Senate debates

Tuesday, 4 March 2014


Clean Energy Legislation (Carbon Tax Repeal) Bill 2013, Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2013, Ozone Protection and Synthetic Greenhouse Gas (Import Levy) (Transitional Provisions) Bill 2013, Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2013, True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2013, True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2013, Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013, Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013, Clean Energy (Income Tax Rates and Other Amendments) Bill 2013; Second Reading

5:38 pm

Photo of Ron BoswellRon Boswell (Queensland, National Party) Share this | | Hansard source

Earlier today, I was about two minutes into my speech when it was interrupted for question time. As I was saying, the Clean Energy Legislation (Carbon Tax Repeal) Bill has been blocked, there has been filibustering, the debate has been going on for three weeks, and every man and woman in the Labor Party has dutifully come forward and presented a speech. I do not think some of them even knew what they were saying. As I said earlier, it might as well have been in Swahili, because I do not believe the people in the Labor Party actually know what they are talking about. I do accept that the Greens know what they are talking about. It is their thing; this is what they specialise in. I do not agree with them. In fact, I am violently opposed to them—

Photo of Penny WrightPenny Wright (SA, Australian Greens) Share this | | Hansard source

Not violently, I hope!

Photo of Ron BoswellRon Boswell (Queensland, National Party) Share this | | Hansard source

Well, not violently, where I am not going to walk over there and hit Senator Peter Whish-Wilson! Of course I am not. But I am violently opposed to what a carbon tax does. With the Greens, I could almost quote the Bible: 'Forgive them, Father, for they know not what they do.' Because what they are doing is not putting jobs at risk but burning jobs. They are burning jobs. Job after job after job is going.

Because I ran a business for 20 years and I know the costs and I know how slim the margins are, when the carbon tax was first presented I thought, 'Hang on. This doesn't ring true to me; there's something wrong with this. This is going to cause problems.' So, on 26 August 2008, I asked the first question about the carbon tax and then I made the first speech on it. I belled the cat and I am very pleased that I did. The proposition was ridiculous—that we would reduce our carbon emissions to five per cent of 2000 levels by 2020. So, to quote my former Senate colleague Barnaby Joyce, from a room in this parliament we are going to control the temperature of the world. Now, we have 1.3 per cent or 1.4 per cent, depending on whose figures you use, of the world's carbon emissions. It does not matter what we do; we are going to make very little difference to it.

But look at what has happened—and I am not saying it is totally due to the carbon tax but it has certainly played a very, very significant role; and I know you, Mr Acting Deputy President Sterle, are very concerned about this because you have always represented the blue-collar worker. These are indisputable figures. The carbon tax and the RET have turned our manufacturing sector into a killing field. Under Labor's five years of government, over 140,000 manufacturing jobs were lost. So did we reduce our carbon emissions? No. We sent our manufacturing across to China, across to India, across to Indonesia, where they do not have the clean-air controls that our factories have. We have exported our carbon emissions. We have made other countries take on the role of our manufacturers.

When the leader of the Labor Party in the eighties said, 'We're going to get rid of tariffs,' I thought, 'This is big, brave stuff,' and because I worked in manufacturing—I was a manufacturer's agent—I knew a bit about it, and my thoughts went out to the blue-collar workers who do not have great experience, who grab a bucket from the way and put it in a hot dip and pull it out the other side. There were 300 of these people in one factory I represented for Queensland and probably 250 in the other. One was a paintbrush factory; the other was in metal. I thought to myself, 'How are these people going to get jobs?' I really had doubts. I must admit I was a doubting Thomas about it. And then the mining industry came along and everyone got a job. People got jobs in other areas. I have to admit that the Labor Party at that time were right. They removed tariffs. They created a better standard of living. Instead of going and buying a pair of shoes for $300, you could go and buy a pair of shoes for $80 and you had another $200-odd to spend down at the shops. It created employment and it created activity. That works. That works, as long as you can employ people. What we had was very low-cost energy, high-cost labour and good conditions.

In manufacturing, there are three things: the cost of labour, the cost of energy and the cost of raw materials. The cost of raw materials is set by a world price and you cannot shift it very much either way. The cost of energy and the cost of labour are set by the government. Paul Howes today—and I commend this to anyone in the Labor Party—is virtually saying the same thing as Maurice Newman, the Prime Minister's adviser; David Goodwin, from the Chamber of Commerce and Industry; and Brendan Pearson, from the Minerals Council: 'Have cheap energy, reasonable conditions and good wages, but don't trade away what you have got as cheap energy.' That is what has happened with this carbon tax. You do not have to be Robinson Crusoe. You do not have to be Einstein. It is happening before your eyes. But somehow the Labor Party do not seem to be able to see it. Paul Howes, David Goodwin, Brendan Pearson and the National Farmers' Federation are all singing off the one hymn sheet: 'Give us reliable, cheap energy and we can have decent conditions, pay a little bit more.' As Paul Howes rightly points out, we are a wealthy country and we are never going to be able to mix it with the cheaper, Bangladesh-type workers, and we do not want to.

What is happening is that renewable energy and the carbon tax are just destroying our industries. I do not want to claim that the carbon tax is doing it solely. The high dollar does represent problems, and unfortunately it is coming back as a problem. But just look at what has happened in the last six months: McCain's processing plant in Penola, South Australia, 59 employees sacked; Simplot, 110 jobs going over to New Zealand. They do not have a carbon tax over there. Well, they do, but it is about the equivalent of a Mars bar, about $1, a tonne. It is all going over there. Simplot is downsizing its Bathurst plant operation, and 110 jobs have gone to New Zealand. Golden Circle have gone to New Zealand. I have got a special interest in Golden Circle because it was my father-in-law who, with a number of other farmers, established the cooperative of Golden Circle. My wife says that she can remember the days when she was eight or nine and her big day was going down to Golden Circle for dinner in the boardroom. At Downer EDI, 100 employees have gone. At Electrolux, 500 jobs have gone. Caterpillar announced that 200 jobs in Burnie have gone to Thailand. Kellogg's announced that 100 jobs have gone from the New South Wales Central Coast.

Then we get to the big ones: Holden, 2,900 jobs; Toyota, 3,000 jobs; and Ford, probably the same. But why? On every Ford, every Toyota, every Holden, there is a $400 carbon tax. That is at the factory level. Then you put your margin onto the selling agents and it increases. Then on top of the $400 you have got a $200 renewable energy tax. That is a huge handicap for those people in the manufacturing industry to overcome. In fact, they cannot overcome it. So what have they done? They have gone. With our carbon tax and our renewable energy tax, household electricity prices have increased by 110 per cent in the past five years. Australian business, which accounts for 70 per cent of the total electricity use in Australia, has experienced almost an 80 per cent increase in prices since 2009. The causes are not hard to find. The carbon tax accounted for 16 per cent of the electricity bill for a typical large industrial user in New South Wales. The carbon tax added $6.4 billion to the nation's tax bill. We can say, 'Everyone else is doing it.' Well, I am sorry; no-one else is doing it. We have the dearest carbon tax in the world, and it is going to go up. We are out there showing the way. We are out there like Sister Anna carrying the banner, with someone else behind beating a drum. But no-one is following our stupidity.

You can argue that the science says this and the science says that. I will tell you, for every scientist that says the world is being overwhelmed by CO2 and temperatures are rising, you can find another 10 scientists that say that it is not.

Photo of Ursula StephensUrsula Stephens (NSW, Australian Labor Party) Share this | | Hansard source

You can't!

Photo of Ron BoswellRon Boswell (Queensland, National Party) Share this | | Hansard source

I am not going to get into that dispute.

Photo of Jan McLucasJan McLucas (Queensland, Australian Labor Party, Shadow Minister for Mental Health) Share this | | Hansard source

That is not true!

Photo of Ron BoswellRon Boswell (Queensland, National Party) Share this | | Hansard source

I am not going to get into that dispute because I do not think it matters one iota. What matters is this: if you are going to have a carbon tax, then you had better make sure India, China, Indonesia, Bangladesh and all those other countries go along with you, because, if they do not, it is no more than a simple gesture. I do not want to get into the science. You do not have to get there but, if you want to convince me that a carbon tax will work, firstly, go and tell the people in Indonesia: 'I know you're only on a couple of rupiahs a day, but I know you'll carry the load, because it's good for the earth. We'll put a tax on your heating and we'll put a tax on your lighting.' They will say, 'But we don't have any lighting. Yes, we do have heating. We're very lucky; we have a kerosene heater.' 'Oh well, we'll tax that.' There would be a riot, and so there should be.

If you go to China, what are they doing? We are told that they have got renewable energy. Yes, they have got a bit of renewable energy. Let us see what China have got in the way of renewable energy. Their renewable energy is about six per cent. Solar accounts for 0.2 per cent and wind is about six per cent. Mr Acting Deputy President Sterle, I know you are interested in this, because I have always found you a person to be interested in the working class, the working person. Every two weeks, China is putting in a new one-gigawatt power station

In Australia our total transmission through energy is 50 gigawatts. The energy that is driven out of Australia is 50 gigawatts. China are putting in one gigawatt every two weeks. China have a total capacity of 557,938 megawatts. India has a total capacity of 519,396 megawatts. Of course the brave Greens would say, 'I know it's rough in India, but you have to pull your weight and do a bit of sacrificing.' The people of India say: 'We live in a cardboard carton. What more can we sacrifice? Our kids cannot go to school. Do you want us to sacrifice more? What have we got to sacrifice?' The Greens, never short of an answer, would say: 'The wealthy countries like Australia and America can pay.' That is what the Copenhagen agreement started out to say.

I have never seen things so bad in Australia. On Sunday a friend of mine put a job ad on the website for an accounts clerk. By Sunday afternoon he had 100 people applying for the job and yesterday there were 200 people. He employed a solicitor to do a clerk's job and she was so grateful. It is a killing field out there. We do not realise that in here, because we are well paid and our kids are well looked after. But out there it is a battle. I am frightened for my grandchildren. We cannot afford to do this. We have got to pass this legislation.

While you are procrastinating, jobs are going and companies are closing. Holden is withdrawing. Then you have $100 million for the airline and $27 million for Virgin. Out of $250 million, $100 million is not going to rock the financial boat, but $100 million is a lot of jobs. You can employ a lot of people for $100 million.

The Labor Party are trying to defend 33 per cent of the votes. Thirty-three per cent is never going to get them into government. They have to sell their wares to the tradies, the people who work in factories and the people who have not got jobs. They are not doing it and they are going to be over there for the next 100 years if they do not break away from the Greens and defend their old position for the traditional blue-collar workers. If they do that, they will be some competition. If they do not, they are going to be over that side for the next 20 years.

5:56 pm

Photo of Ursula StephensUrsula Stephens (NSW, Australian Labor Party) Share this | | Hansard source

I too rise to make a contribution to this debate on the carbon tax bills. I listened with interest to Senator Boswell, but I fear that the facts might have gotten in the way of a good story. We need to acknowledge that the climate change challenge, particularly the need to lower CO2intensity and thus improve energy efficiency across the economy, is actually closely related to the need to increase productivity-improving investment. That is why Labor see climate change as an opportunity rather than a barrier to a stronger economy. That is why we pursued the clean energy policy that would spur investment in research and development and promote innovation and the use of new technologies and do that at a negligible cost to the economy.

We have always believed, despite the government's denials, that climate change is fundamentally an externality problem, where the costs of the activity are not fully represented in the institution or the market where the decisions are being made about the activity and that then leads to excessive social costs and what the economists would call a suboptimal welfare outcome. We also believe, despite the government's denials, that climate change is fundamentally a global problem and, as with any international problem, coordination issues are the key. We further believe that climate change is a problem whose solution implies costs for certain powerful vested interests in the economy, and we know whose interests are being protected with the repeal of the carbon tax. Finally, Labor believe that climate change is a problem on timescales that are larger than the human life span. So climate change is a long-term, intergenerational problem with the complicating issues that such problems entail.

Professor Ross Garnaut called it a diabolical public policy problem. Others in the field of public policy describe these problems as wicked. That is not to suggest, as many on the other side would, that climate change is a problem that is not solvable. In fact, the most challenging aspects of the problem are practical not conceptual, in particular the need to create a coordinated international approach. Conceptually we certainly understand the externality problems well. We understand the specific nature of climate change externality and we understand the mechanisms needed to overcome the intergenerational aspects of the problem. From a domestic point of view, if the will to address the problem were shared by both sides of politics, it would actually cease to be a policy problem for government at all and would instead become a practical engineering and scientific problem for industry and academia. The challenge would become purely one of invention and investment, and its solution would benefit the economy and our long-term competitiveness and prosperity.

Climate change is not the result of true disagreement about the best solutions that governments and countries might argue as the best policy approach. It is actually the effort to delay or avoid the implementation of real solutions that causes this dilemma. These efforts are born either of a denial of the problem in the first place, which we hear constantly from the government, or of a misrepresentation of the scientific uncertainty in order to delay the implementation of solutions and to delay harm to vested interests. We have heard that argument consistently from the government as well. Both of those explanations apply to the government's position and its action on repealing these bills.

Labor accepts the science of climate change and we believe that we need to do something about it. Mr Abbott and the coalition do not. This bill removes the legal cap on pollution and allows the big polluters carte blanche to pollute, courtesy of the pollution fund being set up by the government. The bill is nonsensical in every way, just as the Direct Action Plan is nonsensical. Experts agree that this will cost households more, while failing to cut pollution.

Several economists, in submissions to the Senate Environment and Communications Legislation Committee's inquiry into the government's Direct Action Plan, have highlighted that any real solution needs to include several features. A broad based carbon price is the first. It will: incentivise investment in deployment of and research in low-carbon technologies; incentivise abatement across the whole economy, which will allow private actors to make low-cost abatement decisions; raise revenue in an economically inefficient manner—taxing a good which produces a negative societal externality is one of the few methods available of raising revenue that does not produce the usual economic dead-weight cost on the economy—and ensure that an equitable approach to climate change is taken. Revenue raised will need to be used to support low-carbon investment, trade exposed industries and low-income earners. It needs to be able to be linked to global carbon markets and thus become part of a global solution to climate change. It needs to be permanent in order to provide policy and investment certainty with long-term carbon allocations decided on the basis of fair Australian effort and scientific advice. Labor's clean energy future legislation satisfied all of these features, and the fact is that the Abbott government does not have an alternative that meets the same standards.

Mr David Rossiter, who appeared before the environment committee's inquiry, reminded the committee that there is very little new thinking in the government's alternative. He said in his submission:

The DAP is very similar to the Greenhouse Gas Abatement Plan (GGAP) introduced by the Howard Government in 1999 as that plan also called for a reverse auction process for abatement action funding. It failed to deliver over a ten year period and was originally intended to be a four year programme. Ultimately despite the increase in implementation period only 36% of the funds were expended and the amount of abatement achieved was considerably less than was expected at tender and at a greater cost per tonne of abatement. It effectively delivered under 15% of its target in its original programme term.

He went on to say:

It would therefore be expected that DAP will suffer from similar problems, that is, it will have a considerably extended implementation period, an inability to disburse funds quickly and have increased abatement costs over those tendered for any abatement it does encourage. The current national target for abatement is a 5% reduction in emissions by 2020. It is unlikely that DAP will be able to achieve the quantum of abatement required by this target within the requisite timeframe. History shows us GGAP was regarded by the Howard Government as a failed experiment as they then adopted an emission trading scheme as their preferred mechanism to address climate change.

So here we have another revisionist policy and the government playing back to the future with everybody's future.

Last year, the OECD released a report confirming that countries could achieve higher levels of emissions reduction at much lower cost if they relied on emissions trading schemes. Emissions trading schemes are already being adopted in many countries around the world, including in the UK, France, Germany, South Korea, Canada and parts of the US and China. The GLOBE Climate Legislation Study, which covers 66 countries across the globe, found that Australia is the only country to be taking negative legislative action in climate policy. The study covers major nations including the US, China, India, Brazil and more.

The government senators' contributions to this debate have been superficial and unconvincing, simply because Mr Abbott and the coalition have not been able to come up with one credible scientist or economist willing to stand up and back their climate change policy. As we heard on Friday at the inquiry hearing, the Direct Action Plan requires setting baselines for a diverse set of projects over a wide variety of sectors. This is a very difficult and highly specialised task that should not be underestimated. It is highly site and geographic location specific. It is extremely resource intensive and it often exposes a lack of firm data from which baselines can be set.

The government claims that the Direct Action Plan will be simple, straightforward and streamlined to make it 'easy for businesses to participate'. But the reality is that the baseline system proposed is extremely complicated, detailed and data intensive if it is to be credible and accountable, as it will have to be, because the grants system proposed for allocating public money will require that. History also tells us that the system will inherently take a lot of time to reach decisions because of the baseline process. Consequently, the time frame for abatement will be reduced from the maximum of five years and costs per tonne will inevitably rise further. We are not that far away from 2020. About 60 actions are identified. This means that perhaps 600 or more baselines might be called for in the bidding process, with each being proposed and having to be independently verified. That alone is an extraordinarily enormous task. But, in addition, by the voluntary nature of participation in the measure, not all of the actions shown will be able to be bid for under Direct Action Plan. There may be too short a period for a return to be made or the risks associated with reliability of any innovation being proposed and other more costly actions will have to be invoked to achieve the abatement required to meet the full quantum of the target.

This issue was also revealed in the Howard government program and consequently any abatement cost curve produced in this form will represent a lower bound on cost and an upper bound on abatement quantity. In other words, the abatement costs will be higher and the total abatement quantity will be less than expected. Under emissions trading schemes, such cost abatement curves represent an upper bound on cost and lower bound on abatement quantity. In other words, there are more abatement options identified, costs are less and total abatement quantity can be higher. That reversal is because the incentive to reduce costs under emissions trading lies with the polluter and more options for abatement will be revealed as development and further innovation occurs. History shows us more abatement options have been revealed in many similar existing market-based mechanisms, such as the US sulfur dioxide reduction scheme.

Examples of the operation of the Direct Action Plan quoted by the government are very misleading. Several government senators have referred to the transport sector and have diligently quoted the Emissions Reduction Fund green paper, for example:

… fleet operators could be rewarded for reducing emissions per tonne of freight per kilometre.

That is an example that has been widely and publicly referenced back to a major transport company by the government purporting to show how the Direct Action Plan will work. While the emissions intensity of that company may have dropped, National Greenhouse and Energy Reporting Scheme data published by the government for the company show that its total emissions have risen by 11 per cent, not fallen at all. The world's atmosphere is not concerned about emissions intensity—and Australia's international target commitments are not framed in such terms. Total emissions are the only issue at stake. The Direct Action Plan is structured counter-intuitively—the taxpayer pays the polluter and the polluter may or may not reduce their emissions. We have no idea how the government intends to encourage compliance with abatement proposals.

Climate change, as we all know, is set to have a major impact on Australia's economy and the environment and these impacts increase significantly with larger increases in temperature. Many senators have made that point in their contributions. We say we know climate change is well understood. Climate change is already occurring, and the independent modelling that has been undertaken has proven that the government's alternative climate change policies will cost billions of dollars more than Mr Abbott claims and will have no chance of meeting Australia's emissions reduction target. The government policy will simply be nothing more than an environmental fig leaf to cover a determination to do nothing meaningful or systemic to address climate change.

We need to be very clear about the government's alternative plan. Achieving the emissions reduction required to deliver its commitment to the five per cent target would require an additional expenditure of more than $4 billion to 2020. What do we have? We have the coalition's approach to carbon pollution, which is to create this $2.9 billion fund to pay Australian companies to reduce pollution. Where Labor's focus is to cap the amount of pollution that can enter the atmosphere and to have a system for business to find the cheapest way to reduce their pollution, the government will use taxpayers' money to pay big polluters. What will the outcome be? Independent research and modelling, undertaken by SKM-MMA and Monash University's Centre of Policy Studies, shows that the Emissions Reduction Fund will see pollution increase by 8 to 10 per cent above 2000 levels by 2020; reduce pollution by nearly one-third less than Labor's policy; require significant additional investment of between $4 billion and $15 billion to achieve the 2020 target; see costs and pollution both increase over time and even with spending increasing to around $88 billion from 2014 to 2050 pollution would still be increased by about 45 per cent over this period; and subsidise the pollution of businesses who do not make the changes, with these public subsidies calculated at about $50 billion to 2020.

The government is actually relentlessly pursuing an ideological agenda—part of its three-word campaign slogan from the last election. This is despite the fact that they are now in government and have access to all the data that informed the Labor government policies. Labor provided unprecedented support for renewable energy through the Renewable Energy Target, the Clean Energy Finance Corporation and the Australian Renewable Energy Agency. The government is intent on abolishing these. Labor provided support for business to become more efficient and productive, including the Clean Technology Program and the Jobs and Competitiveness Program. The government is intent on abolishing these. Labor also provided support to reduce land sector emissions through the Carbon Farming Initiative. It is interesting that the government is set to replace this with the Green Army of underpaid, undertrained young workers and a tree planting target that is simply unachievable.

Labor has contributed an extraordinary legacy: our wind capacity has trebled; more than a million households have solar panels installed; employment in the renewable energy industry has more than doubled to over 24,000 people; and during the first year of the carbon price around 150,000 jobs have been created while the economy continued to grow at 2.5 per cent and inflation remained low, pollution in the national electricity market decreased by seven per cent and, again, renewable power energy generated as a share of the national electricity market increased by 25 per cent.

In the area of agriculture, since 2011 farmers and landholders have been able to create offset credits under the Carbon Farming Initiative. Under that CFI, farmers are able to earn credits by reducing carbon pollution and then sell those credits to the 370 large business that are covered under the emissions trading scheme. That CFI means that farmers are able to do their bit in helping Australia to meet its international target while at the same time earning income by reducing carbon pollution. The government intends to decimate clean energy investment in Australia and their legislation to abolish the Clean Energy Finance Corporation has shown their complete antagonism to the sector. As the committee heard in the hearing last week, agriculture barely gets a mention in the government's green paper—something we certainly have not heard from any Nationals senators.

We want to tackle climate change in the most effective way possible. We put in place a very effective scheme. It was delivering on the long-term outcomes that Australia needed to deliver; it was providing best-practice guidelines for industry and innovation; and all the experts tell us that an ETS puts a legal cap on carbon pollution and lets business work out the best, cheapest and most effective way to operate within that. That is what this government is seeking to unravel, and it will be to the nation's peril.

6:15 pm

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary for Families and Payments) Share this | | Hansard source

I rise also to speak on the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013. I would first like to commend opposition senators on their fine contributions to this bill—well thought out arguments against these pieces of legislation. It is simply not good enough to stick our heads in the sand and leave the next generation to tackle the issue of climate change. Climate change is real, and the Labor Party supports real, meaningful, effective action on climate change. As I have said in previous contributions on climate change, something must be done; we cannot sit back and do nothing. Our parliament, as leaders of our country, must send a clear message on this issue, which is so important to our children and future generations.

The most cost-effective way to deal with carbon pollution is an emissions trading scheme. An emissions trading scheme—a market based mechanism with a legal cap on carbon pollution—is the cheapest and the most effective way to reduce emissions, while encouraging business. Labor accepts both the science of climate change and the fact that Australia cannot afford to leave the challenge of climate change to future generations. Mr Abbott and his environment minister, Mr Hunt, and the coalition do not. No credible expert argues that the coalition's direct action policies will work. The government do not even want to put a cap on how much pollution is allowed in Australia. It shows that they do not have the political will or the nous to actually effect meaningful change to reduce emissions. Big polluters, who put out high levels of carbon emissions, should not be subsidised by the taxpayer. Treasury has estimated the cost of Direct Action at $10 billion a year; that is, money paid as taxes by ordinary Australians then siphoned off into the pockets of big polluters.

I ask you: how can that sit well with anyone? It is certainly not sitting well with the Australian people. A Fairfax-Nielsen poll at the end of last year showed just 12 per cent of Australians supported Direct Action. Don't hold your breath, Mr Acting Deputy President, if you expect Mr Abbott to take any notice! This is a government that did not even bother sending any ministerial representation to the United Nations Climate Change Conference in Warsaw, a government that was not represented by a minister at this significant worldwide conference. It is a government that barely pays lip-service to one of the greatest challenges our planet faces this century.

Emissions trading schemes are already in place in the UK, throughout Europe, Korea and parts of Canada and the United States. Almost every credible economist or expert says Direct Action will not work. Direct Action is not sustainable due to the cost. Most direct action plans cannot be scaled up, and those that can prove too expensive. So why do the Prime Minister and the Treasurer set about slashing services to schools, hospitals, roads, community grants and whatever else they can get their hands on? Mr Hockey and Mr Abbott are bracing themselves for huge bills into the future so that they can pay the biggest polluters.

It is as laughable as it is tragic. The local school goes without much-needed money, but the government pays highly profitable multinationals that money instead. Carbon pollution, which causes climate change, is a problem, both environmental and economic, a problem that we must tackle. But, as we have heard in public reports and in the media, Mr Maurice Newman—one of the Prime Minister's most trusted advisers and known climate change sceptic—thinks money spent on science and cutting carbon pollution is wasted. When Mr Newman speaks, it appears that Mr Abbott not only listens, but he acts. It is deeply alarming to have someone so influential holding views on climate change that are so at odds with the Australian people, let alone with the mounting scientific evidence. It is really little surprise that with advice like this, the coalition offers such an ineffective and ill-conceived policy.

We know that climate change is real and something must be done—meaningful action must be taken. It is simple, basic logic. It is logic that we must listen to in the interests of our children, their children and for all future generations of Australians and all countries around the world. The UK, Europe, Korea and parts of North America are already using emissions trading schemes. In our region, China has also started pilot ETS schemes and, as reported in the Age on 2 December last year, China's largest problems with a population of more than 100 million will be greenhouse gas emissions. It began to issue carbon permits to big polluters from last December. This was after China introduced emission trading schemes in Beijing and Shanghai in late November 2013. In terms of size, those carbon markets will be second only to Europe's trading scheme.

Australia must live in the real world and stay the course towards an ETS. Labor will continue to listen to the best available science and it does beggar belief that any political party would not. Yet we have those opposite shouting down the experts and sticking their fingers in their ears and, in fact, trying to put legislation into the parliament to repeal some of that expert advice.

Those who do not have their fingers in their ears should be crossing them. History will not be kind to this government. It will be a government that will look foolish for ignoring the science. It will be the government that ignored the biggest problem of this century because it lacked the courage to tackle the real issue. The climate change deniers will look as foolish as those who once argued that cigarettes do not cause lung cancer. But Mr Abbott is a denier and wants to tear down the progress made by the previous government. If Mr Abbott wants to scrap the so-called carbon tax, it must be replaced with something that works. It is accepted that an emissions trading scheme will work by putting a cap on carbon, but there is uncertainty about what the Liberal Party's policy will do. When pushed, the Prime Minister, Mr Abbott, could not explain it in parliament and Mr Hunt has been unable to explain how it will actually work.

Carbon pollution changes our weather and harms our environment. That is the best available science. The experts all agree. All reputable scientists say that it is a fact: the climate is changing and humans are accelerating that change. That is why governments around the world are taking action, including the previous Labor government. But this government, under Prime Minister Tony Abbott, has effectively put taking meaningful steps into the too-hard basket. Instead, we have a toxic policy from a government out of step with society both in this country and on a global scale.

Labor argues that we should tackle the problem and that Australia should back itself to compete with the rest of the world by still acting responsibly for future generations. Those future generations should be proud to look back at this period of history and see that Australia made a difference. Instead, they will read about an isolationist Australian government that shrugged its shoulders, paid a bit of lip-service, tore up policy that was making meaningful change and established a slush fund of billions of taxpayers' dollars to hand to polluters. What sort of legacy is that? Rather than feeling pride, they will be ashamed that a coalition government tore down the progress that was already made, put in laws that nobody wanted, caused economic and environmental upheaval and gave up on tackling such a huge issue.

The coalition wants to replace the laws with this poorly-thought-out replacement, Direct Action, that nobody with any economic or environmental credibility thinks will work. As I have indicated, they want to replace that with a scheme that will cost taxpayers an estimated $10 billion a year. No less an authority than Alan Kohler sums it up:

Tony Abbott will have to either drop the promise to cut emissions by five per cent or the promise to repeal the carbon tax - both together will be impossible without massive Government spending under the proposed "direct action" policy of paying companies to reduce emissions.

I ask the Senate: which of those two options—repealing the carbon tax or reducing emissions by five per cent—should we expect Mr Abbott to choose? With advisers such as Mr Maurice Newman in Mr Abbott's ear, it is safe to say that he would prefer to ditch the price on carbon and damn the consequences if we do not need the absolute minimum emissions target reduction.

Mr Kohler also says:

The liquefied natural gas (LNG) export boom will make it virtually impossible for Australia to meet the Government's carbon emissions reduction target.

So according to one of our most respected economic voices in Australia, under Direct Action there is no chance of meeting the minimum target. Mr Kohler says that not trying to reduce carbon emissions at all would put Australia at odds with the rest of the world, including China and the US, and endanger trade agreements. But as Mr Kohler writes:

… the Prime Minister and Treasurer Joe Hockey will be, or at least should be, desperately hoping that the Senate never allows the repeal of the emission trading scheme legislation, so it's not exactly a broken promise—at least they tried.

At least they tried! Already, the coalition—Mr Hockey, Mr Abbott and senators in this place—might just wash their hands of the issue altogether.

The coalition has given up—it is too hard! They have put in place Direct Action as an alleged alternative policy, but it will not achieve anything meaningful. This is a government without a map to navigate the country into the future. It is a government refusing to live in the real world. It is a government refusing to listen to the experts. It is a government claiming that it knows best but with no actual idea of what it will do when the hard questions are asked of Direct Action.

Businesses with foresight are already leading the charge, using clean, green technologies of the future to secure the long-term future of their businesses. Governments that claim to have foresight would be wise to follow their lead. We cannot afford to be left behind. Treasury said in its Blue Book, prepared prior to the 2010 election:

A market based mechanism can achieve the necessary abatement at a cost per tonne of emissions far lower than any other alternative direct-action policies.

That advice on Direct Action from Treasury hardly sits on its own.

The poorly-thought-out Direct Action policy is also at odds with industry. In a submission to the government the Australian Industry Group said:

… there is a risk that the Emissions Reduction Fund does not deliver the abatement outcomes sought. As currently understood there is no equivalent to an emissions cap or other legal guarantee that the targets will be met.

The AiG, which speaks on behalf of about 60,000 businesses, wants the government to adopt a market mechanism—an ETS. he AiG says it is the cheapest and most effective way to drive down carbon pollution. This is a 60,000-strong industry group urging the government to put in place a market mechanism, not its Direct Action Plan. This respected industry group says that 'bureaucratic or political decision making are usually poor substitutes for the judgements of market actors responding to price in light of their own circumstances'. And, along with Mr Kohler, the AiG also raised fears over the consequences of not matching the emissions reduction targets of other major economies around the world.

The AiG says that consistent global action is fundamental to preserving Australian competitiveness. Economists and climate scientists across the world all agree that an emissions trading scheme—a market-based mechanism with a legal cap on carbon pollution—is the cheapest and most effective way to reduce pollution and provide certainty for business, again, as we have seen with the AiG, representing over 60,000 Australian businesses, telling the government not to push forward with Direct Action. So I ask: is this the government they voted for—one that would not listen and jeopardise economic growth? In 2011, accounting and audit expert Ernst & Young said that Direct Action has key problems that could 'hinder Australia's participation in a deeper and globally consistent response to climate change'—yet more evidence that Direct Action will leave Australia at odds with other economic powers.

In June 2012 the global chief executive of Shell, Mr Peter Voser, told 7.30 that the company already includes carbon pricing in investments and that his company took a longer term view than the next two or three quarters.

This longer term certainty is not provided by Direct Action. To quote Mr Voser:

… Shell as a company is actually very much advocating that we need a price for carbon on a worldwide basis and we want that to be on a market mechanism.

This is the head of a massive multinational company calling for a price on carbon through a market mechanism—an ETS. The list goes on. The former Treasurer, Mr Peter Costello, called on the coalition to scrap its Direct Action Plan. He said:

The easiest cut you'll make is the stuff you never go into.

And then in August of last year a leading researcher on emissions markets released detailed modelling on Direct Action and found that Direct Action would leave emissions 16 per cent above 2000 levels, would require an extra $35 billion to meet the target, cannot meet higher targets and needs to pay polluters $58 per tonne by 2020.

But, as we have heard, Mr Abbott and Mr Hunt are not listening to these respected voices. Mr Abbott is not listening to the Australian people. The recent Nielsen-Fairfax poll released on November 25 showed that only 12 per cent of people polled supported Mr Abbott's direct action policy. That says loud and clear that the voters of Australia—the hardworking taxpayers of Australia—do not want their tax dollars being shelled out by this coalition towards those who need it least: big polluters. Just 12 per cent of Australians, according to the poll, are backing Mr Abbott. This is not the government they told Australian businesses and families they would be. Australia should be setting a standard on the global scale and working with the major economies of the globe.

Mr Abbott should show leadership. This 44th Parliament will be judged by the history books on this issue as much as on any other. Labor is comfortable with our position: climate change is real, and we must not stall on acting on it. Labor supports an emissions trading scheme. We do not support Direct Action. Australians agree that there is something happening to our climate. They want action. They want meaningful action. That is what the ETS delivers. It is better for the economy. It is better for the environment. Our summers are getting hotter. Our weather is changing. That changing weather affects our economy. It affects our river systems, our reefs, our farms, our cities. It affects the entire country. We must take a stand. We cannot leave it for the next generation, the next parliament. We have to act and act now. The experts have spoken, and we must listen to them. To do nothing is unforgivable.

Labor introduced an emissions trading scheme that is working. It was cutting dirty power generation and increasing clean energy generation. Are Mr Abbott, Mr Hunt, Mr Hockey and their colleagues comfortable about facing up to future generations with their feeble excuses for having done so little at best, and having caused harm at worst, to limit emissions and protect our environment? Instead, Mr Abbott wants to plough ahead with Direct Action.

6:35 pm

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

I indicate my support for the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 and related bills and I want to outline the reasons. As I previously said, I believe we need to take meaningful and appropriate action to address the issue from both an environmental and an economic point of view. In respect of climate change, the cost of not doing so in the next few years, effectively, will be much greater for generations to come. The debates around how to deal with the need to both reduce emissions and support our economy have been long and vexed. I am concerned that even now we do not have a detailed policy in place to achieve the goals we must meet. Back in 2009, then opposition leader Malcolm Turnbull and I jointly commissioned Frontier Economics to model and formulate an alternative, intensity based emissions trading scheme. The Frontier scheme could have delivered deeper cuts to emissions at a lower cost than the CPRS and the carbon tax, because it avoided the enormous economic cost associated with the revenue churn of the former government's scheme.

Frontier's modelling estimated that for every dollar invested in abatement there is a churn of $5 to $6 through the economy. An intensity based scheme, by contrast, sets emissions targets for industries, particularly the stationary energy sector, and avoids that level of churn and with it distortions and loss of economic activity. It also avoids unnecessary distortions in energy pricing in the way the merit order works with respect to that—and that is also important for economic growth and getting the balance right to find the most efficient way to reduce emissions.

Frontier Economics also calculated that it would be relatively simple to amend the CPRS legislation at the time to make it one-third cheaper and twice as effective by introducing intensity based elements. I moved a number of amendments to that effect, rejected by both the then government and the then opposition.

The warnings given at the time by Frontier of the potential for a budget black hole in the former government's approach were dismissed by the then government—Senator Wong, I think, called it 'a mongrel of a scheme'. Well, for a mongrel, it had a lot of bite! Frontier warned the Rudd government back in 2009 of the budgetary black hole created by the decline in revenues from permit sales. The government ignored this and the black hole turned out to be about $5 billion a year. They also warned that one group that would see the upside of the abolition of the price floor announced in September 2012 would be the private brown coal generators in Victoria and South Australia.

Danny Price, the Managing Director of Frontier Economics, made the point back then that the former government handed the generators billions of dollars of cash compensation and permits in the high-fixed-price period, based on the Treasury modelling of carbon prices across many years, not just the fixed-price period. These figures were unrealistically high. Ironically, as Danny Price pointed out in an opinion piece in The Australian in September 2012:

Of course, one group that will see only upside from the abolition of the price floor is the private brown coal generators in Victoria and South Australia. The government handed them billions of dollars of cash compensation and permits in the high fixed-price period, based on the Treasury modelling of carbon prices across many years, not just the fixed price period, that now look unrealistically high. Ironically, this makes the dirty brown coal generators more valuable than if the government had never priced carbon and compensated for it.

Danny Price went on to say:

It also makes the dirty brown coal generators relatively more valuable than the cleaner, government-owned black coal power generators in NSW and Queensland that have not been compensated.

Something Treasury has also ignored over the past few years in the context of carbon policy, which must be tackled now, is a tax interaction effect associated with different mechanisms for reducing emissions. This tax interaction effect should not be ignored from a public policy point of view—or from a sheer economics point of view. It actually matters.

Frontier's proposed amendments to the CPRS would have substantially reduced the economic distortions that the proposed CPRS, or the current carbon tax, would create, as a direct result of savings due to a reduction in inefficiencies of the tax interaction effect of current policies. As Frontier put it:

… pre-existing taxes already create economic distortions that discourage investment, consumption and labour. When a carbon price/tax is imposed in addition to these existing taxes, the resulting economic costs are multiplicative, not additive.

That means that the revenue churn of the CPRS and the carbon tax has a disproportionate drag on the economy, as well as leading to much higher abatement costs.

I am also acutely aware that the Gillard government had, in effect, a reverse mandate when it came to the carbon tax, in the sense that the former Prime Minister promised not to introduce a price on carbon on the eve of the 2010 election. That, combined with the flawed design of that scheme and the associated budget black hole, made it impossible for me to support the former government's carbon tax and emissions trading scheme. But, in the context of this vote to repeal the carbon tax, there ought to be, at the very least, a very firm personal commitment from the Prime Minister to establish an alternative scheme which at minimum will achieve the bipartisan goal of a five per cent reduction in emissions on 2000 levels by 2020.

That leads to the next question of how to best replace the carbon tax with a credible alternative scheme for emissions reductions. I have said before that I was shocked to hear during the Senate inquiry into these bills on 26 November last year that Treasury has not undertaken—or had not, at that stage—any modelling to determine whether it is more effective to spend money to reduce high-emissions activity or to spend money to increase cleaner generation activity. This is a significant gap in policymaking and I strongly believe the government should commission such modelling as a matter of priority. In fact, a question I would like to give on notice to the government, Mr Acting Deputy President, is: have they actually undertaken this? I think it is something the government ought to address when they are summing up this debate—because they know, Treasury knows, that whether you spend money on reducing high-emissions activity or on increasing cleaner generation activity does make a difference to what is more cost-effective and the price effects of that.

A carbon reduction policy can only achieve its objectives through investment because, in order to transform the economy to a lower-polluting one, you need to change how energy is produced and used. Therefore, we need to know where to direct investment for the best outcomes. The business environment needs to be conducive for that investment to flourish; otherwise, the taxpayer has to pay for it through subsidies or the consumer through higher power prices—and, inevitably, they are effectively one and the same.

The former government fatally damaged its carbon policy by its ill-considered, and I suggest cavalier, changing of the rules. Removing the carbon price floor and then bringing forward the ETS by a year may have seemed like reasonable and popular policy shifts, but it caused great uncertainty for investors and highlighted the lack of robustness in the scheme. I have no doubt that the changes in government policy have led to major investors either walking away from the Australian energy market or deferring additional investment.

I think the second Rudd Government's proposal just before the election, to link the carbon price to the European scheme by next year, was the final nail in the carbon tax coffin. A European price of about $6 a tonne would be a nuisance tax that would do nothing to drive investment in cleaner energy in Australia. This is especially true where the European price may have been artificially inflated and, in any case, may have little stability—hardly attractive for investors. But the energy sector here well knows that the European scheme has been subject to significant political volatility, leading to price uncertainty. Here in Australia, that would create investment uncertainty and risk. That is why I have to date supported retaining the Clean Energy Finance Corporation.

The elegant simplicity of the Frontier scheme would have been that instead of charging for all emissions it would reward cleaner forms of energy and technology, reducing their cost rather than increasing them, largely avoiding a revenue churn and the associated economic distortions. Also, rather than government acting as both a conflicted tax collector and benefactor, trade would occur between market participants. Despite its flaws, at least Direct Action could be modified to be more efficient and it does not involve the churn of the former government's approach. I believe Direction Action can be modified to take elements of the Frontier approach, to deliver a more cost-effective environmental outcome than the current carbon-pricing arrangements. As I understand it, the Direct Action approach involves a tender process—I say 'as I understand it' because a discussion paper released relatively recently on Direct Action seems to lack sufficient detail, although it appears the government is prepared to show some flexibility in its approach.

Australian state governments conduct tenders for billions of dollars of services in the economy each year. Some of these tenders are flawed and sometimes the services delivered are poor. However, a robustly designed tender process can still be a credible approach to obtain services at a competitive price. Under Direct Action there is only one buyer of the services—the government.

There is a direct cost to the taxpayers and the government has given itself a lot of wriggle room in setting out what the likely costs over the next four years will be. Environment Minister Greg Hunt told Lateline's Emma Alberici that the emissions reduction target is $2.5 billion over the next four years, in terms of money to be spent, but the coalition's policy documents three years ago said that Direct Action obligations would cost $10.5 billion over 10 years. The big advantage of Direct Action that I see, subject to modifications, is that the government spends only a dollar for every dollar that needs to be invested in reducing emissions—not a $5 tax for every dollar, as occurs under current arrangement. This means Direct Action will largely avoid the tax interaction effect, and in this sense is cheaper than what we currently have in terms of reducing emissions.

The other significant benefit of Direct Action is that it will appeal to investors and that they will have a contract with the government to supply abatement. Investors understand contracts and so does the government. It is a very secure and well understood instrument in business and this level of security will attract the investment needed to achieve our abatement targets.

I note Minister Hunt has said that Direct Action could be implemented by regulation, rather than through legislation, to avoid a hostile Senate. I think that is very problematic because of the potential for any regulations to be disallowed by the Senate, throwing the scheme into disarray and with it any investor certainty with respect to abatement.

I still regard the Frontier scheme as much more targeted in terms of emissions abatement, but I think there is scope for what appears to be a malleable Direct Action approach to incorporate its key elements. It is worth noting that the Frontier scheme unveiled by Malcolm Turnbull and myself, in mid-2009, actually had a 10 per cent emissions reduction target, not five per cent. That is because some of the cost efficiencies from the Frontier scheme were spent on achieving a tougher target. Given that Direct Action has a similar quality, I will be urging the government to allocate some of the efficiency savings from Direct Action to achieving a more ambitious but affordable emissions reduction targets.

I believe the government needs to reconsider its approach to excluding overseas permits from Direct Action. This needs to be put on the agenda. There are arguments to consider the competitive neutrality of buying permits overseas, as long as they are robustly assessed and the local economic benefits of abatement are taken into account.

That brings me to the next related question of how the Direct Action scheme and the renewable energy target may interact. I think it is important that, while all the carbon policy balls are up in the air, the government needs to look at the interaction between the RET and Direct Action. There is an opportunity here to have a coherent environmental policy as well as having a more ambitious reduction target.

I note the May 2011 report from the Productivity Commission, Carbon emission policies in key economies, said that the RET was an expensive form of abatement. Whilst I query whether the commission took too narrow an approach in its analysis, I think it would be worthwhile to review the RET in at least one regard, as it has been reviewed in other jurisdictions—that is, the existing framework fails to weight renewable energy certificates on the basis of whether the renewable energy is more reliable as a baseload source. Baseload geothermal, solar thermal and tidal power are at a distinct disadvantage in the current scheme, compared with wind energy, because of this lack of weighting. If you want to replace coal-fired power stations you need to have a reliable form of baseload energy. It is reasonable to say that wind energy investment has choked out investment in baseload renewables, which is something that is of particular concern in my home state of South Australia as it has enormous potential with its geothermal reserves in the north of the state.

Debate adjourned.