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Tuesday, 11 August 2009
Page: 4536


Senator XENOPHON (8:27 PM) —A lot has been said about the government’s Carbon Pollution Reduction Scheme—by the government, by the opposition, by the Greens, by the crossbenchers, by environment groups, by industry and by regular voters who just want Australia to play its part in finding a solution to this global crisis. The details can seem complex, but I think there are some simple truths that virtually all of us can agree on. Anthropogenic climate change presents us with the most pressing and complex policy problem that we have ever faced. I believe that the environmental debate is over. The time for action was some time ago. We need to act and we need to get this right. There is a great urgency in relation to this. For those who are climate change sceptics, who are doubters, who say the science does not stack up, I say: at least from a risk point of view, consider the evidence of literally thousands of climate change scientists who say we need to act on this. If we get this wrong, if the climate change sceptics are wrong, are they willing to literally bet the planet that they are right and thousands of climate change scientists are wrong? I think that is the key to this. My plea to Senator Joyce, whom I regard as a friend and colleague, is to look at the risk factors, look at this as an issue of managing risk. If you are doubtful about the science, at least look at the whole issue of managing this very significant risk, because there is no going back if we get this wrong.

I want to take this opportunity to pay tribute to the Australian Greens. I know that I may not see eye to eye with them on the best way to address global warming, in all respect to the Greens. But one thing that needs to be acknowledged is that the Greens have led the way on this issue. They were the canaries in the coal mine, if you will, warning us that global warming will end up seeing us all fall off our perches unless we act. For many years, the Australian Greens and the environment movement have made a serious contribution to focusing all our attention on this looming crisis. This crisis is pressing because the window of opportunity we have in which to take the sort of abatement action needed to avoid irreversible dangerous and potentially catastrophic climate change is small. On the basis of the findings of the March 2009 conference in Copenhagen, the window of opportunity is getting even smaller.

This issue is complex, because it has all the features that policy, whether at a global or national level, usually struggles to deal with. According to Lord Anthony Giddens, the former Director of the London School of Economics and former adviser to President Bill Clinton and Prime Minister Tony Blair, there exists what is called the Giddens paradox, where we ought to act on an issue such as climate change but somehow we are paralysed because global warming is something that is not seen as tangible enough. Recently, Lord Giddens was interviewed on the BBC. What he said is pertinent to today’s debate. Lord Giddens said that climate change is a completely different political issue from any that we have ever had to face before, because it is about catastrophic risk. But most of that risk is in the future. It is not visible in people’s day-to-day lives. Hence, most ordinary citizens get on with their day-to-day lives and push it to the side as a potential threat. He said: ‘It’s a paradox, because if we wait until it does become visible, if we wait until there are enormous shifts in weather patterns which are really threatening, it is too late by then to do anything about it, because unlike other issues once the emissions are in the air we know of no way of getting them out of there and they are likely to be there for centuries.’

Abatement has large upfront costs with benefits that accrue in the relatively distant future and with some degree of uncertainty. A solution also requires attention to the development aspirations of poorer countries and the emission trajectories that will result. Recently, I spoke to my friend and mentor Tim Costello, the CEO of World Vision. He was recently in Africa and met with the Prime Minister of Ethiopia, who is very concerned about issues of abatement, which I will speak to later. But the fact is that developing countries are bearing the brunt of climate change. They are already seeing the effects of climate change. Developing countries need to be part of a global solution and Australia needs to play a leadership role in relation to that. There is a concern that those who do nothing will still benefit from the actions of those who do a lot. If we are not careful, we could end up creating an environment that favours what Professor Garnaut describes as ‘free riders’.

All these factors need to be considered as we choose the right design for an emissions trading scheme. In a country like Australia, which has a small, open economy, we cannot assume that what works in certain other parts of the world will work here. We need to have a scheme that works for our economy and our environment. It makes sense from a legislative and ethical point of view that Australia takes an early lead in emissions reduction in order to break the potential international deadlock and motivate other nations to also play their part. Australia has a real role to show leadership, particularly in our region.

In taking such action, Australia needs to adopt a scheme that is credible internationally and sustainable domestically. It is important to lead by example, but it is also important that we set a good example. If we choose the wrong scheme and irrevocably damage the economy or do not save the environment, or both, we will serve as an excuse for other nations not to act. That is why we must get this right. International credibility will be to a large extent a function of the abatement targets Australia sets for itself and the way we achieve those targets. Clearly, the overarching goal is environmental: the reduction of greenhouse gas emissions. Abatement is the significant key to this and will fundamentally be investment driven.

We also properly need to address adjustment or adaptation issues. In relation to that, it is fair to say that the green and white papers have neglected this issue. I do not believe that there is any mention in either the green or the white paper about the issue of adaptation. The adaptation story is vital for two reasons. Firstly, a lot of climate change is already locked in through the accumulation of greenhouse gases in the atmosphere. The effects of it are real. One of the reasons why the Murray-Darling Basin is in crisis is climate change. That is real; we are seeing the effects of that now. Those communities are at the forefront of that. The Lower Lakes are seeing the effect of that; the Coorong is seeing the effect of that. We need to act.

Secondly, even assuming a global agreement on reduction that makes significant cuts to greenhouse gases, there will still be some residual climate change, given that it is almost inevitable that sea temperatures could rise by two degrees. That creates an adaptation in the longer run. I believe that much more attention needs to be given in any policy—if it is to be effective—to the issue of adaptation. It is simply not good enough for the states to have this responsibility. There is nothing wrong with the states dealing with adaptation issues, but we need to have a federal approach. An approach where adaptation is tackled federally is the right approach. Leaving it to the states would not provide an approach that is comprehensive or cohesive enough and would ignore the fact that climate change knows no state or indeed international borders. Water management is an obvious example of that. That is why, with respect to climate change, much more needs to be done in respect of adaptation. I look forward to the government’s response in relation to that. It is a real issue of concern that needs to be progressed in this debate.

In terms of the economy, we need to be able to afford this. We need to have a credible economic scheme to reduce greenhouse gases. If the government wants the economy to grow and grow green, it has to ensure that business is given certainty and is able to access the resources needed to change its ways. The government also has to take seriously the issue of carbon leakage. We need to ensure that Australian industry is not unfairly disadvantaged. As Senator Bushby mentioned in his contribution previously, we do not want to see carbon leakage to countries that just do not care and where there will be even more emissions for the same amount of output. What is wrong with the government’s CPRS and the broader government approach? I note that the Minister for Climate Change and Water referred to the Frontier scheme outlined yesterday as a ‘mongrel’. I think that this ‘mongrel’ has a lot of fight in it, and I have to say that, if the government’s CPRS were a dog, the only merciful thing to do would be to have it put down.

An unconditional cut of five per cent is ridiculously low. Given the punitive structure of the government’s scheme, aiming for five per cent will cause a lot of pain for no real environmental outcome. There are also real problems with many of the assumptions the government has made when modelling the scheme. For one thing, it assumes that job seekers are so mobile that retrenched workers in the Pilbara or in Newcastle will be able to become, for instance, insurance agents in Melbourne or Sydney overnight. It would be a nice world to live in but it is clearly not the world we live in. This is not a criticism as such of the government’s economic modelling. In fact the Frontier model used the same modellers as the government in relation to this. It is all about making the transition from a high-carbon to a low-carbon economy, but you need to smooth it out and get it right otherwise you will cause short, sharp shocks to the economy. Also, there will be a huge dislocation in regional communities. That is what the Frontier modelling has shown.

The Frontier modelling has also shown that there is a better way forward in terms of getting more significant abatements. My concern is that the government has portrayed its CPRS almost as pure cap and trade. But it is not. You could say that there is a bit of mongrel in that scheme on the basis that there are gateways, concessions and compensation because of the huge increases in the price of electricity for consumers and significant revenue churn, and also because emissions-intensive export industries get compensation, which, in a way, goes against pure cap and trade. I believe that it is unnecessarily brutal on the economy with little to show for it in terms of the sorts of cuts that we need to aim for.

For these reasons I, along with the coalition, commissioned the leading economics firm, Frontier Economics, to test the government’s model and suggest alternative approaches. I note that Senator Feeney earlier today wondered whether I would become a Liberal because of my cooperation with the coalition. I can indicate that in my first speech I actually made reference to the fact that in my misspent youth I was a member of the Liberal Club at Adelaide University. I put my involvement with them down to a youthful indiscretion and I do not have any plans of rejoining the Liberal Party or indeed any political party; it was too traumatic an experience for me back then.

Frontier knows a lot about this kind of economic modelling. Danny Price, as managing director, and his team were responsible for creating the world’s first mandatory emissions trading scheme in the form of the GGAS scheme for the Carr Labor government in New South Wales in 1999. That was a scheme where their brief was quite limited; it was simply a baseline and credit scheme. It was all carrot and no stick, if you want to put it in those terms. The scheme was very effective in reducing emissions given, I think, a constrained brief in terms of what they had to work with, but it was an emissions trading scheme nonetheless. It worked and it was effective, and these people know what they are talking about. Frontier have worked for governments of both persuasions and for NGOs. They have worked internationally and they know their stuff, particularly in relation to electricity generation. That is why this scheme needs to be looked at seriously by the government. This scheme delivers unconditional carbon-emission cuts of 10 per cent on 2000 levels compared to the government’s unconditional five per cent cut, and there is plenty of scope for even deeper cuts, especially when effective global agreement is reached. The modelling also saves the economy $49 billion in gross domestic product over 20 years in real terms, and that is a significant amount. It also creates higher job growth, especially in regional areas, compared to the government’s scheme, where you would see that significant dislocation in regional communities. That is something that needs to be avoided at all costs, because for those regional communities, whether it is Geelong or Newcastle or South Australia’s iron triangle, it would be a regional disaster. If we are talking in the vicinity of 10,000 jobs, and that is one of the figures that the modelling has indicated, taking 10,000 jobs out of any of those regions would be a disaster. Even if it were one or two thousand jobs it would have a significant effect; it would dislocate so much.

The Frontier scheme also achieves low rises in retail electricity prices of five to 10 per cent compared to the 40 to 50 per cent expected under the government’s plan, so you will not need the compensation. You will have a situation where you do not have the revenue churn that you would have with the government’s scheme. By using a baseline of intensity you do not have that churn, you do not have the economic distortions and you do not have the economic inefficiencies that arise in terms of both the direct and the indirect costs.

Let us also look at the whole issue of electricity, which is responsible for over 40 per cent of emissions. If you consider the massive price increases we will get under the government’s CPRS, you will have a situation where households will be compensated, as the government indicates, despite how inefficient that could be. You will not need that level of compensation if you go down the Frontier path. If you have a situation where there will be literally tens or hundreds of thousands of small and medium businesses in this country facing massive increases in their electricity, it will affect production and it will affect job growth. It will be a kick in the guts to every small, medium and large business in this country. Also, under the Frontier scheme the agricultural sector is protected through exclusion, bringing it in line with the American and European schemes. There is also an opportunity for rural producers to make off-farm income through carbon offsets, and that is very important. Put simply, the scheme is greener, cheaper and smarter.

I am disappointed that the initial response from the government was to knock this on the head. The Minister Assisting the Minister for Climate Change, Greg Combet, attempted to mock the Frontier modelling yesterday without actually having seen it. The government—and in particular the minister, Senator Wong—was equally confused when it equated the plan with one proposed in Canada, when even a cursory reading of the modelling would have shown that it is not a replica of the Canadian scheme and has in fact moved way beyond that, because it actually has hard caps and it takes into account some of the concerns that were expressed earlier by the government in the discussions and commentary in relation to the Canadian scheme. Another member of the government described it as a magic pudding. How can you possibly say that it is a magic pudding when you won’t even look at the ingredients?

I do note that the Greens are concerned about this, but they have indicated that this scheme goes for a higher cap than the government’s scheme. I actually think we need to go for higher caps. We need to listen to the scientists and go to 450 parts per million, or even below, by 2050; 350 million parts per million seems to be the growing scientific consensus in order to mitigate or avoid the disastrous consequences of climate change.

My concern is that we need to have the transition. My plea to my colleagues on both sides of the chamber and to my cross-bench colleagues, the Greens, is that we need to have that transition. There will still be coal power for a number of years but let us have cogeneration with gas. Let us fast-track renewables. Let us have incentives in place, which I believe we can have with the Frontier scheme, for investment certainty. If you want the transition from a high-carbon to a low-carbon economy, it will involve billions and billions of dollars worth of investment. I believe that unless there is consensus and bipartisan support in this parliament you will not get that investment certainty. This goes beyond one, two or even three election cycles because you need to lock in that degree of investment certainty for the massive transformation the economy will need. If we ignore that, then we face real problems with energy security. My fear is that if we ignore the risks involved, if we ignore the fact that we do need to have that energy security until we get the renewables on stream—the base load renewables such as geothermal—in the years to come, we will have a massive public backlash because people will not want their lights to go out, they will not want their refrigerators and air conditioners to stop working. These are the things we need to consider.

We need to reward good behaviour and punish bad behaviour and to create a change in behaviour. That is the beauty of the Frontier scheme. I think we all need to pull our heads in on this; we all need to start thinking about the world and stop thinking about the world of politics. We need consensus because if we do not get that consensus, we will all pay. If the economy is to grow, and grow green, it will need massive amounts of new investment in new technologies. This will not happen unless the economic environment is stable.

I cannot support this scheme in its current form. I will not be supporting the Carbon Pollution Reduction Scheme Bill 2009, but I think it is important that we continue to talk between now and when this bill comes back—presumably in November. I have confidence that Senator Wong is the best and most capable minister to shepherd this legislation through the parliament for the government. I also believe that we need to have that consensus bipartisan approach in order to deal with the most fundamental policy and economic issue this nation has ever faced.