Nick Xenophon (SA, Independent) Share this | Hansard source

At the outset, I join in the remarks by Senators Hurley and Colbeck in thanking the Senate Economics Legislation Committee and the secretariat—in particular, the secretary, John Hawkins—who have worked tirelessly on this for a considerable period of time and have put in hundreds and hundreds of hours of work.

Anthropogenic climate change is real and is an urgent threat to our very existence. Perhaps there is room for some debate about how big a threat this global problem presents, but I would say to those who deny the threat of climate change, ‘Are you willing to bet the world—literally—that you are right and thousands of scientists are wrong?’ Dealing with this problem will require a global political response that is usually seen only during wartime, but we have to deal with it, and the question is how.

Australia has a small, open economy and, while our overall emissions are relatively modest in the scheme of things, our per capita emissions are amongst the highest in the world. I believe Australia must take early emissions reduction action in order to lead by example and uphold the sort of global cooperative agreement required to address global climate change. In truth, the success of our domestic policy will be judged by how many other countries our lead will motivate to get on board. Therefore, our scheme must be credible internationally and sustainable domestically. Clearly, the overarching goal is environmental in the form of an abatement of greenhouse gas emissions. This abatement will fundamentally be driven by investment.

The second challenge relates to adjustment issues. Adjustment issues range from the income effects on households stemming from the introduction of a price on carbon to the impact on asset values on what the government has called ‘strongly affected firms’. Issues related to carbon leakage and the loss of competitiveness also represent adjustment issues. If we deal with these issues properly, others will follow; if we get it wrong, we could stand as an excuse for other nations, especially our neighbours, not to get on board.

There are also challenges in relation to governance issues. My concern is that the government’s own modelling has understated the costs in the short to medium term of adjusting to a carbon price. That is because the government’s modelling assumes full employment at all times and, therefore, a robust, fast-reacting economy, but that just does not happen in the real world. I think it is also important to add that the government’s cap-and-trade trade approach essentially acts as a penalty-only mechanism: it penalises all emitters as a function of their emissions but offers no direct reward to firms that cut emissions. It is the costs that result from this that lead to the government having to assume weak environmental targets.

It is as if the federal government decided to swat flies with a baseball bat, meaning it cannot swat too many flies in case it knocks someone out. I believe a better designed scheme can achieve much better environmental outcomes. It has been claimed that the government’s model provides certainty, but the scheme has already been adjusted on a number of occasions by the government and it can be manipulated by this or other governments in the future. The government says that there are absolute caps in this scheme and that it is almost as though they are etched in stone, but I would suggest that it is more a case that they are etched in playdough because of the malleability of the current scheme.

I believe that there is an enormous amount of churn with this scheme; that is economically inefficient and there is a better approach. The government’s approach is one of all stick and no carrot. That is why we need to look at an intensity based approach. This approach involves determining for a particular activity or sector an emission intensity baseline. Baselines across sectors and activities in an economy are set at the level that achieves a desired emission level and any producer emitting more than the baseline has to acquire permits in excess of the baseline. Any producer emitting below the baseline is allowed to create and sell permits to those who need to buy permits. This would avoid the churn. It would be more economically efficient. It would deal with the issue of fluctuating prices in the carbon market, as we have seen in Europe, giving investment certainty, which is desirable. It moderates the price effects. These are matters that need to be dealt with and I believe it is important that there be some thorough economic modelling done by Treasury of this and an independent assessment carried out by the Australian Productivity Commission. At the end of the day, it is important that we get the best possible scheme—one that works and one that delivers the outcomes.

I think that most of us in the Senate agree on the destination. We know where we need to go, but we also need to agree on the best way to get there. If the government insist on dictating the route, there is every change they will turn around only to see that no-one else is behind them.