Accelerating foreign investment in Australia’s energy transition: a snapshot

20 Mar 2024
2 minutes
A new report explores the emergence of a new attitude of exceptionalism in Australian policy, regulatory and investment settings, which aim to facilitate the speedy development of energy transition infrastructure. It focuses on the perspectives of global investors and businesses assessing these opportunities in the Australian market.

"Net zero exceptionalism" describes the special case made by Australian governments, regulators and industry to support or expedite decisions that will enable energy transition and decarbonisation projects. In the past 12 months, this new attitude has facilitated new tranches of funding, incentivised private investment, enabled regulatory approvals and given rise to policies that lag in other sectors of the economy. Net zero exceptionalism has seen emissions reduction trump other investment considerations like competition.

At a time when capital and supply constraints are thwarting Australian infrastructure projects, making the case for net zero exceptionalism is increasingly important to mobilise the international capital and resources needed to accelerate the country’s energy transition.

This shift should be good news for investors looking for net zero opportunities in Australia. It indicates a progression from nebulous targets and promises to tangible policy implementation designed to create an investment-enabling environment on the ground.

The huge volume of global private capital earmarked for energy transition opportunities in an otherwise dour fundraising market is itself an iteration of net zero exceptionalism.

Despite being ready to deploy capital, international investors and developers face barriers to closing energy transition deals in Australia that do not hamper domestic investors. For some, Australia’s Foreign Direct Investment pendulum has swung too far against them. Yet, at the same time, others see the path to final investment decisions (FID) being smoothed by new Commonwealth and State initiatives.

Either way, the debate about funding Australia’s energy transition is often preoccupied with domestic concerns. Government policies, targets, announcements and spending promises are coming thick and fast. Yet, their impact on investor thinking in a global market, where every economy is racing to decarbonise at the same time, receives far less attention.

A new report by Clayton Utz in partnership with The Action Exchange explores the convergence of these trends, examining the impact of net zero exceptionalist market signals on international private capital decision-making and the investment process into Australia. It examines how the energy transition is changing the relationship between public and private infrastructure funders, and argues that meeting Australia’s net zero targets depends on ensuring today’s exceptionalism is here to stay for the long term.

Key findings

The energy transition is a bright spot in a tough global investment environment. Decarbonisation-related investments are holding strong in the face of higher capital costs and geopolitical uncertainty, yet in Australia, capital deployment into decarbonisation opportunities is nevertheless insufficient.

Emerging net zero exceptionalism is good news for international capital. Australian policymakers, regulators and industry are rapidly shifting their actions to create an enabling environment for private capital investment into Australia’s energy transition.

Investing in Australia isn’t without challenges. Foreign investors face hurdles to deploying capital in Australia, but developing a strong understanding of Australia’s energy transition landscape can help.

Australia has an opportunity to learn from other countries in the same boat. Australia is not unique in struggling with foreign investment rules, supply chain constraints, higher capital costs and skilled labour shortages. These factors hamper energy transition efforts globally. But applying net zero exceptionalist approaches to these areas too could help Australia compete.

The transition is only just beginning. Australia is ramping up financial and policy support for the transition and investors can expect a clearer path to realising returns.

Regulators care about climate, too. Investment approvals are no longer only decided on the grounds of security and competition.

No time to waste. Stakeholder opposition to new infrastructure projects is on the rise, but streamlining approvals will put the transition on track.

The energy transition is changing public-private partnerships. Australia has several government-sponsored programs, including the Clean Energy Finance Corporation – the world’s largest green bank – that are successfully incentivising private investment by providing up-front capital and reducing risk.

View and download our report

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.