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Joint Select Committee on Australia's Clean Energy Future Legislation
Clean Energy Bill 2011 and related bills

HERD, Ms Emma, Director, Emissions and Environment, Westpac Institutional Bank

ROUSEL, Mr Geoff, Executive Director, Global Head Commodities, Carbon and Energy, Westpac

VAN NOT, Mr Didier, Executive Director; Head, Infrastructure and Utilities, Westpac Institutional Bank


ACTING CHAIR ( Senator Milne ): Welcome. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. Would any of you like to make an opening statement?

Ms Herd : Yes, we would.

ACTING CHAIR: Please proceed.

Ms Herd : Westpac has played an active role in the development of an appropriate policy response on climate change for over 15 years and has engaged extensively with our customers at all levels of the community on the impacts of climate change and on emerging risks and opportunities for their business. We recognise climate change has an environmental, an economic and a business risk. Financial institutions are in a unique position when it comes to climate change and the associated risks to business as we lend to and invest in every level of the economy. When the economy is prospering and our customers are doing well then Westpac prospers to.

Westpac supports the implementation of a price on carbon and the application of broadbased market mechanisms as the most effective, affordable and flexible means of transitioning to a low-carbon economy. Westpac supports the need for a carbon price as a required economic reform, because it is the policy mechanism that makes all others affordable and achievable. Harnessing the market in order to provide more options and opportunities is essential to lowering the cost of climate change for the Australian community. A market based response is cheaper for the economy as a whole, cheaper for business and ultimately cheaper for households.

Establishing an effective and viable carbon price framework is a critical component of the suite of policies required to meet national emission reduction objectives of five per cent or more by 2020. We recognise that this reform is challenging and that there is clearly a case for a number of adjustment support mechanisms with the introduction of the scheme to allow business and the community to transition into a carbon constrained economy. Westpac has undertaken significant dedicated consultation with clients impacted by the introduction of a carbon price and a company and transitional assistance package in the Clean Energy Future package.

Managed properly through the design process and as a part of a suite of national climate change policies, the establishment of a price on carbon through the Clean Energy Future package will play an important role in ensuring Australia's long-term continued economic growth while reducing the greenhouse gas intensity of our economy. Westpac believes that the provisions detailed within the Clean Energy Future package will facilitate an effective policy framework for supporting the decarbonisation of the Australian economy.

Westpac is determined to play a constructive and positive role in promoting practical solutions for our customers and across our business. Westpac has played a critical role in the establishment and commencement of the New Zealand emissions trading scheme, for example. Westpac was the first bank to trade in the NZ ETS and remains the only financial institution making a market for our clients, for forestry companies and for liable entities covered by the scheme.

Finally, Westpac supports the prompt and timely introduction of a price on carbon. Failure to implement an effective and comprehensive policy response at this stage will increase the amount of regulatory uncertainty currently hindering investment in existing emissions-intensive infrastructure as well as in new clean technology and the structural adjustments required to decarbonise the Australian economy. We would be happy to answer any questions that the committee may have.

ACTING CHAIR: Thank you very much for your opening statement. We will now go to questions.

Senator BIRMINGHAM: Thanks for your evidence today. In terms of Westpac's understanding of the state of the Australian economy and businesses at present, how in particular would you explain the state of small- and medium-size businesses around Australia and the pressures they are feeling and their financial position?

Ms Herd : All three of us are actually from the institutional bank, so we do not deal directly with the commercial banking division. However, obviously we would acknowledge that there are a number of concerns in the small business sector at the moment. We are probably not in a position to comment on it directly. Most of our perspective would be from engaging with larger corporates. However, what we are seeing from the perspective of dealing with the Clean Energy Future package is that there is a strong and growing interest in two areas of relevance here: one in terms of energy efficiency measures which are available in terms of reducing the cost of electricity prices, which is a concern; and, secondly, in terms of significant and increasing investment in mid-size solar generation, particularly in regional areas—and for much the same reason. Both are aimed at reducing operating expenses.

Senator BIRMINGHAM: None of you are effectively qualified in terms your day-to-day operations and activities to talk about what the impact may be especially for small- and medium-sized enterprises?

Ms Herd : We can follow up and provide some additional information, if that is your particular area of interest.

Senator BIRMINGHAM: Your main operations are with larger corporates and institutional businesses and investors?

Ms Herd : Yes.

Senator BIRMINGHAM: Would it be fair to say they are better placed in terms of cash flow and other activities to be able to adjust to situations of higher electricity prices and to take advantage of the solar or other opportunities that you have just described?

Ms Herd : Yes, but I would also reiterate that we are seeing some significant growth at the mid-size, at the SME level, and particularly in regional areas that is the biggest source of requests for borrowing at the moment in relation to solar generation in the commercial banking and SME sector.

Senator BIRMINGHAM: Are those requests for borrowing around solar for mid-size businesses to install PV systems themselves? What is actually happening there?

Ms Herd : Probably the biggest source is for equipment finance within the range of $50,000 and $100,000, primarily intended to establish energy independence, I think it would be fair to say—to get off the grid.

Senator BIRMINGHAM: Obviously the threat of higher electricity prices is primarily what is driving that from a business perspective.

Ms Herd : I think it is actually the experience of increasing electricity prices over the last five to 10 years, which we would see as predominantly a result of lack of investment in transmission infrastructure. Didier might want to comment further on the electricity prices question.

Mr Van Not : It goes without saying that if we want to address climate change we will need to basically reform the energy infrastructure side of the business, in particular the energy supply side, which would include generation as well as transmission. We have seen substantial increases in electricity prices over the last few years. Part of the increases has been because of the regulatory increase in network costs, which is for the distribution and transmission networks which need investment. If we are going to move to a low-carbon society we need more investment in that space; that goes without saying.

If we look, by way of example, at South Australia, where there is a lot of wind energy at present, there would be the potential to have substantially more renewable energy generation coming out of South Australia. Having said that, over time we will need to invest in the interconnectors between South Australia and other states in order to be able to export that electricity to Victoria, New South Wales or other markets. Again, that will require substantial investment, which will again increase the price of electricity that the end consumer and end user will have to pay.

Senator BIRMINGHAM: What are the prerequisites for a business to be able to take advantage of the opportunity to invest in their own energy self-sufficiency through solar? They need reasonable cash flow and presumably they need to own the sites that they operate from. What are the prerequisites?

Mr Van Not : Prerequisites would be different between the large-scale operations and the medium-scale operations. The large-scale operations are being supported by the Solar Flagships program and there is a whole initiative underway to achieve that. From our perspective we believe that, if the proposed carbon pricing mechanism gets approved, the cost of solar technology will keep on decreasing in Australia and solar will become a very good alternative to wind as a renewable energy. That is at the large scale.

The prerequisites at the large scale will be to have the technology and to be able to have it deployed on a large scale—as opposed to the small scale, which is still a technological challenge—as well as basically having a market to deploy that technology. We believe the Australian market will offer that, in particular if the carbon pricing mechanism gets passed.

At the smaller end of town, obviously you need to have the geographic location. If it is rooftop PV panels, for instance, you would need to be able to put PV panels either on your roof or in a geographic location that you own, I would expect.

Senator BIRMINGHAM: So for the many businesses around Australia that do not operate out of a premises that they own, their capacity is restricted unless they have a very agreeable landlord.

Mr Rousel : As we said before, while we are not personally qualified to comment on the state of individual businesses, we have been very heavily involved in what we view as one of the biggest opportunities for us to assist, which is in the education side of things. Solar is just one component and it can have an effect on small businesses by a long-term reduction of overall cost from the national electricity market, so we have an interconnected market and all of those types of generation can contribute to it. Where we are seeing a substantial uplift is in the understanding and, to answer your question, what is required: the biggest thing that is required is people having an understanding of the actual impact that it is going to have on their business in terms of what percentage uplift there is likely to be in electricity prices, what percentage of their expenses that is likely to therefore contribute and further up the chain as well. We are seeing people looking at how they can reduce their energy consumption, so, whereas solar might be more at the large corporate level, individual businesses are responding in terms of looking at the energy efficiency of their own business, both from increasing electricity prices in general and increasing oil prices. As a result, with that long-term environment in mind, they are undertaking activities in expenditure in order to increase their energy efficiency.

Senator BIRMINGHAM: Your submission identifies the potential for significant adjustments within and/or between industries—the potential for winners and losers essentially. Have you undertaken any analysis of those industries you think who are likely to be beneficiaries versus those industries who may not be?

Mr Rousel : We have obviously undertaken analysis of our whole credit portfolio rather than focusing on one industry versus another. Within an industry it is often a case of who is better positioned, who has a better understanding of it and who is looking to move first, if you like, in terms of gaining a competitive advantage from whatever activities they undertake in that environment. The single most important thing we hear from all of our customers across the board is that they want certainty of scheme. They want to know what environment they are operating in for the foreseeable future, for their investment horizon, so that they can make decisions about which way to go in order to give themselves a competitive advantage or to win market share. That is often within an industry rather than between industries.

Senator BIRMINGHAM: Have you identified any regional differences within industry or any other factors that may identify who is well placed and who is not?

Mr Rousel : I think it is probably not appropriate for us to comment in terms of individual companies or regions. That is obviously commercial, and we have to respect our clients' confidentiality in that.

Senator BIRMINGHAM: I understand that for individual companies.

Mr Rousel : In terms of large-scale trends which concern us, I think the answer is no.

Ms Herd : How we actually look at management of carbon across our credit portfolio is at a number of levels to explain the process that we apply. We actually do an annual assessment of all of the risks impacting at an industry sector level, and that includes carbon but it also includes broader environment, social and governance risks. Secondly, we look at it at a client level when we do annual or regular assessments of clients in terms of their whole business. How are they managing across the different components or activities across their entire business? Thirdly, we look at it on a transaction level: how are they mitigating the carbon risk attached to a particular transaction application? Is it a material risk? Yes or no. If it is a material risk, how are they mitigating that risk? That is the same way that we apply or assess credit risk on every single issue or dimension of performance.

Senator BIRMINGHAM: Last area of questioning from me: you presumably work with companies who will be liable to purchase permits directly and companies who may be just over the threshold of $25,000 or just under that threshold for a site value—would that be correct?

Ms Herd : Yes.

Senator BIRMINGHAM: What would you expect a company to do operating very close to the threshold, either just under or just over it, in terms of how they manage their emissions? Would the goal be to suppress activity to stay just under it and avoid the hundreds of thousands of dollars of liability that comes with ticking over the threshold?

Ms Herd : Obviously, the strategic response that is implemented is very much a question for each company in determining what their level of activity is expected to be, not just today but over the next three, five, seven, 10 years. Companies tend to look at how they are managing these risks on a long-term basis. So, in that sense, as much certainty as possible around what that framework is going to look like and what sorts of risks they will be facing not just today but also in a year or five or 10 years time is an important consideration. It really does then depend upon the company itself what their future plans are, what their current level of industrial production or activity are and where they sit around that threshold. So it really is difficult to make a generalised comment on the many different responses that companies are looking to implement.

CHAIR: I am going to cut you off, Senator Birmingham. I also have questions from Mr Windsor, Senator Urquhart, Senator Milne and George, so I am going to go round and, if we have time, we will come back to you. Mr Windsor.

Mr WINDSOR: Thank you, Chair. Out of the 500 companies or entities that will be involved in the emissions trading scheme, 191 of them relate to landfill, and a lot of those are local governments that could potentially be over the 25,000 carbon equivalent level. In an institutional sense, has Westpac looked at any potential products that could be put together to assist local government with either a flaring program to reduce their emissions or a program to turn waste into energy such as electricity generation? Has your group gone as far as looking at product packages that might be available with some of these companies or entities?

Mr Van Not : As far as I am aware, we have not had direct discussions with local government to address the emissions coming from their landfill operations. The technology that you refer to, which is basically using the gas emanating from those landfill operations and therefore using that gas to generate electricity, is a technology that is relatively well understood. It is certainly something that Westpac would be very responsive to see if we can offer a financing package on the back of that. The technology is in existence. There has been financing done around the world supporting that technology, and Westpac would be very open to considering that. But, to the best of my knowledge, we have not engaged local councils in that regard.

Ms Herd : Where we have engaged local governments is more on energy efficiency in the commercial property sector. We have had a number of discussions on two issues: firstly, energy efficiency in the property sector; and, secondly, impacts of adaptation and development planning approvals. On the former, we have looked to develop an in-house team specifically aimed at identifying emerging finance and lending opportunities for these particular industry sectors or areas. We have been engaging with the local governments on a potential finance solution around energy efficiency in particular, but that probably sits alongside or slightly outside of the direct impacts of the carbon price package itself.

Mr Rousel : I think the other point to add is that we see a lot of ideas. We have an internal branding group that we call the 'carbon deal team' to assess all of the opportunities that come into the bank, and there are a lot of them in a variety of different sectors. So, while not talking about anyone in particular, I think all of them have a key component, that to truly unlock the capital that is required you need to have certainty of the investment environment. So, just to reiterate what I said before: it is the single most important thing that we hear. There are lots of ideas but to put those into practice you need to have certainty of the investment environment.

Mr WINDSOR: Do you have any comments to make on the landscape biodiversity components with the legislation that we are dealing with, particularly in terms of some of the potential implications for agriculture?

Ms Herd : We have undertaken a fair amount of work looking at opportunities arising from the Carbon Farming Initiative in particular. In fact, we have recently been undertaking a series of seminars around the country in regional areas on the financial implications, the legal implications and the investment implications of getting involved in CFI projects. We are seeing a huge amount of interest in, and a low level of understanding of, precisely how it will operate. We are also seeing from our agribusiness division that there is a pretty sophisticated understanding of the types of biodiversity or land management issues which are at play, but there is still a fair degree of uncertainty around how this will translate into direct financial returns from the sale of carbon credits and, in particular, what the price of the credit will be arising out of uncertainty around whether there will be a compliance market in which to sell those credits. But yes, we are seeing a very high level of interest, a fair amount of confusion but a great deal of appetite to actually get involved in CFI projects.

Mr WINDSOR: On that theme, presuming the legislation gets through the parliament and the certainty for everybody is out in the community, what role would a company like Westpac play in terms of its relationship with its client base in agriculture? I am crystal-balling a bit but I would just like to get a snapshot. Given that you have been having those seminars and things, what is the next stage if in fact there is certainty with the legislation?

Mr Rousel : The simplest answer is to say that the way we view a price on carbon and its impact on all of the sectors, including agriculture, is that it becomes very much a part of business as usual. Banks play a role in terms of helping to facilitate investment in all sorts of business ventures. Certainty of the scheme means that it would become another business opportunity for people to structure or tailor their business towards, whether it be a component of another farming operation in terms of agriculture or whether it be carbon farming on its own. We are having lots of conversations along those lines and really the requirement of what the bank would be asked to do in that circumstance is no different than it is for any other part of the economy.

Ms Herd : In this we can also look to our involvement in the New Zealand Emissions Trading Scheme where we are also playing a fairly similar role in terms of both dealing with the forestry companies that provide a lot of the credits that go into the market and also energies on the other side. We are also seeing in the initial stages of the New Zealand scheme a fair amount of exploration of the opportunities there and in particular in terms of managing forestry operations in a more integrated manner in terms of having multiple sources of revenue into the property, partly from carbon, partly from traditional farming activities or forestry activities. So we would expect to see the same thing in Australia. In terms of our business as usual operations, obviously we lend to and invest in every company that is impacted by the carbon price mechanism. But we also have an opportunity or frequently get asked to take security over carbon revenue as a new form of cash flow for farmers. Until we actually have the regulatory certainty around carbon as a personal property right, we are not in a position to do that. Once again having that regulatory framework fixed and understood and in place allows us to actually undertake a lot of investment and lending activities which we are seeing desire and appetite for but we are just not able to facilitate at the moment because of the regulatory uncertainty.

Senator BIRMINGHAM: Related particularly to agriculture, very quickly, you would not actually say from the other side of the ledger, though, in terms of the emissions that there is certainty for agriculture in New Zealand, would you?

Ms Herd : New Zealand is a slightly different question. They have just undertaken their review. There is a discussion going on at the political level there around the starting date for the inclusion of the agricultural sector, so that is a question which is still being addressed and resolved within that context. Within Australia we actually do not support the coverage of the agricultural sector for the foreseeable future. We think there are a number of issues there that still need to be addressed. But we very strongly support the opportunity for the agri-sector to voluntarily opt in through initiatives such as the Carbon Farming Initiative.

Senator BIRMINGHAM: I am talking about support for the agricultural sector. You do not support its inclusion in Australia for the foreseeable future. Others will argue if this legislation passes that there should become a timeline for agriculture's inclusion. So surely there is a level of uncertainty that agriculture faces as people will agitate and debate as to when it should potentially be included.

Ms Herd : I think that is probably a question for the future. Our main focus at the moment is more around—

Senator BIRMINGHAM: I am just trying to get a clear answer as to whether there is certainty for agriculture.

Ms Herd : I think what the scheme says at the moment is that agriculture is not included, and every indication is that there is no desire to include it at the moment, and certainly not up till 2020. So in that sense we do have certainty up to 2020.

Senator URQUHART: You just touched on New Zealand. In looking at your website I notice that you have got branches and subsidiaries not only in Australia but in America, Asia and England. I guess that is correct, that your website is up-to-date. We hear a lot of people saying that no other countries are taking action to manage their emissions. Is that your experience in your international business deals?

Mr Rousel : 'No' would be the simple answer. We have been operating in the European emissions trading scheme since 2006. We have been operating in the New Zealand scheme since 2010, when it started. We undertake transactions in the carbon markets with a range of governments and companies in other countries. We are constantly monitoring the development of emissions trading schemes around the world, including, for example, in California, Japan et cetera. No, we think that there is a lot of international action where a lot of countries are undertaking a lot of activity. Without necessarily having an emissions trading scheme formalised yet, they are still acting.

Senator URQUHART: As one of Australia's largest banks, I presume that you have examined some of the modelling around putting a price on carbon. If you have, what does it tell you about delaying effective action on climate change?

Mr Rousel : This is probably a part of the debate that we think needs clarification. What we are really looking at here is how we go about doing it, with all parties having undertaken the same minimum commitment. Therefore, delaying the action just means that the trajectory to get there is steeper. The modelling suggests that the sooner that we start that process of economic reform, the lower the cost will be.

Senator URQUHART: I do not want to put words in your mouth, but, effectively, if we do not get on with it, it will be more expensive.

Mr Rousel : Yes. By definition, having set a target, the trajectory to get there needs to be steeper the longer that we wait.

Senator MILNE: Further to that, we have taken evidence from the Institute of Public Affairs that Australia should leave it until 2020 and see what the rest of the world is doing then. Given what you have just said and the science trajectory that everybody is looking at regarding constraining global warming to less than two degrees, what sort of risk is it to the Australian economy to say, 'Let's leave it and not do anything till after 2020'?

Ms Herd : We would make a couple of points in response to that. The first is that we do see regulatory regimes emerging in every single jurisdiction where we operate. These occur not just around pricing carbon but across industry specific regulatory responses around emissions performance standards on energy generators, vehicles—different policies across the whole range of areas that need to be addressed for the environmental outcome. Secondly, we would make the observation that business is already managing carbon risk with investment and lending decisions. Not having a regulatory regime does not mean that you would not have to manage carbon risk. Either way, business is now having to integrate carbon risk management into all of its investment decisions in long-life assets in particular. So we would definitely argue that the sooner businesses have certainty around the framework and around the rules, the better position they will be in to manage down the costs not only for their own operations but also for their consumers and customers in terms of managing their carbon price risk.

Senator MILNE: I want to take you to some of the assertions that have turned up in quite confused media reports this morning that link Westpac and a few other businesses to some criticism—notwithstanding the fact that I accept your support for emissions trading and the package generally, and we appreciate the effort that you have gone to in outlining your levels of support. One of the issues that has found its way to the front pages of today's media is the assertion that a small difference between the floor price and the international permit price would drive industry offshore. Our understanding, from looking at the Treasury modelling, the department of energy, the European commission, the UK government and several other academic inputs like the Grattan Institute and so on, is that in fact there is very little risk of any leakage of economic activity in carbon emissions overseas around that issue of a few dollars difference between the international price and the floor price. What is Westpac's view of leakage in that circumstance?

Mr Rousel : I think the easiest way to approach it is to look at the experience in other countries, where I think you are right in saying that that has not been evident. In New Zealand recently, a review was undertaken to assess how many companies had considered moving their operations offshore, and the percentage was very, very small—and the review only involved those that considered moving offshore. With regard to what was quoted in the paper this morning, that was really a small technicality around the implementation of the floor price and does not really pertain to international competitiveness.

Senator MILNE: That is the precisely the view that I am putting—that it was an extreme exaggeration to say that that small dollar price difference is going to have that outcome.

I want to go to the assertion in today's paper that Australian businesses would be charged a higher price for certified emission reductions in relation to this particular issue. To me that seems utterly preposterous because the seller and the purchaser do not make decisions relative to one another, as I understand it. Would you like to comment on that?

Mr Rousel : Probably the best way to comment on that would be to refer to our experience in New Zealand, where there is eligibility for international permits as well. The price action there demonstrated over the last 15 to 18 months has been that the domestic unit, the New Zealand unit, has actually traded at a discount to the international price and never any higher than it, with a very small margin. As a result, the international price actually acts as a cap on the New Zealand unit, rather than the opposite. Based on the structure of the current legislative package, we do not anticipate it being any different to that in the Australian scheme.

Ms Herd : I would also make the observation that within the New Zealand scheme, even though there is the ability to meet your compliance obligations with 100 per cent international permits, around 98 per cent of the permits acquitted were actually New Zealand compliance units. While that may be slightly different this year on account of the fact that the international units have come down, it demonstrates that ultimately companies are looking to acquit their liabilities using the domestic permits as a first step.

Senator MILNE: The other point I want to go to is the use of a floor price in the particular scheme. Whilst I appreciate that for a banking organisation like Westpac there is great potential to make money out of carbon price volatility by developing and selling hedging products, the other side of the coin is that in transitioning to a low carbon economy we are trying to provide certainty to players—much smaller players, if you like—for investment in low carbon technology products over a period of time. This is only going to operate for three years and it will provide some stability in transitioning to a fully flexible pricing arrangement. I would just like you to comment on that.

Mr Rousel : First of all I would probably refer to our opening statement. It is a comment we often hear around what our motivations are for being involved in the debate. We see there being an international scientific consensus and we accept that. We think, as a result, it is an inevitable global economic reform. For Westpac, what we really care about is the growth of the Australian economy. Our growth is inexorably linked to the growth, wellbeing and survival of our customers. As a result, our motivation is really to ensure that this takes place at least cost to our customers and at the same time helps to deliver the desired environmental outcomes.

In terms of comments on the floor price, it has really been around the specifics of how technically that would apply to the international permit price. We have always—for a decade and under three governments—supported a market based mechanism and therefore in principle would prefer a fully floating price. But, given that a floor has been suggested, it is about getting the technicalities of the implementation correct so as to minimise any undesired impacts on business that would increase costs. But it is a technicality.

Senator MILNE: I appreciate that. Given Westpac's very significant consideration and in-depth analysis of the package, have you had discussions with the Department of Climate Change and Energy Efficiency or Treasury in relation to the technical aspects to which you are referring?

Mr Rousel : We have. The technicalities of that will be in the regulations rather than in the legislation, and that is an ongoing consultation process through which we are working with them to try to find the mechanism which implements it at least impact.

Senator MILNE: You do appreciate that the floor price will provide stability during the transition to flexible pricing and provide the kind of signal that low-emissions technology investment, particularly in the energy sector, needs?

Mr Van Not : I would like to comment on that. It is obvious that if you want to move to a low-carbon society you will have to move away from coal in particular, but also gas, over time and attract new technologies. That could be wind technology or solar technology, or there might be carbon capture and storage or geothermal, wave or carbon technologies and so on. It will be important for the proponents or the investors who want to develop those technologies to look at the particular stability in terms of carbon price and cash flow over time. To comment upon your remarks on the floor price, the floor price will obviously be part of that cash flow that they can look forward to as part of the modelling they do when they look at the return on equity analysis that they would inevitably do. Banks would look at it in the same way as well. We look at the future cash flow of a particular project, and the fact that there is a floor price will obviously assist to a certain degree the stability of that cash flow.

Senator MILNE: Because it will assist the stability of that cash flow, and particularly in the sector where we are trying to make the transition out of fossil fuel energy into renewable energy technologies, essentially Westpac is not so concerned about that but is concerned about the technical aspects of how to smoothly implement it?

Mr Rousel : As I said, we have long supported a market based mechanism. It is a market based economy. Our customers are not only accustomed to moving prices but also very adept at dealing with them. We think the solution in the big scheme for Australia, and indeed for the world, is all of the above, so that all sectors should be equally incentivised. We prefer a fully floating price as a result of that, and that the price should reflect whatever developments and technological innovations have taken place.

CHAIR: Mr Rousel, I am going to cut you off, very rudely, because I think you have already answered the question. We are running out of time, and I know Mr Christensen wants to round off with something.

Mr CHRISTENSEN: Following on from Senator Birmingham's questions before, if there is a council producing just under 25,000 tonnes of waste from a facility or a company that is just under that threshold, they will suddenly be faced with a $575,000 cost if they go over the threshold. Do you think there will be ways these companies will be manoeuvring to stop going over the threshold—for instance, a council may decide to truck waste to another area to avoid going over the threshold?

Ms Herd : We cannot comment on the specific or particular decisions that councils would look to make. But in terms of everyday business decisions from here on in, we would think you would factor in these sorts of regulatory changes and you would factor in the price impacts of carbon. So it does provide another tactic to consider in making normal business decisions. We would not think it would be the only factor that you would consider in making these business decisions, but it becomes one of the factors you would consider.

Mr CHRISTENSEN: The Westpac 'Coast to Coast' report released the other day found that, in Queensland, both the tourism and the housing sectors were struggling. This carbon price has for both those sectors some rather large input cost increases. Do you care to comment on that at all?

Mr Rousel : Sorry, I am not sure I would necessarily—

Mr CHRISTENSEN: Your report has come out saying that there are negative impacts in terms of the current situation in both tourism and housing, and here you are proposing support for another hit.

CHAIR: I do not think Westpac is proposing.

Mr CHRISTENSEN: But they are supporting it.

Ms BURKE: And the report was about other impacts, wasn't it? So I suppose we are looking at—

Mr Rousel : I will probably just respond by saying I am not sure we agree with your premise that the carbon price would significantly impact a particular sector overall in terms of tourism for example.

Mr CHRISTENSEN: Increased electricity costs, increased aviation fuel costs, increased marine fuel costs are going to have an impact on the tourism sector.

Ms Herd : We think there are a number of issues operating in the tourism sector at the moment, including the high Aussie dollar. That is definitely one of the factors predominantly at play at the moment. In terms of the analysis that we have done at the industry sector level, it is one of the factors that you feed into the assessment around future economic conditions in a particular industry sector. We would not expect it to be the dominant issue impacting the economics of those particular sectors.

Mr CHRISTENSEN: But does Westpac provide business loans to emissions intensive industries or do you take a social corporate responsibility view that, 'No, we're not going to invest in that because that leads to climate change'?

Ms Herd : No, we actively engage with clients across every sector. Our approach is very much to integrate carbon risk management into standard risk assessment processes in much the same way we do with every other risk.

Mr CHRISTENSEN: I do have one more and I am trying to think of an analogy of this scheme that is being proposed to us today, and it is difficult to do so because it is unprecedented. We have got housing affordability as a major issue alongside climate change in this nation. If we imposed a legislative social price on mortgages for expensive homes to offset the construction of low-cost housing, which is probably the best analogy that I can come up with of the scheme, would that be something that the bank would support to fix that social problem?

CHAIR: I am not going to allow that question.

Mr CHRISTENSEN: The bank is here saying that one—

CHAIR: That would be akin to me allowing a public servant to answer a policy question, and so I—

Mr CHRISTENSEN: The bank is here supporting—

CHAIR: No. The bank is here giving us information today; they are not here providing—

Senator BIRMINGHAM: They are the people who can respond—

CHAIR: But I think that is a policy question analysis. Unless you have got a quick sharp one—

Mr CHRISTENSEN: I have got a quick sharp one.

CHAIR: No, you have not because Mr Windsor has got the next question.

Mr WINDSOR: I am interested that the Liberals have recognised that there is a market mechanism. My question relates to a comment that you made a moment ago about the impact of the carbon price and the Aussie dollar. A lot of people in the community are asking the question in terms of the magnitude of shifts. Have you done any work on what would be the equivalent impact of a $23 carbon price on the economy as compared to a shift in the dollar? I am probably not putting the question terribly well, but does a one- or two-cent shift in the dollar have the same impact as $23 a tonne of carbon on specific industries?

Mr Rousel : Our economics department has concluded that the Treasury's assessment of the impact being 0.7 per cent is appropriate. What I cannot comment on is the impact of a shift in the same quantum of the Australian dollar, so obviously the Australian dollar moving does have an impact on various sectors within the economy and it is particularly volatile.

Senator BIRMINGHAM: Surely the answer is that it depends on the emissions intensity of an industry and the trade exposure of an industry.

Ms Herd : And also the transitional assistance package applied and broader economic factors impacting their business and how they choose to respond. It is difficult to make short, sharp judgments on the specific and isolated impacts of carbon because you always have to look at it in the context of the industry, the company and the specific facilities. So it is difficult for us to draw those direct comparisons because there are so many variables at play.

Mr WINDSOR: Would it be possible for you to get back to the committee on a few examples?

Mr Rousel : We can ask the economics department to look at it, certainly. As Emma commented, where the Australian dollar is is reflective of other facts in terms of the relative strength of our economy to others, so as a result it is a complex analysis.

CHAIR: But it would be like any other business—you factor in the imposts and the movement of interest rates, the Australian dollar and everything else that impacts upon the reality of making an investment decision.

Ms Herd : It goes back to the point that we keep making—that is, that when you have certainty around the framework and you have certainty around what you can expect, you are able to manage that risk in a highly effective manner. Australian business is actually very used to managing these sorts of market based variables and doing it very well.

CHAIR: Thank you very much for your very valuable input to today's hearing. If you have been asked for any additional information, it is needed sooner rather than later. So if it is going to be a task too great to get that modelling, if you have something that you have already done we would really appreciate that. You will be sent a copy of the transcript, to which you can make corrections of grammar and fact. Thank you very much for your time.