The new Green capital tsunami report from Climate Energy Finance (CEF) outlines how this unprecedented surge promises to reshape global markets and geopolitics, delivering a game-changing global decarbonisation uplift, particularly in the Global South.
Yet, as the momentum of China’s green capital tsunami accelerates, Australia finds itself at a critical juncture: will we ride this wave, or be left behind?
There are unparalleled opportunities for Australia-China collaboration in zero-emissions trade and investment, drawing on our abundant reserves of renewable energy, critical minerals and strategic metals, especially building on the recent improvement in bilateral relations between China and Australia — if we adopt the right policy settings.
However, despite the global momentum, investment into Australia on decarbonisation is, at a multidecade low of $890.3 million) (USD 613) million in 2023 down from $2.06 billion (USD 1.42 billion) in 2022.
Unlocking Australia’s strategic potential
There is potential to build opportunities for Chinese investment into Australian joint ventures in clean energy infrastructure, onshore value-adding of energy transition materials such as critical minerals and strategic metals, and cleantech supply chain manufacturing. Safeguards such as foreign ownership limits, for example requirements for majority Australian ownership, are appropriate measures to mitigate risks around control, influence and national security.
Australia is uniquely positioned to process its critical minerals and strategic metals onshore using firmed sun and wind, so as to export “embodied decarbonisation” in the form, for example, of green iron instead of unprocessed iron ore. As the world’s largest iron ore exporter, we can help China decarbonise its world-dominant steel industry, which is increasingly facing carbon penalties in international trade, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), as we build a future-facing green iron industry. The CEF estimates green iron could double Australia’s current iron ore revenues.
Australia’s response to China’s position as the world’s cleantech superpower must be calibrated. China’s accelerated investment into global strategic supplies of the critical minerals that are essential to clean energy technologies, coupled with its dominant buying power, has driven oversupply and hence destructive commodity price outcomes already impacting some of Australia’s key exports. The CEF suggests a strategic critical minerals reserve trading fund to provide long-term floor and ceiling price guarantees to underwrite new investment and protect Australia’s national interests.
Equally, as countries like the United States erect trade barriers against China’s global overcapacity of cleantech, we note that domestically, the June 2024 extension of critical minerals production tax credits to all investors in Australian value-adding of our energy transition materials is an important milestone. This differentiates Australia’s approach, enabling us to collaborate equitably with all partners, including China
Addressing barriers to investment
Source: Company reports, media sources, CEF estimates
As shown in Figure 1, 2024 has seen a material step-up in proposed and underway Chinese corporate investments in renewable energy and battery energy storage system (BESS) projects in Australia, mostly by way of greenfield project developments rather than acquisition.
Whilst this is a promising trend, it is still far below what other countries are enjoying. This is in part a product of a lack of regulatory transparency around rules applying to new private Chinese investment in Australia.
Australia’s current formal posture with respect to private Chinese firms’ investment is opaque and disincentivising to potential partners, meaning Chinese private investment into Australia is weak relative to the rest of the world.
We need to see a further clarification of the rules of engagement with the Foreign Investment Review Board, and federal and state investment bodies should be tasked to communicate the FIRB rules and regulations to prospective Chinese investors, assisting them with market entry strategies.
For Australia to attract Chinese firms to invest, value-add and exchange technologies in Australia, a welcoming, stable, predictable and transparent policy framework for foreign investment is paramount to build investor confidence.
If Australia continues to fail to leverage Chinese capital, expertise and technology, this will continue to flow elsewhere – a process which our report demonstrates is already well underway and accelerating. For example, the massive USD 23 billion Guinea iron ore investment in 2024 illustrates a move by China to diversify its over-reliance on Australian commodities.
Australia is at a critical crossroads. With the right policy settings, Australia can position itself as a global leader in cleantech, strengthen its relationship with China, and secure long-term economic prosperity. The time to act is now — before the capital wave crashes elsewhere.
Author: Xuyang Dong, China Energy Policy Analyst, Climate Energy Finance
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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