The context and status of transition industries

Decarbonisation is rapidly expanding beyond the power sector into transport, built environment, industry and food production. Australia faces elevated transition risk as a major energy exporter, yet is well positioned to develop new transition-related industries. It has historically struggled to allocate significant capital to transition, evidenced by its relatively emissions-intensive industry, exports and investment markets.

The challenge of funding transition in Australia

Institutional investors find few attractive transition investment opportunities in Australia. The ASX 200 emissions intensity of 420 tCO2e/$m of revenue compares unfavourably with 324 tCO2e/$m for the S&P 500 and 112 tCO2e/$m for the FTSE 250 (p.7), and none of the world’s 100 largest clean energy businesses originate from Australia (p.7). Since early 2017, Europe recorded more than 2,000 M&A and commercial debt transactions in large renewable energy infrastructure, compared to fewer than 100 in Australia over the same period (p.7).

Policy uncertainty has contributed to a capital gap, limiting the pipeline of fundable transition businesses and assets.

Looking abroad for successful policy approaches

The report examines policy settings in California, Denmark, the Netherlands, South Korea and Germany, selected using outcomes-based metrics including venture capital flows, demonstration projects, listed clean energy company value and corporate patenting activity. A transition policy framework categorises mechanisms as resource push, market pull and enabling conditions.

Key insights from successful jurisdictions

All five jurisdictions feature durable, non-partisan policy; a balance of push and pull mechanisms; clear industrial development priorities; significant at-risk public R&D funding; and strong enabling environments. All have effective carbon constraints or pricing in place.

Notable examples include California’s energy R&D programs mobilising over US$200 million annually (p.22); the Netherlands’ Invest-NL deploying €457m in committed capital in 2020 and 2021, with half of all venture capital in the Netherlands related to a government entity (p.22–23); Germany’s 7th Energy Research Programme with €6.4 billion in available funding (p.25); and Denmark’s corporate carbon tax set to reach US$159 per tonne by 2030 (p.40).

Shortcomings in Australia’s policy landscape

Australia’s climate policy has been highly partisan, producing significant uncertainty. Key gaps include: a shortage of demand-creation mechanisms; no large-scale funding for early-stage innovation; a lack of clear industrial development priorities; and dispersed, uncoordinated innovation infrastructure. ARENA has provided AU$1.96bn of funding across 632 projects (p.28) and the CEFC has committed AU$18.3bn (p.28), yet both focus primarily on near-commercial technologies, contrasting with higher-risk approaches observed in comparable jurisdictions.

Which approaches should Australia consider?

The report recommends durable policy underpinned by near-term industrial planning. Key recommendations include: strengthening the Safeguard Mechanism with expanded coverage and a more ambitious ACCU price growth curve, noting the current government ACCU price cap is $75 (p.33); establishing a national industrial strategy with clearly identified priority sectors supported by five-year development plans; repositioning the CEFC and ARENA with higher risk tolerance and fewer administrative overheads; and federally coordinating regional development zones to avoid value-destructive state competition.

Industrial development plans should be closely linked to trade strategy. Australia captured only 0.53% of total lithium-ion battery value chain market value in 2018 (p.36), and fossil fuel sales represent 24% of export value (p.35), highlighting significant opportunities to develop value-added products in areas such as green steel, aluminium, critical minerals and agriculture.