Wednesday, 28 October 2009
Carbon Pollution Reduction Scheme Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009 [No. 2]; Australian Climate Change Regulatory Authority Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme (Charges — Customs) Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme (Charges — Excise) Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme (Charges — General) Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2009 [No. 2]; Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009 [No. 2]; Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009 [No. 2]; Carbon Pollution Reduction Scheme Amendment (Household Assistance) Bill 2009 [No. 2]
I move this second reading amendment to the Carbon Pollution Reduction Scheme Bill 2009 [No. 2]:
That all words after “That” be omitted with a view to substituting the following words:“the House:
- believes that the Government’s proposed emissions trading scheme is flawed and in its current form will cost Australian jobs and investment, and simply export rather than reduce global greenhouse gas emissions:
- supports the Coalition in again calling on the Government to defer consideration of this legislation, which will impose the single largest structural change to the Australian economy, until after the Copenhagen Climate Change Summit has concluded in less than 50 days time;
- notes that as the Government remains determined to keep an utterly artificial and self-imposed deadline of this Parliamentary year and as such before the world meets to address the important issue of global action, the Coalition has proposed changes to the Government’s ETS to ensure the following critical matters are addressed:
- that emissions-intensive trade-exposed industries remain on a level playing field with competitors in other advanced economies;
- that agriculture is excluded from the scheme, rather than included after 2015, and farmers have access to agricultural offset credits;
- that the impact of higher electricity prices on small businesses be moderated;
- that the coal industry is required to reduce fugitive emissions as technically feasible, but not be unfairly financially penalised:
- that transitional assistance to coal-fired electricity generators is sufficient to ensure that electricity supply security is maintained and the generators remain viable; and
- that complementary measures such as voluntary action and energy efficiency are encouraged”.
There are varied opinions within the community about the causes and the consequences of climate change but most scientific opinion holds that our planet is warming because of human caused emissions of CO2 and other greenhouse gases. Therefore as leaders around the world have held for many years, starting with Margaret Thatcher nearly 20 years ago, prudence requires that we give the planet the benefit of the doubt and move as a globe to reduce the emission of these greenhouse gases. Most economists and policymakers agree that a well-designed emissions trading scheme is the most economically efficient means of reducing greenhouse gases. That is why in 2007 the Howard government commenced work on an Australian emissions trading scheme. It was based on the Shergold report, the report of the committee chaired by the then permanent head of the Department of the Prime Minister and Cabinet, with other secretaries represented as well as industry. It is why both the coalition and the Labor Party went to the 2007 federal election promising to implement an emissions trading scheme. But it is important to note that whether this emissions trading scheme, or indeed any emissions trading scheme, is effective will depend on its timing and its design—above all its design. It will depend on the availability of low-emission technologies and cost-effective carbon sinks. In other words, an emissions trading scheme is a piece of economic plumbing to be assessed objectively and pragmatically and practically for its effectiveness in reducing emissions without destroying Australian jobs.
Now caps and emissions trading schemes are emerging as a key instrument for emissions abatement in other advanced economies, and obviously we have seen prototypes of the ETS here in Australia already, in New South Wales in particular. The European Union implemented an emissions trading scheme in 2005 and is currently in the process of widening its coverage and greatly increasing the proportion of emissions permits to be auctioned rather than given away. The United States has also been considering a national emissions trading scheme, and there are schemes operating in a number of its states already, with the Waxman-Markey bill already passed by the United States House of Representatives and the Kerry-Boxer-Graham bill going through committees in the Senate.
On 13 August this year the coalition joined with all the other non-Labor senators to vote down the Rudd government’s emissions trading scheme in the form of the Carbon Pollution Reduction Scheme legislation. The reason for our stance was very clear. As it was designed the CPRS was flawed and it would unnecessarily harm Australian exports, jobs and investment. The introduction of the scheme would simply lead to emissions being exported rather than reduced at the global level. This is the key problem that we face in reducing greenhouse gas emissions in Australia. It is unlike other forms of environmental action where there is an immediate local, tangible benefit. Reducing pollution in a river, for example, has an immediate tangible benefit and is not dependent on action anywhere else in the world. What if the only consequence of reducing greenhouse gas emissions in Australia is that the industry which produces them ceases to operate in Australia and operates somewhere else—to give the most graphic example which has been the subject of so much debate?
If the consequence of this scheme is that less coal is mined in Australia and so there are fewer coalminers’ jobs in Australia, less investment in coalmining in Australia, less exports of coal from Australia, less revenues at every level—private sector, public sector—from coalmining in Australia but demand for coal globally remains the same and more coal is mined in Colombia, South Africa or Indonesia then there has been absolutely no benefit at all to the level of global greenhouse gas emissions. In fact, if one assumes that the environmental standards overseas are not as rigorous as they are in Australia or the mine from which the additional coal is produced in Indonesia, for example, is more gassy than a mine in Australia then it may actually be a net increase. So therein lies what Ross Garnaut described as the ‘diabolical problem’ of managing climate change. Nothing will be effective without a global agreement.
We had some discussion in the House yesterday about the recent report, by the House of Representatives Standing Committee on Climate Change, Water, Environment and the Arts, on the impact of rising sea levels and other consequences of climate change on coastal communities. I have looked at the report. It appears to be a very good piece of work, as one would expect with a very experienced chair and the deputy chair, the member for Moore. But the fact is that, even if Australia were to reduce its emissions to zero, unless that is matched by action elsewhere it would have absolutely no impact. So the critical issue—we are told about the critical need for action on climate change, and I accept that call to action without hesitation—is that unless it is global action it will be ineffective.
The government is bringing the bills back now, obviously in search of a double dissolution trigger. The government is committed to having the bills voted on before the end of the year, prior to the Copenhagen summit, so that the Prime Minister can go to Copenhagen with a completed statute. The United States of America, unquestionably the most influential player in this whole global debate, followed closely by China, will be going to the conference without concluded legislation. A lot of work has been done and the US House of Representatives has obviously passed a bill but there will not be concluded, finalised legislation from the US prior to Copenhagen. The Prime Minister himself has said that this is no disadvantage; it does not create any problems for President Obama. But apparently the lack of a statute will create a great problem for the Prime Minister of Australia. The inconsistency there is obvious.
The coalition still believes that the government’s emissions trading scheme is flawed. For that reason, last week, we proposed a set of common-sense amendments to the scheme and we are currently engaged in good faith negotiation with the government on them. The member for Groom, as the shadow energy minister, is leading our efforts in those negotiations with Senator Wong. These proposals demonstrate that Labor’s emissions trading scheme can be improved to better protect jobs and investment, without sacrificing environmental objectives.
The most important amendments and changes that we are advocating are, firstly, placing Australian emissions-intensive trade-exposed industries—the EITEIs—on a level playing field with their competitors abroad; secondly, excluding direct agricultural emissions from the scheme and providing a mechanism for farmers to earn offset credits when they abate carbon; thirdly, ensuring Australian coal producers reduce their fugitive emissions but are not unfairly financially penalised compared to their competitors; fourthly, moderating the impact of higher electricity prices on small businesses; fifthly, providing more assistance to the coal fired electricity generators to ensure they remain financially viable and the lights stay on; and, finally, encouraging complementary abatement measures such as voluntary action and energy efficiency in buildings. With these changes, the CPRS could deliver exactly the same environmental outcomes—the delivery of the bipartisan carbon abatement targets that the Rudd government will take to the Copenhagen climate change talks in December—with much less economic cost and dislocation.
I will now address these areas in a little more detail, turning firstly to the question of the EITEIs—the emissions-intensive trade-exposed industries. It has always been our view that the response to climate change must be part of coordinated global action. If we put a price on carbon in Australia without a comparable cost being imposed on the countries that our export industries and trade exposed industries compete with, the simple result is that we end up exporting Australian jobs and the emissions—economic pain, no environmental gain. It is that simple. That is why we have proposed these changes to the way that the CPRS treats the EITEIs. This would involve combining the two levels of assistance proposed in the CPRS into a single band, slightly lowering the emissions intensity threshold for assistance and continuing assistance to Australian emissions-intensive trade-exposed industries at a steady rate until 80 per cent of their international competitors also implement carbon abatement measures. What we mean by that is that, if you take any given Australian industry at the point where the Productivity Commission determines that 80 per cent of the market for that particular product is subject to a comparable carbon price or carbon constraint—it does not have to be by way of an ETS; it could be some other mechanism—the level of protection can start being wound down.
There is a powerful argument in relation to these trade exposed industries—LNG is a very good example. While we all understand that we propose to have national caps because only governments can impose the regulations and laws that enforce them, nonetheless, with these trade exposed industries, in an ideal world—and this is certainly what the government should be working towards; it is certainly what the member for Groom and I were working towards when we were part of the previous government—we should have sectoral agreements so that these industries, as global industries, have their own targets and their own carbon constraints. Plainly, if you take the case of LNG, for example, the more LNG we produce in Australia the more greenhouse gases are emitted by the LNG industry here, but the savings of greenhouse gas emissions elsewhere in the world are stupendous and outweigh by a factor of eight any emissions in Australia because, naturally, that is a cleaner fuel that replaces burning coal in the markets where it is introduced.
These changes we are proposing for the treatment of the EITEIs are not designed to provide Australian industry with a new form of assistance. We simply seek to ensure that Australian workers and firms are treated comparably with those in trade exposed industries in the United States and the European Union, given the assistance envisaged under the proposed United States and phase 3 European Union emissions trading schemes. Some of the industries that would be assisted by our proposals include steel, aluminium, natural gas, primary food processing and cement, to name just a few.
I will now turn to agriculture and green carbon. Our proposals protect farmers by exempting agriculture from the scheme rather than including it after 2015, as Labor has proposed. This is the only logical approach to agriculture given the current absence of viable abatement technologies for most of this sector, which accounts for about 16 per cent of Australia’s total emissions. Exempting direct agricultural emissions also brings Australia into line with decisions in other advanced economies, such as the United States and the European Union, to exempt direct agricultural emissions from the emissions trading schemes and instead address agricultural emissions in different ways—with regulation. On the other hand, the coalition’s proposed changes would also include agricultural offsets, including carbon sequestration in soils and vegetation, where there is the opportunity for enormous financial and land management benefits in the rural sector. This is a win-win for farmers and the environment and again brings the Australian scheme more closely into line with the proposed United States and phase 3 European Union schemes.
I have long argued that Australia’s greatest opportunity for low-cost abatement lies in exploiting our comparative advantage—that is, our enormous land area. The existing CPRS treatment of afforestation and reforestation activity is just the first step in recognising this opportunity. Contributors to the climate change policy debate—ranging from Tim Flannery on the one hand to the National Farmers Federation on the other and including the Wentworth Group of Concerned Scientists—all agree, as do the drafters of the Waxman-Markey and the Kerry-Boxer-Graham legislation in the US House and Senate respectively and the phase 3 EU ETS. All of those envisage providing farmers—and other landholders, of course—with offset earnings from a very long and comprehensive list of offsets. I will quote from a recent paper that was sent to both the Prime Minister and me, and no doubt to others, by the Wentworth Group of Concerned Scientists. As the House knows, this is as distinguished a group of environmental scientists as one could find in Australia. This is what they said about what I have called green carbon, what have been called elsewhere agricultural offsets and what they call terrestrial carbon. They say:
The power of terrestrial carbon to contribute to the climate change solution is profound.
At a global scale, a 15% increase in the world’s terrestrial carbon stock would remove the equivalent of all the carbon pollution emitted from fossil fuels since the beginning of the industrial revolution.
The multiple public policy benefits for Australia in adopting full terrestrial carbon offsets are enormous, but there are also significant risks of an unregulated … carbon market to other areas of public policy.
In a report recently commissioned by the Queensland government, Analysis of Greenhouse Gas Mitigation and Carbon Biosequestration Opportunities from Rural Land Use, CSIRO estimate that the Australian landscape has the biophysical potential to store an additional 1,000 million tonnes of CO2e in soils and vegetation for each year of the next 40 years.
If Australia were to capture just 15% of this biophysical capacity, it would offset the equivalent of 25% of Australia’s current annual greenhouse emissions for the next 40 years.
The literature on this is gigantic. I will make one other reference. The Garnaut review itself estimated that just improved management practices on Australian cropping and high-volume grazing land had the potential to remove around 350 million tonnes of CO2 per annum for 20 to 50 years.
This is a gigantic opportunity, but it needs appropriate economic incentives via offset credit creation. You can understand a government that sees an emissions trading scheme as a beaut new tax being a little bit sceptical about this, because if the credits are created by farmers the money will go to the farmers rather than to the government. Instead of buying a permit from the government, they will be buying a credit from a farmer. We on our side say there is a massive national interest in investing in the health and the productivity of our landscape. I say, as I have said many times to those who are sceptical about the science of climate change, if at the end of 20 or 30 years from now the science has been disproved but we have invested billions of dollars into making our landscape healthier, greener and more productive, that will have been money well spent.
A key part of this—and this is a point that we made at extensive length earlier in the year, in January, and the Wentworth Group of Concerned Scientists have made this point too—is that it is absolutely vital that the Australian government ensures that all of these agricultural offsets are included in the successor to the Kyoto protocol because many of them are not at the moment. The United States congress is making no bones about it. I will not read this into the Hansard but I refer honourable members to section 733 of the Kerry-Boxer-Graham bill in the US Senate and to section 503 of the Waxman-Markey bill in the House. The list of proposed agricultural offsets there is comprehensive but is not exhaustive. So this is plainly an area where currently the Rudd government’s CPRS is not simply out of step with the science but out of step with what the major comparable developed economies are doing, most notably the United States. I simply ask the House: how can the government possibly defend giving Australian farmers less opportunity to abate CO2 emissions than the United States or the Europeans are proposing to give their farmers? It is indefensible.
Let me turn now to fugitive emissions from coalmining. Fugitive emissions—meaning essentially the methane that is released through ventilators as coal is mined or as coalmines are prepared for mining—are a very challenging part of the current debate. The government has excluded the Australian coal industry, our largest exporter, from emissions intensive trade exposed industries, or EITEI, assistance because most direct emissions from coalmining arise at a handful of gassy mines and the majority of mines would not need assistance. The coalition understands that reasoning. But at present the CPRS requires coal producers to purchase permits for fugitive emissions. While fugitive emissions have been excluded from the European and proposed US schemes—although it is worth noting that in each of those jurisdictions they account for a lower percentage of overall emissions than they do in Australia—there are nonetheless several feasible abatement technologies currently available to the owners of gassy mines, but they are costly. Unless these mines are assisted, most of them are likely to close.
The approach that we have taken, which would put coalmining in exactly the same position as it is in America and Europe, is simply to exclude fugitive emissions and then regulate fugitive emissions in such a way that over time we will achieve a massive reduction in fugitive emissions—a 30 per cent reduction by 2020. My colleague the member for Groom, who obviously, because of his background in energy, is very familiar with this area, has worked very closely with the coal industry and reached a position which they support which will have the result of achieving a much greater reduction in emissions from coalmining than is proposed for the rest of the economy. We do not believe coalminers should be given a free ride in terms of the emissions reductions targets. Where they currently capture and use methane in an economically useful manner, they should do so and, as better technologies come forward, they will be encouraged to adopt those methods. Our proposals are practical and they will achieve the objective of a dramatic reduction in emissions.
Let me turn now to electricity prices. In August the coalition, together with the Independent Senator Nick Xenophon, commissioned research on the economic impact of the Rudd government’s emissions trading scheme by the respected consultants Frontier Economics. I know they have been the subject of some criticism from the government side, but it is worth noting that Frontier Economics have designed and completed one more emissions trading scheme than the Department of Climate Change. Their expertise is unquestioned. Their study showed that the government’s emissions trading scheme would unnecessarily drive up electricity prices, hurt regional Australia and unnecessarily expand the size of government. They put forward an alternative: a revised emissions trading scheme which was greener, cheaper and smarter. The proposal suggested that deeper cuts in emissions were possible at a lower economic cost and with a far less severe increase in retail electricity prices—two to four per cent over the first two years rather than the 21 per cent forecast by the Treasury to result from the CPRS. The work by Frontier suggested that with modest changes, especially in the way the ETS treats electricity generation, Labor’s proposed scheme could be made far less harmful to jobs, investment and the broader economy.
So far, the government has failed completely to respond in any detail at all to these proposals other than to indicate its disinterest in pursuing the Frontier model. We will continue to advocate an intensity based cap-and-trade approach to the electricity sector, as this more than halves the initial increase in electricity prices, greatly reducing the economic costs of achieving emissions cuts. If the government refuses to consider the intensity based approach, it must clearly explain why and release the complete details of any Treasury or Department of Climate Change modelling of the Frontier alternative approach to the cap-and-trade scheme proposed by the government. If it will not accept Frontier on any basis, it also has to demonstrate that it has an alternative strategy to cushion the initial impact of higher electricity prices on small businesses, who are the hardest-hit electricity consumers under the currently proposed CPRS.
I turn now to the compensation for electricity generators. The coalition believes—and this was certainly the policy set out in the Shergold report—that the incumbent coal fired generators must be fairly compensated for the loss of value they experience from the CPRS. This is to ensure security of supply, to equip those firms to transition to lower emission energy sources and to address the sovereign risk perception, which will arise from an arbitrary change in the rules that destroys value in existing businesses. The CPRS offers coal fired generators 130 million permits over five years, worth $3.6 billion. Yet three respected private sector analysts estimate their losses at three times that amount. In the absence of access to the government’s secret Morgan Stanley report on this question, which should be published, the coalition’s best estimate of a fairer level of generator compensation is assistance of 390 million permits over 15 years. Assistance should be allocated to all generators in proportion to the losses they suffer.
I turn now to the complementary measures. By including voluntary measures, by creating genuine incentives for voluntary action, the environment will benefit from individuals, businesses and community groups who develop their own initiatives to reduce greenhouse gas emissions. The coalition favour increased incentives for energy efficiency. This is the lowest of the low-hanging fruit in terms of reducing greenhouse gas emissions. We favour the creation of a voluntary offset market in advance of the introduction of the CPRS—and we set that out earlier in the year. We support the principle that genuine voluntary abatement should lead to a lower overall level of national emissions.
In light of the fact that the Copenhagen conference is only a month away and new information about the likely design of a US scheme and phase 3 of the European ETS continues to emerge at a rapid rate, the coalition has argued for some time that it would be premature to finalise the design of an ETS prior to Copenhagen. All of these issues will be just as relevant after Copenhagen as they are now—and of course we should be working and negotiating—but why should we finalise the design prior to Copenhagen?
The government, nonetheless, control the timing of this debate, and it is clear that they are determined to force a vote before parliament rises for the year. It is nonsense to suppose that, whether or not the scheme is passed this year, the parliament’s vote on it will be the last word. It is inevitably going to be simply the first step in what is likely to be a long process of refining and modifying the nation’s policy response to climate change in response to evolving international developments and agreements, progress on our own understanding of the science, practical experience of the operation of the ETS and the emergence of new technologies.
Given the government has made it clear that it will insist on pushing these bills to a final vote before Copenhagen, the coalition has engaged constructively in the debate, regardless of our very deep misgivings on this timing. We hope the government will accommodate our common-sense proposals and amend its scheme. They will protect thousands of Australian jobs and in addition and in particular, by reason of the comprehensive inclusion of agricultural offsets, provide the greatest opportunity, as the Wentworth Group of Concerned Scientists and indeed American legislators have recognised, for a substantial reduction in greenhouse gas emissions while at the same time improving the health of our landscape.
In conclusion, I will quote the Leader of the Opposition in the United Kingdom, David Cameron, who published a paper on the low-carbon economy earlier this year. He said:
Our starting point in thinking about the low carbon economy is hope, not despair. We are talking about a technological transformation that will enable us to fulfil the aspirations of our people for a rich, varied and prosperous life with vastly reduced dependence on hydrocarbons.
… … …
… they will pay dividends even if the gloomier predictions about global warming are not fulfilled—dividends in the form of more stable energy costs, improved economic competitiveness and increased energy security.
All of those goals will be advanced by the government’s adoption of our amendments.