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Monday, 16 November 2009
Page: 11692


Mr COMBET (Minister for Defence Personnel, Materiel and Science and Minister Assisting the Minister for Climate Change) (4:02 PM) —The Carbon Pollution Reduction Scheme bills represent an immense environmental and economic reform, and so it is with genuine appreciation that I thank all of the members of the House for their contributions to the second reading debate. Climate change is the most difficult and confronting issue of our generation. Action on climate change demands unprecedented international cooperation and the acceptance that our historical dependence on carbon intensive economic expansion cannot continue unabated. Action on climate change demands in fact a new industrial revolution, one which factors in the cost of carbon pollution and stimulates investment in low emissions energy and technology—a clean industrial revolution.

I thank all the members of the government who have spoken passionately in support of action on climate change and all those on the opposition benches who have done the same, all of whom have supported the Carbon Pollution Reduction Scheme during this debate. They know that the time has come to get on with the job of reducing Australia’s carbon emissions. They know that failure to pass the CPRS bills a second time will ensure that Australia’s emissions continue to rise and that we will lose a real opportunity to start the transition to a low-carbon future. Government members also know the significant impact that unabated climate change will have on Australia. They understand that as one of the highest per capita emitters in the world we have an obligation to contribute to a global response on this issue.

Only a few days ago the community was reminded of just how much is at stake with the release of the report Climate change risks to Australia’s coasts, which revealed the potential costs of coastal inundation from a sea-level rise. Importantly, government members are also concerned about the impact that the transition to a lower carbon pollution economy will have on low-income earners and the elderly. That is why many speakers on the government side in particular have supported strongly the household compensation package contained in these bills.

The government also understands the importance of passing this legislation so that businesses throughout the country will have the confidence to invest. Business leadership in Australia realise that a carbon price is a necessary economic reform. They understand that an emissions trading scheme is the best way to establish such a price and they want passage of these bills so that the business community will have the certainty that is needed for investment to occur, particularly in such crucial sectors as the energy market. Businesses must be able to model how a carbon price will be established, what it will likely be and its influence on their investment decisions. They all know it is coming; they need the certainty now to allow the investment to occur.

With the needs of the wider economy in mind, the government has also designed the CPRS to achieve Australia’s emission reduction targets in the most cost-effective and efficient manner. The CPRS is more cost effective and efficient because it places a price on carbon pollution in the Australian economy and then lets individual businesses identify the best way to reduce emissions. Liable polluters will have to buy a permit for each tonne of carbon dioxide equivalent that they produce. This of course creates an incentive to reduce emissions and it prices the cost of carbon into all goods and services in the economy. Reductions in emissions can free up permits for trading. As permits can be traded within the scheme and internationally, the CPRS ensures that the pollution abatement occurs most efficiently and at least cost. To phase in the impact on emissions intensive parts of the economy, the CPRS includes a range of assistance measures for trade exposed industries—gassy coalmines and the most emissions intensive coal fired electricity generators that face loss of asset value from the introduction of a price on carbon.

The parliamentary debate, though, has again exposed the wide range of views on the veracity of the climate science. Many in the opposition continue to dispute the science and we have seen it evidenced in the debate in the House. However, I would like to note, importantly, the considered contributions on this point by the Leader of the Opposition and the opposition spokesman on this issue, the member for Groom. Those members have some issues of course with aspects of the CPRS design that are subject of good faith negotiations between the government and the opposition. But there are two important areas of agreement between the government and at least the opposition leadership—firstly, that Australia should reduce its greenhouse gas emissions. As the member for Groom said:

Can I state from the outset that the coalition is absolutely committed to reducing greenhouse gas emissions by the target of five per cent and—in the event of international agreements—by 15 or even 25 per cent.

Secondly, there is agreement, at least, again, with the Leader of the Opposition in the House of Representatives, that a cap and trade scheme is the best way to achieve emissions reductions. As the member for Wentworth said, most economists and policymakers agree that a well-designed emissions trading scheme is the most economically efficient means of reducing greenhouse gases. That is why in 2007 the Howard government commenced work on an Australian emissions trading scheme.

Interestingly, in the debate these views were shared by some, but not all, opposition members, and of course in recent days we have also seen in the media some commentary from no less a figure than the Leader of the Opposition in the Senate questioning the position of opposition leadership in this place. Indeed, in the debate in the House some members challenged the basic science of climate change and the need to reduce emissions at all. Quite incredibly, the member for Tangney questioned the credibility of the Intergovernmental Panel on Climate Change, suggesting that it should be dissolved.

The facts are that the IPCC reports draw on published and peer-reviewed research. The Fourth assessment report of the IPCC was compiled by no fewer than 1,250 scientists from all over 130 different countries in peer-reviewed work. The IPCC’s conclusions are based on multiple lines of scientific evidence for climate change including observed increases in global average air and ocean temperatures, widespread melting of snow and ice, and the rising global average sea level. The unprecedented level of peer and government review makes the IPCC Fourth assessment report one of the most scrutinised scientific documents in the history of science and it is simply not credible to ignore its findings and argue for the dissolution of the IPCC.

On this question also the member for Hughes said that carbon is not a pollutant, but a free fertiliser for the planet indeed, and that it would be madness to limit carbon pollution emissions as this would deny the developing world a free 20 to 50 per cent increase in food production. The member for Hughes’ observations are, to say the least, not consistent with the science. The IPCC has found that the modest fertilisation effect from increased carbon dioxide is likely to be offset by even relatively small local temperature increases of one to two degrees centigrade and changes to rainfall patterns, and in fact it has predicted that climate change will lead to increased risk of hunger in the lower latitudes.

Unfortunately though, the member for Hughes is still not alone in her disregard of the scientific evidence. I mentioned before that no less a figure than the Leader of the Opposition in the Senate, Senator Minchin, recently in fact said that a majority of the opposition party room did not believe that human beings are causing, or are the main cause of, the planet warming. This extraordinary observation is notwithstanding the fact that the IPCC scientific conclusion in 2007 was that ‘warming of the climate system is unequivocal’ and ‘the increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations’. This is the peer-reviewed scientific work of 1,250 scientists from 130 countries contributing to the IPCC report. In that context, which I quoted from the IPCC report, the term ‘very likely’ is defined in the scientific conclusion of that report as being ‘90 per cent probable’.

Apart from questioning the science, a second line of argument adopted by those opposed to action on climate change is to reject the use of a market based approach—an odd position, I think one might acknowledge, for some members of the Liberal Party to take given their stated philosophical disposition towards the operation of markets. The member for O’Connor, for example, said that a ‘pay to pollute’ system will not reduce emissions. I think this is demonstrably wrong. I disagree. Where industry has to pay to pollute, it will reduce emissions. That is the experience. It is backed up by practical experience with schemes that place a price on pollution including decades of experience, for example, with successful US cap and trade schemes to tackle emissions causing acid rain. On this issue also, the member for Grey quoted emissions data between 2005 and 2007 from a selection of European countries in an attempt to show that the EU emissions trading scheme had failed to have an impact on emissions, quoting that member states’ individual emissions can be misleading since the EU ETS operates as a whole across all member states and when one looks in that sense aggregate data for the European Union indicates that emissions increased by just 1.9 per cent from 2005 to 2007 and that emissions from covered sectors under the European emissions trading arrangements fell three per cent from 2007 to 2008.

Some opposition members appeared to oppose trading of emissions units also and even to suggest that a trading scheme is inconsistent with Labor philosophy. On this front the member for Wide Bay, for example, said the following:

Here is the Labor Government, which has been vocal in its criticism of world financial markets, now advocating the establishment of a giant new trading scheme.

Of course, this thoroughly misrepresents the government’s position. The government has never said that we would abandon market mechanisms because of the global financial crisis. Properly regulated markets remain crucial to the operation of the Australian and global economy in the distribution of resources for investment and they are an important tool for addressing climate change. Of course the carbon market must be appropriately regulated. That is why emissions units will be classed as financial products under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001. The Australian Securities and Investments Commission will be able to investigate and prosecute market misconduct and the Australian Competition and Consumer Commission will have the power to address anticompetitive behaviour. I would also add, for those who expressed concern about the effect of speculative activity on the carbon price, that the CPRS has been designed to limit price volatility and ensure that emissions units are accessible to business. Design features to achieve these policy goals include a fixed price of $10 per unit in the first year of the scheme, for example. They also include a cap on carbon prices in the subsequent four years and unlimited banking of emissions units so that units created in one year can be used in a future year—for example, to hedge against price movements. These are features that do not apply to ordinary commodities such as crude oil.

Those in the opposition who oppose a market based approach I think need to consider the effectiveness and the cost of the alternatives. One alternative, for example, suggested by the member for O’Connor is that the government should reduce emissions by supporting particular projects, such as a high-voltage power line to deliver electricity from the Pilbara to Perth. The problem with a project-by-project approach is that it will not achieve emissions reductions on the scale we need and it will also not achieve it at the lowest cost. Such an approach will only work if the government takes on the role of knowing better than industry where emissions can be reduced at least cost and how this can be done most efficiently. In general that is not necessarily the case. It is better to have a market mechanism to guide that decision making. This is precisely why 27 European Union countries, the United States, Japan, Canada, New Zealand and Korea all have or are developing cap and trade systems. It is why the G8 meeting and the G20 meetings in Italy earlier this year endorsed the concept of cap and trade systems as the most efficient way of reducing emissions. It is also why, it is important to note, the previous government’s Shergold review and this government’s Garnaut review recommended a cap and trade system for Australia.

It is also important to address some issues raised by members relating to the revenue that would be generated by auctions of Australian emissions units. The members for Hume, Canning, Paterson, Farrer and Fisher, for example, suggested that the CPRS is some kind of tax grab. That is not the case. Revenue from the sale of emissions units is returned to households and businesses under this scheme. There is no net revenue returned to government coffers. The Mid-Year Economic and Fiscal Outlook outlined revenue and expenses associated with the CPRS out until 2020 and showed that the net impact is a negative $2.5 billion. This, of course, is quite recently released financial material from the Treasury. The member for Wide Bay suggested that by returning revenue to households there is no incentive for efficient energy use. Again, this is not correct. There is still a price signal that encourages more efficient energy use, and this is complemented by government programs that assist householders to improve energy efficiency, such as the $3.2 billion Energy Efficient Homes package.

The member for Dunkley raised concerns that the revenue available to compensate households may be reduced or removed if international emissions units can be purchased cheaply. This is a misunderstanding of how the scheme will interface internationally. The ability to import international units will not mean that Australian emission units could ever remain unsold, leaving government with no revenue to fund household assistance. It simply means that bidders at auction would not be prepared to pay any more than the price of an international unit; that is, the Australian emissions unit price is going to be sensitive to the international marketplace. It is true that the price of Australian emissions units would fall therefore in line with the price of international units and this would reduce the revenue overall available. However, the price impact flowing through the economy would also therefore be reduced. On the other hand, if the price of international units increases, this will tend to increase the price impact flowing through the economy, but it will also mean that more revenue is available to compensate households, for example. In short, revenue to compensate households will be greatest when the price impact is the greatest.

The government will monitor the revenue received from the CPRS and will review the adequacy of the household assistance package in the context of the budget. While the government has been careful to address the price implications of the CPRS, there needs to be a reality check for those members predicting massive price increases. Treasury modelling, for example, demonstrates clearly that the price impact of the CPRS is modest. The CPRS is expected to raise household prices by 0.4 per cent in 2011-12, the first year of the operation of the scheme, and 0.7 per cent in 2012-13, when a market price is operating. As I have noted, the government has provided household compensation to help assist low- and middle-income households in particular with these modest cost rises.

A number of members suggested that the CPRS would destroy jobs. This concern is thoroughly misplaced. The truth is that Australia can join global efforts to avert dangerous climate change while we continue to grow and prosper. Treasury economic modelling, some of the most exhaustive modelling that Treasury has ever undertaken, confirms this fact. It shows national employment continuing to grow to the year 2020 and national income increasing by at least $4,300 per capita while carbon pollution is reduced by up to 25 per cent below 2000 levels. Furthermore, the proposed transitional assistance for emissions-intensive industries, for example, will help protect jobs and prevent so-called carbon leakage. (Extension of time granted)

I would like to respond to the suggestion that we should delay consideration of these bills until after the Copenhagen conference, which is an important issue that has been raised. A large number of opposition members spoke on this very point, but none of them gave any reason of substance as to why the parliament should defer consideration of these bills. Let us be clear about this. The Copenhagen conference will not affect the design of these bills and the opposition has not raised a single instance where it will. The CPRS represents an emissions trading scheme designed for our own domestic circumstances which, importantly, is capable of delivering emissions reduction targets to which Australia may commit in an international agreement. By passing the CPRS before Copenhagen, Australia would demonstrate its commitment not just to the targets but to having a robust mechanism to achieve them. Importantly, while the 2020 target range endorsed by the opposition is referred to in the objects clause of the CPRS Bill, scheme caps are to be set by regulations. The government will set these caps in light of all relevant factors, including emissions reduction commitments made by other countries. The parliament will of course have an opportunity to scrutinise those legislations and it is only proper that cap setting would be subject to parliamentary oversight. Passing these bills would start Australia on the path to reducing its carbon pollution but it would not lock us in to particular caps on emissions. The ambition of our emissions caps will be calibrated over time, taking into account international developments. In short, there is no reason to wait for Copenhagen, and claims to the contrary are just excuses for further delay.

Australia as a country cannot afford further delay. We are now at the very serious end of this debate. The time for ambit claims and industry scare campaigns such as those run by the coal industry are now over. The science is compelling—climate change is real—and there will be serious consequences for this country if global emissions are not restrained. Without the CPRS our emissions will be no less than 20 per cent above 2000 levels in the year 2020. Australia is highly exposed to the impacts of climate change and the effects on Australia’s environment and economy will be serious. The business community in Australia knows that a carbon constraint is inevitable, and they do not want further delay. They are calling for investment certainty so that they can commit the necessary investment to start to move the Australian economy to a low-carbon future. As the Chairman of Shell Australia, Mr Russell Caplan, said in August this year, a delay in putting the scheme in place will create a climate of continuing uncertainty for industry and potentially delay the massive investments required, and the longer we delay action, the more costly it will be when we finally start to act.

The International Energy Agency predicts that the world will have to spend an extra $500 billion to cut carbon emissions for each year it delays implementing comprehensive action on climate change. The government is committed to addressing climate change. We have passed a renewable energy target. We have committed billions of dollars to support the increased uptake of energy efficiency measures and to develop and demonstrate carbon capture and storage technology. We are working with all levels of government to assess areas most vulnerable to the impacts of climate change and to start to adapt. The Prime Minister and the Minister for Climate Change and Water are working very hard internationally to help craft a global deal in Copenhagen. The government remains steadfastly committed to this important reform. That is why we are working hard in negotiations with the opposition and with the member for Groom—and the member for Groom, who very generously allowed me an extension of time to finish this address, is in the chamber. We are in those negotiations with the opposition with the aim of agreeing on a package that will see the legislation pass the Senate.

As we have always stated, the opposition’s proposals will need to be fiscally and environmentally responsible. As a sign of good faith, the government announced yesterday that we will agree to exclude agricultural emissions from coverage under the CPRS indefinitely. In light of this, the government is also considering ways in which the agriculture sector can contribute to the transition to a low-pollution economy. In negotiating with the opposition, the government will consider a range of ways in which the sector can reduce its emissions over the medium to long term, including by being able to generate offsetting credits.

Negotiation with the opposition is necessary because the reality is that the government requires support in the Senate to pass the legislation. Therefore, it is with concern that we note some of the recent commentary by some of the colleagues of the member for Groom, including the Leader of the Opposition in the Senate, which bring into question the ability of the opposition to deliver on a set of amendments. However, the reform is too important to fail due to any disunity on the other side of the chamber. I call upon all coalition members to take responsibility in this respect and act in the national interest to support reductions in our emissions through passage of the CPRS. I urge all of our colleagues, with just over 20 days until Copenhagen, to support passage of the CPRS because it would mean Australia will be able to go to the negotiating table not just with credible targets but with a robust mechanism to deliver them. I think it would give the international community a much needed boost to the process in the crucial weeks leading to the international negotiations.

Finally, I would like to thank those who have worked extremely hard to develop this very difficult but crucial policy. In particular, I would like to put on the record my thanks to the Minister for Climate Change and Water, Penny Wong, who has worked tirelessly for nearly two years to get the design of the CPRS right. She has done it with the support of an extremely dedicated group of staff and also a very dedicated and talented Department of Climate Change. It is largely due to their work that we have this comprehensive and balanced legislation before us which, if passed by the Senate, will constitute one of the most significant environmental and economic reforms in Australia’s history. In fact, it is a privilege accorded to few to move legislation of such environmental and economic importance to the nation. So it is with respect for the occasion that I commend the bills to the House.

Question put:

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