrastructure.’

She added there were also many lessons from the unequal impacts of Covid-19 to consider when thinking about social impacts of the transition away from fossil fuel energies to clean energies. While responses to the pandemic were mixed around the world, it did provide some powerful and relevant positives on which we can draw: The collective awareness that we’re in this together, that we will support the vulnerable, that we’ll be very alert with data; the value of public investment during the years leading up to innovative vaccines, use of new technology and public investment in the epidemiological data, and in health systems. This enabled us to understand who was impacted by stay at home orders and loss of income, which led to initiatives like Job Keeper and social income support.

Thinking about all this in the context of the uncertainty that accompanies change, Anna countered that we’ve actually moved away from a lot of the destabilising uncertainties of the past. ‘There’s a form of stability in this new era we’re in now, where net zero is an accepted normalised goal. And that is with us now. And we will spend the next decade all heading in that direction and solving it together. And so we can be very clear and stable about the goal and very inclusive in the implementation of it.’

‘There’s also stability in honouring the legacy of what communities and nations have been good at in the past in producing energy, in producing food, in producing products for other countries. Our research shows that (Australia) can still be good at producing energy and products… but we’re very clear on the goal that (these must be) produced in a sustainable way. Similarly, there are developing nations who are dramatically more vulnerable than even Australia, which is a very vulnerable country to climate change. And so remembering global solidarity, maintaining development aid, maintaining technology sharing and sense of partnership; these are important principles of the Paris Agreement and international agreements. But also, many developing countries have competitive advantages in manufacturing – of electronics and so on. So (they too) can be shown the opportunity path – and it’s in all of our interests to accelerate or allow the leapfrog of developing nations into the clean economy – so that they can maintain or harness that competitive advantage rather than be held back from accessing it due to ageing infrastructure.

‘If we honour the human desire for stability, it’s more helpful to frame the transition as one of continuous improvement, alongside a shared hope for a better future. We are in fact, solving for a more sustainable economy and a clean one which has benefits for us all. I would hope, I have a sense, that this is the new normal.’

That desire is driving citizens to embrace change in fundamental ways, according to Sally Reid. She argued that people were spending for positive change, in a move towards more sustainable and more economically sound choices. This provides greater opportunity for banks to direct finance towards better emissions and better economic outcomes. ‘If you are a banker and you are not excited by the fact that we will be replacing the machinery of the economy, then arguably you shouldn’t be a banker.’

Watch our communication channels for part two of this conversation, coming soon.