Australia's NRF to Allow Investments in Green Projects That May Incur Losses
Australia's $15 billion National Reconstruction Fund (NRF) will now permit investments in green projects that may incur losses, following new rules announced by Industry Minister Tim Ayres. The NRF, established in 2023, has previously faced criticism for its slow pace of investment in green initiatives. Some major investors had argued that a reluctance to invest in riskier projects hindered private investment.
Changes to Investment Strategy
Previously, emissions-reducing projects were required to achieve a return 2-3% above the cost of borrowing. This requirement has now been relaxed.
A new $5 billion sub-fund, specifically for green projects, will now allow returns of 1% below the cost of borrowing. This change means that investments in these particular projects can now make a loss.
Minister Ayres stated that these changes enable the fund to undertake greater risk than commercial finance.
The aim is to assist Australian industry in adopting technologies that reduce industrial emissions and attract private capital.
The government views this as a "vote of confidence" in the NRF's investment decisions, with the new rate of return serving as a minimum.
Background and Rationale
The government's more assertive approach to industrial policy is influenced by several pressures on Australian manufacturing. These include substantial subsidies provided by other countries (such as China), high domestic industrial power prices, and global trade tensions.
The government seeks to intervene more directly in heavy industries, a strategy that has included direct financial assistance in some instances.
Opposition and Expert Commentary
Manager of Opposition Business Alex Hawke criticized the rule changes.
Mr. Hawke stated that the government is "explicitly directing the NRF to back 'losers'".
He warned that loosening the rules could contribute to inflation, describing it as "reckless, inflationary spending" that gambles on investments unlikely to yield a return. He also expressed concerns that the fund's