Greg Combet (Charlton, Australian Labor Party, Parliamentary Secretary for Climate Change) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Carbon Pollution Reduction Scheme (CPRS) is one of the most significant environmental and economic reforms in the history of our nation.

The Rudd government accepts the science on the issue of climate change—increasing concentrations of carbon pollution in our atmosphere are causing global warming.

Global action is needed to reduce carbon pollution to avoid the dangerous impacts of climate change.

Australia must play its part in this international action. Tackling the challenge of climate change is one of the government’s highest priorities.

To achieve this the Rudd government is committed to three pillars of action on climate change: reducing Australia’s emissions, adapting to the effects of climate change we cannot avoid, and playing a strong role in the global effort.

As part of the first pillar of action the government is committed to achieving a targeted reduction in our emissions through the implementation of a cap-and-trade emissions trading scheme.

The CPRS will reduce Australia’s emissions by placing a market price on carbon pollution and link our efforts with those of other countries.

Through the CPRS Australia will address the need to reduce carbon pollution and the environmental impact of climate change, and at the same time support the transition in our economy to a low pollution future.

The need for action

Mainstream scientific opinion is clear. Climate change is real and there is a high probability of serious consequences if greenhouse gas emissions are not restrained.

The science tells us that unmitigated climate change is very likely to result in environmental and social disruption, including significant species extinctions around the globe, threats to food production and severe health impacts, with dramatic increases in morbidity and mortality occurring from heatwaves, floods and droughts.

Australia is highly exposed to the impacts of climate change. The effects on Australia’s environment—and economy—will be serious. The health of our population, the security of our water and energy supplies, and impacts on coastal communities and infrastructure all face unprecedented tests.

If we do not act, average temperatures across Australia are expected to rise by just over five degrees C (compared to 1990) by 2100. To put this in perspective, a one degree C rise in temperature risks a 15 per cent reduction in stream flow in the Murray-Darling Basin, Australia’s biggest river system.

The government accepts the advice of the Garnaut report that it is in Australia’s national interest to achieve a global agreement that will stabilise greenhouse gases in the atmosphere at a concentration of 450 parts per million carbon dioxide equivalent or lower. This is the level above which we face significant risk of dangerous climate change—that is, significant damage to our environment, our economy and our way of life.

That is why the government has said it will commit to a national target to reduce net greenhouse emissions 25 per cent by 2020 over 2000 levels if there is an ambitious global agreement to achieve the 450 parts per million goal.

Australia can play its part in reducing greenhouse gas emissions while continuing to grow the economy.

Last year, the Treasury conducted one of the largest and most sophisticated economic modelling projects ever undertaken in Australia.

Like the Stern report, this modelling concluded that responsible action now is less expensive than later action. The modelling found that, under a variety of scenarios, significant cuts could be made to emissions at a cost to potential annual average economic growth of around one tenth of a percentage point. And this does not take account of the benefits of avoided climate change—that is, minimising costs such as lower agricultural productivity, damaged infrastructure, impacts on health and so on.

This modelling shows that all major employment sectors in the Australian economy continue to grow out to 2020 as we reduce our emissions through cap and trade, including the most emissions-intensive trade-exposed industries.

The government is of course very conscious of the global recession and has been careful to ensure that the Carbon Pollution Reduction Scheme is economically responsible.

There will be a phased introduction to the scheme. Mandatory obligations will commence one year later than originally proposed, on 1 July 2011.

A fixed price phase will apply between 1 July 2011 and 30 June 2012. During the fixed price phase, each carbon pollution permit will cost $10.

Substantial assistance will be provided to emissions-intensive trade-exposed industries—including a global recession buffer of additional assistance for the first five years of the scheme.

In addition, eligible businesses will receive funding to undertake energy efficiency measures in 2009-10 as part of a $200 million tranche of the Climate Change Action Fund. This is part of over $13 billion in a range of programs to increase energy efficiency and to research, develop, commercialise and deploy low-carbon transport and energy solutions, and renewable sources of energy production.

These and other features of the scheme ensure that it will set Australia on the path to a low-carbon economy in an economically responsible way.

The government recognises that Australians should have the opportunity to do their bit to reduce Australia’s emissions. This bill will ensure the government is able to take account of individual Australians’ voluntary reductions in carbon pollution when setting scheme caps.

It is important that the bills to enact the scheme be passed this year—both to maximise the chances of a global deal at Copenhagen in December and to provide business certainty.

For Copenhagen, passage of this bill would ensure that Australia has a mechanism in place to meet its international commitments. The government could agree to a target at Copenhagen, knowing that the country has the capacity to deliver on that target in an economically responsible way.

To major developing countries, it would send the signal that Australia is serious about delivering the emissions reductions to which we have committed—and therefore encourage action from them.

For all nations, it will help build confidence that, even in one of the world’s most resource-intensive economies, we can start to reduce our emissions while continuing to grow our economy.

For the business community investment certainty is essential if we are to foster continuing investment and growth in our economy and jobs. The CPRS will provide that.

For example, our energy and resources sectors engage in investment decisions with a horizon of anywhere from 15 to 30 years—a time period in which there can be no doubt carbon pricing of some form will be introduced into the domestic and international economy.

Uncertainty about the passage of the CPRS generates uncertainty over these long-term investments. Some of these investments are worth billions of dollars and will result in thousands of new jobs—provided that certainty can be delivered. The converse, as Heather Ridout of the Australian Industry Group has said, is that ‘uncertainty is death for business.’

The need for investment certainty is the reason why the Business Council of Australia, among others, has called for a bipartisan approach and the passage of these bills this year. Indeed, the CEO of the BCA, Katie Lahey, said last week:

“To drag on the debate whilst we have got this global financial crisis is just one more complexity that business has got to factor into its planning cycle, and for some businesses it could be the straw that breaks the camel’s back.”

Objective of the CPRS

The main policy objective of the CPRS is to reduce greenhouse gas emissions and to do so at the least cost to the Australian economy.

There is a key reason why a cap-and-trade scheme delivers emissions reductions at least cost, and that is the flexibility it gives to individual firms.

It is important to appreciate that a cap-and-trade scheme works by reducing pollution across the economy rather than dictating exactly where and when this occurs. An economy-wide emissions cap is set by regulations and an independent regulator—in this case, the Australian Climate Change Regulatory Authority—auctions or allocates emissions units up to that cap. Liable firms must obtain, and surrender to the authority, emissions units equal to their emissions in each financial year.

This model provides flexibility and minimises costs. The government does not dictate to individual firms how emissions should be reduced, or by how much. That judgment is left to individual firms, taking into account the price of permits and their assessment of emissions reductions opportunities.

In short, this is an incentives based model rather than one based on prescriptive directions. There is an economy-wide incentive to reduce emissions, which over time drives the uptake of low-carbon technologies. This will place the economy in a better position over the longer term and avoid the need for large and sudden adjustments in the carbon intensity of the economy.

We should not ignore the international trend towards cap-and-trade schemes. By introducing the Carbon Pollution Reduction Scheme, Australia will join other developed nations in the fight to reduce carbon pollution. Emissions trading is already underway in 27 European countries. New Zealand has passed legislation to introduce a cap-and-trade scheme. In the United States, President Obama has reinforced his election commitments to mid- and long-term carbon pollution reduction goals and has called on congress to send him legislation to establish a cap-and-trade system, similar to that we are establishing with the CPRS.

Key features of the Bill

I would like to outline some of the main features of the bill.

Caps and gateways

As I have said, the CPRS is a cap-and-trade scheme. This involves setting a greenhouse gas emissions cap for a particular year and issuing units, equal to one tonne of carbon pollution, within that cap.

Scheme caps will be lower than the emissions path required to meet the national targets because some emissions sources—emissions from agriculture and deforestation, for example—are not covered by the scheme, and because direct emissions from facilities are only covered if they exceed specified thresholds.

To provide certainty, the minister will be required to take all reasonable steps to ensure that regulations to specify scheme cap numbers for 2012-13, 2013-14 and 2014-15 are made before 1 July 2010. Caps beyond this point will be set annually to provide certainty over a five-year horizon at all times.

To provide further guidance to liable entities and participants in the carbon market more generally, national scheme gateways may be prescribed for years beginning on and after 1 July 2015. A gateway is a range, comprising an upper bound and a lower bound of emissions, expressed in terms of tonnes of carbon dioxide equivalent, for a particular year. The minister is required to take all reasonable steps to ensure that the scheme caps are within the range specified for the relevant year.

The Rudd government has listened to Australian households who have raised concerns that their individual efforts to reduce emissions will not be adequately taken into account under the CPRS. The bill therefore provides for the minister to take into account voluntary action in the setting of caps and gateways. As a matter of policy, the government is committed to taking account of uptake of GreenPower in setting caps. The government will take additional GreenPower purchases, above 2009 levels, into account in setting future scheme caps. A range of other indicators of voluntary action may also be taken into account. The explanatory memorandum to this bill outlines in detail how the government intends to implement this policy.

The minister is required to report annually to parliament on reasons for her recommendations in relation to caps and gateways and, as a matter of policy, will set out how voluntary action has been taken into account.

Liable entities

The scheme applies liability in two main ways.

First, liability generally arises where the greenhouse gases emitted from the operation of a facility have a carbon dioxide equivalence of 25,000 tonnes or more per year.

In relation to landfill facilities, there has been an important change from the exposure draft bill released for public comment. The government has accepted the argument from the waste sector that ‘legacy waste’ emissions—that is, emissions from waste that was placed in landfill prior to the start of the scheme—should not be covered by the scheme. Also, where a landfill facility is within a prescribed distance from a landfill facility that has a carbon dioxide equivalence of 25,000 tonnes or more, and is accepting similar classifications of waste, the threshold is 10,000 tonnes carbon dioxide equivalent. This is to prevent potential avoidance of waste related liability under the scheme. The prescribed distance will be set in regulations following consultation with industry.

Secondly, where there are large numbers of small emitters, it is more practical to cover emissions by applying liability at another point along the supply chain. For example, to avoid imposing a compliance burden on many individual suppliers or users of fossil fuels and synthetic greenhouse gases, while sending the same price signal, the scheme applies liability at the earliest point of the fuel supply chain within Australia, for example, the importer or manufacturer of the fuel or synthetic greenhouse gas.

In some situations, entities that purchase fuel from that ‘upstream’ entity will be required or allowed to quote an ‘obligation transfer number’ and to take responsibility for emissions that would result from the combustion of the purchased fuel.

Obligations of liable entities

Persons liable under the scheme have two main obligations: to calculate their emissions for each financial year, and to transfer a corresponding number of emissions units to the authority.

When the scheme is in full operation, most liable persons will purchase emissions units through regular auctions conducted by the authority, or through private transactions. However, for the first year of the scheme, in 2011-12, permits will be available from the authority for a fixed price of $10. This one-year fixed price phase will allow the Australian economy more time to recover from the impacts of the global recession.

The government has been consulting with industry on whether amendments can be made to resolve some contract pass-through issues using the liability transfer certificate mechanism. The government will continue to consult industry and legal experts on this issue and may introduce amendments should there be a satisfactory policy outcome.

Transitional industry assistance

Free emissions permits will be issued to our emissions-intensive trade-exposed industries to reduce the risk of ‘carbon leakage’. Carbon leakage occurs when industries move from Australia to elsewhere, with no benefit in terms of global emissions reductions, upon introduction of a carbon price in Australia. This risk occurs when Australia imposes a carbon price on our trade-exposed industries ahead of competitor economies. Transitional industry assistance is designed to reduce this risk. Regulations will provide the detail of eligible industries and rates of assistance, but the key parameters have been elaborated in significant detail in the white paper and the Prime Minister’s announcement of 4 May 2009.

As announced on 4 May 2009, a global recession buffer will be provided for emissions-intensive trade-exposed industries for the first five years of the scheme, in addition to previously announced rates of assistance.

This buffer will provide an additional five per cent free permits for EITE activities eligible for 90 per cent assistance, giving an effective rate of assistance of almost 95 per cent to these highly emissions-intensive trade-exposed activities in the first year of the scheme.

The buffer will provide an additional 10 per cent free permits for EITE activities eligible for 60 per cent assistance, giving an effective rate of assistance of 66 per cent to these moderately emissions-intensive trade-exposed activities in the first year of the scheme.

Rates of assistance will decline at a rate of 1.3 per cent per year, in line with the carbon productivity contribution set out in the government’s white paper.

Free permits will also be issued, on a once-off basis over the first five years of the scheme, to investors who purchased or constructed coal-fired generation assets prior to the Commonwealth government’s announcement of its support for an emissions trading scheme.

While such a policy change could have been foreseen prior to this announcement, the government considers it appropriate to partially recognise significant losses of asset value experienced by investors that were committed to such investments prior to a clear announcement by the Commonwealth government of its support for such a scheme.

International linking

The scheme has been designed to be able to link with international carbon markets. Linking allows the import of emissions units from other schemes, which will reduce global and Australian abatement costs by ensuring that the cheapest abatement opportunities are pursued first, regardless of where they occur in the world. If emissions units are robust—and only such units will be accepted under this scheme—it should not matter where abatement occurs.

This is not only a matter of minimising costs to business. Trade in international emissions units helps developing countries move to a low-emissions pathway. And the more that trade in emissions rights can lower the overall cost of abatement, the more likely it is that governments around the world will be able to commit to more stringent targets in the future.

Use of permit revenue

Revenue raised by sale of emissions permits will be used to help householders adjust to a carbon price, in a very important feature of the scheme. A further bill will be introduced in the 2009 winter sittings to deliver a household assistance package under the Carbon Pollution Reduction Scheme. This package of cash assistance, tax offsets and other measures will be provided by the government to help low- and middle-income households in adjusting to a low-pollution future.

Reforestation

To encourage reductions in carbon pollution before the scheme starts, reforestation will be eligible to voluntarily generate emission units for increases in carbon sequestration from 1 July 2010, creating economic opportunities in regional Australia. It should be noted that, in response to stakeholder feedback, the government will be introducing amendments to the reforestation provisions in the bill.

Commencement

While mandatory obligations under the scheme will start from 1 July 2011, a number of elements of the scheme will be activated before that date.

Regulations, including regulations setting the rates of assistance for emissions-intensive trade-exposed industries will be progressively made after stakeholder consultation.

The Australian Climate Change Regulatory Authority will be established from enactment. This will give time for ACCRA to develop a good working relationship with industry and ensure that the scheme is implemented efficiently. ACCRA will undertake important preparatory work, such as testing auction systems and publishing guidelines on the practical operation of the scheme.

As noted above, scheme caps and gateways will be set before 1 July 2010—after the Copenhagen conference but well before the full commencement of the scheme.

From 1 July 2010, landholders will be able to earn permits from increased carbon stored in forests, ensuring that the CPRS will encourage action to reduce carbon pollution from that date.

Auctions for permits will commence in 2010-11 for emissions units that can be used to meet obligations in the 2012-13 and following financial years.

This timetable underlines the practical advantages of passage of the bill this year.

Legislative package

The Carbon Pollution Reduction Scheme Bill 2009 is part of a package of related bills, including:

• The Australian Climate Change Regulatory Authority Bill 2009;
• The Carbon Pollution Reduction Scheme (Charges-Customs) Bill 2009, Carbon Pollution Reduction Scheme (Charges-Excise) Bill 2009 and Carbon Pollution Reduction Scheme (Charges-General) Bill 2009;
• Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009;
• Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009 and Customs Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009; and
• Carbon Pollution Reduction Scheme (CPRS Fuel Credits) Bill 2009 and Carbon Pollution Reduction Scheme (CPRS Fuel Credits) (Consequential Amendments) Bill 2009.

Conclusion

There has been more than 10 years of discussion in Australia on the introduction of an emissions trading scheme.

In the late 1990s the Australian Greenhouse Office published a series of papers setting out how such a scheme might work and invited submissions in response.

In 2004 state and territory governments formed the National Emissions Trading Task Force, and in 2006 that task force published a discussion paper on the possible design of a national greenhouse gas emissions trading system, which was the subject of extensive public consultation.

In December 2006 the former government established its task group on emissions trading, which reported in May 2007. Again, an extensive public consultation process followed and that task group recommended that an emissions trading scheme should be implemented in Australia.

From April 2007 Professor Garnaut conducted his important review of climate change issues, which also included extensive consultation.

The government’s Carbon Pollution Reduction Scheme Green Paper was then released for public consultation in June 2008. The Department of Climate Change undertook extensive stakeholder consultation in developing the green paper, including meetings with more than 260 organisations in technical workshops and bilateral meetings. To inform consultation, the department released 16 papers on different aspects of scheme design.

Final policy positions were set out in the Carbon Pollution Scheme white paper, released in December 2008. In developing these policy positions, the government considered 1,026 submissions on the green paper, the final report of the Garnaut Climate Change review, feedback from meetings, workshops and one-on-one stakeholder consultation and outcomes from a number of industry workshops.

In March 2009, the government released for consultation draft legislation to implement the Carbon Pollution Reduction Scheme. In finalising the legislation, the government has considered approximately 160 non-campaign submissions on the draft legislation, the outcomes of workshops with industry, technical and legal experts and the review of the legislation by the Solicitor-General.

In April 2009, the government also released the exposure draft legislation and commentary for the Carbon Pollution Reduction Scheme fuel tax adjustment arrangements. The Treasury conducted consultations with stakeholders on the draft legislation in Melbourne and Sydney.

I would also like to take the opportunity to acknowledge the huge amount of work that has gone into this legislation by the very smart and professional officials within the Department of Climate Change. They have played a key role in the design of this fundamental environmental and economic reform. I would also like to acknowledge the extraordinary work undertaken by the Minister for Climate Change and Water, Senator the Hon. Penny Wong.

It is nearly two years since the now Leader of the Opposition, then Minister for the Environment and Water Resources, stood in this place and introduced the National Greenhouse and Energy Reporting Bill 2007. At the time, he said:

This Bill is the first major step in the establishing the Australian emissions trading scheme.

With this bill, the Carbon Pollution Reduction Scheme Bill 2009, Mr Turnbull has the chance to see this goal through. There have been 10 years of talk about establishing an emissions trading scheme. Now is the time for action.

The time has come to rise to the challenge, provide business certainty and to act on climate change.

The government is determined to meet this challenge and protect our way of life.

The government’s scheme will combat climate change, sustain our society and protect our economy now and into the future.

The government is determined to have the scheme enacted and I urge all parties to support the bill.

Debate (on motion by Mr Billson) adjourned.