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Tuesday, 18 August 2009
Page: 5246


Senator BOSWELL (6:06 PM) —The Senate is debating the Renewable Energy (Electricity) Amendment Bill 2009 and related bill and I have followed this issue very closely. I was active on the Senate Standing Committee on Economics in its recent inquiry into this legislation and before that as a member of the Senate Select Committee on Climate Policy. I have had numerous discussions with Australia’s businesses, large and small, about the impact of RET and I have seen how millions of dollars have been invested, relying on the RET being passed by the parliament. There are claims and counterclaims about how the RET works, which makes it a complex matter.

The coalition has stipulated reasonable amendments. In order to pass this bill, these amendments include stand-alone trade assistance for emissions-intensive trade-exposed industries, increased trade assistance for aluminium, and assistance for trade-exposed food processing businesses. The complexity of RET and its relationship with the CPRS acts to divert attention from the enormous impact this bill will have. However, there is a clear way through. There is an aspect of RET which cuts through all the political palaver. I would like to quote from the submission put forward by Catholic Health Australia to the economics committee inquiry into this bill, which cuts straight to the chase. Catholic Health state:

… the Bill will see an increase in energy costs for health and aged care services. We estimate this adverse impact on Catholic Hospitals in 2010 to be $650,000, leading to $1,685,000 in 2020. The adverse impact for Catholic aged care services will be $365,841 in 2010, growing to $1,035,261 in 2020. Accordingly, the total cost of the Bill for Catholic health and aged care providers is likely to total $1,022,436 in 2010, raising to $2,720,591 in 2020.

But that is not all. They go on to say:

The adverse impacts as a result of the Bill come in addition to that of cost impacts of the proposed Carbon Pollution Reduction Scheme. Catholic Hospitals are likely to meet an increase in energy costs of $10.8 million in year one of a fully operational carbon trading scheme, for which the Government is yet to propose any adjustment packages to meet the needs of not-for-profit health and aged care providers.

We have heard about the price of groceries going up. We have heard how fuel and energy will go up. Every day there is another cost that goes up. Now we hear the nitty-gritty from Catholic Health about how the RET and the CPRS will cost them millions of dollars that they cannot recoup from their clients. They have asked for help from the government but there is nothing forthcoming. The RET will impact not only on Catholic hospitals but on all hospitals across Australia. Where in state and federal budgets is there allowance for RET and CPRS expenditure? What programs will have to be cut in order to pay for RET and the CPRS? This government was elected on the promise to bring down grocery and fuel prices. All we have seen is those prices go up. And now the sorry mess that passes for health in this country, due to the negligent state governments, is going to suffer even more. I urge the Senate and the public to cut through the green rhetoric that passes for political debate and become aware of the reality of what the RET and the CPRS mean.

This bill mandates that 20 per cent of Australia’s electricity supply in 2020 comes from renewable resources. The 20 per cent target is achieved by combining the 45,000 gigawatt-hour target included in this bill with the 15,000 gigawatt hours of renewable energy generation that existed prior to 1997. By mandating renewable energy we are requiring energy users to pay significantly higher prices for electricity. We have a $40 product, which is the cost of generating a megawatt hour of electricity from coal, but we are asking people—no, we are forcing people—to pay $100 or more for that product. It costs $100 to produce a megawatt hour of electricity from wind power and it costs $200 to produce a megawatt hour of electricity from solar photovoltaics. Technologies such as geothermal, solar thermal, wave and tidal energy and other such things have not even been developed enough to the point where we can say what they will cost. Maybe the cost will be somewhere between wind and solar—it may be higher or it may be lower; we do not know.

The 45,000 gigawatt hours of renewable energy needs to be subsidised because it is expensive, and it would not be produced without a subsidy. Electricity users will pay this subsidy through higher electricity prices passed on by electricity retailers such as Origin Energy and AGL. Electricity retailers or some large industrial users are required to purchase renewable energy certificates on an open market and surrender these at the end of the year to the government. These certificates, which could cost anywhere between $30 and $93, represent the subsidy to renewable energy generators. Renewable energy certificates are created by renewable energy generators for each megawatt hour of electricity generated. As the target ramps up electricity, retailers are required to purchase and surrender an increasing number of certificates in proportion to the amount of electricity they purchase from the wholesale market.

For example, in 2010, an electricity retailer will be required to surrender an amount of certificates equal to about five per cent of its electricity purchases. So, if a retailer purchases 10 million megawatt hours of electricity from the wholesale market, it would have to purchase and surrender 500,000 certificates to the government. In 2020 the percentage increases to over 16 per cent and therefore requires the same retailer to purchase and surrender more than 1.6 million certificates costing anywhere between $30 and $93. Electricity retailers will not absorb the costs of subsidising renewable energy. These costs will be passed onto industry, businesses, schools, hospitals and households. They will force electricity prices up.

The government’s modelling suggests an increase in retail electricity prices of between three and four per cent, but we heard in the recent economics committee inquiry from one of Australia’s largest electricity retailers that it will increase retail prices by up to 7.5 per cent. It must be noted that this increase is not an increase on today’s electricity prices; it is an increase on electricity prices that would have already increased as a result of Labor’s flawed, friendless and now defeated ETS. It is a 7.5 per cent increase on prices that would have already increased by about 35 per cent because of the ETS.

Yes, increasing renewable energy is a good thing, but do we have all the policy levers right? There are utterly credible doubts about our capacity to invest the billions of dollars required to achieve the 20 per cent target in the time frame. There are utterly credible concerns that there will be insufficient investment in transmissions infrastructure for all the windmills to come online. Australia is not Denmark, where everyone lives within cooee of each other. This is a massive continent where graziers used to call STD to ring their own shearers’ quarters.

Today we read that necessary maintenance investment in Victoria’s power supply industry is not going ahead and that everyone will have to prepare for less reliable power. Is that why people voted Labor at the last election? Take the case of the Murray Goulburn Dairy Cooperative. They are high energy users and are trade exposed. The RET squeezes their profit margins to the extent that they will have terrible trouble competing in export markets. They cannot sustain the cost increases and will be forced to pass the cost back to dairy farmers.

The Australian Dairy Industry Council submission to the Senate Standing Committee on Economics inquiry states that the RET will further add to the cost burden on farming families that would already be imposed by the CPRS by increasing electricity costs to processors and farmers. The cumulative increase has the potential to seriously impact on the industry. They add:

Although dairy processing is highly trade exposed in most products—the main activities do not meet the cut-offs for EITE classification. We believe this is a flaw in the CPRS system that will see less competitive food processing and farming in Australia and lead to carbon leakage. Our major competitors in the world dairy market—

that is, New Zealand—

will provide support for dairy processors and/or exclude farm emissions or will not have an ETS at all.

The Murray Goulburn Dairy Cooperative told the economics committee that its liabilities under the CPRS would result in income losses to its 2,500 farming members of between $5,000 and $10,000 and that the RET would impose an additional $1 million in 2010, rising to $2 million by 2020.

I have been told by an abattoir in Queensland that its RET costs alone will be $315,000 in 2010 and would rise to $850,000 by 2020. Like dairy, these additional costs cannot be absorbed and will be passed back to the sheep and beef graziers. By all means, let’s have more renewable energy and less carbon, but do not pull the wool over everyone’s eyes and insulate them from the costly truth. The only cheques in the mail from the RET and the CPRS will be the ones paid by working families to the government to pay for the extravagant cost of green schemes.

The totalitarian approach of the Rudd government would give the Spanish Inquisition a run for its money. The pointy hats opposite gleefully torture anyone who raises their hands with so much as a question, yet that is exactly what parliaments are for: to explore the issue and make sure everyone’s voice is heard.

Here I stand—I am speaking up for the thousands of patients in Catholic hospitals and demand that the climate minister explain to me and them how they will pay for the RET and CPRS costs? To whom will they have to refuse a bed? Minister, tell us: what services should they shut down; which sick people should they turn away? It would be a truly mongrel act to allow that to happen.

Evidence to the economics committee inquiry was very helpful in focusing the mind on the real outcomes of the unamended RET. We were reminded that the Productivity Commission, in its submission to the Garnaut review, said:

... with any effective emissions trading scheme in place, the MRET would not achieve any additional abatement but impose additional costs, most likely lead to higher electricity prices, provide a signal to lobby for government support for certain technologies and industries over and above others. Reserving a proportion of electricity generation for renewable energy sources changes the generation mix in a way that increases abatement costs for no additional emission reduction benefit. These problems would be further compounded if state-based renewable energy target schemes were retained or introduced.

The Garnaut review itself states:

There is an interesting and seemingly perverse consequence of expanding MRET at the same time as the emissions trading scheme ... Having both schemes operating side by side could ... increase in coal-fired power generation (by more than 2000MW) as gas-fired plants are crowded out by MRET. This would not occur if the emissions trading scheme were operating without MRET.

The Treasury, in its report, Australia’s low pollution future: the economics of climate change mitigation, in October 2008, says:

The impact on GNP of the expanded RET, taking into account both increased GDP costs and the reductions in international income transfers, is $5 to $5.5 billion. The average cost of mitigation per tonne of CO2 from expanding the renewable energy target is around three times the average price of permit prices in the CPRS.

Mr Michael Hitchens, the Chief Executive Officer of the Australian Industry Greenhouse Network, told the committee:

... what the RET effectively does, for no additional reduction in CO2 emissions, is add about $350 million in 2010 to electricity consumers’ costs, and that rises to about $1 billion by 2020. That is for no added environmental benefit.

I then asked him why the government was proceeding down this path. Mr Hitchens replied:

I am at a loss. I have quoted four independent reports that have either been done for the government or by government agencies and none of them find a good economic or environmental case for the policy.

That is where I find myself today in this debate: I am at a loss. I concede that investments have been made pursuant to an expanded RET and acknowledge that increasing renewable energy is a worthy aim, but I do not want to see healthy Australian industry and jobs go down the drain; nor do I want to see longer waiting lists in hospitals across the country.

As legislators we have a responsibility to face up to these truths, not to ignore them and hope they will go away. We are called to act with discernment. The coalition amendments are sound and seek to alleviate the problems of RET. Any reasonable government would accept them. The government said this week that it would decouple the RET and the CPRS legislation. They have failed to do so. All they have done is offer interim trade assistance for a select three industries. Other trade exposed industries have been left out in the cold, with RET assistance remaining contingent upon passage and commencement of Labor’s flawed ETS.

Australia’s most energy-intensive industries—aluminium, silicon and newsprint—have been offered stand-alone trade assistance, but the aluminium industry says it is not enough to ensure ongoing viability. Other industries like iron and steel, sugar refining, plastics and chemicals, pulp and paper, glass, and cement and lime will receive no trade assistance under RET until an ETS is passed and commences—and agricultural processing will receive absolutely nothing even if an ETS is passed.

If the coalition were to pass Labor’s renewable energy legislation as currently proposed, Australia’s most significant trade advantage, cheap and secure supplies of energy, would take an enormous hit and this would be felt by every trade exposed business in the country—and every hospital and ultimately affect blue-collar jobs across manufacturing, mining, mineral processing and food processing.

On the one hand the Rudd government is wedded to grandiose stimulus plans and on the other it seeks to destroy jobs and industry. There will be precious little left to stimulate by the time they have finished adding carbon and renewable energy costs onto every hospital bed, conveyor belt, coffee machine, personal computer, dragline, plasma TV, nail gun, electric light, pool pump, fridge, assembly line, boiler and jackhammer. You name it, it is going to cost a lot more under CPRS and ETS—and RET.