EP.267 – Matt Kean on Australia’s Energy Transition, Policy Reform & Climate Leadership

Welcome to Energy Unplugged, the go-to podcast addressing the global energy transition. I'm Hugo Batten, managing director of Aurora in APAC. We're delighted to be joined by the Honourable Matt Keane today. Matt's had an extremely distinguished career. He's currently chair of the Climate Change Authority here in Australia. He's the director of Willamay Capital, an adjunct professor at the University of Technology. Siddi, and perhaps most famously a former minister in the New South Wales Government from 2017 to 2024, with roles including Energy Minister and Treasurer. Matt, welcome to Energy Unplugged. Thank you for having me here, Hugo. It's terrific to be here with my favourite modelers, and the ones I've relied on. Importantly for some of the biggest public policy changes in not only the state of New South Wales history, but Australia's energy history. Absolutely. We're going to get into the weeds of that. We're also joined today by James Ha, Aurora's head of research in APAC. Welcome, James. Hey, Hugo. It's great to be back. So Matt, as you just said, we first met when you were kicking off the design for the New South Wales Road map. And I think this was a real inflection point in recent Australian energy and climate history. It was the first, I think, really coherent, integrated plan to decarbonise a state's power system that wound up getting bipartisan support. For our overseas listeners, can you just tell the story of the road map and just like the kind of core 10-pole bits of the policy? Yeah, sure. Thanks, Hugo, and for those playing along outside of New South Wales, effectively our energy system in the largest, I guess, economy, state economy in Australia has been underpinned by thermal coal for generations. I became the energy minister in 2019, and the first briefing I had from the energy secretary was that Minister, welcome to the role. In the next 10 years, four or five coal-fire power stations will be offline. And there's no mechanism to replace them. So good luck. So that was my welcome to the portfolio. So what we did was we set about building a plan to replace exiting capacity with new capacity. And that road map that you referred to as a 20-year plan, released in 2020, that supports the private sector to deliver at least 12 gigawatts of new renewable electricity generation, such as wind and solar, and two gigawatts of long-geration storage, such as pumped hydro and batteries. At the time, we envisaged this would involve more than $77 billion of private sector investment in New South Wales. So we were leading into private capital and private enterprise to deliver the modernisation of our electricity grid, rather than using the government's balance sheet. And the New South Wales government has said that it has enough projects currently in the works to deliver more than two-thirds of the state's 2030 renewable energy generation goal. So the water type of super-battery project, which is the largest battery in New South Wales, it's an 850 megawatt capacity project. And in addition, almost 1.7 gigawatt hours began partial operation in August 2025. So that policy framework provided the certainty, which is now seeing the investment and the delivery of that infrastructure. So the proofs in the pudding, good policy, leads to good outcomes. Yeah, and as I said, I just think it was the first integrated attempt to think holistically about renewables plus firming plus transmission. So the building of these raises and then dedicated transmission, that stage we didn't fully have kind of access right schemes worked out on that level of detail, but all the major pieces were there and the timings were coherent and coordinated. So I think it really was quite unique in that regard. Yeah, well, I mean, you can't just have renewables, you need to unlock the renewables, but they need to be reliable. And that's why you need to coordinate the renewables with storage and firming and transmission. You can't do one without the other. So we put in place a suite of policies that would build the coordinated modern grid to provide reliable electricity that was also cheek and clean to set new samples and indeed Australia up for stronger and more prosperous future. In the five or so years since the road map's been launched, maybe it's slightly longer than that. What has subsequently surprised you? I think you're totally right to say the big bits of the policy have been a success. The capacity has been delivered all this line of sight to delivery, but there has been stuff that certainly, you know, we as the model is on the project didn't fully foresee. For example, the increase in wind and transmission costs, what surprised you over the last five years? And would you have changed? Would that have changed the way you did certain things as you were designing the road map? Well, the road map was always meant to be a living document. So it was always envisaged that it would be an evolving policy to meet the challenges and the opportunities that come with new technologies or delivery risks, a whole range of things. So I guess when we legislated this in 2020, we didn't foresee COVID. That had a big impact on costs and supply chains, particularly in the Australian market that was competing against other markets that were trying to do the same thing at the same time. You know, like I know the Queensland Energy Road map, for example, which mapped out quite a different path for that state reported that onshore wind energy prices had jumped 50 percent since 2020 because of supply chain issues and other factors. But you know, on the other hand, large-scale solar and batteries has dropped by about 22 percent according to Queensland. So some might be seeing even bigger price falls than that. And most analysts expect the solar and storage to keep getting cheaper for some time to come. Of course, over serious issues such as Russia's invasion of Ukraine sent fossil fuel energy prices soaring. At least with renewables, the energy source is effectively free and you don't have to have the local pollution or extended supply chains through the unstable regions to worry about. So I guess there are some of the things that we didn't necessarily foresee in 2020. But again, looking back at it now, did we do the right thing? Absolutely, we did. And it stood the test of time. There's always this debate, particularly in kind of nerdy electricity market circles. And if you listen to this podcast, you probably are in those circles where there's this tension between the name had historically been this very volatile wholesale-only market with kind of contracts and derivatives overlaid to provide, you know, some degree of investment certainty. So you had that. And then when the roadmap came along, it was portrayed by some as the kind of end of the name and a return to central planning. It kind of feels like the intellectual argument has been won in the sense that the federal government has certainly followed suit to new South Wales with its capacity investment scheme. You're seeing the vicks with offshore Queensland's always had, you know, slightly more state ownership, a slightly different model there. You know, when you were thinking about this, just as it kind of at a high level economic level, you know, leave it to the markets versus slightly more guardrails on the transition, what were the arguments that you felt were kind of most powerful? No, no, no, we need to go and execute on this roadmap. And do you feel like you've kind of won the intellectual argument over the last five years? Well, I was unfocused on winning intellectual arguments, so I was focused on delivering real tangible outcomes. And in theory, if you just left it to the market, you were just going to get an oversupply sort of solar, for example. And that, you know, that has its benefits, but the market needed some guidance to deliver a firming, transmission, storage and things that complemented that cheap abundant set of renewable. So I think that the government has an important role to send the right signals and direction of travel. And that's what we tried to do to give investors confidence to come and play in the Australian markets. And I think also, you know, we were developing hybrid sort of outcomes, and what I mean is we need to know that we know that renewables are the cheaper source of electricity, however alive on a market system alone isn't enough, because developers of new generation capacity would only get the price signal to an invest once coal plant had exited, but it's too late. So we needed to have the replacement capacity ready when the coal plants retire, such as such plants near their end of date, their owners aren't going to be spending a lot on maintaining them, so they will probably become less reliable, or we mostly individual units get shut before the whole plant, as was the case with Ladelle in the Hunter Valley, for example. So there's definitely a role for government to provide support. We recognize that when we did the road knock, that thesis, or that argument, as you framed it, I think has been proven to be correct, that government sort of needed to encourage to build out of transmission to passly or therning or storage. We did that through the renewable energy zones, and I think the Commonwealth capacity investments game recognizes there is that need to provide minimum returns to get financial signals, and a take up of the tenders for them has been very strong. What happens post 2030 is of course the subject of Tim Nelson's sort of review, they're looking at that impact in the wholesale market. So you might say the debate is not entirely settled, Hugo, but there is definitely a role for government intervention, I'm a free market liberal, so my preference is more markets and private capital and private enterprise rather than more, but I definitely think there is a role for government in this process. Yeah, and I think even the way the contracts were designed, Brad Hopkins who's been on the podcast was at the heart of that, wasn't your standard European fixed price CFD forever. There was still ceiling and floor terms, but also still a reasonable amount of risk sat with the developer in terms of good risk and negative price risk and some of those things as well. So there's a real attempt I think to balance that. Again, this is a challenge everywhere, but one of the central planks of the roadmap was Renewable Energy Zone, as you just mentioned. So very specific regions where renewable capacity could be built in an orderly way and dedicated transmission, which would get scale efficiencies could be built to that renewable sides. Those, some of the cost and timing of those having increased as they have everywhere in the world. Do you think still think the REZ model is the right one? How do you see that playing out, I suppose? I think it is the right one. I mean, you don't want transmission lines running all over the country, the social license challenges are hard enough as it is, but secondly, the cost of building transmission lines is an almost so you want to have a scale model, hence the renewable energy tones. So we try to focus them on where the best renewable resources were. I think like, as per my previous answer, the technology is evolving, our markets are evolving, and you'd expect policy to be recalibrated from time to time to ensure that it's fit for purpose. And that's true both at the state and the federal level. So, you know, for example, distribute energy solutions may become, do more as the heavy lifting as the technologies change and get cheaper as opposed to what we envisaged when we did the roadmap in 2020. So I think again, the roadmap or the CS or any of these transition schemes, they need to evolve to meet the market and to respond to the changes in technologies and also the politics as well. Yeah. Maybe one final question on New South Wales before we turn to James and the Climate Change Authority. You wrote a great article in the Australian Financial Review, I think a week ago on Tomago, which is ten percent, sorry, and for those of you who aren't familiar with it, it's a big aluminium smelter in New South Wales, it's about ten percent of demand. And the economics of Tomago, certainly challenging at the moment as electricity costs have increased a bit. What's your take on what's going to happen to Tomago, basically, you know, it just seems to be a tough position and it will be a shock to the New South Wales system, I think, if Tomago exits, you know, with relatively little notice now, they're talking about closing it down by 2028, I think. Well, the point that I was trying to make for your listeners should, what they should understand is that aluminium smelting is basically a production of solar electricity, about 40 percent of the cost is actually electricity. Anyway, most smelters anywhere got early support to get established using cheap electricity. In Australia, for instance, we offered low cost power from state-owned coal mines and coal-fired power stations, and we did that sort of decades ago. Right now, the federal government and the New South Wales state government are engaged in discussing the future of rear-tintose Tomago smelting the new castle, which is about two hours north of Sydney. It was built in the 1980s, and it's low price electricity contracts run out at the end of 2028, and after that date, its power price will jump unless the governments and rear-tintose come up with an alternative plan. The important point is, you know, that spikes in electricity prices are coming and it can't be blamed on a renewable electricity. If Australia didn't have a single solar panel or wind turbine, Tomago is facing a much bigger power bill, and that's largely the fault of fossil fuels that have gone through the roof. You know, we talked earlier about Russia's invasion of Ukraine, but a lot of our fossil fuels are linked to the international spot price, and that has jumped dramatically. So what we've seen is that Rio has shown that it can power an aluminium spelt or an Australian based on renewable energy. It's what they have done in their buoyant facility in Gladstone, in Queensland. China is only a bit smaller than Tomago in terms of annual output, so we'll see in the next few weeks and months whether Rio can secure a similar arrangement for Tomago, but the problem is not too much renewable energy in the grid. It's actually not having enough. After all, solar and wind back by storage is the cheapest form of new generation. Matt, it's a great point, and one that was recently confirmed to the paper that Paul Sims has put out looking at the counterfactual of this transition, and kind of updated some work that's been done in recent years to analyze, would we be cheaper with a coal or a noble-led transition, and the simple fact of the matter is, as you've said, having to replace coal-fired power station capacity as it goes, even if we did that with coal, we wouldn't be bringing electricity prices down. Perhaps we could pivot to your role as Chair of Climate Change Authority, and just to set the scene, earlier this year, the CCA advised the federal government on its 2035 emissions targets, and recommended a range of 62-70% reduction compared to 2005 levels, and that's quite a bit higher than the government's current target of delivering 43% reduction by 2030. So for our overseas listeners again, could you describe the role of the CCA, how you guys landed on your recommendations, and how they were then used by the current government in order to inform their targets? Yeah, sure. I mean, the authority was set up in 2011 by the federal government as a body to provide independent advice on Australia's climate targets and other climate policies. I currently serve as the Chair of the Authority with eight other members, so we recently provided that 2035 NDC advice, so the nationally determined contribution was an Australia's required to provide under the Paris agreement, and we provided that to the federal government, and they accepted that advice. Effectively, we're going to have to match the emissions reductions, and then some that Australia has already achieved over the past two decades in just one decade between now and 2035. So there are similar agencies in countries such as the UK and New Zealand. Indeed, there are about 20 nations globally that are members of the International Climate Council's network, and we would expect that that number will grow, and if the CCA can help new entrants, we'd be very happy to do so. Now, as for the 2035 advice, we took a multi-pronged approach to develop a target that we consider is in line with the climate science. To get that goal, we sought expert modeling on the economy from the CSIRO, that's our main science agency here in Australia, but one that also has long-standing and deep capabilities in economic modeling. We also looked at each sector of the economy and sought to ground truth the numbers based on extensive consultation and submissions for the public and industry groups. In fact, we had over 500 submissions and conducted over 500 stakeholder meetings and consultations. So there might be some breakthrough technology in the cement industry, for instance, that could cut a mission sharply, but we weren't going to gamble on that happy outcome, being a reality over the next decade. That's why we did this ground-truthing sort of exercise to say what was real, what assumptions were not. So pulling it all together meant we were confident that we'd provided an ambitious and achievable 2035 target and a detailed and navigable route to achieve it, and it is ambitious. In per capita terms, we're looking at 76 to 81% reduction versus 2,000 to 5 levels. We also think that communities in some part of the country say the hunter or the retro values that have size and more fossil fuel industries will face more adjustment than others, but let's make the direction of travel very clear and encourage where we tend the emergence of the industries of the future. As the world decarbonises, as indeed it must, we would have little choice in the transition anyway. So nostalgia is heartwarming, but it doesn't put food on the table. The choice we have is to recognise the future, prepare for it, and shape it in ways that maximise the benefits for Australians, and that's what really underpinned our advice. There will be a need for green steel, green iron, green ammonia, and even green silicon. It's created using low emissions energy, and Australia has the rich renewable energy resources above the ground and a proverbial periodic table of critical minerals below it. So our natures blessings are down to full, but we need to grab those opportunities if we're to convert that down to into wealth, and that was one of the things that focused our minds and underpinned the advice that we provided to the government, which I'm very close to say that they accepted. Awesome, and that does sound like a very appealing long-term vision for the country. Zooming into the next ten years, you mentioned the scale of ambition, so we've delivered about 28 per cent emissions reduction so far compared to 2005 levels, we've now committed to at least 62 per cent over the next ten years, so we're going to do what we've done twice as much. We've done what we've done, and a bit more over half the time, but some of the lowest hanging fruit in terms of abatement has already been picked, so for example, we've reduced the amount of deforestation we were doing in Australia, the renewable electricity rollout is now 40 per cent of our electricity generation, but there's challenges ahead. When we look at the sectors of the economy from which emissions reductions are forecasted or supposed to be delivered according to the advice, a lot of it is coming from electricity with much smaller shares from things like transport or industry, agriculture, resources, and you mentioned not wanting to rely too much on breakthrough technologies over the next decade, for example, in cement. But could you just talk a little bit to how you guys determined that electricity is the sector that should do most of the heavy lifting to 2035? Yeah, I mean, again, I should say that the authorities' advice was not to recommend a single pathway to cut emissions, but multiple options, so rather provide a scriptive pathways. We were suggesting plausible routes with the decarbonisation of the power grid, as you said, the main thoroughfare, if you like. So that process would enable other sectors to decarbonise because we do expect electrification together pace, and when it does, it's important that generation source the powers that is renewable. So governments can help accelerate that process, but they can also slow it. So we've seen, for example, the federal government's new vehicle efficiency standards begin to take effect, nudging the automakers to provide less polluting models. On the other hand, there are calls from some commentators for governance to use road user charges for EVs. Depending on how that process is handled, you can generate headwinds rather than tailwinds to the decarbonisation of transport. So that sector could well be the largest source of carbon emissions by the end of the decade, if we get the electricity and energy sector right. So you can see why bending that particular curve is going to be challenging, ideally bending to pressure is all one way. So I use that as an example of one sector that will begin to contribute to emissions reductions, but we may need more time here than say for the grid. Farming is similar. We've got to send more electric machinery, include tractors, and there will be breakthroughs in animal feed that lowers livestock, methane emissions. But we recognise that market incentives are not yet there for many farmers to make that switch. In environment, that's another area where we expect more emissions reductions by improving energy efficiency. Not only cuts energy bills, but can deliver more comfortable homes and offices. We should be wary about pressures and a laid improvement of construction codes because these assets tend to be long lives. So there's obviously an urgency to build more homes, but we should be careful that we don't lock in future owners to unnecessarily address energy bills because of poor construction standards. And as one of the largest source of emissions too, we should be looking to limit carbon pollution from buildings anywhere that we can. On the whole though, as you said, energy and electricity is where most of the action is. And the reason being is because today we have the technologies available to us at a price point that is cheaper than their fossil fuel equivalent. So we should be getting on a rolling out data scale and it just so it turns out we need to replace our aging electricity generation infrastructure anyway. So that's happening at a time where we need to modernise our electricity system anyway. The technology is now available that can enable us to modernise our electricity system rolling out at scale that delivers cheaper electricity, more reliable electricity that also happens to be clean electricity. So from a price per carbon, per ton of carbon abatement, electricity and action just made economic sense. So we should be going hard there and that gets you about 60% of your total emissions reduction on that 2035 number. Nice, a little reference to the macro curve there. So you mentioned a few of the other sectors in that. Perhaps a question on politics and machinery of governments, given that there does have to be action not just within electricity, so it's not just the energy and climate change ministers responsibility. Do you think that the federal and state governments of Australia are well placed to manage this whole of economy transition or do you think that there should be a sharper focus from ministers in other portfolios, whether it be transport or planning or others, to unblock decarbonisation within their sectors? I think that it's important that governments understand we need economy-wide efforts to cut emissions. If one sector is able to lobby its way to a slower pace of decarbonisation, the owners will form more heavily on other sectors and that's not fair. So each sector should be taking this effort seriously. Fortunately, many of the new technologies that approach this favor are low carbon switch. So taking that seems to be the easy way out and delaying decarbonisation may well back far in their businesses. But certainly my lesson from New South Wales politics is that central agencies have a very important role to play in this, but we can't just rely on them. We need a whole of government approach. We need a whole of community approach. We need a whole of business approach if we're going to meet the challenge of our time, which is reducing our carbon footprint. We're doing so in a way that continues to grow our prosperity and living standards. And we can do that. Awesome. One final question. There's been some commentary around Australia's targets in the context of what other countries are doing in their respective levels of ambition. And some of this is real. So for example, in China, we've seen material reductions in the cost of solar and batteries because of the scale-up and manufacturing there. And that's spilling over into other countries around the world. Some of it is more to do with local politics. So there's going to be ebbs and flows in support for climate transition as we go through this energy transition. We're seeing that at the moment in the US with Trump. We're seeing it in Europe to a lesser extent where there's just a lot more focus now on the cost of the transition after the 2022 energy crisis. So how did the CCA factor in the wider global context and what other nations are doing into then deciding what targets to recommend for Australia? Well, we did look closely at overseas developments, including the reelection of the Trump administration and how they might affect what's feasible for Australia. We can't rule out future russians, of course. But at this stage, we can be unwinding if the Biden administration's inflation reduction act is likely to provide Australia with the opportunities to attract displaced capital capability and innovation to accelerate its own transition and secure a competitive edge. So we should be grabbing that opportunity with both hands. Australia may be able to lure some of the clean tech capital would have landed in the US. And we might be able to lure back some of the engineers and other smart people that had been encouraged to head eastwards across the Pacific. So we do look at developments elsewhere too. Europe may be wavering and be it on its net zero path, but that's because they've faced near term disruptions in energy markets after Russia's invasion of Ukraine. These countries know they have to lower their dependence on Russian fossil fuels, but it does take time to build up alternatives. So what a component though, the price falls of solar power and storage will be maintained and even extended in the years to come. Indeed, such changes give the world a chance to decalbonize and maintain solid economic growth. China deserves great credit for a lot of that expansion. Some of them are based on technologies developed right here in Australia, particularly out of the University of New South Wales. So the technological tide is not for turning. So smart businesses and governments should be working out how to ride that tide, not wave at it. I mean, King Knoot might, hoating that it'll go away. Yes, we are watching global shifts closely as we should continue to do. And we should be acting in Australia's national interest, not acting for vested interests like I see some in the political class that are advocating we walk away from that zero. I currently try to do brilliant. Maddy, a great overview of I suppose what the CCA has been up to, conscious of time and know you have a hard stop. So perhaps a couple of rapid fire questions just to wrap things up. Well, it's one view or hypothesis you have on the energy transition that you think are odds with kind of the general consensus or wisdom. Well, I think it's time to do it to Australia's dual tax credit that subsidises diesel use for particularly for miners. By one measure, the cost of the federal budget of offering rebates for those giant mining trucks that you may have seen in various ads for miners, about $4.5 billion a year. I think we can put that money to a lot better use. We could be telling our biggest miners that we will save the money by installing fast charging facilities for electric powered mining trucks. And if necessary, even offer rebates for the introduction of those trucks themselves, we offer miners subsidies from those deverted funds to help them electrify mining vehicles that they use in underground mines. It's safe to come miners since they don't have to breathe the diesel fuels. And it helps decarbonise the mining industry overall. So what's not to lie? The technology's way near to here. We just need to get on with it. Yeah. And then final question. Who do you read or listen to in the energy space that you think is always good for provoking relevant to your work in the CCA? Is there anyone who springs to mind? Yes, apart from your podcast, which is terrific. So I find I can always learn a lot from let me sum up and shift key. There are some also outstanding local energy reporters in particular, renew economy. It's considerably of good value. And shout out to dials and David Leach, because I actually started listening to them when I was the energy minister. And that just became a staple when I was at a walk or just to find out what people are saying, what the industry's up to. Just a little tidbit side pick up and I'd go back to the department and say, what about this? What about that? Just help me test ideas. What about new energy finance next to it when it comes to global markets? And we've seen lately ember emerges, the handy tracker for the global shift of fossil fuels. And do I add the self publishing space is also flourishing by a soundtrack of LinkedIn. But if you can also spend a cost of a cup of coffee and a subscribe to support professional journalists wherever they are in this year of bad faith actors, we need to have the back here for really good ones like you guys. No, that's that's a great list. I love to let me sum up guys as well. They're so good when they kind of take a part of paper. The shift key team at Excellent as well. So that that's a great list of recommendations I certainly follow. Matt, thank you so much. You've been extremely generous with your time. I know you're just about to head off to Brazil for cop. So good luck there. All the best and thank you again. Thanks you guys. Thanks for all you doing. Thanks for all the support you gave me as the energy minister. And when I was legislating the biggest renewable energy package in at that stage, the nation's history was the work that Aurora did that really gave me the confidence that we were acting not only in the consumers interest, but in the national interest and very grateful for that good luck with your continued good work. That's extremely kind and a big thank you to James as well. Thanks so much. You go. That was the Honorable Matt King chair of Australia's climate change authority talking to Hugo Patton managing director of Aurora in APAC and James Hart Aurora's head of research in APAC. Thanks for listening to Energy Unplug. Do keep an eye on our podcast feed for more in-depth conversations with senior members of the energy industry. The best way to do this is to follow the podcast via whatever platform you use. [BLANK_AUDIO]