Senate debates

Wednesday, 18 November 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]

Second Reading

9:31 am

Photo of Ursula StephensUrsula Stephens (NSW, Australian Labor Party, Parliamentary Secretary for Social Inclusion and the Voluntary Sector) Share this | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The documents read as follows—

CARBON POLLUTION REDUCTION SCHEME BILL 2009 [NO. 2]

The need for action on climate change

The Government is committed to taking action on climate change.

We accept the consensus view of scientists that global warming is unequivocal and human activities are very likely responsible for most of the observed warming over the last fifty years.

Climate change is real and there will be serious consequences if greenhouse gas emissions are not restrained.

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.

Acting on climate change is squarely in Australia’s national interest.

If we don't act, average temperatures across Australia are expected to rise by over 5°C (compared to 1990) by 2100. To put this in perspective, a 1°C rise in temperature risks a 15 per cent reduction in stream flow in the Murray-Darling Basin, Australia's biggest river system.

Under a worst case scenario, irrigated agriculture in the Murray-Darling Basin would virtually disappear by 2100.

Bushfires are expected to become more intense, and the interval between them will shorten. The mega fires in Victoria in 2009 and Canberra in 2003 are consistent with these expected changes in fire regimes.

The business community in Australia is calling for investment certainty so that they can commit the necessary investment to start to move the Australian economy to a low carbon future.

As Heather Ridout from the Australian Industry Group said in a speech on 15 October 2009, “Many of our members are telling us that they are holding off making investments until there is a greater degree of clarity around domestic climate change legislation.”

Coupled with the Renewable Energy Target of 20 per cent of electricity from renewable sources by 2020, the Carbon Pollution Reduction Scheme (CPRS) will drive around $19 billion in investment in renewables in the period to 2020.

This demonstrates that Australia can take action against climate change whilst continuing to grow and prosper. In fact, modelling done by the Australian Treasury shows we can create 1.7 million jobs to 2020, while reducing carbon pollution.

And from an employment perspective, all major sectors - including the coal mining sector and electricity generation overall - grow over the years to 2020, delivering substantial increases in employment from today's levels.

As the world prepares to gather in Copenhagen to strive towards an international deal, what each country does at home matters. All nations need to keep moving forward, and it is squarely in Australia’s national interest to show up at the negotiating table in Copenhagen with a plan to deliver our targets.

It maximises our chance of playing a constructive role in negotiations and sealing the deal we know the world needs, and it provides certainty that the targets we sign up for internationally will be achieved at the lowest possible overall cost.

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.

I would like to address at the outset some of the major arguments of those who oppose action on climate change.

It is sometimes said that because Australia is responsible for a small proportion of global greenhouse gas emissions, we should not be ‘acting ahead of the rest of the world’ by unilaterally committing to reduce our emissions – that this would impose costs on Australia without solving the global warming problem.

We are not acting ahead of the rest of the world – in fact 27 EU countries, the US, Japan, Canada, New Zealand and Korea all have, or are developing, cap and trade systems.

And there is no need to wait until after Copenhagen as there is nothing in the R4221Bill which makes its passage contingent on Copenhagen outcomes.

The CPRS establishes the framework under which Australia’s emissions reduction targets will be achieved and it has been designed for Australia’s national circumstances. The CPRS has also been designed to be sufficiently flexible to accommodate the range of possible outcomes from Copenhagen, so important details such as the scheme caps will not be set until after Copenhagen.

And finally, the Liberals have endorsed the Government’s emissions targets for 2020, including a commitment to reduce emissions by at least 5 per cent compared to 2000 levels, irrespective of commitments by other countries.

This is an ambitious commitment. It is important for the community to know how this will be achieved so that everyone – including business and households – can start down the path of reducing emissions.

So the debate over whether Australia should wait is over. In fact, it should have been over since 2007, when the Howard Government endorsed the findings of its Task Group on Emissions Trading, which recommended that the then Government announce an emissions target ahead of a post-Kyoto agreement and recommended the adoption of an emissions trading scheme to achieve those targets.

Development of the Carbon Pollution Reduction Scheme

Numerous reviews have found that an emissions trading scheme is the best and most efficient tool to achieve emissions reductions – including the former Prime Minister Howard’s Task Group on Emissions Trading and the Garnaut Review.

Both these concluded that market-based approaches that deliver a price on carbon will reduce greenhouse gases at least cost, and that an emissions trading scheme is the best market-based approach.

This is why both major political parties went to the last election committing to establish an emissions trading scheme – and why the Rudd Government has developed the Carbon Pollution Reduction Scheme.

Since the election of the Rudd Government, there has been an extensive process to develop the CPRS.

The core principles of the scheme were clearly articulated as long ago as February 2008.

The Government’s CPRS Green Paper was released for public consultation in June 2008. The Department of Climate Change undertook extensive stakeholder consultation in developing the Green Paper, including meetings and the release of 16 papers on different aspects of scheme design.

Final policy positions were set out in the CPRS White Paper, released in December 2008. In developing these policy positions, the Government considered 1026 submissions on the Green Paper, the final report of the Garnaut Climate Change Review, the results of the Australian Treasury’s comprehensive modelling exercise, feedback from meetings, workshops and one-on-one stakeholder consultation and outcomes from a number of industry workshops.

In March and April 2009, the Government released for consultation draft legislation to implement the CPRS. A number of changes were made to the legislation in light of that consultation.

From this brief history it is clear that the CPRS has been subject to a great deal of public scrutiny. It has also had a great deal of parliamentary scrutiny. Three Senate Committees considered and reported on the CPRS bills, and there was extensive Parliamentary debate on those bills between April and August of this year.

We have conducted a thorough, consultative and transparent policy process over the last two years to reach this final stage.

It is pleasing that the Coalition has now finally come forward with proposals to amend the CPRS and we are looking forward to negotiating in good faith will all parties.

I now turn to consider some of the major elements of the CPRS Bill.

Emissions-intensive trade-exposed industries

The Government recognises that the introduction of a carbon price ahead of effective international action may provide incentives for some trade exposed industries to relocate or source production offshore – so called carbon leakage.

That is why the CPRS bill provides for a program to support businesses producing internationally traded goods which face the most significant exposure to the carbon price.

The features of that program have been clearly stated by the Government.

Assistance, in the form of administrative allocations of permits, will be provided to new and existing firms engaged in emissions-intensive trade-exposed – so called EITE – activities.

Assistance will be targeted to the most emissions-intensive trade-exposed activities.  From the first year of the CPRS, highly emissions-intensive activities will have an effective rate of assistance of almost 95 per cent, and less emissions-intensive activities will have an effective rate of assistance of 66 per cent – rates of assistance endorsed by the Opposition through their support for similar arrangements under the Government’s Renewable Energy Target legislation.

Unlike the EU Scheme or the schemes proposed in the US Waxman-Markey and Kerry-Boxer bills there is no overall cap on free permit allocations. And as assistance will be directly linked to output, this means that if production doubles the allocation of permits doubles. This is important to cater for the expansion of Australian industry, and is the key reason why the Australian arrangements are more generous than the EU and proposed US schemes.

Notwithstanding the generosity of these arrangements, the design of the EITE program ensures that even these firms face the full carbon price and have the same incentives as all other industries to find opportunities to reduce their emissions. Assistance is calculated based on historical, industry baselines of greenhouse intensity and assistance reduces by 1.3 per cent per year. This ensures that the most efficient producers in an industry, and the producers that become more efficient over time, are rewarded for their efforts.

The Government is confident that its EITE program reduces the risk of carbon leakage, while promoting efficient production decisions and ensuring that all industries make a contribution to the national effort to reduce carbon emissions, without risking jobs.

In order to provide clear and detailed rules about how much assistance will be provided, the detail of activity definitions, rates of assistance and other matters will be set out in regulations.

A significant proportion of the relevant regulations have already been tabled in draft form. It is, of course, unusual that draft regulations be released for public comment ahead of the passage of legislation. The Government has taken this extra step to make available as much information as possible to parliament when considering the CPRS bills.

Coverage of the CPRS

One important design principle that the Government has adopted in developing the CPRS is breadth of coverage.

The CPRS has broad coverage, as it applies to approximately 75 per cent of Australia’s emissions.

This is consistent with the approach of former Prime Minister Howard’s Task Group on Emissions Trading, which said:

“The efficiency and fairness of a national abatement effort will be increased to the extent that all sectors contribute to greenhouse gas reductions. The broader the opportunity to identify and implement abatement opportunities, the lower will be the costs to the economy of meeting any given abatement task. In addition to achieving abatement efficiently, comprehensive coverage has an important equity dimension: it ensures the abatement task is shared broadly across sectors of the economy...”

For these reasons, any proposal to exclude or carve out sectors from the CPRS must be examined very carefully. Any benefits have to be weighed up against the increased burden on other industry sectors, the loss of opportunities for low-cost emissions reductions, and the possible loss of permit revenue to assist households.

Domestic offsets

Agriculture is not currently in the CPRS, but the Government has not ruled out including it in the future - from 2015 at the earliest.

The CPRS Bill does however provide for domestic offsets for reforestation.

This is a crediting mechanism - to encourage reductions in carbon pollution before the scheme starts, proponents of approved reforestation projects will be eligible to receive emission units for increases in carbon sequestration taking place from 1 July 2010.

These emissions units will then be available for purchase by liable entities – the large emitters and fuel suppliers – as an alternative to reducing their emissions or purchasing emissions units from other sources.

Given that there has been some discussion about including additional offsets in the CPRS, it is important to keep in mind the following points.

First, offsets should only be available for sectors that are outside the CPRS. There would be double counting if offsets are provided for abatement that would also be recognised through reductions in CPRS obligations.  

Second, offsets should count towards Australia’s international commitments. Otherwise, Australia would need to tighten its scheme cap, with a cost to industry and consumers, or purchase Kyoto units on the international market, costing taxpayers.

Third, practical issues of measurement and administration have to be considered.

Electricity Sector Adjustment Scheme

Free permits will also be issued, on a once-off basis over the first five years of the CPRS, 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.

It is estimated that the free permits to be provided to generators will be worth approximately $3.8 billion. This assistance is focused on the most emissions-intensive generators as these generators are likely to experience the largest losses in asset value.

While individual electricity generators argue for increased assistance, what the whole electricity sector requires is certainty around the regulatory environment. It is only once they have that certainty, through the passage of these bills, that they can make the necessary investments in lower-emissions technologies.

This is another reason why we must act now.

Assistance for the Coal Sector

The Government recognises that emissions-intensive coal mines do need transitional assistance to adjust to the introduction of the Carbon Pollution Reduction Scheme.

The Government has said it will target assistance to the most gassy mines, and has on the table a $750m package to assist these mines investigate and implement abatement opportunities and ease their transition to the introduction of a carbon price.

The Government believes this formulation will allow the coal sector to play its part in emissions reductions whilst providing assistance for the mines most affected by the introduction of a carbon price.

Conclusion

Australians have made it clear they want action on climate change.

The Australian Government believes it is critical to take action on climate change now.

Business want the certainty that will allow them to invest.

And on the eve of the Copenhagen conference, the world is watching.

The time has come, after 12 years of inaction, to provide business certainty and to act on climate change.

The Government is determined to meet this challenge and make this important reform.

The Government welcomes the Opposition’s proposals and looks forward to negotiating in good faith with all parties.

It is up to the Leader of the Opposition to now show how his proposals are environmentally and fiscally credible and commit to voting on the CPRS this year.

CARBON POLLUTION REDUCTION SCHEME (CONSEQUENTIAL AMENDMENTS) BILL 2009 [NO. 2]

The Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009 contains consequential and transitional provisions relating to the Carbon Pollution Reduction Scheme.

The Bill seeks to amend 11 Acts and one set of regulations.

National Greenhouse and Energy Reporting

The most significant amendments relate to the National Greenhouse and Energy Reporting Act 2007.

This Act provides the existing national framework for the reporting of information on greenhouse gas emissions, energy consumption and energy production. To maintain the Government’s commitment to the streamlining of reporting of greenhouse and energy data, the Act will be the starting framework for monitoring, reporting and assurance under the Carbon Pollution Reduction Scheme.

A number of changes are proposed to strengthen the Act and align it with the requirements of the Scheme, as outlined in the Government’s White Paper titled Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future, which was released on 15 December 2008. Under the amendments, one report will satisfy an entity’s reporting requirements for the Scheme and current reporting requirements under the National Greenhouse and Energy Reporting Act 2007.

Coverage of synthetic greenhouse gases

The Carbon Pollution Reduction Scheme covers synthetic greenhouse gases. As some of these gases are already regulated under the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989, amendments will be made to that Act to align it with the Scheme.

Establishment of the Australian Climate Change Regulatory Authority

The bill contains a number of consequential amendments relating to the establishment of the Australian Climate Change Regulatory Authority.

As well as administering the Carbon Pollution Reduction Scheme, the new Authority will take over administration of both greenhouse and energy reporting and the renewable energy target. This necessitates a number of legislative amendments to replace two existing statutory bodies – the Office of the Renewable Energy Regulator and the Greenhouse and Energy Data Officer – and transfer their functions to the Authority.

The creation of the Australian Climate Change Regulatory Authority also gives rise to a number of other consequential amendments – for example, to apply financial management and accountability requirements to the Authority.

Measures to prevent market manipulation and misconduct

Australian emissions units and eligible international emissions units are to be financial products for the purposes of the Chapter 7 of the Corporations Act 2001 and Division 2, Part 2 of the Australian Securities and Investments Commission Act 2001. The bill amends these Acts accordingly.

These amendments will provide a strong regulatory regime to reduce the risk of market manipulation and misconduct relating to emissions units. Appropriate adjustments to the regime to fit the characteristics of units and avoid unnecessary compliance costs will be made. The Government has committed to consulting further on those adjustments and recently released a discussion paper on this issue.

As required by the Corporations Agreement between the Commonwealth, States and Territories, the Ministerial Council for Corporations has been consulted about the amendments to the corporations legislation and, to the extent necessary, has approved those amendments.

Taxation treatment of emissions units

Schedule 2 of the bill amends various taxation laws to clarify the income tax and Goods and Services Tax treatment of emissions units.

The main consideration in designing the tax treatment of units is that the tax treatment should not compromise the main objectives of the Scheme. This means that tax should not influence decisions between purchasing, trading and surrendering units or alternatively reducing emissions. The preferred tax treatment will help implement the Scheme and reduce compliance and administration costs for taxpayers and the Australian Government.

For income tax, the amendments establish a rolling balance treatment of registered emissions units which is similar to that for trading stock. The result of the treatment is that the cost of a unit is deductible, with the effect of the deduction generally being deferred through the rolling balance until the sale or surrender of the unit.

The proceeds of selling a unit are assessable income with any difference in the value of units held at the beginning of an income year and at the end of that year being reflected in taxable income. Any increase in value is included in assessable income and any decrease in value allowed as a deduction.

The Bill also amends the Goods and Services Tax law. It characterises a supply of an eligible emissions unit or a Kyoto unit specifically as a supply of a personal property right and not a supply of or directly connected with real property. The amendments will promote certainty about the application of the normal GST rules to Scheme transactions.

Conclusion

The consequential amendments contained in this bill are important for the efficient and effective operation of the Carbon Pollution Reduction Scheme. The amendments seek, where possible, to streamline institutional and regulatory arrangements and minimise administrative costs with the Scheme.

AUSTRALIAN CLIMATE CHANGE REGULATORY AUTHORITY BILL 2009 [NO. 2]

This bill would establish the Australian Climate Change Regulatory Authority – a new statutory authority that would be responsible for administering the Carbon Pollution Reduction Scheme.

It is one of a package of bills to establish the Scheme.

The Authority will be responsible for auctioning and allocating emissions units, maintaining a national registry of emissions units and ensuring that firms comply with their obligations under the Scheme.

The Government’s intention is to establish an effective, efficient and independent regulator.

The Authority will be a body corporate headed by a Chair and between two and four other members. Through the Chair, it will employ Australian Public Service employees on behalf of the Commonwealth.

It will have a modern set of information-gathering, inspection and enforcement powers, conferred on it by the Carbon Pollution Reduction Scheme Bill 2009.

The Authority will be at arm’s length from Government. As with other independent regulators, the Minister will only be able to provide directions on general matters and there are limited grounds on which a member of the Authority may be removed from office.

The Authority will also be accountable. It will be required to produce 3-yearly corporate plans and annual reports, and comply with the Financial Management and Accountability Act 1997.

The Authority will take over the functions of the existing Office of the Renewable Energy Regulator and the Greenhouse and Energy Data Officer, so that a single regulatory body will have overall responsibility for administration of climate change laws. This transfer of functions is to be affected through the Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009.

While it will have strong powers to ensure that Scheme obligations are complied with, the Authority will also have an important role in advising and assisting persons in relation to their obligations under the Scheme – something that is formally reflected in the Authority’s functions.

CARBON POLLUTION REDUCTION SCHEME (CHARGES—CUSTOMS) BILL 2009 [NO. 2]

This bill, which is part of the legislative package to establish the Carbon Pollution Reduction Scheme, is one of three technical bills which anticipate the possibility that the charge payable by a person to the Commonwealth for issue of an Australian emissions unit as the result of an auction, or for a fixed charge, is a tax within the meaning of section 55 of the Constitution.

The Commonwealth does not consider that these charges are taxes for constitutional purposes. However, the Government has taken an approach of abundant caution, with the charges bills providing safeguards in case a court reaches a different view on this question.

This bill caters for the possibility that the charges I have mentioned are, in whole or part, both a tax and a duty of customs by providing for the imposition of such a charge under this bill.

CARBON POLLUTION REDUCTION SCHEME (CHARGES—EXCISE) BILL 2009 [NO. 2]

This bill, which is part of the legislative package to establish the Carbon Pollution Reduction Scheme, is one of three technical bills which anticipate the possibility that the charge payable by a person to the Commonwealth for issue of an Australian emissions unit as the result of an auction, or for a fixed charge, is a tax within the meaning of section 55 of the Constitution.

The Commonwealth does not consider that these charges are taxes for constitutional purposes. However, the Government has taken an approach of abundant caution, with the charges bills providing safeguards in case a court reaches a different view on this question.

This bill caters for the possibility that the charges I have mentioned are, in whole or part, both a tax and a duty of excise by providing for the imposition of such a charge under this bill.

CARBON POLLUTION REDUCTION SCHEME (CHARGES—GENERAL) BILL 2009 [NO. 2]

This bill, which is part of the legislative package to establish the Carbon Pollution Reduction Scheme, is one of three technical bills which anticipate the possibility that the charge payable by a person to the Commonwealth for issue of an Australian emissions unit as the result of an auction, or for a fixed charge, is a tax within the meaning of section 55 of the Constitution.

The Commonwealth does not consider that these charges are taxes for constitutional purposes. However, the Government has taken an approach of abundant caution, with the charges bills providing safeguards in case a court reaches a different view on this question.

This bill caters for the possibility that the charges I have mentioned are, in whole or part, a tax. In those circumstances, this bill imposes the charge, but only to the extent the charge is neither a duty of customs nor a duty of excise.

CARBON POLLUTION REDUCTION SCHEME (CPRS FUEL CREDITS) BILL 2009 [NO. 2]

This bill seeks to establish in legislation the ‘CPRS fuel credit’ measure. It will provide transitional assistance to eligible industries and fuels that will not benefit from the cent-for-cent fuel tax reduction made under the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009.

The CPRS fuel credit will offset the increase in eligible fuel prices by an amount equal to the reduction in the fuel tax rate. CPRS fuel credit amounts will be adjusted automatically with adjustments to the fuel tax made under the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009.

The CPRS fuel credit program will give transitional assistance to the agriculture (excluding forestry) and fishing industries for the period 1 July 2011 to 30 June 2014. For the period the Government has fixed the emissions unit charge at $10 per tonne, based on current taxation arrangements, this credit will equal 2.455 cents per litre.

Activities incidental to the agriculture and fishing industries currently receive 50 per cent of the fuel tax credit under the Fuel Tax Act until 30 June 2012 after which they will be entitled to a full fuel tax credit. As these incidental activities will therefore receive a partial benefit from the reduction in fuel tax until 30 June 2012, they will be entitled to a partial CPRS fuel credit until that date. This CPRS fuel credit will be 50 per cent of the full CPRS fuel credit while the reduced fuel tax credit rate applies, and the full

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