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Environment and Communications References Committee
(Senate-Friday, 7 March 2014)
CHAIR (Senator Thorp)
- CHAIR (Senator Thorp)
Content WindowEnvironment and Communications References Committee - 07/03/2014 - Government's Direct Action Plan
FRASER, Mr Bernie, Chair, Climate Change Authority
HARRIS, Ms Anthea, Chief Executive Officer, Climate Change Authority
CHAIR: Welcome to you both. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I now invite you to make a short opening statement and at the conclusion of your remarks I will invite members of the committee to put questions to you.
Mr Fraser : I do not have an opening statement as such, but I would like to make a few opening comments, if that is acceptable. We made a brief submission to the committee, as you know. It was quite a brief submission and we would be happy to elaborate on any aspects of that submission. Since that submission was lodged, we have released our final report on Australia's targets for reducing greenhouse gas emissions. I am sure you would be aware of some of the recommendations and arguments in that report. If it were helpful to the committee, we would be happy to provide a brief presentation on some of the main features of that report—that is, if the committee were interested.
Mr Fraser : Okay. Let me make a couple more general comments and then I will ask Anthea Harris, the CEO of the authority, to give a brief presentation of the main thrust of the report that was released last week. The first general comment I should make up-front is that the authority has not done any detailed analysis of the Direct Action Plan, basically because we do not have enough information at this stage to make a detailed analysis of that plan. There are lots of gaps at the present time in the detail of the arrangements. Many of these gaps are identified in the terms of reference for this committee, in fact. Others have been identified in the submissions and in the presentations that have already been made to you by other people. We would like to see the responses from the government to those kinds of queries about lack of clarity and then we would be in a better position to make an assessment of the plan and the fund that is the core of that plan. At this point we have not done that.
Having said that, in the report that was released last week, while it focused very much on the targets for reducing Australia's emissions, we did talk at some length about the instruments that might be used to address those targets, if those targets were to be adopted. In a sense, we have talked about a framework for the consideration of possible policy instruments that in general terms would apply to the Direct Action Plan and to other possible measures for addressing those targets.
The first part of that framework is the notion that we have been pushing for some time of policy makers having a fairly comprehensive kit of policy measures, of tools, available to tackle these challenges. We have talked in the brief submission that went to you about market and non-market tools—a comprehensive set of tools that can be called upon to tackle this problem, which has many facets to it—that will vary in their effectiveness from time to time and depending upon the other circumstances. One consequence of having that sort of perspective on the tool kit is that, to the extent that less reliance is put on some measures, if there is less emphasis on a price on carbon, for example, or if the RET becomes less significant in the attack on emissions then obviously a lot more weight has to go on the other tools in the kit, and questions are then raised about whether or not they are going to be up to the task. That is one point in this framework that we would have.
There are a couple of other aspects that really flow from the science of climate change, and one of those relates to the time frame of the kinds of challenges that are ahead. Climate change and policy responses to climate change require policy makers to be on the job for the long haul. There is a long haul element to this challenge of climate change, and that requires budgetary and other commitments from governments over long periods of time—periods of time that run to decades not just the period of the forward estimates. There are a whole series of things we could talk about in terms of these budgetary and other commitments, but it is that long-term dimension that I think is part of the framework that should be applied when one looks at the Direct Action Plan or carbon pricing or anything else for that matter.
Then there is also the obvious geographic dimension to climate change—the fact that it is global—and that raises a number of issues, but in terms of the particular focus in this inquiry it raises questions about the balance between domestic measures to reduce emissions as against purchases of international reductions and the balance between those possible instruments.
That is all I would like to say by way of a general comment, and to ask Anthea to give you a brief indication of the main thrust of the report released last week.
Ms Harris : The report was focused on what Australia's emission reduction goals should be, and it recommended goals for the short, medium and long term, and these goals all related to one another. The authority concluded that Australia's current minimum commitment of a five per cent reduction in greenhouse gas emissions by 2020 compared with 2000 levels is inadequate and that it would leave too much of the task of reducing emissions to later and that it would leave Australia lagging behind other key countries. We recommended for 2020 a minimum target of 15 per cent, plus an extra four percentage points, which is work that we have already done. This is what is called 'carry over' from the first commitment period; it is left-over credits from that first commitment period. For 2030 we recommend a target range of between 40 and 60 per cent below 2000 level emissions by 2030. All of this is nested within a long-term budget that we have proposed from here to 2030 of 10.1 gigatonnes, a billion tonnes. That budget was based on the authority's assessment of what a fair share of the global task of reducing greenhouse gas emissions should be.
The analysis in the report was based on the latest climate change science; an analysis of global action—what other countries are doing; notions of equity between countries and also between generations; and a very careful look at what the economic implications would be of our recommendations. In relation to those economic implications, it certainly does make a difference how you want to achieve those stronger targets. Given it is already 2014 and 2020 is not very far away, the authority recommends that drawing on international emissions reductions would be a sensible way of bridging the gap between the minimum five per cent commitment and the stronger target. We should be very careful to only purchase genuine international emission reductions. We note that from an Australian economic perspective these units are currently available at a historically low cost.
We were also obliged to report on progress towards reducing emissions. We report on the gains that have been made and the fact that our economy's emissions between 1990 and now have basically stayed about the same while the size of our economy has doubled. So the emissions intensity of our whole economy has halved over that period. We can see opportunities across all sectors to further reduce greenhouse gas emissions, but we know policies will be required to achieve them. With no direct action plan or carbon price in place the estimate that is in our report, which is based on modelling undertaken by the Treasury and the former innovation department, sees emissions being 17 per cent above 2000 levels in 2020—so that is without further policies in place. So a strong, coordinated set of policies would be required to bring those domestic emissions down.
Senator MILNE: Thank you for your evidence. I want to start with the point that you have just made about the targets that you have recommended—19 per cent going to 40 to 60 per cent and then higher out to 2050. In the view of the Climate Change Authority, does the existing clean energy package framework, including the complementary measure of the renewable energy target, have the capacity to be scaled up to meet a 40 to 60 per cent emission reduction target by 2030?
Mr Fraser : The target certainly has the capacity to be scaled up. The question is whether the instruments are available to be scaled up to achieve such a target. Again, that brings to the fore the matter of the balance between domestic and international permits and the costs of those complementary approaches.
Senator MILNE: I am asking you for a comment about the existing framework, which does include the capacity to buy international permits under the emissions trading scheme, which has been legislated. There are very specific requirements about which types of international permits and so on. The legislation currently stands in a framework with the Climate Change Authority, ARENA, the Clean Energy Finance Corporation and the RET. If we were to put into the emissions trading scheme a target of, say, a 40 to 60 per cent reduction by 2030, would the framework we now have in place be capable of delivering that in the way it is designed? That is what I am saying. If you take the science seriously, as you say, and do not pay it lip service, you have to have the policy framework to deliver what the science requires. You have said that science requires 40 to 60 per cent by 2030. What I am asking is: does what we have now have the capacity to do that?
Mr Fraser : Yes, we think it has and we say so in the report. It is not easy—none of this is easy—but it is manageable in the current framework. The current framework includes a price on carbon as well as the existing RET, which underpins the current work and targeted recommendations, so all of those things are there. The out years—2030, 2040 and so on—are based on the current science, but no-one can be sure that these are not going to change, and they can change in either direction. I think they are more likely to be looking worse rather than better given the delays in making progress and so on. The framework that is in place, including the price on carbon, is all geared to making the targets for 2020 and the guidance provided in the report for 2030 manageable, with determined efforts.
Senator MILNE: The target for direct action is five per cent by 2020. In your view, as a policy framework is it capable of being scaled to a level that would achieve a 40 to 60 per cent reduction and, given that it is a competitive grant scheme, what would it cost to achieve that?
Mr Fraser : Others who have made submissions to you and appeared before your committee have expressed some views on both those questions. For my part—and Anthea might have a comment to add as well—we are not really in a position to make definitive judgements of those kinds until we know more about the way the system is going to work on the liquidity side, on the purchasing side and on the surveillance and governance of the arrangements. One needs to have a lot of the uncertainty on all those kinds of points lifted before one can make firm judgements. I come back to the point I mentioned in my general comments about the time dimension of climate change and the need to have a long-term commitment. For the direct action plan to be able to continue in a necessary way to the task, it would need to be long term and it would have to involve commitments that went beyond the current forward estimates period. That is an obvious part of the response that one can make. They are not necessarily financial commitments beyond the forward estimates period but there does need to be a clear commitment of intent to, in your words, scale up whatever might come out in the final detail of the direct action plan. That is important not just for the direct action plan; a long-term commitment is essential for the necessary private investment because it is the private sector that is going to have to do most of the heavy lifting to beat these kinds of challenges. The private sector investors and the banks who back them want to see some policy certainty that extends into the long term. Anthea might want to add something.
Ms Harris : We highlighted in the report the need for a set of measures, but we do not know at this stage what a longer term set of measures might be. Under the current legislated carbon price arrangements the mechanism is relatively straightforward. The cap adjusts and the only question then is the balance between domestic and international abatement that that market throws up. There would still be questions about the set of policies that would exist over the longer term. For example, one of the things we have highlighted in our report which is potentially an opportunity and something that should be looked at in more detail is fuel efficiency standards for motor vehicles. There are all sorts of things that could potentially sit alongside either a carbon price or a direct action policy.
Senator MILNE: You say in your submission that, for acceptance of the science to mean more than lip service, it has to be backed by policy measures commensurate with the challenges identified by the climate scientists. Is a plan such as direct action, which has a no more than five per cent emission reduction target, just lip service to climate science?
Mr Fraser : I am still unclear as to just how scalable it is and how firm a commitment to what is in the direct action plan it might turn out to be when some of the clarity is delivered, hopefully in the white paper. One would have to say that, without very substantial action to buy international permits, and without retaining the RET in its existing guise and doing as much as one could in all the other areas that might be able to help—including, as just mentioned, motor vehicle emission standards—all those kinds of things would have to be working with a direct action plan that, on the surface, would have to be more than it is presently dressed up to be if is to contribute to that overall package to achieve, or to make possible, the kinds of reduction in emissions that we have been talking about in the report, which as you say are consistent and we say are consistent with the science in the way we see it and what is required.
Senator MILNE: I will move to the review of the renewable energy target. The Climate Change Authority is required by law to review the RET. It did the RET review in 2012. I understand that you have put out a tender for modelling in relation to your legally required review by the end of this year. Can you tell me, in relation to the renewable energy target, whether have you been approached or had any discussion with the government about the government's now-announced review of the renewable energy target and its appointees. Is there any expectation that there will be any crossover, or is this a parallel process? We have a panel of climate sceptics appointed by the prime minister to look at the review and also we have the Climate Change Authority's legal requirement to provide a review. Is there any crossover? What is the relationship? Can you outline that for me, please.
Mr Fraser : I will ask Anthea to add to or correct anything I might say. We have this legal obligation, as you say, to do something—to submit a report, a review, of the renewable energy target by the end of the calendar year. In the meanwhile, we have hanging over our head the possibility that our heads are going to be chopped off in a few months time. If for some reason that did not happen and the authority and the legal requirements remained then of course we would press ahead. We pressed ahead with the emissions reduction work even though the same sort of sword was hanging over our heads.
It is a bit different now. The landscape has changed quite significantly in that the government has set up its own review which will report, I think, around the middle of the year. That complicates the field and our role in a lot of respects. It is all very murky. What we have decided that we could best do is not pursue at this stage any kind of work related to a review of the target; we would have to wait to see what happens come early in the new financial year. At the same time, because we have some expertise that is still within the authority and because there are parts of what comes into renewable energy that are not covered in direct action and in other things—electricity is the obvious example—we thought it might be helpful and constructive to use our resources and do a bit of research work on electricity in the hope that something could usefully be available to be fed into reviews of the renewable energy target—whether we do it or, if we are not here to do it, if someone else does it, that there would be some constructive, hopefully helpful, material available. That is the basis of going to tender. It was not in any way intended to imply or to launch the authority's RET review—it is too uncertain to be embarking on that. As I say, we were rather hoping that we would be able to do something that would be helpful to a review, whenever it might be done and by whom it might be done.
As to the first part of your question, no, we have not been consulted or involved in the processes leading to the establishment of the government's review. I would personally hope that that team that has been appointed to do that would see the benefits in consulting with Anthea and her people. There is an enormous amount of experience, knowledge and expertise that is there for the tapping, really, and I would have thought would be very beneficial for the body that has been set up to embark upon this task.
Senator MILNE: I want to come back to this, because you are an independent statutory authority set up with a legal responsibility to review the RET. Why have you acquiesced to the government and abandoned the RET review? Why wouldn't you bring it forward and do the RET review right now? You have just had the parliament vote to reject the notion that you be abolished. You have no uncertainty at the moment—you are the Climate Change Authority, you are legally in place, you have a legal obligation. Why wouldn't you bring it forward and shine a light on the other review that is being conducted rather than acquiesce to the government? You are an independent statutory authority. I cannot tell you the frustration out there with people who support the renewable energy target, and the people who set up the Climate Change Authority to do this work, to see this laying down in front of a RET review that we all know is set up to deliver an attack on the renewable energy target.
Mr Fraser : I don't believe that is a correct interpretation of our position. We have an obligation to lodge a report on the RET review by the end of the year. We completed one not so very long ago. We could, if we were still to exist after the middle of the year, do that further review pretty expeditiously because we have been through it all at great length only fairly recently, and we could meet our obligation to have that report with the parliament by the end of the year—if we are still in existence.
It does nothing, in my view, to enhance the credibility and potential value of an independent body like this one to be perceived as, or give any impression of, being out there going head to head with a separate authority that is set up by the government to do the same kind of thing. That does not appeal to me as something that would be beneficial to enhance, as I said, the credibility of independent bodies like this. We exist, and we value our independence, to provide independent and expert advice that will be helpful to governments and parliaments in making decisions about these things. But we want the advice to be credible, and that requires us doing things in reasonable time frames and in reasonably mature situations—not rushing to get something out to beat the other guys who are doing the same sort of thing. That does not appeal to me as a way of enhancing the credibility of a body like this.
Senator MILNE: I will pass on but, I just want to say that no-one is suggesting rushing something out. What I am saying is that there should be a mirror to the rigour of the assessment. I have acknowledged the rigour of the assessment of the RET that went on in 2012, and that is the kind of assessment that is required to be done—again, with the associated modelling—and that will not be done by the other review and there will be no comparison available for the public to make judgments about it. But I will pass over to other people who have questions.
Senator WILLIAMS: Welcome folks. On 30 June the carbon tax will have been in place for two years. What is the reduction of CO2 emissions over that two-year period that is expected by this June, in total sums? Ms Harris, would you have any idea?
Ms Harris : If you just bear with me for a moment, Senator, I will find the relevant section of our report. Basically, you are asking what the impact on emissions from the carbon price has been.
Senator WILLIAMS: Yes.
Ms Harris : The big story is that it is very difficult to tell, in a rigorous way, from a short period of time what the implications of any short-lived phenomenon like the carbon price could be. So it is very difficult for anyone to say with any degree of certainty that it definitely did this or it definitely did that. The run of data that we have is too short to be able to do that. What we have seen is that the sectors to which the carbon price applied did reduce. Would we ascribe all of that reduction to a carbon price? No, that would seem brave where we know that there are other factors at play as well. What we did have is—it is just an estimate of course—an estimate from the modelling that the Treasury and the former industry department did on the first two years of the carbon price. That had an estimate of 37 million tonnes that would be reduced compared with what emissions would otherwise have been.
Senator WILLIAMS: So roughly about 40 million tonnes.
Ms Harris : For the first two years, yes. That was a modelled estimate.
Senator WILLIAMS: How much money would be collected in those first two years in total of the carbon tax for 2012-13 and 2013-14? Does anybody have any idea?
Ms Harris : I do not have that figure to hand, Senator. In terms of the amount collected versus the amount taking into account free allocations—
Senator WILLIAMS: I was looking at the total collection; just how much would be collected over those years from carbon tax?
Ms Harris : I do not have that figure to hand.
Senator WILLIAMS: Would it be around $8 billion a year?
Ms Harris : I would have to go and check that out. There would not be that much collected, because so many permits are allocated for free—in terms of government collections.
Senator WILLIAMS: Yes, and with the carbon tax for its first two years, when it is completed on 30 June, I thought it would have collected around $14 billion for $15 million in total.
Ms Harris : There is a difference between the value of all of the permits and the tax arrangements, and—
Senator WILLIAMS: Yes, but let us just talk about the tax at the moment. Have you done the figures of what taxes collected—
Ms Harris : No, that has not been our role.
Senator WILLIAMS: But surely, if it is going to collect, say, $16 billion in the first two years—our target is 431 million tonnes of emissions reduction by 2020 to get our five per cent target?
Ms Harris : There are slight differences in our numbers for different time periods, and slightly different numbers of carryover. Our estimate was 593, but you need to take carryover off that—but that is okay; it is something in the order of that magnitude.
Senator WILLIAMS: The carbon price is now at $24.15; it started off at $23. There have been reports of that price going from $24.15 to roughly $36 to $38 under the current scheme of ETS by 2020. Would you agree with that?
Ms Harris : We do not know what the future price would be, so that is why in the modelling that was done—we did a range of scenarios with low prices, with median prices and high prices—we were uncertain about what the future carbon price might be. That is possible, but a lot of other scenarios are possible too.
Senator WILLIAMS: A lot of people are talking $36 per tonne. I think the previous government, that was their forecast—that is, $36 per tonne by 2020.
Ms Harris : That was one forecast, not that—it is uncertain; we are not sure what the future carbon price would have been.
Senator WILLIAMS: See, this is the point I am getting at. In almost two years, and $15 billion or $16 billion collected on the tax, we have reduced a total of 40 million tonnes over two years. That is the total, roughly: you said 37; I am saying 40. That is less than 10 per cent of our requirements by 2020 for the expenditure of around $16 billion. Have you done any figures on the total collection in your report about how much money collected and how much reduction by 2020?
Ms Harris : No.
Senator WILLIAMS: So going by my figures, if we are collecting $8 billion a year on the carbon tax—that is what it is costing industry and business and ultimately the consumers of Australia when they put the carbon tax in—after eight years that is going to be at least $64 billion. And it is going to be more than that as per the projected forecasts in the increase in the price of carbon under the current plan. That is $64 billion. At the moment we have collected up to $15 billion or $16 billion for just 10 per cent of that target. So you have not done any of these figures at all in your report about the cost to Australian business?
Ms Harris : In the report, assuming the carbon price is in place, which is what the basis was when the modelling was done, from an economic perspective we would not want to conflate the total value of a tax in terms of its total collection with a cost to the economy. They are not the same thing, Senator. What we have done, through the modelling, is to have a look at what the impacts on economic growth might be, gross national income, those kinds of figures, which are a much better indication of the cost to the economy. Obviously the amount of tax does not evaporate; it is recycled throughout the economy. It is not a net cost to the economy, Senator.
Senator WILLIAMS: But it is a cost to certain sectors of the economy. The cost to Qantas was $106 million in 12 months for their fuel carbon tax component. So it is a cost to certain sectors. The NFF clearly said it is a cost to agriculture competing on the international scene, whether it be the dairy industry, the milk industry, or whatever other industry. It is a cost to industries which will ultimately have a cost to our economy in some way or another if we lose our competitive edge.
Mr Fraser : Can I make a more general comment: I would not defend all the details of the carbon price that was put in place a couple of years ago and the modelling that underpinned that—
Senator WILLIAMS: You would not defend it?
Mr Fraser : I would not defend the detail of it; I would defend the use of a price on carbon as being a very effective mechanism to help reduce emissions. But, for a price on carbon to be effective—and I come back to this notion of the long term—there has to be a reasonable period. It has to be understood that the measure is going to be out there and it is going to stay in place, because the idea is to change behaviour. You have to change behaviour. You cannot change behaviour if something has been in place for a couple of years. And for half that period of time at least, the alternative government has been talking about—
Senator WILLIAMS: You make your point. Do you see a worldwide global emissions trading scheme being in place by the year 2020?
Mr Fraser : I see a worldwide trend towards the use of the price mechanism, including a price on carbon, as part of this policy tool kit. I believe that is going to happen. The price does work. It works in so many areas. And governments of all persuasions resort to it to use a price to affect behaviour, and that is what we are talking about.
Senator WILLIAMS: You may say the price may work, but I will tell you what annoys me: when it comes to all these environmental programs, the people who suffer the most are rural Australians, whether it be from Greens programs at a state level on native conservation acts and shutting up country and not letting farmers grow food on their farm in many respects, or threatened species acts, or the costs going back to the primary producer all the time. I am fed up with the costs going back to the man on the land and his wife suffering through tough enough times as it is.
Mr Fraser : I have some sympathy for the general view. I am a farmer myself.
Senator WILLIAMS: What do you farm?
Mr Fraser : Cattle, horses—but that is beside the way. The point is that there are costs involved—
Senator WILLIAMS: You do not farm horses for Pal, do you?
Mr Fraser : No. But the point is that there are costs involved. These things are not costless. The task for policymakers is to select the most cost-effective measures from this tool kit that we keep talking about, and then to recognise that there are going to be imposts that will fall somewhere but to try to arrange those imposts, impacts, in an equitable way so that the burden is spread and it does not fall—and I do not believe it does fall—
Senator WILLIAMS: We are short of time. But you would agree with me that the current carbon tax/emissions trading scheme proposal for extra diesel tax on our truckies would certainly be costly to primary producers who are competing on a world stage—would you agree with that?
Mr Fraser : I do not know enough about the diesel arrangements, although—
Senator WILLIAMS: Then forget the diesel.
Mr Fraser : there are substantial subsidies—
Senator WILLIAMS: What about the cost of electricity on doing business? We have clearly had evidence here of that. The cost to farming, for example, to the average dairy farm, is $10,000. You would agree that the current program has been costly to primary producers?
Mr Fraser : As I said, you cannot—
Senator WILLIAMS: It is a yes or no answer.
Mr Fraser : No, it is not as simple as that. There are very few things that are black and white in my experience.
Senator WILLIAMS: Well, it has been costly to farmers.
Mr Fraser : There are costs, and I am not denying that lots of things have costs, but you have to also look at—
Senator WILLIAMS: Most taxes do.
Mr Fraser : But—wait a moment—you have to look at not just the costs of the measure; you have to look at the costs of not having that measure. There are economic and social costs—these are harder to come to grips with but they are no less real—and it is easier to always point the finger at the cost of the carbon price or a RET or something else, but what is harder to get a finger on is the cost of not responding to the problems out there: the climate change implications.
Senator WILLIAMS: We have limited time. You make a very valid point. But say Australia reduced our emissions to zero, given that we produce 1.4 per cent of the world's CO2—and we would have to stop breathing; you would have to do that to bring it to zero. I have no doubt China's figures are going to go up enormously by 2020. The forecast is from 10.3 billion tonnes last year to 17.9 billion tonnes by 2020. They are going up to 17.9 billion. That is why I am very angry with his current program. It is because we have the highest cost and broadest based price on carbon around the world. No one has equalled our broadness and cost to individuals, whether they are Europe or state programs in the United States, New Zealand or wherever. No-one has as high a cost as us. Why do we have to suffer this cost? We already have hugely costly business expenses trying to compete on a world market. This is my argument.
Mr Fraser : But we also have just about the highest individual carbon emissions in the world too.
Senator WILLIAMS: We are the 13th largest economy, remember? We are pretty productive.
Mr Fraser : In the report, we have looked at the science and we have got a message from that. We have looked at what other countries are doing and we have tried to come to a judgement about what a fair share of that burden is. We found that at the moment we are not carrying what we think is a fair share. There are other countries, including China—as you made reference to—that are being much more active in addressing these problems than we are. The US and some other countries, such as Norway and Denmark, are doing more than Australia.
CHAIR: Your report recommends that a government fund be established to purchase international emissions reductions. That is in recommendations 11 and 12. Can you tell us more about this. Why have you made this recommendation? Can we be sure that clean development mechanism units are genuine?
Mr Fraser : I will ask Anthea to address the second part of the question. But I will the answer the first part on why we have recommended this mix of international permits and domestic mitigation efforts. We would like to see most of the reductions in emissions occur through domestic actions because we believe that the science tells us in the long term we are going to have a very much lower carbon global economy. If you believe that, as we do, you should be working towards that now. Countries that get in early, make the adjustments and effect the structural changes in their economies to do that are going to come out better than others that lag behind.
In the short term, to get a credible start on the task of reducing emissions for the 2020 target, it is not practicable to get these domestic measures in place to achieve the minimum 15 per cent goal that we talked about. Even with the best political will in the world—and we are not in that situation—in the next five or six years you cannot expect the kinds of investments to occur and be flowing through to get to that 2020 emission reduction target. Anthea mentioned one of the measures we recommended in the report which just illustrates the more general problem. Even if you could get emission standards for light vehicles in place tomorrow, by the time the whole light vehicle fleet turned over it would be eight or 10 years. It would be a longer period of time before the full effect of these domestic emission reductions would start to flow through. That is true of so many other investments. Even if they start tomorrow to replace old and inefficient power plants or to put more renewable energy projects in place, it takes time, even with the best will and the best political environment in the world, to do that. That means that in the short term, if we are going to make a serious attempt to get to the 2020 target, we have to resort to permits for international emission reductions.
We want to make sure that they are genuine reductions. From the point of view of the global problem—global warming, global problem, global action—it does not matter whether the emission reductions occur in Australia or in some other country, but it is important to be sure that we are getting genuine reductions, and that was the second part of your question.
Ms Harris : The CDM itself has a range of mechanisms in place to try and ensure that any credits that are created through that mechanism meet the criteria that they have. There are a range of audit arrangements. There is testing for methodologies before anything is approved. The CDM itself has a range of mechanisms in place to try and enforce that these are real and genuine emissions reductions. Every now and then something goes wrong, so there will be an auditor who is found to have been behaving badly. There have been a few instances where problems have arisen. But we certainly do not think that you should write off the entire mechanism because of some problems. We would think there would be very big problems if there were problems and they were not addressed, but there were problems and they were stomped on quickly. It is a bit like the stock market. Of course things happen in the stock market. We do not abandon the stock market because of some incidents.
CHAIR: I think the previous witness made that point as well.
Ms Harris : There is a huge diversity in the types of units that you might want to buy. If the government were to accept our recommendation and set up a fund to purchase, we think there is an opportunity to look very carefully at the sorts of things that you want to buy. I am sure there are all sorts of ways that you might like to target what you purchase. You might have preferences for particular countries that you might prefer to buy from. You might have preferences for the types of project that you are willing to fund, or a negative list of things that you are just not willing to fund—projects that you are not happy with. Because there is such a tremendous diversity, all of those opportunities are available. For example, the Norwegian fund, which is a government fund set up to purchase additional emissions reductions, has a priority for units created from projects where, now that the price of these units has really crashed, if they do not get some sort of ongoing income from the sale of units then there is a problem that those projects might actually fold and stop doing what they are doing. So they are trying to make sure that people who invested in good faith in these projects around the world do not get burnt and that the good abatement work of those projects continues. So that is one option that certainly the government could think about.
CHAIR: There has been some comment from Minister Hunt that the work of the authority could be done from within departments. I would like your response to that, please.
Mr Fraser : We tried to address this in a very brief way in the submission that we put to you. We think that, when the minister talks about it being done in house, he means using the existing departments and bureaus and so on. There is obviously a good deal of talent, and those talents can be used, but we think that expert independent bodies can bring some extra insights and some extra judgements that will not come—by their nature cannot come—from in-house operations. I have got tremendous respect for public servants and departments, and I know how hard they work and how conscientious they are and how they try to be as forthright and as independent themselves with their dealings with the ministers, but the reality is that departmental people, as good as they are, spend a lot of time responding to requests, meeting ministerial requests and meeting budgetary timetables and other timetables. Just handling the day-to-day affairs of a portfolio for the minister is a pretty challenging task. There is not a lot of time to engage in more thoughtful work about what the issues might be, to engage in research.
I know this from firsthand experience. I went from the Treasury to the Reserve Bank. In Treasury I was very much caught up with budgetary processes and meeting ministerial requests. I tried very hard to be responsive on all sorts of things. To then go to the Reserve Bank, to a statutory body with independence in legislation and no sort of entanglement in day-to-day matters, gave me an opportunity to sit back, do research and think about things. The change was quite dramatic. The quality of the work and the advice that comes forward is very different.
I would venture the view that the Public Service as a sort of traditional institutional source of independent advice is becoming diminished; it is being threatened by, in my eyes, ongoing staff cuts. I do not imagine the energy department is going to be immune from those. The independence and the reliance on the Treasury and other departments is affected by growth in ministerial staffs around the place. That traditional source of strong, independent advice from the bureaucracy is under threat. I say I suspect this is happening because I cannot be sure. No-one can be sure because, unlike an independent body like this, which releases its reports—the reports are public and transparent—it is not very often that the public is aware of what departments are advising their ministers on. There is not the same transparency. That is why I say I suspect these things are happening rather than being able to confirm that. The pressures are such that one cannot rely, I do not believe—and I do not believe governments in their own interests would want to rely—just on advice from the Public Service or the bureaus, as good as they might be around the place, when they are confronted with something so challenging and so complicated as climate change.
The opportunity to assemble a group of people, assuming they are good people, independent people and expert people, and ask them to cover particular climate issues from all those different perspectives, weigh up the different science, environment, economic and social consequences and put some advice to government seems to me to be an obvious thing for any government to want to do in its own interests rather than to cut off that potentially useful source of advice. So I am a bit puzzled by what is happening, frankly.
CHAIR: Have you had any input into the design of the Emissions Reduction Fund and, if so, what was the nature of the input?
Ms Harris : The authority has had no role in the design of the Emissions Reduction Fund.
CHAIR: This body of expertise in the climate change area was not called on as part of the design?
Ms Harris : No. Certainly not in any formal way at all.
Senator MILNE: I want to go to the modelling that you have currently got underway. Can you indicate whether the tender has been let and, if so, to whom. Can you tell me what the time frame is on the report for the modelling, and specifically what assumptions you have put into the modelling and what questions you are asking.
Ms Harris : Senator, I am afraid I can answer very few of those things because we have got our bids in but the selection committee is still considering those tenders. We have not yet selected the successful tenderer and so we have not let the contract at this point. In terms of the assumptions, again, obviously that would be decided in consultation with the successful tenderer. We will operate in our normal transparent manner and everything that we do will ultimately be published, but we have not nailed them down yet. In terms of scenarios, again, we have not decided what they would be just yet. In terms of time frames, we would anticipate being in a position where we would be able to publish something in June.
Senator MILNE: So what is the tender for? To do modelling on what?
Ms Harris : The green paper for the Emissions Reduction Fund left open the question of how the Emissions Reduction Fund or the direct action plan in the broad would operate in the electricity sector. Trying to think about the impacts of the RET or changes to the RET in any detailed way about what that might mean, the answer is it depends. And it depends on what the rules are for the rest of the sector, so you cannot say anything meaningful about prices and impacts on patterns of investment and all of those sorts of things. You need the complete set of policies to be able to do that, because they are so interrelated. But, because that is yet to be decided, the point of this was to just canvas some options about what the full set of arrangements might be, so it wasn't to make recommendations. It is not a review of the RET, given the interrelatedness, but some options for how the whole sectoral arrangements might work.
Senator MILNE: I know you haven't read it yet, but what is your notional view about when you will need to have that modelling concluded by.
Ms Harris : Probably late May so that we can finalise the write-up and everything in June.
Senator MILNE: I go back to the point I made earlier about the need for this to be out there and made public in the context of the parallel review of the renewable energy target. Are you aware that in the parliament this week the minister described Brian Fisher, formerly of ABARE, as one of Australia's most pre-eminent modellers and therefore it was quite unnecessary for you do to this work? Are you aware that that statement was made?
Ms Harris : No, I wasn't.
Senator MILNE: Are you aware of the Ombudsman's criticism of Brian Fisher's modelling when he was at ABARE?
Ms Harris : I have vague recollections of that, Senator.
Senator MILNE: And what are those vague recollections? What were the Ombudsman's criticisms of Brian Fisher?
Ms Harris : I do not remember them in detail but I remember that there were criticisms of the work that was done by the Ombudsman.
Senator MILNE: It was basically that ABARE systematically produced modelling, demonstrating massive costs to Australia of any action to mitigate emissions. That is the history of the modelling and that is why it is essential that your modelling is out there at the same time. My final question—
Mr Fraser : Can I just say, Senator, I am not a modeller, so I am critical of all modelling exercises—ours or theirs or anyone else's really.
Senator MILNE: I am critical of the assumptions that are often fed into the models but anyway. In chapter 11 of your report you identify a number of emissions reduction opportunities. Can you indicate out of that list of opportunities you have got in that chapter, given the cost of abatement of those opportunities, whether the direct action plan with $1½ billion only in it and any of those mitigation opportunities you identify are likely to be able to succeed in the context of that is the total of the amount of money that is available?
Ms Harris : We have not tried to model the direction action plan in any sense. For various price levels, the modelling that was done indicated that, to meet the five per cent target purely domestically, that only really happened in our high-price scenario. In that high-price scenario, the marginal costs—so the assumed carbon price—was at around $65 a tonne in 2020 at that time. Of course not all of the tonnes would be costing $65 a tonne and, with all those sorts of caveats in place, we have not tried to assess the adequacy or otherwise of that funding. My understanding also, Senator, is that is the funding over the forward estimates. I am not aware that that is the total for the entire program.
Senator MILNE: What I am basically saying though is $1½ billion and it is an $8 a tonne figure and, given what you are saying, that many of those opportunities are very much higher than that, there is a high probability that a lot of those opportunities will not be able to be accessed.
Ms Harris : We looked at different price levels and the low- and the medium-price scenarios, assuming prices are something in that order, the modelling estimates were that a five per cent target achieved domestically would not be met.
Senator MILNE: Thank you.
CHAIR: What direct response, if any, have you had from the minister on your Targets and progress review: final report?
Mr Fraser : We have had discussions with the minister on this report and on the earlier report and we have consulted with him. They have all been proper, cordial discussions. So far as the final report on the emissions reductions is concerned, the minister did put out a press release. We met with the minister the day before the report was released to pay the courtesy of handing over the report, running through it and so on. Again, it was cordial and proper. We expressed our views and he expressed views that were not unlike what was reflected in the press release, particularly towards the bottom of the press release when he said that they would look at it respectfully, or words to that effect. Earlier on there are some things that were less encouraging.
CHAIR: Thank you very much.
Senator WILLIAMS: Ms Harris, what does the report show about the international carbon prices and is it the case that the Australian carbon tax is the highest and broadest nationwide carbon tax?
Ms Harris : We have not specifically done that analysis. Of course, there are lots of ways of trying to think about prices. Is it the highest price? No, it is not the highest price. In terms of the sorts of calculations that you were doing, Senator, if you add up the total value of all the permits in the scheme, is it the biggest? It is certainly not that either. It does tend to have broader coverage than many schemes in terms of sectoral coverage. In other countries, other sectors have alternative policies in place.
Senator WILLIAMS: Yes, they do. For example, the clean development mechanism unit is trading at 50c; the New Zealand unit is trading at $3; a free unit is provided in the Chinese pilot scheme. Your report does not have a close look at these other countries and our competitors in relation to the cost in Australia?
Ms Harris : We certainly did not do, and it was not our task to do, an assessment of the competitive impacts of the carbon price arrangements, compared with carbon price arrangements in other countries.
CHAIR: Mr Fraser and Ms Harris, thank you very much for appearing today, for your submissions, the statement and your fulsome answers to our questions. That concludes today's hearing. I thank all witnesses who have appeared.
Committee adjourned at 11:52