Can the government tell its clean energy finance body what to invest in? Recent news that the Clean Energy Finance Corporation will be banned from investing in wind farms and small-scale solar suggest that the government is trying to do just that.

However a closer look at the law suggests the government may have breached its obligations under the corporation’s legislation.

On Saturday a Fairfax report revealed that the government had issued a draft direction for the A$10 billion Clean Energy Finance Corporation to invest no further in wind. It was later revealed that the direction also included small-scale solar. Instead, the corporation will focus on new and emerging technologies, including large-scale solar and storage, geothermal, and wave energy.

The Coalition government has previously tried to abolish the corporation. Since 2013 the corporation has invested over A$900 million in the clean energy industry, with around a quarter going to wind energy.

The decision to explicitly exclude wind contravenes the original purpose of the Clean Energy Corporation which, when set up by the Gillard government, was to promote capital investment in a range of different forms of renewable energy.

Two of the most successful and important forms of renewable energy in Australia are wind and solar. These two industries are absolutely crucial for future climate change mitigation and adaptation.

If enforceable, the investment mandate will have strong ramifications for the wind industry, which was reportedly anticipating an investment of A$8.7 billion in wind power over the next five years. To date, the Clean Energy Finance Corporation has invested approximately A$300 million in wind projects and this has helped the industry enormously, particularly given recent reductions to the Renewable Energy Target.

What power does the government have?

Arguably, the government has breached its obligations under the Clean Energy Finance Corporation Act 2012.

Section 64 of the act allows the ministers to give the corporation “directions” about how the corporation should invest. These directions are collectively known as the “investment mandate”.

In providing direction within an investment mandate, the Ministers are explicitly required consider the object of the Act: to facilitate increased flows of finance into “the clean energy sector”. There is no explicit exclusion of wind within the definition of the “clean energy sector” and clearly any such exclusion would be nonsensical given that wind is a key form of clean energy in the modern world.

The investment mandate issued by the Ministers has the power to set out broad policies that include: matters relevant to risk and return, what constitutes clean energy that the corporation can invest in, the type of investments that the corporation can authorise, and other broad operational matters.

What power doesn’t the government have?

There is, however, a significant and explicit limitation on the investment mandate which may be issued by the Ministers.

This is expressly set out in section 65 of the act. A direction cannot be made which has the effect, or which is likely to have the effect, of requiring the Board of the corporation not to make a particular investment that would otherwise be authorised. Nor can the direction be to make an investment that is inconsistent with the act.

The reasoning underlying the section 65 limitation is that the purpose of the investment mandate is only to provide broad guidance and direction for the corporation. The corporation itself must exercise its own discretionary power when choosing what to invest in. This power should not be usurped by the ministers via an investment mandate. Any such attempt constitutes a direct contravention of the framework and provisions of the legislation.

Hence, the act does not allow the ministers, through the investment mandate, to issue a qualified, prohibitory direction impeding the legitimate scope of the corporation’s legislated investment authority.

The investment mandate was devised with the aim of providing investment direction for the clean energy sector. The decision to invest must lie, ultimately, with the corporation.

Wind is a legitimate and important form of clean energy. An investment mandate that seeks to excludes investment in wind energy undermines the authorised powers of the corporation as set out in the legislation.