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Wednesday, 18 November 2009
Page: 8274


Senator FIFIELD (6:26 PM) —If the government persists with this flawed ETS legislation next week—the Carbon Pollution Reduction Scheme Bill 2009 [No. 2] and related bills—it will provide the Australian people with an occasion to see a fundamental difference between this side of politics and the Australian Labor Party. The vote we will see next week on the government’s proposed emissions trading scheme will underline the key differences between the coalition and Labor in a way that few votes do. On one side we have the coalition: standing up for jobs in a challenging economic climate and placing practical environmental action and measured policy responses above political symbolism. On the other side we have the Labor Party: prepared to sacrifice jobs in an act of political expediency, ignoring sensible suggestions and rushing through an economy-damaging bill in an expression of legislative vanity.

Before I comment specifically on the government’s legislation, I would like to make some observations about the way this debate has been conducted. The debate on climate change, climate science, conclusions drawn and proposed policy responses represent one of the more extraordinary chapters I have witnessed in recent political history. The Australian manifestation of this debate has been marked by politics even more than most of the policy debates in this place. The failure of the previous government to sign Kyoto was, as we recall, used to good political effect by Labor—not to achieve an environmental outcome, because Australia was already achieving its targets, but as a symbol to portray the previous government as tired. The Labor Party is now seeking to use its own ETS as the new marker of environmental virtue. The purpose of Labor’s ETS is political. The purpose is to be seen to be doing something; the policy merits are secondary. Thus the legislating of an ETS by Labor has become an end in itself.

It would not have escaped many that some climate campaigners have introduced an almost theological tone to this debate. Some have sought to couch the issues in moral terms. Those who disagree are labelled ‘deniers’. Those who agree are called ‘believers’. ‘Sceptic’ and ‘scepticism’ have become terms of derision. To even defend the right to scepticism can see one branded as a sceptic. Scepticism was once seen as a scientific virtue at the very heart of scientific inquiry and robust policy debate. Someone I never thought I would quote in this chamber, expatriate Australian broadcaster, author and raconteur, Clive James, pointed out last month in a BBC essay entitled ‘In defence of scepticism’ that healthy questioning has not always had a bad name. Clive James said:

Sceptics, say the believers, don’t care about the future of the human race. But being sceptical has always been one of the best ways of caring about the future of the human race. For example, it was from scepticism that modern medicine emerged, questioning the common belief that diseases were caused by magic, or could be cured by it.

Sadly, some have sought to demonise those who pose legitimate questions and to caricature their views in the most tasteless and erroneous ways. In his essay, Clive James also says:

It’s a nasty word to be called, denialist, because it calls up the spectacle of a fanatic denying the Holocaust. In my homeland, Australia, there are some prominent intellectuals who are quite ready to say that any sceptic about man-made global warming is doing even worse than denying the Holocaust because this time the whole of the human race stands to be obliterated.

Enter stage left and right on cue, on Monday of this week, the Greens candidate for Higgins, Dr Clive Hamilton. In an article on crikey.com.au, he likened those who hold doubts about climate science to Holocaust deniers. Dr Hamilton deliberately and methodically assessed the relative moral standing of Holocaust deniers and what he calls ‘climate deniers’. This is the disgusting notion that Dr Hamilton advances:

… climate deniers deserve greater moral censure than Holocaust deniers because their activities are more dangerous.

Dr Hamilton actually argues that climate sceptics are more dangerous and more morally repugnant than Holocaust deniers. This is as wrongheaded as it is disgusting. It is belittling of Holocaust victims, survivors and their families. It is offensive and Dr Hamilton should apologise. Dr Hamilton is indeed an extreme example of the intellectual bullying of, and hysterical personal attacks on, those who have legitimate questions about climate science and policy.

I make these observations not to declare a definitive view on climate science but merely to highlight the unhealthy political discourse that has developed in relation to these issues. Good ideas and good policy have nothing to fear from open debate.

What do we know about the government’s proposed scheme? We know it will increase prices. The government has admitted as much. We know it is equivalent to a substantial increase in taxes—some estimates are that it is the equivalent of a 2.5 per cent increase in the GST. We know that, even despite the massive tax increase, this will not be a revenue neutral exercise. We know it will cost jobs and we know that, on its own, it will do nothing to reduce global temperatures.

The coalition, as the chamber knows, is currently engaged in negotiations with the government and we will have to wait and see what results come from those, but the coalition has been active. We have offered the government constructive suggestions. The coalition has even gone so far as to commission economic modelling to demonstrate its case—and full credit to Senator Xenophon for his contribution to the exercise. What that research showed is what the coalition has feared all along, that the government’s ETS is flawed, will hurt the Australian economy and sacrifice Australian jobs. At the same time, the Frontier Economics research shows that the government’s flawed ETS does not even offer the best carbon abatement.

Clearly the government is rushing this legislation according to its political timetable. There has always been wisdom in waiting until after the Copenhagen summit before considering this legislation. That has always been the view of the opposition. That approach would give Australia the time to consider what the rest of the world is intending to do, as is appropriate for a small nation.

This became even clearer after the APEC leaders summit last week. World leaders decided that pushing for a treaty with binding targets was too hard an ask for the Copenhagen summit. Instead, representatives at Copenhagen will now be asked to sign an eight- or nine-page memorandum to signify their commitment to action. It will be nothing more than a glorified press release. The government’s whole rationale for passing the ETS legislation before Copenhagen has been shot, so the argument now is that we desperately need the ETS legislated in Australia to encourage world leaders to sign a press release.

There is no prize for being the nation which proposes the most aggressive and taxing scheme. Imposing harsher restrictions on Australian businesses, harsher than the rest of the world, will only harm Australian jobs and do little to reduce global emissions. Australian ETS legislation does not need to be passed before the summit and Australia should not be locked into a scheme which may well be out of step with the rest of the world.

Australia should also wait to see the actions of the United States. The Waxman-Markey bill, currently working its way through the US congress, shows every sign of being more supportive of US industries than the Rudd government’s legislation is of Australian industries. Other major emitters, such as China and India, may well be unwilling to take any substantive action.

Worse still, the government are confused in their objectives. Their stated objective is to pass an ETS. Their stated objective is to take steps to reduce carbon emissions in the most efficient way. This legislation will not do that. As I have said already, the ETS should not be seen as an end in itself. It is simply a tool to achieve an outcome. If we decide that a particular mechanism or model is not the most efficient tool to achieve an outcome, then we would be unwise to pursue it.

Deferring the scheme would give the government a chance to look afresh and, let us face it, having no scheme would be better than the government’s current proposal. After all, the government have already admitted that their scheme will cost jobs. They happily followed the coalition’s advice to delay its implementation by a year. In doing so, they noted the current financial situation—a tacit admission that introducing a complex new regulatory burden on Australian businesses during an economic downturn would destroy jobs.

Frontier Economic points out that 68,000 Australians will not be employed in rural and regional Australia if the government persists with its design. This new tax on Australian industry amounts to more than $12 billion per year, according to the government’s own predictions. Let us think about the efficiency of a scheme that collects more than $12 billion a year only to return it to different sectors in the economy, resulting in enormous inefficiencies and massive churn of taxpayers’ money. A huge administration will be needed to oversee this process. Permits sold and revenue collected will be distributed to favoured industries. We have already seen an unprecedented lobbying campaign from industry to gain free permits and compensation. I pity those industries not able to afford a lobbyist or bereft of the political contacts of savvier industries.

The federal government will be picking winners on an unprecedented scale. Access to the scheme, a decision made by a politician in Canberra, could result in substantial economic benefits. Failure to secure free permits or subsidies could mean financial ruin. Do we really need a minister in the federal government with such sway over the success or failure of businesses? This feature of the ETS could usher in an unprecedented era of government intervention in the economy. Decisions by government ministers will have immense and far-reaching consequences for business. The ability to lobby governments could become more important than designing, marketing and distributing goods and services. Arbitrary decisions made to bestow assistance or free permits on favoured businesses or industries will interfere with the allocation of resources in the economy. We know from past, painful experience that governments have a terrible track record when it comes to picking winners. Why grant a minister in the government this unprecedented arbitrary power to determine success or failure?

A case in point is the power industry in my state of Victoria. As Robert Gottliebsen said in the Business Spectator recently:

The current legislation would have an $8 billion adverse impact on four Latrobe Valley power generators which is offset by $2 billion in current credits—a net enterprise value reduction of $6 billion. Within a week of the current proposed legislation being passed, the boards of each of the companies that own the Latrobe generators will meet with their auditors on whether the companies’ debt covenants have been broken. Almost certainly a majority, if not all of the boards, will decide to appoint official administrators.

That is terrifying. The government’s own Morgan Stanley report, which could shed more light on such outcomes, remains suppressed. The government claim that the business community needs certainty and that the coalition’s reluctance to support their bill is depriving business of that certainty. But as one business chief put it, ‘The business community does not want the certainty of a bullet.’ It is certain this scheme will cost jobs. What remains uncertain is the action of the rest of the world. It is unclear how willing large emitters like India and China will be to cut emissions. If it emerges they are not, our ETS will at best have no impact on global climate or at worst actually increase CO2 emissions.

Energy-intensive Australian businesses that typically emit far less CO2 during production than their overseas competitors will be burdened with a new tax that their international competitors will not face. This could force them to close or shift production offshore to countries with zero or fewer restrictions on emissions. This would result in higher emissions and fewer Australian jobs. Before the government lump blame onto the coalition for creating uncertainty, they would do well to look in their own backyard. According to Professor Warwick McKibbin, the long-term carbon price is uncertain because of the design of the government’s scheme. In Europe we have seen a chronically unstable carbon price, which has robbed business of certainty and frightened investment away. Imagine the consequences of that uncertainty on an economy as resource intensive as Australia’s. It would be crazy to invest in a new mine or a new power plant under the government’s current scheme. Investments in countries with similar resource endowments but without complex emissions trading schemes suddenly look far more attractive.

The government risks overseeing a substantial flight of capital and jobs out of Australia and into countries with far less demanding environmental policies. This could decimate jobs in rural and regional Australia and seriously threaten Australia’s recovery from the effects of the downturn. It is naive in the extreme to think that severe action on the part of Australia will result in other nations stampeding to follow our lead. It is self indulgent, even for Mr Rudd, to subjugate Australia’s best interests to satisfy his vanity. We are one of only five nations on track to meet their Kyoto targets. The vast majority of Kyoto signatories are nowhere near their commitments to cut emissions. Prior to the announcement from APEC leaders, it was just a risk that the Copenhagen meeting would result in no real emissions targets, but now it is a certainty. On Mr Rudd’s timetable, we may well look very foolish indeed.

Let us be clear: this ETS would represent a massive change to the Australian economy. We need to think the consequences through very carefully. For instance, an ETS creates new property out of nothing. It creates permits—a form of financial alchemy. Once created, this property in a legal sense will have value. Should the world reach the conclusion down the track that emissions are under control and an ETS is no longer required, there would be no way governments would ever be able to abolish this scheme. No government could afford to buy out the permit holders.

Make no mistake: once an ETS is in place, it can never ever be repealed or abolished. I pose the question: why would we introduce a scheme that can never be abandoned at a time when we have next to no idea about what the rest of the world is going to do? The government need to slow down, sit down and reassess. We know this scheme will cost jobs. We know that action from Australia is useless unless it is part of a coordinated global strategy. Yet, the government persist. Now that Copenhagen no longer looms as an artificial deadline, the government need to stop. They need to rethink. We have the time. The government should reassess their approach. The legislation should be opposed.