
Fuelling the transition
In November 2024, MUFG hosted its second MUFG N0W conference in Sydney, focusing on the eponymous Alternative Opportunities in the Energy Transition. The 2024 event agenda covered the complexities of transition – including the role that could be played by alternative fuels in Australia and New Zealand, as well as the state of play in transition finance.
Kathryn Lee Senior Staff Writer KANGANEWS
Energy production is Australia’s largest emitting sector, but it is not the only contributor. To reach net zero the country will need to decarbonise a range of areas. At the MUFG N0W conference in Sydney on 13 November – the second in Australia following the inaugural event in 2023 – finance opportunities in harder-to-abate sectors were a keen focus.
Speakers at the event highlighted the scale of the task – but also the opportunities associated with it. MUFG’s head of global corporate and institutional banking, Oceania, Drew Riethmuller, said: “The transition is a monumental task with expenditure anywhere in the order of US$1.6 trillion per annum to get to net zero. It is a significant investment but provides great opportunity for our clients, and for MUFG to support them as they navigate through this period.”
Paul McCartney, chief investment officer, rewiring the nation at Clean Energy Finance Corporation (CEFC), said that to achieve Australia’s legislative commitment to reach net zero by 2050 and emissions 43 per cent below 2005 levels by 2030 will require significant decarbonisation of sectors of the economy that are currently reliant on fossil fuels. The means and method of transition finance is an increasing talking point in the equity and debt markets (see box).
In particular, the MUFG N0W conference explored the status of alternative fuels. A central element of moving swathes of economic activities from the hard-to-abate realm to decarbonisation is the replacement of fossil fuels with low or zero emissions equivalents. An obvious example is personal transportation: removing internal combustion engines from the system and replacing them with electric personal vehicles or mass transit. But alternative fuels also have a huge potential role across the main emitting sectors.
Energy production, transport, agriculture and industrial processes are Australia’s top four sources of emissions. But even the areas where like-for-like replacements are available are not yet in full decarbonisation phase.
For instance, in the transport sector, electric vehicles are contributing to decarbonisation. But take-up has slowed even in the household space, while electrification is more difficult to integrate elsewhere – medium-to-long distance aviation, heavy road, and maritime transport remain mired in the hard-to-abate category. In transport and elsewhere, much faith has been placed in the potential of hydrogen but it is struggling to develop cost-effectiveness (see box).



This does not mean alternative fuels have no current role to play in decarbonisation of more difficult parts of the energy sector, McCartney argued. For instance, he said low-carbon liquid fuels can be rolled out in the short term even if they do not offer a permanent, zero-carbon solution.
In addition to assisting the transport sector, low-carbon liquid fuels can also contribute to decarbonising parts of agriculture, mining and construction. “These sectors are projected to represent close to 20 per cent of Australia’s emissions out to 2030 and will remain reliant on liquid fuels, particularly aviation and diesel, until 2050 and probably beyond,” McCartney said.

MAKING ECONOMICS WORK
Even in a measured transition scenario, economics are inhibiting wide-scale adoption. McCartney noted that low-carbon liquid fuels cost between two and five times as much as the higher-end cost of unabated fossil-fuel equivalents.
Policy may still not be fully aligned with direct decarbonisation, either. It has been suggested, for instance, that it can be more effective for industrial facilities that fall under the Australian government’s safeguard mechanism to buy carbon credits than to increase their take-up of alternative fuels.
The cost equation should improve in line with improving technology and scale growth. The role of finance in this context is primarily as a catalyst – ideally working in conjunction with sound policy to get alternative fuels over the hump of cost challenges.
Fundamentally, Australia still has many of the attributes needed to develop a vibrant domestic alternative fuels industry. McCartney referenced the Commonwealth Scientific and Industrial Research Organisation (CSIRO)’s sustainable aviation liquid fuel roadmap – released in 2023 – which outlines Australia’s advantages in the area.
The CSIRO report cites Australia’s land mass, temperate climates, advanced farming practices, access to renewable feedstocks, established supply chains and renewable energy production as potential assets. The country could support a domestic sustainable aviation fuel sector and renewable diesel industry, McCartney argued. “Through a combination of feed stocks and technologies, local feed stocks can meet a large and growing proportion of Australia’s jet fuel demand,” he told event delegates.
To realise this potential, though, Australia needs to develop domestic refining capacity. For instance, Andrew Bedford, head of MUFG’s Emerging Energy Solutions team in Asia Pacific, noted that Australia’s oil products, tallow and animal fats are exported to Singapore to be refined but could be processed domestically. This could become a missed opportunity as countries and airlines across Asia Pacific and Europe are announcing sustainable aviation fuel (SAF) blending targets.
The European targets are legally binding and will ramp up quickly from 2030 onward. Singapore and South Korea are also planning aviation fuel blends of up to 5 per cent. “The SAF discussion will keep rolling and keep growing. Demand looks strong,” Bedford said.
As it stands, Australia has enough biogenic feedstock to produce 60 per cent of local jet fuel demand and at current projections this could go up to 90 per cent by 2050 as sources continue to grow and hydrogen production ramps up. But this will not happen without concerted action. “There is an urgent need to act in Australia, to maintain our feedstocks and develop domestic processing capability as soon as possible,” McCartney said. “This is why the CEFC is pushing hard to support large-scale low-carbon liquid fuel projects domestically.”
While the landscape is different in New Zealand the same fundamental principles apply: it is about seeking opportunities that work now while continuing to progress toward further transition breakthroughs. Fiona Chan, group treasurer at the Todd Energy Corporation, said the natural gas provider is exploring the role of biogas as an opportunity to use existing infrastructure.
“For a relatively small country, it’s very expensive for all those with current gas assets – whether they be pipelines, generators or otherwise – to suddenly switch. If they did so, hypothetically, we would also have a problem with cost, affordability and grid capacity,” she explained. “Biogas provides an opportunity to use existing, capital intensive infrastructure. New Zealand’s cogeneration plants are large-scale, long-term assets. As an interim measure, we want to make them greener and help with the cost of the overall transition.”




Transition label still a work in progress
Equity and debt markets continue to work their way toward a sound understanding of how capital can best be deployed to deliver good opportunities in transition. The future of labelled debt securities is a central consideration in the debt space.
Green finance has been the mainstay of net zero investment but decarbonising the economy will not be possible through green-labelled financing alone. Financing transition represents the bulk of the decarbonisation capex task but it has yet to find a solid footing in the sustainable finance universe – a situation that has if anything become more challenging as greenwashing risk concerns have grown.
One recent development is the use of labelled transition bonds by the Japanese government. In February 2024, the inaugural Japan Climate Transition Bond came to market. “We have since seen massive issuance in Japan, driven by the Japanese government’s initiative,” noted Augusto King, co-head, debt capital markets Asia Pacific at MUFG Bank.
Success in Japan is yet to spread to the region, however. Promisingly, King said there has been some interest in transition bonds from other governments – including Singapore and Hong Kong – but no concrete plans. “They are thinking about how governments can initiate a framework that is reputable so the private sector can follow,” he said. “Local context will need to be incorporated, but I think Japan has set a good example.”
If the transition label is to find more international circulation, credibility will be crucial – which makes sovereign leadership valuable. King said: “If the government says the framework is right, it reduces the risk that transactions will be accused of cutting corners. Regional regulators need to take an active role in establishing the framework. We think this is coming and MUFG has been consulted by other regulators in the region about what we have done in Japan.”
One of the main drivers of renewed interest in the transition bond label is trepidation surrounding sustainability-linked instruments, King argued. Sustainability-linked loans and bonds are challenging for some issuers because of reluctance to sign up to public scrutiny of performance metrics that could be judged to be insufficiently ambitious – including in retrospect. “KPIs that are viewed as reasonable today may be viewed as too liberal two or three years down the road. This is creating a challenge for some corporate treasurers and CFOs,” King explained.

FINANCE ROADMAP
There is not much room for debt financing in such a nascent industry, but Bedford is confident bankable opportunities will emerge. Alternative fuels will be among the focuses of MUFG’s Emerging Energy Solutions team, which the bank introduced in 2024.
Since 2020, MUFG has financed or arranged A$82 billion (US$54.7 billion) of sustainable debt in the Oceania region – based on the Australian dollar equivalent principal face value of debt facilities and transactions – and been mandated with 13 environmental, social and governance (ESG) coordinator roles. “Trusted adviser status is one of the clearest indicators a company can give a bank,” noted Richard Yorke, MUFG’s head of global corporate and investment banking, Asia-Pacific.
In May 2024, MUFG raised its sustainable financing target to ¥100 trillion (US$680 billion) from ¥35 trillion – and Australia’s region will be an important target of this financing. “Oceania is poised to take a leadership role in the region by leveraging its strength in resource provision, financing, technical expertise and policy development,” Yorke added. “MUFG’s climate strategy will be instrumental in driving energy transition and decarbonisation efforts in Oceania and across Asia.”
The conversation has moved beyond pure green finance, though, and MUFG is moving with it. Financing the transition is an increasing focus, and the Emerging Energy Solutions team will be a key part of MUFG’s contribution.
The bank’s plan is to focus on a range of technologies, including alternative fuels and hydrogen. “We want to finance lots of projects across Australia and New Zealand and we are very excited about the opportunities,” Bedford said.
This new team will play a key role in decarbonising MUFG’s own balance sheet, added Chau Phan-Vu, director, project finance at the bank. She said the goal is net zero financed emissions by 2050, which includes targets across challenging sectors like oil and gas, and cement and steel that align with the Net Zero Banking Alliance.
Elsewhere, Bedford is particularly interested in Australia’s chance to grow a SAF industry – which he says has a better fundamental outlook than first analysis suggests. Projections that SAF will be oversupplied between now and 2030, Bedford said, do not take into account that 15-50 per cent of projects have already not gone ahead. “We try to factor this into the forward view, with the result that we don’t believe there will be enough SAF until at least 2029,” he added.


New refining methods are also emerging, some of which are delivering increasing commercial viability. For instance, MUFG has made an equity investment in LanzaJet – a company that uses low-carbon ethanol to create SAF. “The sugar to alcohol to jet process will be the next wave of SAF,” Bedford said. “LanzaJet has just built the first commercial plant and is currently under commissioning. Give it six months to a year and we should be on a lot safer ground for bankable projects.”
Green hydrogen woes
Australia has ambitions to be a global green hydrogen leader but high-profile project cancellations have brought this vision into question in 2024. The idea of transporting hydrogen to Asia, as panellists at the MUFG N0W event noted, appear to have been parked for cost reasons, and hydrogen’s best use in the medium term is likely to be by businesses that are close to the element’s place of origin.
In 2024, Origin Energy pulled back from the Hunter Valley Hydrogen Hub project while Fortescue Metals Group announced it will place its goal to produce 15 million tonnes of renewable hydrogen annually by 2030 on hold. Paul McCartney, chief investment officer, rewiring the nation at Clean Energy Finance Corporation (CEFC), said the industry has reached “the stage of reality”.
He explained: “Feasibility studies, inflation that has occurred across all markets and is driving up costs, and getting skills into the country have made developers realise how expensive green hydrogen is. A report the CEFC published in 2021 suggested shipping hydrogen offshore is a big ask and may never happen. This is looking more accurate than ever.”
While green hydrogen’s future as an export may be clouded, this does not mean it has no potential. Even projects like t he Hunter Valley hub could find a new future under a change of ownership.
In general, McCartney told delegates at the MUFG event: “Opportunities may still come live – for instance, very big players are asking ARENA [Australian Renewable Energy Agency] for funding through the Hydrogen Headstart programme to bridge the gap.”
The 2021 CEFC report, the Australian Hydrogen Market Study, identified that some applications are “in the money” but even these have fallen away due to the impact of inflation. “We have a definite price gap,” McCartney concluded.
Without subsidies, this gap means it may be hard to move from the current phase to more widespread use of hydrogen even as cost-effectiveness improves, explained Andrew Bedford, head of MUFG’s Emerging Energy Solutions team in Asia Pacific. At the moment, it is simply too expensive.

NATURAL CAPITAL
Even as policymakers and investors continue to work their way through the process of establishing long-term economic value in the transition, they are also increasingly factoring in a new form of complexity: the role and value of natural capital.
This is a pressing issue. More than half the world’s economic product is moderately or highly dependent on nature and its services, and advocates insist that halting nature degradation needs to be considered an equal priority with climate change mitigation.
Transforming the energy system will not be enough to achieve net zero on its own. Nature-based investment also needs to increase, noted Shareef Omar, head of ESG finance, Oceania at MUFG. Omar highlighted the importance of natural ecosystems to climate mitigation and adaption – including an urgent need to scale up nature finance significantly. He cited BloombergNEF estimates of a US$1 trillion task between now and 2030.
Even this scale of investment should be a fair trade-off: according to the World Economic Forum, global production derives US$44 trillion in value from nature. Meanwhile, ecosystems are degrading and economic activity is suffering. “A failure to preserve natural capital can have severe consequences for the environment and the economy,” Omar continued. “As ecosystems degrade, essential services such as water purification, carbon sequestration and crop pollination diminish.”
The issue for businesses comes when their operations have a natural capital cost that has not previously been accounted for. For example, to maintain a safe, reliable and resilient power supply Endeavour Energy needs to cut down trees – to build new infrastructure, and to ensure the safety of the community through bushfire management. Colin Crisafulli, general manager, future grid and asset management at Endeavour, emphasised the importance of doing this sustainably.


Net positive gain – for example where more trees are planted than cut down – is an important component of Endeavour’s sustainability strategy, Crisafulli noted. “It requires community engagement and proper analysis from the outset. As such, it is not enough to only consider where the best site is from a technical standpoint. It is about ensuring the best outcome for habitats and aligning with what the local community values.”
Financiers play an enabling role, Omar continued. They not only provide funding but can also offer policy support and engagement. This has already been evident through the energy transition more broadly, but Omar noted that nature is also very much a part of MUFG’s ¥100 trillion sustainable financing target.


Andrew Champion, head of natural capital at QIC, said markets are at the beginning of the journey. A combination of regulatory, social license and consumer pressure, together with growing understanding of the systematic risks of ecosystem loss, has resulted in markets beginning to place a value on biodiversity and its responsible stewardship.
But it will be some time before this is fully recognised in financial reporting and on balance sheets. “There is a lot of catching up to do first in relation to accepted process and protocol,” Champion said. “We need to continue to develop accessible, affordable and transparent ways for enterprises to measure and report on natural capital.”

Increasingly, the market response to natural capital will be driven by a combination of regulated markets – such as Australia’s Nature Repair Market scheme, which is expected to start in 2025 – and reporting mechanisms, Champion argued.
“It should not all be about the regulated markets, which focus on environmental projects and additionality, for carbon and biodiversity. These will take a long time to develop, and the initial response from the private sector in relation to dependencies and impacts will also be critical,” he said

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