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Tuesday, 9 February 2010
Page: 868

Mr RAMSEY (6:09 PM) —This Carbon Pollution Reduction Scheme Bill 2010 and related bills are amended versions of the bills we last saw in this House. On that occasion I did not support the bill and, while I acknowledge the amendments as an improvement, if anything my opposition to the bill has increased since that time. My opposition has increased because having spent the last two months back in my electorate, and as the full ramifications of the bill slowly trickle down to individuals and industries in our local communities and the impacts on our economy are slowly factored in, it is becoming increasingly obvious that there is an absolute distrust for, and noncomprehension of, the scheme. In short, my constituents simply do not understand how the Kevin Rudd-Penny Wong ETS works.

While the member for Braddon is still in the chamber with us, he mentioned that we on this side of the chamber did not understand how the scheme worked despite the fact we had the green paper, the white paper and then the bill. In fact, the problem the member for Braddon and the government have on this issue is not that I should be able to explain their scheme but that they themselves have been incapable of explaining it to the people of Australia. This is because the government has failed to take the public into its confidence and has failed to explain the issue to them. I join those who quote former Prime Minister Keating in saying, ‘If you don’t understand it, don’t vote for it. If you do understand it, you’d never vote for it.’

Mr Sidebottom —Did you think that up?

Mr RAMSEY —I actually credited the former Prime Minister with it, Member for Braddon. The government have failed miserably to explain the ETS, and they have not done so because they cannot explain how this scheme will have any measurable effect on world emissions. Australia is responsible for 1.4 per cent of world emissions. The government’s scheme plans to reduce this amount by five per cent, or seven one-hundredths of one per cent. Clearly, that kind of reduction in world emissions is meaningless except as sending a signal to the rest of the world that we are prepared to do our bit. And if the rest of the world will join us, we will do more. So if we are to make a commitment to reducing our CO2 emissions over the next 10 years by five per cent as the government’s bill proposes—as, indeed, the opposition also proposes—and its purpose is to show the rest of the world we are serious about reducing emissions, we should do it by the lowest cost measure so as not to disadvantage our economy any more than is absolutely necessary.

Let us have a look at the government’s ETS. There are some astonishing figures here if you have a bit of a dig around. The government has nominated a reduction in CO2 emissions of five per cent by 2020. Without any change in our current trends it is predicted our CO2 emissions will rise by about 70 million tonnes by 2020. By contrast, a five per cent reduction in emissions by 2020 amounts to a cut of 70 million tonnes on current emissions. So to meet the nominated five per cent reduction we actually have to do much better than that. We have to reduce our emissions on ‘business as usual’ by about 140 million tonnes a year.

Over the full seven-year period the ETS will be in operation through to 2020 the accumulated reduction would be about 560 million tonnes. So by 2020 the total amount of foregone emissions or abatement will be about 560 million tonnes. The Rudd-Wong ETS is planning to charge industry $114 billion for the purchase of permits through this period. This equates to $203 per tonne for carbon abatement. Apart from diamonds this would be about the most expensive carbon in the world. This $203 per tonne will be splashed around to householders and big business and the rest will be chewed up in the churn of financial and government sectors.

So here we are with the Rudd-Wong ETS where we are told carbon may trade for $20 per tonne—of course, no one really knows—but the government will tax industry $203 per tonne to achieve that target. You have to come to the conclusion that everything above the assumed trading price of $20 per tonne is nothing more than a gigantic ‘money-go-round’. It is a massive tax that will cause the price of everything to rise—a scheme to tax industry to raise revenue for the government to buy electoral favour. The Prime Minister knows that if, for instance, he causes the price of electricity to rise by 18 per cent as predicted then the only way he will keep his job is to send cheques in the mail—hence the $900 handouts to buy votes. This is not a CPRS; it is a vote-buying exercise.

18:14:27 Admittedly, there will be one sector in the economy which will do very well. This scheme offers to be an innovative employment program for the financial services sector. The ETS establishes a whole new financial sector for the desk jockeys to play and speculate on. Indeed, that this scheme should be proposed by the same Prime Minister within six months of him publishing a 7,000 word condemnation of free markets is more than remarkable; it is astonishing. Markets are all fine when they are doing things which are entirely necessary, but this gigantic money-go-round has no reason to be except that the government has said that its way is the only way. It is the same conceited manner in which it said that a vote against a ‘cash flash’ is a vote against all stimulation of the economy or that a vote against the uncosted no-business-plan NBN model is a vote against technology—that to propose an alternative path is to do nothing. It is a dishonest argument and it must be of great concern to the Prime Minister that more and more people are beginning to see that. As I said at the beginning, the last two months in my electorate have provided me with overwhelming evidence that the general public have little understanding of how the Rudd-Wong ETS will work. But they are beginning to understand that Australian households will be slugged $1,100 a year for something which will reduce world emissions by seven one-hundredths of one per cent.

I often say it is my responsibility to bring to parliament an understanding of what it is like to live in a regional and rural electorate. Every member in this place is committed to their electorate, but it is a demographic fact that most of our federal representatives live in the city and they do not always appreciate the different effects policy has on regional populations. Nowhere could that be more apparent than on the ETS debate. Assessment by the New South Wales Department of Premier and Cabinet has confirmed that regional Australia will wear the worst of the economic damage. That is because the heavy industries that the nation depends on are overrepresented in regional areas. It should go without saying—but I will anyway—that these industries are built near the resource, near the port, near the energy source and often away from the major cities because in more enlightened times governments could see the value in developing the regions and were not encouraging the continual expansion of their major cities. There is much we can learn from those times.

I have three major centres in my electorate of Grey which stand to be heavily impacted by the government’s ETS. I would like to take some of the House’s time and explain a little about all three and their importance to each community. Port Pirie is the home of a complex smelter, concentrating predominantly on lead and zinc production but also producing significant quantities of gold, silver and a number of other metals and acid. The smelter, operated by Nystar, employs more than 700 people. Indirectly, it is responsible for around 1,800 jobs. Port Pirie has a population of 14,000 people, so 1,800 jobs would be more than 25 per cent of the workforce in Port Pirie or around 30 per cent of the employment. It is important that everyone understands what it would mean for Nystar should the government manage to pass this bill. The bill stipulates every tonne of carbon emitted by the country’s top thousand emitters will require a permit. Depending on the level of emissions per million dollars of production, each industry is rated as high or low intensity.

High intensity will be granted 95 per cent of their permits; low intensity will be granted 60 per cent. After the first year of operation, the level of permits granted will be decreased every year. In effect, industries pay to be allowed to pollute, because the government’s theory is that they will seek to avoid paying this tax by reducing emissions. In Nystar’s case, their industry is broken up into different segments, some rated high and some low. The effective rate across the range is around 75 per cent. That means Nystar will have to buy permits for 25 per cent of their emissions. In practice, this means they will be required to pay $7 million in the first year of operation for emission permits, with that amount rising every year after that. Only Nystar know if the business can afford this, but they will certainly be $7 million closer to the point of nonviability. One thing we do know is that Nystar will not be able to pass on the increased cost of doing business because metal prices are sold into a world parity market. Whether the metals are to be consumed in Australia or overseas, Nystar will be forced to meet the market.

This is exactly what the coalition, industry and industrial commentators have been warning about ever since the publication of the green paper, which the member for Braddon referred to—that is, we have been warning about carbon leakage. If the $7 million annually make this plant unprofitable, then the writing is on the wall. While it may be gradual, eventually if profitability cannot be found rundown and eventual closure will occur. The question then is just how much room for efficiency there is in the Port Pirie operation. The smelter has over the years been faced with financial pressure. It has had a number of owners. Energy costs have risen and we can be fairly certain that every chance to cut operating costs have been explored. There are unlikely to be quick or easy fixes to reducing CO2 emissions.

Let us take the case of steelmakers, which in this case is represented in my electorate by OneSteel situated in Whyalla, a city with 22,000 people. As with Nystar in Port Pirie, OneSteel is the prime generator of jobs in Whyalla, with nearly 2,000 employed directly and at least another 3,000 employed indirectly. If Whyalla were to lose the steel-making industry from the city, the withdrawal of the ship-building industry more than 30 years ago would look like a picnic. Whyalla’s population reached 35,000 in the 1970s prior to the loss of shipbuilding. Subsequently, the population dropped below 20,000. It has been tough. Only in the last five or seven years has the city been able to grow again. To say OneSteel is the major employer in Whyalla is a significant understatement.

While it is difficult to calculate OneSteel’s liabilities for the Whyalla plant from their published material, there is no doubt it will be well in excess of $10 million. The Australian steel industry is no licence to print money. It has been under international pressure for many years and the public is well aware that Australian steel has lost ground to cheaper imported steel for many years. Disturbingly, the Prime Minister and the Minister for Climate Change and Water, Senator Wong, seem to have little understanding of the process of making steel. An essential part of the process of making steel is the addition of carbon. In fact, more than 70 per cent of the carbon emitted in the process is incurred when coke is added to the blast furnace.

You cannot turn iron into steel without using carbon in the furnace. Why then would you design a scheme which raises the cost of using carbon in the process to send a price signal as an incentive to seek an alternative? There is no alternative. All this can do is raise the cost of production; all it can do is make our steel uncompetitive. What it does is provide an incentive to buy cheaper steel from a nation which does not add in a price for carbon. The most important issue here for my electorate is jobs and the economic viability of our communities, but it is not the only issue. The loss of the Australian steel industry would be an A-class threat to our security.

We belong to a world economic community and Australian industry is a world away from the protective barriers which feather-bedded certain sectors of the economy a generation ago. Modern Australian industry is lean and competitive—it has to be. However to think that it has the ability to absorb artificial cost increases which its competitors will not face is madness. Plainly put, any new tax which our competitors will not have to pay could well be remembered as the straw that broke the camel’s back for these industries.

In Port Augusta we have a coal fired power station which provides 40 per cent of South Australia’s electricity. The power station was built in the fifties by the Playford Liberal government and was designed to provide an economic electricity supply to enable the state to power competitive manufacturing industries. Flinders Power now operate the Northern Power Station and the Playford Power Station at Port Augusta and employ 500 people in the city and at Leigh Creek where the coal is mined. By any multiplier—and let us be conservative—at least 1,000 to 1,500 local jobs are dependent on the power stations. Their closure would see around 15 per cent of the jobs in Port Augusta lost. The combined power stations provide 4.2 gigawatts or about 40 per cent of South Australia’s electricity.

Under Kevin Rudd’s ETS, Flinders Power will have to spend $122 million in the first year to purchase permits to emit carbon, increasing each year after that by 1.3 per cent. Flinders Power expects to be able to pass on somewhere between 30 per cent and 70 per cent of this massive tax in higher electricity prices, resulting in a 50 per cent rise in wholesale prices. The extra $30 million to $80 million will have to be absorbed by the business. Taxes of this level must bring the viability of the power station into question.

As I said before, the company operates two power stations in Port Augusta: the older Playford Power Station, being the least efficient, producing 1.5 megawatts per tonne of coal and the newer Northern Power Station, operating at near world’s best practice, producing 1.05 megawatts of electricity per tonne of coal. Millions of dollars have been spent upgrading the Playford station to extend its life through to 2025. The ETS threatens its viability. Flinders Power needs to make a decision in the very near future on whether to open up a new mine at Leigh Creek. The current mine will expire in 2016. Much of the cost of generation at Port Augusta is absorbed in the mining operation. Flinders Power mines eight million tonnes of coal a year at Leigh Creek. The costs of a new mine development are significant. If the fundamental economics for generation do not stack up then they will not develop the new mine. If they do not, coal fired power generation will cease in the medium term, the Playford station will close and the future of the Northern station will be uncertain.

In the larger debate, I suggest that, facing the threat of a complete collapse of power generation capacity in Australia and the associated ‘brown-outs’, it is likely that governments would have no choice but to grant extra permits to pollute. In turn this would be likely to seriously affect the market for permits, putting at risk other industries who have invested on the basis of a high price for carbon. The government plans to compensate low-income households for electricity rises. Instinct suggests that taxing one entity and giving the proceeds to someone else to avoid electoral backlash because your taxes forced up the price of electricity in the first place is all about elections and has little to do with the environment.

The opposition has proposed an alternative policy. It will give us the same result: it will reduce emissions by five per cent by 2020. It will cost just a fraction of the government’s scheme. It will reward good practice and penalise poor practice. It is a scheme which will not export jobs out of Australia. It is a scheme which will assist landholders who control half of Australia’s land mass to adopt new practices, raising production and benefiting the environment. It will not threaten local business by ramping up the price of electricity by 19 per cent but rather offer them incentives to reduce their individual footprint. It will protect the jobs at Nystar, OneSteel and at Flinders Power. Critics say it picks the low-hanging fruit. That is unashamedly so. Only a fool would start at the top of the tree. We should adopt a positive direct action policy which will get us to the same place without the enormous risks of the ETS. Without global action, this ETS threatens to do nothing for the environment but offers to sink Australian industries—industries in my electorate.