CHAIR —Welcome. I invite you all to very briefly give us a short perspective on your views on the changes that have been announced by the government. That is the effective purpose of what we are here to do today. I invite each group to give us a very quick perspective on your views of the changes and then we will go to questions from the committee. We will also invite you to bounce off each other a little bit so that we can get some interaction between members of the panel as well. I invite Mr Hepburn, who is on my left, to start and then we will work our way along the table. We have just over an hour for the session so if we can keep things succinct that will give us more time for discussion.

Mr Hepburn —In relation to the changes announced, firstly, we would like to acknowledge that any increase in the potential emissions reduction target for Australia is a step in the right direction, albeit with conditions. Given the conditions and given the current political reality, I think it is possible that the increased target is illusory particularly given the US position of calling for stabilisation by 2020. Australian insisting on the 25 per cent aggregate emission reductions by developed countries as a condition would make that difficult. If such a strong agreement were met then we think that Australia’s contribution should be significantly higher than 25 per cent, probably in the order of 50 per cent reductions by 2020 if the global deal resulted in the conditions that have been stipulated by the government being met for a 25 per cent reduction.

I would also like to make a point about the level of ambition for the international agreement. It is fairly clear, from our point of view, that science is saying 450 parts per million, carbon dioxide equivalent, in the atmosphere would result in catastrophic climate change and runaway climate change. We think that 350 parts per million or lower is what is required, as is being advocated by Pacific nations. I think increasingly the scientific evidence is pointing to that as being the kind of range we need to be going to. Given that it is clear that Australia’s national interests would be served by taking strong global action on climate change, the level of ambition of aiming for 450 ppm is not in the national interest.

In terms of the CPRS, it is a very serious piece of economic architecture that we need to get right. As it is currently designed, we do not think it is going to drive the changes required to get to a low-carbon economy. The flaws in the scheme mean that we think it is likely to lock us into a high-polluting future and there is a risk that it will be seen as a panacea for climate action and its ineffectiveness will not be revealed for quite some time. The key changes that we would like to see include a limit as to the trading of permits on the international market—so limit that to 25 per cent. Currently the fact that we can trade 100 per cent of permits on the international market reduces any incentive for structural change here in Australia. The fact that the permit revenue will be largely squandered through handouts means that we will not be investing that in renewable energy, which is what we need to be doing if we want to drive the transition to a low-carbon economy. There are a number of other flaws that have been outlined previously which still have not been addressed and were not touched on by the changes. So on balance we think that the CPRS still needs to go back to the drawing board and we would not support it being passed in its current form.

CHAIR —We will move to Mr Sutton. I believe, Mr Sutton, that you and Mr Tager are together.

Mr Sutton —Yes. I am the co-author of the book Climate Code Red. I am the Assistant Convenor of the Climate Emergency Network. The network is a group of 60 community groups and also individual members. It was established in March 2008 to build on the message related to Code Red. The approach adopted by the Climate Emergency Network is increasingly being adopted by other climate groups and represents, I think, a new mode of policy making and action in relation to climate. CEM’s view is that the changes, other than the introduction of a conditional 25 per cent target in the Carbon Pollution Reduction Scheme Bill 2009, have weakened the already inadequate legislative proposal and that the conditionally increased target is a marginal improvement in the context of the Copenhagen negotiations but it is still grossly inadequate as a response to the climate change threat itself. The Climate Emergency Network believes that the bill should be deferred until after the Copenhagen conference so that the conference commitments can be incorporated into the legislation with the least impediments, whether they are legal or financial. However, the network believes that the CPRS structure is actually not suitable for dealing with the climate emergency and so the CPRS proposal should be systematically rethought in any case.

Knowledge about the Great Barrier Reef, the Arctic sea ice and permafrost and the Arctic Ocean carbon stores suggests very strongly that there is an immediate need to directly cool the earth by at least a third of a degree, and this is quite urgent. The earth is now known to be too hot and the atmosphere has too much carbon dioxide in it. There are three immediate things that need to be done. One is to directly cool the planet—and I know that, for many people, this is controversial—using environmentally sound geo-engineering methods. In addition to that, we are going to need a full transition of the economy at emergency speed to zero greenhouse gas emissions—and this is not something for a 2050 transformation—and to draw down Australia’s fair share of the approximately 200 billion tonnes of excess atmospheric carbon dioxide. That obviously will take quite a long time—decades.

We would like to point out that our views are now quite widespread within the community and draw your attention to the summit which was held in March in Canberra. There are also points of view that are now being expressed in a range of sign-on letters. For example, on 5 May the points of view recommended by 66 climate action groups around Australia, which I have just outlined to you, were, broadly speaking, adopted. The Nature Conservation Council of New South Wales had a sign-on statement which also has a similarly large number of signatories, including most of the conservation councillors around Australia. Within Victoria, the state I come from, Environment Victoria, which is the conservation council for that state, is also arguing that the CPRS is a flawed piece of legislation and should not be accepted in its present form.

The near-term catastrophe awaiting the Great Barrier Reef is worth looking at. In a month’s time the outlook report from the Great Barrier Reef Marine Park Authority will be released. The bottom line is that the sea is now warm enough so that there will be a major risk of bleaching episodes every year from now onwards. Given that it takes 10 years to recover from a bleaching episode and that we are actually at risk of having one in any year from now onwards, this is obviously serious. In 10 years time, which is not very long, the risk of major coral bleachings will become a certainty every year—in other words, there is not a risk of bleaching; there is likely to be an actual eventuality. As a result of these conditions, in 10 years time the Great Barrier Reef will face the likelihood of an 80 per cent to 90 per cent die-off under these conditions. The only salvation for the reef is to actively cool the earth immediately. That is not something to be said lightly; it is a logical consequence of that problem.

A similar crisis is playing out in the Arctic, where 80 per cent of the ice volume has already been lost and, within about 10 years—certainly within 20 years—the Arctic summer ice will have been lost fully. This has enormous implications, as it means there will be a regional warming because the ice-free sea will be able to absorb sunlight very efficiently and that will then put a warming pulse throughout the permafrost regions and across the Arctic Ocean, where there is now estimated to be a store of approximately 3,000 billion tonnes of carbon. If that were all to be mobilised, that is enough to increase the total amount of carbon dioxide in the atmosphere by four times the natural level.

CHAIR —Mr Sutton, I understand your passion and I appreciate it, but I would really like to try to concentrate this, if I can, on the changes that have been announced. Some of the evidence you are giving us now we have had before—and I appreciate you have not been here before—and we need to try to concentrate it. I ask everyone to do that so that we can get through on time with regard to the changes that were announced on 4 May by the government.

Mr Sutton —I will go back to the points you raised. With the current legislation, including the changes, which have in all cases slowed down or weakened the legislation, except for the 25 per cent target, the problem is that none of these address the need for a 10-year transition to a zero emissions economy. When you look at it against that, you can see that the current amendments simply do not address the issue. The CPRS locks in a very slow change in the first decade. The whole design and purpose of the CPRS is to move slowly at first and then gather pace. Unfortunately, that is exactly the opposite of what is needed from an environmental point of view, where we need to have an extremely high pace in the very first few years, and then gradually the pricing signals can be used to lock in a more systematic change. But it is actually the structural change—in a sense a wartime redirection—that is needed. I would like to contrast the CPRS structure—the amendments and its general structure—with the real need, which is for a wartime level reorientation of the economy. I might leave it at that point. The bottom line is that this structure is designed for a problem we are not facing. In other words, it is designed for a 50-year transition, and that is not the situation we are facing—in fact, it is a misdesign for the situation we are in.

Mr Lawson —I thank the committee for inviting us today. Friends of the Earth Australia is a national environmental and social justice organisation. We are part of the Friends of the Earth International federation, with more than 77 member countries worldwide and more than two million members and supporters.

I want to talk about the 25 per cent target but, before I do that, I was going to make comments similar to those which have been put forward by John Hepburn from Greenpeace. I will not repeat those but will just say that this issue of the global atmospheric target is extremely crucial to how Australia sets its domestic policy. It is absolutely clear that the 450 parts per million equivalent of CO2 advocated by the government is the wrong target. It will not ensure a return to a safe climate. It is very clear from recent observations, paleoclimatological research and research published since the 2007 IPCC report that if we set our global ambition at 450 we are going to go past the two degree threshold. More likely, with longer-term feedbacks and higher climate sensitivity which the research is now suggesting, we are going to be in the range of three and four degrees. As Philip just pointed out, that will be enough to mobilise greenhouse gases from the permafrost and other carbon sinks and tip us into accelerated climate change beyond the control of any policies that we can set, and with catastrophic impacts.

That is why more than 50 countries, including our Pacific neighbours, are advocating a target of well below 350 parts per million of CO2 equivalent, with the aim of keeping warming well below 1.5 degrees. So over a quarter of the world’s countries are currently advocating that level of ambition at Copenhagen. We think that any domestic policy that is not set with an attempt to make Australia’s contribution to the global ambition is the wrong policy setting. It is not a target that is based on science, it is not a target that is based on caution, and it is certainly not a target that is based on justice.

In relation to the 25 per cent change, clearly the new qualified target does not fit with this reality, and it is not even an adequate implementation of the government’s 450 parts per million target. A 25 per cent target is at the bottom end of the range that the IPCC has put forward, saying that if it is adopted by all developed countries it would give us only a 50 per cent chance of keeping global warming between two and 2.4 degrees. So the is a flip-of-a coin chance of keeping us somewhere between two and 2.4 degrees, and if we adopt the 25 per cent target we would be at the bottom end of that range that is being put forward.

It continues to undermine the level of ambition that is actually needed at Copenhagen for realistic targets that actually reflect the real task of tackling climate change. As John pointed out before, we really need domestic reduction targets of closer to 40 to 50 per cent by 2020 if we are going to make the contribution that is needed to meet that level of ambition that the climate science is saying we need.

Of course, the conditions that the government has placed on this qualified target still allow the government plenty of wriggle room to not adopt such a target, regardless of the outcome of Copenhagen. We are very concerned about that. It is the view of Friends of the Earth that Australia should be saying clearly in the Copenhagen negotiations, ‘We’re prepared to adopt this target, regardless of the outcome of these negotiations. We want the world to come with us.’

In relation to the other changes to the Carbon Pollution Reduction Scheme, it is our view that the increases to the polluter handouts, without any obligation on those polluters, only reinforces our view that the legislation will lock us into the maintenance of a high carbon pollution economy in Australia, and it should not be passed by the Senate.

I spoke to Cate Faehrmann, who is the Executive Director of the Nature Conservation Council of New South Wales. She apologised that she was not able to be here today, but she wanted to make clear to the committee that is the view of all of the peak environment bodies in this country, with the exception of the Northern Territory, that the legislation should not be passed, and that the changes that have been put forward only lock in the polluter-friendly character of this legislation.

Just to finish off: there are a whole range of problems with this legislation that we can explore. As has been mentioned, we think the international carbon trading element of the scheme is one of the biggest problems with the legislation. It will result in a carbon price which is primarily driven by overseas markets, not by Australian government policy. It will allow big polluters to keep polluting while buying abatement certificates that often do not represent a credible reduction in pollution. They implicate Australia—and this is particularly of concern to Friends of the Earth—in carbon credit projects, including the Clean Development Mechanism, which often have negative impacts on local communities and the local environment.

In summary, it is our view that the government should go back to the drawing board and look at a credible strategy to respond to this climate emergency that we face. This would include a rapid phase-out of the export coal industry, which more than doubles Australia’s carbon footprint, and a commitment to repower the country by public led investment in the transformation of the energy and transportation sectors.

Ms McKenzie —The vision of young people is that they will be able to live in a climate that is somewhat similar to the one their parents and their grandparents lived in. The current targets, as others have discussed, will not ensure this for young Australians. Even at the upper range of the government’s target, at 25 per cent, there is a 50 per cent chance of the temperature increase going above two degrees and having significantly adverse consequences for Australia. It is a radical policy. It is saying that Australia will be radically different to what it has been previously. It will impact significantly on the future prosperity of young Australians.

The climate is not a linear system. We cannot simply put a little bit more and it will only change it this amount. As you would know, the feedback systems that are inherent in the climate system mean that it, if we increase to something like a threshold of two degrees—which is merely a prediction; it may be well below two degrees—we may see runaway climate change. That is not a future that anyone wants to see. The level of risk that we are looking at with that now is so significant that we need to be taking radical emergency action.

Climate change is also not a problem that we can partly solve. We need to fully solve climate change. We should not be aiming to only partly solve climate change. We should be aiming to fully solve it. Rather than just thinking about what we want to avoid, we should be looking at the future of Australia and having a vision about what we want Australia to look like and what a future prosperous Australia looks like for our young people. Government is in a role of stewardship and holds the country on trust for future generations of younger Australians. To fulfil that role, government needs to be accurately and fully looking a problem like this in the face and then addressing it in the way it needs to be addressed.

We are facing two radically different futures. On the one hand, we do not address climate change adequately and we fail. What happens then is we have a radically different climate. On the other hand, we fundamentally restructure our economy immediately and we avoid some of the worst impacts of climate change. That requires significant vision and it would mean that the young people could experience the sort of prosperity, and also some of the most beautiful places, in Australia that we have previously taken for granted.

Australia is also in a position where it may well get left behind by the rest of the world. The fiscal stimulus packages of other countries—like Korea, China and the United States—are putting significant investment into green industries and restructuring their economies to be dealing with climate change, whereas Australia is not investing even near the equivalent amounts.

I have been doing a speaking tour around Canberra schools in the last two days. I have spoken to over 2,000 young school students, mainly around the age of 17—so they will be first-time voters at the next election. I ask them: ‘Are you worried about climate change?’ Without fail, about 95 per cent of the hands in the room go up. Then I ask: ‘Do you think your politicians and elected representatives are listening to what young people think about climate change?’ People look around and not a hand goes up in the room. The last question I ask is: ‘Who thinks that politicians should be listening to what young people think?’ Every hand goes up and there are a few cheers and whoops. I ask: ‘Why do you think that?’ People put up their hands and say, ‘It is our future that is going to be affected.’ ‘Why aren’t they asking young people about what they think?’ is what young people say to me. This reflects the surveys that we have done of our own membership and reflects, I think, the bumps that we see in the numbers of volunteers that we have each time there is a new announcement on climate change. We get so many emails saying: ‘I voted for Rudd at the last election, as a first-time voter, and he has betrayed me. Where is the action on climate change that I so wanted to see?’

We are holding a national youth summit in Western Sydney in the middle of the year, in July. It is called Power Shift. There will be 1,500 to 3,000 young people attending that conference. What is most important is not just the numbers of people attending that conference; on average, our members have about 300 Facebook friends. So, if we have 1,500 people who attend the conference and they all change their Facebook status, which we will be asking them to do, that is then 45,000 people who hear by word of mouth about something that their friends think is really important.

I think the political game is changing and shifting under our feet, as we have seen in the Obama election, and young people will be driving significant shifts. If you are not looking at where those shifts are going then I think you may well be at risk in future elections. I think young people are looking for brave, bold leadership that matches where the problem is at. The previous generations of Australians have strived to create a better future for their children, and I would ask that you do the same. Thank you.

Senator IAN MACDONALD —Have you ever asked them if they have had a balanced backgrounding to climate change, or have they only heard one view?

CHAIR —Senator Macdonald, before we get into the debate on this, let us continue with our discussion with the panel. Again, I would really like you to concentrate on the changes announced to the scheme in early May. I call Mr Pascoe.

Mr Pascoe —Thank you, Chair, and thank you, senators, for inviting me along today. We are absolutely respectful of the views that have been expressed by our colleagues here, and there are a lot of things that we agree on. I will not reiterate much further the need for urgency and the need for action on climate change. Focusing on the changes: ACF has welcomed the shift from a conditional target of 15 per cent to a conditional target of 25 per cent in the context of a global agreement as a significant step forward. We remain critical, however, of the handouts to big polluters, the delayed start date and other flaws that need to be fixed.

Today we have released a report by RiskMetrics which shows that the handouts to the big polluters have blown out to $16.4 billion over the first five years of the scheme. Those are handouts without conditions, and those handouts are a major missed opportunity to invest in a low-carbon economy. The sort of money that will be going to the top 20 carbon pollution emitters in Australia would be enough to fund around 30 solar thermal plants in Australia. That is enough to put one next to every major coal-fired power station in Australia. That is based on the government’s recent budget announcement. That is just highlighting that we have a major missed opportunity happening with the handouts to the big polluters.

However, the stronger target of 25 per cent does move Australia into an international climate position that is reasonable to negotiate a successful outcome for an agreement for 450 ppm or less at the critical negotiations in Copenhagen later this year. It is very important that we shifted that conditional target at this time, with the very important meeting starting in Bonn on 1 June. However, as noted, ACF do have several criticisms of the scheme and we hope that there will be improvements through the Senate process.

We know that the government’s announcement is only one step along the path to achieving deep cuts in greenhouse pollution and a low-carbon economy. Clearly, given the extent of the measures that we oppose, ACF support for the legislation is qualified and we reserve our right to make a final call as we continue to assess the legislation through its parliamentary passage towards a final vote. I will leave it there for now.

CHAIR —Thanks, Mr Pascoe. I call Mr Connor.

Mr Connor —I sent the secretariat a briefing paper on the changes. Have you received that?

CHAIR —Yes.

Mr Connor —I will not go into the full detail of that; I will take it as read. It is important from our perspective to focus on two things as we work through the policy decisions here in Australia. We have to focus on a successful global agreement, an effective global climate agreement in Copenhagen, and also on how to make sure that Australia is prospering in the already emerging clean energy economy. It is important to recognise that the low-carbon economic train has already left the station and that it is up to policymakers to ensure that Australia is part of that as much as achieving strong outcomes from a climate perspective.

It is also important in that context to understand that the debate on this legislation is happening whilst there is also now through COAG a commitment to the 20 per cent renewable energy target. There are the budget initiatives, with significant extra investments in solar and carbon capture and storage, and there is the National Strategy on Energy Efficiency, which has a number of key things but still some key omissions in energy efficiency, particularly in commercial buildings. The targets that have been embraced I think are a vital step forward, recognising the influential role that Australia plays in global negotiations. We do chair the umbrella group of countries. We are influential across most of the negotiations and our negotiators have been hamstrung previously by inadequate targets. In our view, the conditions do put us into the credible stakes and, indeed, provide a platform for a stronger agreement of developed countries as a group of 25 to 40 per cent.

It is important to understand that, whilst we argue about 450 PPM and 350 PPM—and it is our view that we will need to go to those lower ends over time—it is the time at which we peak that is as vital as anything and that makes Copenhagen such an important meeting. The need to peak global emissions and turn them around before 2020 is vital to the achievement of the 450 and 350 PPM outcomes. That is a very important element. There has been comment around the conditions that have been set on the 25 per cent target from the government, but in our view they are a realistic expression of the kind of agreement which would get us to that 450 PPM in some degrees. It may be an inconvenient truth but it is challenging. Those are the sorts of conditions we are going to need globally.

Turning to the extra assistance, we do not like it. We have made clear in previous submissions to this committee that we think that, whilst there is a prima facie case for assistance for genuine carbon leakage, most of that has been wildly exaggerated. Important additions in this package are a couple of elements which strengthen the transparency of this scheme and give a springboard for pulling back unnecessary and unjustified support after a transition period. I note in that regard there are conditions for the Productivity Commission to have a look at the real and proxy carbon prices globally, to look at what our competitors are really doing. It is an absolute mistake to think that there are no proxy carbon prices, particularly in some of our competitor countries. China, for example, through its energy efficiency and renewable energy targets actually has proxy prices. It has a range of other measures which are putting on prices there. It is an error of fact to say that they are facing no carbon prices whatsoever.

It is very important that we have that element in the review. As well, it should be a major condition of any review of the progress towards world’s best practice of energy and abatement efficiency, remembering that the Rudd Labor Party did before the election promise to have Australia on track to be at the forefront of the developed world’s energy efficiency. This is actually very important and there are still omissions in policy which I will come to shortly. The timetable, again with the delay and the one-year fixed price, is something that we do not like. But, as we set out in our submission, we think on balance it is not a critical failing. The spot price is not the most vital thing here. The CPRS and emissions trading are always about a medium- to longer-term investment signal. The signal for those contemplating dirtier or more polluting infrastructure was that their risk went up quite significantly on 4 May.

In our view the passage of this legislation, though, on balance, should be supported. If you can improve it in the many various ways that have been set out by others and by ourselves, go for it, but it is time to stop the argument amongst the politicians. It will help the international ambition around the negotiations that we do get a package moving forward. In our view it is economically responsible to get the package up and to end the uncertainty for the many people who, with the lack of action, are holding off investments in clean technologies and clean jobs. It is time to move on to the following key issues, which are tests of the credibility of the government. What are we putting on the table in terms of financing mechanisms for developing countries? How are we going to get those extra energy efficiency abatements out of, for example, commercial buildings? How are we going to get the best carbon outcomes from biosequestration? It is time to get on with it. It is time to get on with creating the clean energy jobs that are there and already growing—they are growing here and they are growing internationally. I urge the Senate to get on with the job and pass this package.

CHAIR —Thank you, Mr Connor. Dr Mallon?

Dr Mallon —Thank you, Chair. I would like to submit the apologies of Greg Bourne from WWF, who is unable to attend. I am the director of corporate analysis at Climate Risk. We have been doing an awful lot of work with WWF, which we have presented previously to the committee, so Greg asked me at to attend.

With regard to the changes in the legislation, WWF strongly supports the increase of the target to 25 per cent for two critical reasons. One is that the previous target fundamentally undermined the international negotiations, as it was inconsistent with the Bali road map. Bringing that target in line with the 25 per cent to 40 per cent range essentially supports that international process rather than undermining it. The second issue is that, if this legislation were to pass through the Senate, a 25 per cent figure on the table, though conditional, sends a very strong message to company directors. It means that should the target be raised from the five per cent to 25 per cent in future there is no recourse for them to request compensation. It therefore means that prudent company directors must plan on the assumption that the 25 per cent target could come in. That will fundamentally change the investment profile in the country. Therefore, even if international negotiations take some time, this sends a very strong market-changing message to the Australian economy and therefore would be expected to result in changes almost immediately.

On a domestic note, obviously there is a balance between the international aspirations and the aims of avoiding dangerous and runaway climate change, which is nominally set at around two degrees. We have heard that there are different estimates of what concentrations that will occur at. The work that has been done for WWF works on the assumption 400 parts per million, though that may be at the upper end of what is considered safe. That has major consequences in terms of how that target is achieved and the role of Australia in participating in achieving that target. As I have said to the committee previously, currently our national emissions are about 26 tonnes per person. In 2050 the global average would need to be around two tonnes. That is a very significant change and requires major transformations to the economy.

The CPRS has several policy applications. The first is that there is a requirement for a major transformation in the economy. The increase in the assistance to highly exposed industries or the high-emission sector essentially sends a very mixed signal to the economy and could be interpreted as causing market distortions which are undermining the market’s attempt to transition the economy by essentially disrupting a rebalancing of the market in terms of its investments and so forth. The increase in that assistance could be detrimental to the process of transition.

The second issue is essentially the unfettered use of offshore offsets. In principle it is plausible to say, ‘It doesn’t matter where the emission cuts occur. What’s the difference between the emission cuts occurring in Australia or overseas?’ As an analogy, it might be useful to look at Senator Obama’s plan for a high speed rail link in the US. He could do that in the US but, on the other hand, he could have paid to have it happen in China. In terms of the atmospheric outcome, you could say that those two things are equivalent. But in terms of the domestic issues of transforming the domestic economy, they are of course fundamentally different. So the use of unfettered offshore offsets essentially means that the economy is seeing a lot of the ‘stick’ in terms of the cost to the economy but it is not seeing a lot of the ‘carrot’, because that money is not being recycled into the economy to help the system pay for the transformations.

The final point is that the CPRS cannot be seen alone. The nature of the CPRS, which is, if you like, a price based mechanism, means that it brings through the least-cost solutions first. What that means is that under the CPRS we may see things like energy efficiency or some of the low-cost opportunities being strongly promoted but some of the more expensive but fundamentally important resources like geothermal and solar energy would be sitting on the shelf. The problem is that our modelling shows there is not the time to leave those resources essentially undeveloped if you want to meet these targets down the track. That means that the CPRS provides the market overview. But the complementary measures, especially in the energy efficiency sector and the renewable energy target, are fundamentally essential to the functioning of the CPRS and the overall objective of the emissions outcomes that are intended. As we have submitted to the committee previously, that may include the use of banding the MRET or feed-in tariffs to make sure that all of the low-emissions industries are being developed concurrently and that we do not see important solutions sitting idle.

Senator IAN MACDONALD —I want to do a quick run along the table to get a yes or no on the emissions trading legislation as we currently know it. Should we pass it, or not?

Mr Hepburn —No.

Mr Tager —I am with Greenpeace, so it is no.

Mr Lawson —No.

Mr Sutton —No.

Ms McKenzie —No.

Mr Pascoe —We offered qualified support, so, on balance, yes.

Mr Connor —Yes.

Dr Mallon —My understanding is that the WWF has a position of qualified support.

Senator IAN MACDONALD —I will take that as a yes.

Dr Mallon —Okay.

Senator PRATT —Some of you have commented on the importance of reaching an agreement at Copenhagen to turn its emissions profile around, while others of you have not. I would like your comments on that, please.

Mr Lawson —We think that reaching an agreement at Copenhagen is very important. We are concerned that an agreement will not be reached. We are concerned that the agreement that might be reached will not be adequate in terms of the response to the profound catastrophe that we are facing in relation to climate change. We have specific concerns in relation to where the agreement is heading, as well—in particular, the central mechanism of international carbon trading and the issues that have been raised about the problems of offsets and so on. If there is an agreement that pinpoints an atmospheric target of well below 350, that would be a significant step forward. If there is an agreement that has less ambition than that, there will be a question about whether it, like Kyoto, in some senses holds back the response that it is needed, because it does not indicate the level of ambition that is needed for countries around the world.

Senator PRATT —I accept that we need a high level of ambition, but what are the consequences of no agreement? Clearly, that heightens the risk of even further catastrophic climate change. What is the risk of undermining countries’ confidence in participating because people deem that at this point in the negotiations some countries are being asked for too much? Clearly we are still at the point where we are trying to get countries—for example, like Japan—to the point where they are happy to lift their target, so that we can look at comparable countries making a similar commitment to Australia and we can start to lock in an agreement. What happens if the overall critique is: ‘Oh, well, what you are committing yourselves to is not going to be good enough anyway,’ and the agreement starts to lose momentum?

Mr Lawson —I think you can look at it the opposite way: that if Australia does not take the necessary high level of ambition to the talks, it is actually contributing to weak agreement or a failed agreement. That is why we think Australia should take a position that is based on what the credible science is now saying is needed and use that to adopt the position it should take in Copenhagen. That is certainly what over 50 countries of the world have done. We think Australia should be joining with those countries.

It is a glass half full/half empty sort of argument. You can say that Australia should therefore take a weaker target because that might contribute to an agreement, but, as Amanda said, climate change in once sense is a binary issue: you either fully solve the problem or you do not solve the problem. You cannot half solve the problem. It is not like, say, a wage negotiation where you go, ‘Well, business wants this and the unions want this and we’ll meet in the middle.’ If we meet in the middle on climate change, we still get catastrophe. We need to have goals, and the implementation of those goals, that fully meet the problem.

Senator PRATT —But we can make it worse by failing to do anything.

Mr Sutton —I think it is really important that there is an agreement at Copenhagen. It is possible that it may take an additional meeting or something of that sort to get conclusion around the next stage beyond Kyoto, so I think it is really important to get agreement. However, I think we should have, in a sense, a dual track approach. I think that Australia should go to that meeting saying that we have a new position, which is that we want to fully solve the climate problem and that that clearly would mean that we have to go into emergency mode—that we need zero emissions, that it should be done immediately, that we need to draw down et cetera—knowing full well that that will not be adopted at Copenhagen.

Dr Mallon So Copenhagen will fail even if it succeeds, but it needs to succeed in its limited sense. So we obviously need to get that agreement. I think we should be acting in an educational fashion to say that our position from Australia is that we want to fully solve the problem and that we now in fact have a completely model of how we are going to go about that, and we introduce that into the Copenhagen discussions—not with the expectation that it would be adopted but with the expectation that it will influence subsequent processes. I think it is absolutely clear that Copenhagen is simply a weigh station on the way to something else. It cannot, with the short time available and the lack of proper discussion about the issues, produce a desirable outcome. But it is also important that it is not a failure in the absolute sense of simply producing no result. So I think that we need this dual track approach and we need to start messaging the really strong position around fully solving the problem.

—Senator Pratt, if I may, I would suggest recasting the question slightly. If we think of Australia as Australia Pty Ltd, to some extent we are going to be a policy taker. I am sure we would like to throw our weight around, but largely the deals which will be done around climate change will be done by the European Union, the US, China, India and so forth. That represents a very significant risk for Australia. We have to remember that each of those countries is moving ahead quite vigorously, if not on the policy front then certainly in terms of the domestic transformation front. All of them have very, very robust technology transformation programs underway. If a deal is brokered on, say, the Obama target, that will not get you down to two tonnes a person but it gets you around 3½. That means that somehow we would have to be getting down to a target of what would be an 83 per cent cut.

That is a very significant policy risk in terms of international trade. The French have already put on the table the idea of trade barriers, which would mean that exports into Europe would suffer a border adjustment because of carbon. Also, there are significant risks in terms of what industries will prevail, or what the impacts would be on, for instance, our energy exports. Regardless of how we might seek to influence the policy, the agreement which ultimately is reached in all cases represents a risk which requires a prudent readjustment of the economy to cope with that risk. That is how a company would deal with it; it would start by saying, ‘Let’s make sure we have a plan B or a plan C; let’s make sure that we are heading for the centre of where we think things are heading.’ And that requires exactly the kind of adjustments that we are essentially discussing here today.

Senator PRATT —Thank you.

Mr Connor —It is important to understand that it is extremely unlikely that there will be no agreement. In fact, if you look at where developed and developing countries are at now, and the conditions that the government set down for its 15 per cent target, we are probably there right now. That is a very important element for senators to consider as they consider this package. The question is: will it be good enough? It is only going to be good enough if we vault up at least to that space of the 450 ppm or lower. I certainly agree with others that this is a weigh station; we have a long way to go yet, but there will be an agreement. I think it is important to focus on our ambitions on getting to that higher level.

Mr Pascoe —I agree with what Karl is saying but I think we also need to acknowledge that Australia does have an ability to influence these international negotiations. Australia has played a big role in other international policy processes from the International Whaling Commission to the establishment of the United Nations to holding back the Kyoto Protocol, and we certainly need to do everything we can to play to win here and send our negotiators to Copenhagen with the tools in their toolbox to contribute to a strong international agreement.

Senator MILNE —As Senator Macdonald did a minute ago, I would just like to get a quick response. I am assuming that no-one sitting before me is supporting and thinks it is a good idea to have a delayed start, nobody thinks it is a good idea to fix a $10 price in the first year, nobody here thinks giving out additional money to polluters is economically rational and nobody here thinks that imposing higher costs on the budget in the future is a good idea. I heard from all of you that people are opposed to it for those reasons, and opposed to the target, and that three of you here support it based on the target, but nobody supports those things. Am I right in assuming that? Okay; thank you. Let’s get rid of all that for a start. So what we are talking about now—

CHAIR —We had better say that there were general nods across the room because it is a bit hard for them to appear in Hansard.

Senator MILNE —Nobody is saying anything so I am assuming I can draw that assumption.

Mr Connor —Can I just add one caveat? I am not quite sure what you mean by the budget. I think the investments in the budget in solar and in carbon capture—

Senator MILNE —No. I am talking about the $1.1 billion additional for the energy intensive trade exposed—the global financial buffer.

Mr Connor —Yes. That is not a direct impact. It is a potential loss to that, but there are also potential significant gains if the added transparency in this package gives us extra potential to call that back quicker afterwards. That is the only caveat I would put to that.

Senator MILNE —Thank you. So now I will move on to the actual target issue. I want to clarify something from ACF. When you made your initial statement, I heard you saying that you were offering qualified support on that target, and I understand that the board has made a clarifying statement saying that ACF’s position remains as 40 per cent and an unconditional 30 per cent, and that you would reserve your right to make a judgment at the end of the day when the legislation comes to the vote. But I heard you say just a minute ago to Senator Macdonald that you give qualified support and that on balance the legislation should be passed.

Mr Pascoe —Yes. To clarify that, we are offering qualified support. On balance, we are supporting the scheme that was amended as of 4 May.

Senator MILNE —That is all. I just wanted to clarify ACF’s position. I want to go to the 25 per cent issue. I would like to ask the three groups who are supporting the government’s change here on the 25. Let us assume for a moment that there is a global agreement at 450 parts per million CO2e or better—I absolutely take on board that we need to be aiming for much better—but let us assume we did go for 450 CO2e. What is your assumption about what the aggregate for an annex 1 country would have to be to deliver that?

Mr Connor —In our view the conditions the government has set—

Senator MILNE —No, I am asking what do you think an annex 1 country would have to do to get there.

Mr Connor —In our preliminary analysis of that it would take developed countries as a group into the 30 to 40 per cent range.

Senator MILNE —Okay. If, in aggregate, developed countries had to do 30 to 40 per cent, you have said that you think the government’s 25 per cent burden-sharing offer is fair.

Senator IAN MACDONALD —These people are big enough to look after themselves, but I think the question was: would they pass the legislation in its current form?

Mr Connor —I am comfortable answering that. We certainly take the position that Australia, which is on track at the moment for 20 per cent above 1990 levels by 2020, making the effort to get to 25 per cent is extremely significant. It is when you look at the effort on a number of metrics that means other countries collectively as the annex 1 countries do more.

Senator MILNE —That is what I want to get to.

CHAIR —Did you mean below?

Mr Connor —I am saying Australia is on track. If it were business as usual even with renewable energy targets to be 20 per cent above, it is a significant effort to get it down to that level.

Senator MILNE —I want to go to this issue of burden change—

Senator IAN MACDONALD —My understanding of what you were saying is not that you like 25, but it is better than having nothing at all.

Mr Connor —No, we have advocated for 25 per cent. We think that is actually fair.

Senator MILNE —Let me go to this 25 per cent. If, in aggregate, annex 1 countries have to do 30 to 40 per cent you say that Australia’s fair share should be 25 per cent. Can you tell me on what basis, what metrics, you have determined that 25 is a fair burden-sharing arrangement for Australia?

Mr Connor —It is certainly in our submissions to Garnaut. I thought it was in our submissions to others. I can provide evidence to the committee about how we come to that on a number of criteria such as capacity and population. There are a range of criteria that we use to come to that position.

Senator MILNE —If Australia only did 25 per cent out of an aggregate of developed annex 1 countries of 35 to 40 per cent, which countries do you think should have to do a lot more so that Australia could do less?

Mr Connor —I think certainly Europe needs to do more. We have been clear about that. The US has to certainly do much more than Obama is saying. I have not had a chance to fully analyse the implications of the changes to the Waxman legislation over the last couple of days but with its capacity to put red on top of that it gets within that range, so it is those sorts of extra efforts that are going to be necessary.

Senator MILNE —Why do you think that Europe would agree to do more when Australia has done nothing and has one of the highest per capita emissions in the world? Why would they accept a set of metrics that said Australia has to do less and they have to do more?

Mr Connor —Because they are not heading towards 20 per cent above by 2020, so they are in a different situation in terms of the effort that they have to make to get to these things.

Senator MILNE —Why would you ask them to reward bad behaviour? Why should those people who are emitting as though there is no tomorrow get special consideration when other countries have actually taken serious measures to reduce their emissions on a contraction and convergence model? Why would you accept that the guzzlers get rewarded?

Mr Connor —As I said we think that 25 per cent is a fair dinkum effort towards a reduction for Australia’s pollution profile. I think it is important to understand as well, when you even look at the government’s conditions, as to where we can be heading beyond that. For 15 per cent they say that they will be at 25 per cent by 2024. These are important mechanisms that can get us to rapid reductions. We are very keen to see that happen in a way in which we are prospering as well in the booming global low-carbon economy.

Dr Mallon —Can I just respond to going beyond 25 per cent? The analysis that we have undertaken indicates that there is actually going to be a struggle technically to cut emissions more than 20 per cent below 1990 levels. It is just a sheer issue of industrial constraint. Where are the people going to come from? Where are the premises going to come from? Can the projects be deployed in time? Essentially that is one of the critical reasons why delay is so significant. Each year it is delayed it may seem that they are not important. I did listen to the Treasury presentation earlier. In fact each year is critical because those are very essential industrial development years. Technically our results are showing that around the 20 per cent is going to be the limit of what can be delivered domestically by 2020, which will mean that the additional contribution will need to come from international collaboration, potentially around forests and so forth. However, that is still consistent with achieving two tonnes per person and achieving the 400 ppm target by 2050. That is where the view has come that beyond 20 per cent had to be done through international collaboration. That could go higher but again it will rest on international collaboration.

Senator MILNE —Dr Mallon, that assumes that we are not protecting our carbon stores in Australia in terms of our forests and native vegetation. If we did that, what is possible would change, wouldn’t it?

Dr Mallon —No, it does assume that there is a significant impact on, for instance, the cessation of land clearing and so forth.

Senator MILNE —But without the protection of native forests.

Dr Mallon —It looks at all the opportunities in both the land use change and agricultural sectors in terms of the maximising the opportunities to reduce emissions.

Mr Lawson —Can I sneak in a brief comment on that as we would have a slightly different view. What is technically possible is not objective. It is determined by the economic and social context. Those things can be changed, and government policy is one of the ways those settings that provide the context in where you look at what is technically possible is determined. If you look, for example, at the Second World War where countries were throwing 30 per cent of their GDP into transforming the economy to enable them in the war effort, you had very, very rapid transformations. They could have said at that point, ‘It is not technically possible for us to be building tanks instead of cars within two years.’ In fact that is what a lot of the manufacturers said, but when the government said that you had to do it, there were very, very rapid changes. That is just an analogy.

The point is that when we look at what Australia’s fair share should be we should be not only looking at how much we are polluting now or what is considered within a narrow band of analysis of what is technically possible but also crucially rethinking our responsibility. That is our historic responsibility and our current relative responsibility for pollution that is in the atmosphere and looking at capacity more broadly in terms of our comparative wealth to other countries in the world as well. This issue of what responsibility and capacity is is really crucial to understanding what targets Australia should take on. It is not as clear cut as saying, ‘We are polluting more because we did nothing for the last decade, therefore we should do less.’ We have more capacity to do more. In many ways we actually have the low-hanging fruit because we have not done anything whereas Europe has made some shifts. One argument would say that the next step of changes for them are actually more expensive. We definitely think Australia should be taking a much higher level ambition, as we have said, to the Copenhagen courts.

Senator CAMERON —Can I go back over a couple of points?

CHAIR —There are a couple of people with questions in front of you, Senator Cameron, and we are getting close to time but you are in my thoughts.

Mr Sutton —The Climate Emergency Network is funding a project to look at how you could make 100 per cent transition in 10 years, which is a very high level of ambition. The thing is that you cannot get answers to the questions that we are discussing unless you actually do the work. I do not know of any other organisation who is arguing that we cannot achieve a major transformation who has actually done the research trying to test the limits of how far you can go.

Dr Mallon —If I can just respond to that, they are actually correct in that in a command-and-control economy you can choose not to have toilet rolls and build tanks. So that is notwithstanding that that could be done in a different regime. I would just like to clarify that issue. The work that we have done is basically working within a market context, because one of the things you start to have when you move to that system is, for instance, significant social and economic dislocation, which has to be managed, and that was certainly beyond the scope of what we were looking at. In terms of the legislation that is on the table now, the significance is that what we are looking at is how to adjust to a new emissions regime within a market based economy before it is left too late, essentially, so that more radical interventions might need to happen. I just want to clarify that difference.

Mr Sutton —With the current recession, there is actually idle capacity where companies would be absolutely itching to get work to do. There is enough capacity to put into a complete solar refit, into solar thermal power. We have glass production capacity that is not at full production, we have steel production capacity not at full production et cetera. So it is not as if, in the current circumstances, we are necessarily going to have to redirect away from current activity; we actually have an opportunity to boost the economy itself. There are a lot of possibilities that I do not think we have really explored with a vigorous and can-do type of attitude.

Senator MILNE —I want to come back to the burden sharing and the metrics underpinning it. You would be aware of the European Commission’s report Towards a comprehensive climate change agreement in Copenhagen. You would be aware that they applied four metrics: GDP per capita, emissions per GDP, early action and population growth. On the basis of that, the European Commission came out and said that Australia and New Zealand would come out at minus 38 as a reasonable burden-sharing arrangement. You have said you come out 25 as a reasonable burden-sharing arrangement. I would like you to respond now if you can, otherwise on notice as quickly as you can: what are the metrics that you have applied and what is the weighting that you have applied to each of those metrics if they are different from the European Commission’s metrics? What are the weightings of those that led you to come out with 25 when the European Commission has said that Australia’s fair share would be minus 38?

Mr Pascoe —I will have to take that on notice because I do not have that report in front of me. I have seen the 24 to 27 per cent figures for 2020. The ACF acknowledges the IPCC range, which is 25 to 40 per cent for developed countries, leading to, I believe, a 445 to 490 ppm outcome. So ACF has arrived at our position, which is that Australia should take at least 30 per cent and move to 40 per cent in the context of a strong international agreement. However, we have welcomed the move to a 25 per cent target as a significant step forward.

Mr Connor —I will take that question on notice.

Senator CAMERON —Mr Connor, you indicated that China were applying proxy prices and were engaging in reducing their carbon footprint. One of the critiques we have had from the Minerals Council, the Coal Association and a number of coal companies is that Australia is taking unilateral action. Would you like to comment on what is happening in China and give us an idea of what is going on there? Also, and you may want to take this on notice, could you give us some idea of the job opportunities within Australia, the types of jobs, the numbers of jobs, that you think could be available through us adopting a target?

Mr Connor —We have a document available, and we are updating that, about developing countries taking action. China has artificially maintained its petrol prices at a higher level, for example. There are tariffs on export of some of its steel and other resources. There are energy efficiency targets. They have a stronger renewable energy target than we do currently, not after the legislation which hopefully will pass in the very near future. You need to look to other countries. South Korea is considering an emissions trading scheme and has just put 70-odd per cent of its stimulus into these other measures. I will provide a broader paper on other developing countries that are taking action.

You also asked about job opportunities. We have got forthcoming in very short order some significant research about the numbers of jobs that will be driven by the combination of the renewable energy target, emissions trading and some of the budget initiatives. That will be coming in very short order.

Senator IAN MACDONALD —Why you are doing that, could you include in your answer on notice in regard to China what part nuclear power is playing in their greenhouse emission reductions?

Mr Connor —I will endeavour to do so.

Senator PRATT —I have a final question which relates to the question that Senator Milne was raising. Senator Milne said we are getting a benefit from delay relative to other countries that have done more and therefore we should be lifting our targets relative to others. But what I understand from the economic modelling is that we are likely to be paying a higher cost for that transition because we failed to act. In fact, we do not really get a benefit from it because we need to transition at a faster rate. So, even though we might be doing less, because we failed to act and turn our emissions trajectory already it will cost us more. I am in particular interested in a comment from Dr Mallon.

Dr Mallon —I think that is true and I think that goes across-the-board to some extent. One of the things that is very important again from the policy issues facing the committee is that unstable policy leads to price rises. At the moment we have seen very ad hoc policies not just in Australia but in the world which are leading to boom-bust. Australia has been through two boom-busts in its clean energy sector. We are looking at, for example, the closure of wind turbine factories in Tasmania and Victoria and so forth. What that means is that there is almost a risk cost that gets applied by manufacturers, and so at the moment we understand that the cost of solar technology is decreasing significantly but the price of solar panels is increasing. That is because of mismatches between demand and supply. So it becomes very important to have very stable long-term policies which allow industry and investors to invest with great confidence. I think that is especially important within the context of the CPRS and the complementary measures. If the CPRS or its framework is not considered robust or stable, it will mean that investors are going to be more cautious and they will expect more returns when they invest, or they will choose not to invest, they will go somewhere else.

Mr Lawson —For us the instability that is introduced into the trading scheme that comes from the international linkage is part of the problem. On the one hand what you are saying is that it would introduce into various producers stability, but there is actually instability built into the scheme through the international linkage in that the international carbon price will have a major impact on the carbon price in Australia. Because of its international character, that will have instability built into it. So it is a real risk in the scheme that perhaps has not been adequately looked at.

Senator XENOPHON —I have a general question for the panel. Given the reservation that many of you have about this amended scheme and Copenhagen, what do you say about other measures that can be taken now, the complementary measures that Dr Mallon talked about? There are things that we can do in the absence of an ETS immediately in terms of abatement and renewable energy. Does the panel have any thoughts in relation to that? I am just worried that if there is a delay in relation to this scheme there may also be a concomitant delay with respect to complementary measures.

Mr Hepburn —Certainly, with direct regulation in terms of energy efficiency there is a lot of opportunity today to set mandatory standards for best practice. You may be familiar with the Japanese scheme of a top runner energy efficiency program—

Senator XENOPHON —Can you give us some more details about that on notice?

Mr Hepburn —Certainly. We are also advocating a national gross feed-in tariff to drive investment. MRET will certainly drive investment in wind power but it is not going to see real investment in other renewable energy technologies. We are strongly advocating a national gross feed-in tariff for renewable technologies to drive that transformation.

Mr Connor —It is important to see it as a package. Without an ETS we will need a bucketload of regulations to get to targets that are going to help us. We can patch them all together but there would be a substantial range of regulations that would be necessary to pull together the reductions that we need. We certainly think we need to get on with things on energy efficiency. That was the point I was making. It is important in our view to get on with emissions trading and then get on with these other elements that are as yet not addressed or fully addressed.

Mr Lawson —We would say that there needs to be greater public led investment in infrastructure, particularly energy infrastructure. There has not been a move here to a smart grid like there has been in the United States. That is something that should be looked at. We think the infrastructure investments that have come through the various stimulus packages and the recent budget are unbalanced. A lot of those infrastructure investments are going to drive emissions not contribute to reducing them. Climate change needs to be put at the centre of infrastructure decisions.

The over $1 billion announced for investment in solar thermal is an example of what could be done in terms of public led investment in renewable energy transformation. A carbon price can certainly be one element of driving that change, but regardless of what mechanism you have for bringing in a carbon price, it is only one element of it, as John has just pointed out. We think there needs to be much more emphasis on public led infrastructure that can really create the context in both energy and transportation. The price then can actually have a bigger impact.

Mr Sutton —I think in a recession the investment led signals are probably more powerful than the price signals. Secondly, the price only has its effect through an interaction with responsiveness of the economy. It is the complementary measures that make the economy responsive. If you do not have very strong complementary measures then you need a much higher price in the market to get any response. It is quite reasonable to think that, in fact, if you favoured the complementary measures in the very short term, created the infrastructure and provided the investment that would have a more stimulatory effect than if you simply relied on a very long-term and volatile price system coming out of a permit trading system. Arguably an energy tax or a carbon tax would provide a much more stable environment for investment than a system which could have volatility depending on where you are in the business cycle.

Mr Pascoe —I want to support the other comments made. Nicholas Stern has backed up some of the comments made up by Philip Sutton that we need those complementary measures to really drive change, particularly given that year-delay as well in the CPRS. You want mechanisms to be rolling out really quickly, starting this year. I have a couple that were not mentioned. Investment in public transport through Infrastructure Australia through the budget could potentially reduce more emissions than the solar thermal funding. Also there is a big potential to reduce our emissions if we protect the standing native forests.

Senator XENOPHON —That is not properly accounted for at the moment, is that, with Kyoto?

Mr Pascoe —You are right, some of that is not accounted for properly with Kyoto because of the nuances of the accounting mechanism there. Briefly, with more research there is potential with the agricultural sector and biochar, which are not covered under the early CPRS, to significantly abate emissions as well.

Dr Mallon —I just want to add to what the previous speakers have said and perhaps provide a context. It may seem like it is an ambit claim: ‘We want this, this and this; and it’s a big package and the more that is in it, the better.’ I think one of the issues which underpins achieving the CPRS and the goals is the role of the private sector in delivering the outcomes. The investment community and the industry will be required to take on a lot of this work. At the moment, the policies are structured in a way so that a lot of the risk is transferred to them. There may be a five per cent target but there may be a 25 per cent target, so start planning for a 25 per cent target. But that is a very big risk for an investor to take. Geothermal might come in at 8c, but it might come in at nine. In that case, it may be able to compete with wind or it may not. Those are very big risks that you are asking your entrepreneurs, your green champions, to take on.

The role of the complementary measures is to take that risk off them and to provide a nice stable environment. Essentially, you are bringing them up to speed so that they can then transfer it into the future carbon market and also allow for CPRS to have much more ambitious goals down the track. The role is to try and create very stable things like feed-in laws and to provide very stable prices that those markets can interact with. In the end, that will also make the CPRS more competitive because there will be more industries which are commercially viable and which will be competing with each other down the track. That will eventually lower the cost of the CPRS. I would certainly direct the committee to our work but also the work that has been done by McLennan Magasanik Associates on these issues, which comes to the same conclusion that a CPRS with complementary measures is, in the end, cheaper than a CPRS without complementary measures.

CHAIR —We will have to draw it to a close there. Thank you very much for your evidence this morning and for taking the time to appear before us.

[10.58 am]