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Thursday, 4 June 2009
Page: 5670


Mr COMBET (Parliamentary Secretary for Climate Change) (9:05 AM) —I thank members for their contribution to this cognate debate on the Carbon Pollution Reduction Scheme Bill 2009 and the related bills. The bills before the parliament will implement the Rudd government’s Carbon Pollution Reduction Scheme, which will implement the most significant environmental and economic reform ever undertaken by an Australian government. It is important to consider at the outset why the government is taking this action. The government accepts the science of climate change. Australia is highly exposed to the impacts of climate change. The Intergovernmental Panel on Climate Change, a body consisting of thousands of scientists from around the world, has found that Australia’s water resources, coastal communities, natural ecosystems, energy security, health, agriculture and tourism will have much increased vulnerability if global temperatures rise by three degrees Celsius or more.

Around 80 per cent of Australians now live in coastal areas. Recent science indicates that sea level rises of up to one metre by the end of the century are plausible. Our ecologically rich sites such as the Great Barrier Reef, Queensland wet tropics, Kakadu wetlands, Australian alpine areas, south Western Australia and subantarctic islands are all at risk, with significant loss of biodiversity projected to occur by 2020.

Failing to take action against climate change will also have adverse impacts on our economy. The agriculture and tourism industries in particular will suffer, putting at risk many thousands of jobs. Irrigated agriculture in the Murray-Darling Basin could decline by up to 92 per cent by 2100 without global emissions mitigation. So the need for action is clear. It is also critical for investment certainty that the bills before this House pass.

The inevitability of a carbon price is well recognised throughout the business community. Business needs to know how that carbon price will be determined. This is critical for investment decisions to be made. The CPRS will enable the setting of the carbon price through market mechanisms. Without this investment certainty, we will be endangering jobs and future economic growth. The need for investment certainty is clear to mainstream businesses in Australia and has been recognised by the Business Council of Australia and the Australian Industry Group. That is why Ms Heather Ridout, Chief Executive of AiG, just this week said:

We urge the Coalition to work with the Government to ensure the best deal for business and pass this legislation this year.

Yet, instead of the coalition listening to the business community, it has continued to ignore the calls for investment certainty. The coalition is also out of step with mainstream thinking in the financial community. An analysis conducted just last month by Goldman Sachs JBWere on the earnings impact of the government’s revised CPRS proposals on the S&P ASX 100 companies demonstrated clearly:

Investors see no material earnings risks for emissions-intensive, trade-exposed companies from the early years of a Carbon Pollution Reduction Scheme … Far from putting companies in financial trouble, the CPRS will have a negligible financial impact on Australian companies … The Government’s proposed CPRS has sufficient compensation to ensure that company profits and existing investors will not be impacted over the short to medium term … There is no doubt that with the Government’s revised timetable, companies and investors now have plenty of notice about the impact of the CPRS.

This analysis was endorsed by a major group of investors with $550 billion worth of funds under management, including AMP Capital Investors, Colonial First State and BT Financial Group. It is clear that the CPRS is needed for investment certainty and this is recognised in the mainstream business community.

The Leader of the Opposition has advanced a number of fallacious propositions in an attempt to justify delay and opposition to these bills. The first proposition is to delay action here in Australia until it is clear what action will be taken in the United States, namely, through the progress of the Waxman-Markey bill. But the fact is that emissions trading systems or schemes are now widely accepted internationally as the best means of establishing a carbon price and of linking global efforts to reducing carbon pollution. An emissions trading scheme is the central feature of the Waxman-Markey bill. Mr Turnbull, the Leader of the Opposition, ignores the fact that the government designed the CPRS not only for Australia’s specific circumstances but also to link with schemes internationally, including in the United States. The government has been actively engaged with the current US administration on these issues and is conversant with the Waxman-Markey bill. There are a lot of commonalities between the two proposed schemes, especially the market based approach to setting a carbon price.

But to address briefly the claims made by the opposition I would like to speak to some of the specific issues that have been raised in regard to the US Waxman-Markey bill. Firstly, it has been asserted that the proposed Waxman-Markey bill provides greater assistance to emissions-intensive trade-exposed—EITE—industries than Australia’s proposed CRPS does. After listening to some of the speakers from the opposition in this debate, this appears to be the central argument that the coalition has put forward for delay. The fact is, however, that the Waxman-Markey bill does not guarantee 100 per cent assistance to industries at risk of carbon leakage, as has been asserted by the member for Wentworth. The share of free permits to US EITE industries is fixed at 15 per cent in 2014, and the number of permits available to assist these industries then declines with the cap on emissions. This means that in any year if the calculated allocations to US EITEs are greater than the number of permits that have been set aside for them the allocations will be reduced accordingly. In addition, if emissions from US EITE industries expand on account of these sectors growing, and the overall cap on emissions falls, the effective rates of assistance to these industries will also decline.

To illustrate this further on this important point, the Waxman-Markey bill has committed to reduce the national cap on emissions in the US by around two per cent in the first few years of the scheme rising to around 3½ per cent per year by 2025. If emissions from EITE industries were initially around the 15 per cent cap and they grew at two per cent a year, then the rates of assistance being provided to EITE industries per unit of output would fall by four per cent in the early years of the scheme rising to 5½ per cent per year in around 2025. These features are far from a guarantee of 100 per cent assistance, as has been asserted by the Leader of the Opposition. US firms will have no certainty over exactly how much assistance they will receive at any point in the future. It will depend on a range of factors beyond their control, such as the growth in EITE industries generally and the overall level of EITE emissions at any time.

In contrast, the government’s approach under the CPRS provides more certainty to industry. It sets out the level of assistance per unit of output that will be provided in each and every year going forward, and there is no upper limit on the share of free permits being provided to EITE industries. Moreover, the thresholds for assistance in Waxman-Markey are generally higher than those in Australian policy. This means that assistance in the US will be concentrated on a narrower range of eligible industries. It is also true to say that Australian workers under the CPRS will have a more secure safety net for any changes in the structure of the economy than that proposed for US workers under the Waxman-Markey bill. On this point, an issue raised by the Leader of the Opposition, apart from the greater certainty provided by our EITE assistance or our workplace safety net, the government has also set aside through the Climate Change Action Fund $2.75 billion to assist in smoothing the transition for business, community organisations, workers, regions and communities.

Rather than showing Australia is going it alone, these recent developments in the US show Australia is firmly in a leading group of countries committed to finding a solution to the problem of climate change, with broadly similar approaches being adopted to address the risk of carbon leakage. The fact is that the coalition’s argument does not stand up to scrutiny. It is an excuse for delay—an excuse relied upon because of the disunity of the coalition. If the coalition had serious concerns about carbon leakage, it would have put forward serious policy responses by now. But there are none. It is time that the coalition got serious about these issues. If the coalition has a problem with the level of industry assistance, it should state what it is and propose policy responses.

I would also like to address the claim that has been made by the opposition that delay is justified to allow consideration of the regulations which will detail the government’s proposed industry assistance measures. Firstly, the government has been clear on its policy on industry assistance. We have articulated it publicly. The CPRS white paper also provided considerable detail on the assistance that would be provided to EITE sectors upon introduction of the scheme and allowed for extensive consultation with business. Also, the government always intended releasing draft EITE regulations in time for the Senate deliberations on the CPRS Bill in the near future, and this remains the government’s intention. This is an earlier release of draft regulations than usually takes place. It is highly unusual to provide draft regulations before the primary bill has been passed. Further, it would be inappropriate to include the details of the EITE assistance program in the bill as it is important that the details of the assistance program can be amended over time to allow the inclusion of additional activities if required.

I would also note that, under the Waxman-Markey proposal, it is not proposed that details relating to the allocative baselines for EITE industries be listed in the bill; the US regulator will have up until 30 June 2011 to publish those details. In contrast, the CPRS Bill commits the minister to having the EITE regulations made by 30 June 2010. The contention by the coalition that a delay is justified by the availability of regulations is transparent nonsense.

I would also like to address the proposal advocated by the opposition that delay is necessary to allow the Productivity Commission to review the CPRS. This remarkable proposition ignores the fact that the Productivity Commission has already considered the issue of an Australian emissions trading scheme and specific aspects of the government’s CPRS. There is absolutely no policy rationale at all for having the Productivity Commission undertake yet another review. For the benefit of those opposite, I would like to highlight some of the commission’s findings on these issues. Had the coalition considered these findings, it may not have thought a reference to the Productivity Commission such a good idea, for the findings completely contradict the coalition’s apparent policy positions. In one of its reports in relation to emissions trading, the commission stated the following:

In addition, it may be appropriate to introduce special arrangements for reducing negative effects on the competitiveness of energy-intensive industries (such as free permit allocation under an emissions trading scheme). The arrangement should not, however, completely shield firms or their customers from cost increases.

That is, the Productivity Commission does not support the 100 per cent levels of assistance apparently advocated by the coalition. If the coalition thought that the Productivity Commission would deliver some justification for greater industry assistance, it was clearly mistaken.

The opposition has also posited biochar as a potential panacea for many of our carbon emissions. Put quite simply, the science on biochar is still not clear and it will certainly not at this stage deliver the results that the coalition has been suggesting. The government is taking the sensible view and funding research to further develop the science on biochar. If substantial sequestration of carbon becomes viable it will be pursued, but it is no substitute for the pricing of carbon in the economy through the CPRS. It is also important to note that, due to the lack of science, biochar would not be counted towards meeting our international commitments at this stage, and that means that it would have no effect in helping us achieve our targets. If the opposition’s estimates of soil carbon and biochar offsets of 100 tonnes were realised and used in the CPRS, this would translate into a $2 billion to $3 billion liability for taxpayers, who would need to fund the purchase of internationally recognised units to make up the resulting shortfall in our target. On this point the Productivity Commission has said the following:

There would be little point, for example, in pursuing costly measures to increase carbon stored in soil (which results in less carbon dioxide in the atmosphere) if this did not count toward meeting commitments.

It stated that abatement activities should focus on emissions reductions that would count towards meeting internationally negotiated targets. Again, this is a view which directly contradicts that of the coalition, and yet the coalition wants to delay voting on these bills to allow the Productivity Commission to review the bills. I think the evidence here is that Mr Turnbull, the Leader of the Opposition, simply has not done the homework.

Before I conclude, I would like to also comment on some of the reports and statistics that were used by members opposite during the debate. While the government is always open to consideration of any information provided to us on the impact of the CPRS, the reports used by those opposite to justify their scare campaign on jobs appear to follow a familiar pattern: they have normally been funded by opponents of the scheme, they rest on unclear, or certainly not transparent, assumptions and they fail to take into account the significant industry assistance that has been outlined by the government. I want to be clear about why the government has every faith in the Treasury modelling that has underpinned the design of the scheme. This was the most comprehensive economic modelling exercise undertaken in Australia. The key findings were that under the CPRS, from an employment perspective, output from all major sectors will grow over the years to 2020, delivering substantial increases in national employment from today’s levels. It also found that the assistance proposed by the government would ease the transition to a low-emissions economy for emissions-intensive trade-exposed sectors while maintaining incentives for emissions reductions. It is important to distinguish, therefore, between the Treasury modelling and reports prepared for lobbying and political purposes.

In conclusion, it is clear that the coalition is too divided to articulate a coherent policy on what is the most important environmental and economic reform ever proposed in this country. The coalition’s arguments are fallacious. They have been constructed to disguise their division and disarray. Mr Turnbull, the Leader of the Opposition, supports emissions trading, but he is surrounded by sceptics, by agnostics and by Wilson Tuckey—in a category all of his own, although I think generational renewal is evidenced by Senator Joyce’s contribution to this debate!

Every time the Liberals have promised to announce a policy, they have found an excuse for delay. We have had more than a decade of reports, analyses, inquiries and debates. The time has come for action on climate change—action that will reduce greenhouse gas pollution and provide the certainty that business needs to invest. It is clear that the business community wants to see the CPRS pass for reasons of business certainty. It is clear that the Australian community wants to see the CPRS pass so that action can be taken to combat climate change. The government remains determined to take this strong action, and I encourage non-government members to support these bills for the good of the environment and the economy.

Question put:

That the words proposed to be omitted (Mr Turnbull’s amendment) stand part of the question.