Scrapping the $10 billion Clean Energy Finance Corp will strip between $110 million and $171 million a year from the federal budget rather than save the government money, the fund will tell a Senate inquiry today.
The fund uses cheap government borrowing rates to lend money for clean energy and energy saving projects.
It was set up as part of the Gillard government’s climate change policies.
The costs to the budget’s cash balance of abolishing the fund are based on assumptions that only half of its investment base – or $5 billion – is deployed, according to a submission by the corporation to the one-day inquiry.
“The facts are that closing the CEFC will not save money, but come at [a] budgetary cost and end a vital public policy tool that will provide long-term benefits across the economy,” the CEFC said in its submission released before the inquiry.
The budget cost of scrapping the fund excludes the costs of redundancies for staff, with all jobs expected to go.
“The loss of this adaptive and committed group of skilled professionals from the public sector will be significant and regrettable,” the fund said.
The Coalition dubbed the CEFC a “giant green hedge fund” while in opposition and vowed to scrap it along with the carbon price once in office. It is understood that meetings between the fund’s management and Treasurer Joe Hockey failed to change his stance.
Fairfax Media sought comment from Mr Hockey’s office without success.
Early success
The CEFC defended its performance, noting it had been able to mobilise $2.2 billion of total investment from its own $536 million commitment since formally beginning operations in July.
Its demise will also remove one major potential source of carbon abatement under the Abbott government’s direct action emissions reduction plans: “If the CEFC invested $10 billion over the next four to five years in a like portfolio mix of projects [to its current portfolio], this could theoretically achieve 64 million tonnes of carbon dioxide equivalent of emissions reductions in the year 2020, which represents about half of the total required to meet the 2020 abatement target.”
The clean-energy sector will also suffer a “significant impact” if the fund is scrapped, the CEFC said.
“Some worthy projects may eventually succeed in securing finance, possibly after delay, and possibly at [a] higher cost than achievable in a deeper contested market with greater liquidity,” the fund said. “Some worthy projects will not, and they will be lost to the economy.”
The submission also addresses some of the Coalition’s criticisms of the fund, such as the claim that it was “crowding out” other commercial entities in the market.
“The CEFC has achieved private sector leverage of $2.90 for every $1 the CEFC has invested. As such, we are demonstrably crowding in – not crowding out - market finance.”
Nor is the CEFC a “giant green hedge fund”, with no money invested in hedging, derivatives or guarantees, the fund said in its submission.
