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Tuesday, 24 November 2009
Page: 8677


Senator XENOPHON (1:36 PM) —This package of Carbon Pollution Reduction Scheme bills is the most important this parliament has dealt with in its potential economic and environmental impact on the nation. Make no mistake about that. This is the second time these bills have come before the Senate and my position remains unchanged from when it was debated earlier this year. I cannot support these bills without substantial amendment because I believe they are fundamentally flawed both in the design of the scheme and in the targets that are being sought.

Senator Ludlam, in his contribution, just referred to the fears of the Himalayan ice caps melting. I was with Senator Ludlam and Senator Hanson-Young just a few months ago in northern India. The fear there among scientists is that, if the Himalayan ice caps melt, as Senator Ludlam has pointed out, we could have a situation where literally hundreds of millions of people in China and India will not have a steady source of water for agriculture or for living. We are looking at a monumental social disaster as well as an environmental one. That is why it is important that we do everything possible to mitigate the risk.

I do not have any doubt that anthropogenic climate change presents us with the most pressing and complex policy problem that we have ever faced. I think it is more complex because of what has been named the ‘Giddens paradox’ after Lord Anthony Giddens, who says that often politicians will not take action on a problem when the impact is many years away, but that when the impact of the problem becomes apparent it is too late to do anything about it. And that is the policy paradox we have here and which has so bedevilled the debate in relation to this.

This crisis is pressing, because the window of opportunity we have, in which to take abatement action and avoid irreversible climate change, is small. My plea to the climate change sceptics is to consider this as an issue of risk management. If thousands of scientists around the world are wrong—and I do not believe they are—then what would the ultimate harm be if we reduced carbon in the atmosphere? How can cleaner air, safer food production and a more environmentally sustainable world possibly be seen as a bad outcome, especially if the scheme that is adopted minimises the economic costs and harnesses the economic opportunities?

However, if the climate change sceptics are wrong then the result will be disastrous. There is no plan B; there is no planet B. I say to the sceptics: ‘Are you so sure of your position that you are willing to bet the world, literally, that you are right and thousands of scientific experts are wrong?’ My plea to them again is: at least think about this from a risk management point of view. You would not hop on a plane if there was a one-in-a-thousand chance that the plane would fall out of the sky. You would do everything to minimise the risk; you would not take unnecessary risks when the results could be catastrophic.

That said, I would argue that in taking action Australia needs to adopt a scheme that is credible internationally and sustainable domestically. If we choose the wrong scheme and irrevocably damage the economy or the environment or both that will serve as an excuse for other nations not to act, particularly in our region. That is why we must get this right. The rationale behind the government’s CPRS is to increase the cost of goods and services to reflect the damage done to the environment by greenhouse gas emissions. While I support this theory I cannot support the government’s approach. The government’s approach will result in too much economic churn through government coffers with marginal environmental return. The government’s plan is a bit like recognising that a dying patient needs 500 milligrams of penicillin but only giving them 50 milligrams and then charging them double the amount. It is all economic pain with little environmental gain.

The five to 15 per cent target of this plan is simply not enough, given the potential disaster we face. The model proposed by Frontier Economics strikes a better balance between our environmental and economic responsibilities. My colleagues are aware that I, along with the coalition, commissioned the Frontier Economics report into the CPRS model and possible modifications to it. I was proud to be a part of that process because it was all about showing that there is another way—a better way—to a springboard for deeper cuts in emissions at a much lower economic cost. This report found that it was relatively simple to amend the government’s CPRS so that it is twice as green and 40 per cent cheaper—a difference of $50 million of GNP over a 20-year period. That estimate is conservative because the Frontier Economics modelling made the same assumptions as the government modelling—namely, that the rest of the world would fall into line with an ETS by 2011.

At the release of this report the opposition leader, Malcolm Turnbull, described this plan as greener, cheaper and smarter—and he was right. I call on those in the Liberal Party who are not climate change sceptics to keep advocating for what your leader has described as a better model. I will put one caveat on that: it has always been my position that we should go for deeper cuts. But the Frontier Economics model, with its intensity based approach, gives a springboard for achieving those deeper cuts that we need as an effective solution.

Malcolm Turnbull was right to praise the plan, and he would be right to keep pushing for the plan. But that does not appear to have been the case, from what I have seen of the deal that was done with the government today—which I understand is still subject to debate in the Liberal Party room. I do not know whether any of my colleagues from the coalition can tell me if they are still debating it. Senator Scullion is nodding.

I think it is very important that we put this into perspective. We cannot abandon every small and medium business in this country and condemn them to a massive spike in electricity prices in the first three years of the scheme. It is essential that we have a better approach—and the Frontier model has one—which keeps the vast majority of revenue of businesses where it belongs, on their balance sheets, but still achieves a better environmental outcome.

Senator Birmingham, in his speech during the second reading debate, advocated the coalition’s Frontier based proposals, which would ensure that the churn of money through the ETS is minimised; that agriculture is excluded and offsets like soil carbon are allowed; and that voluntary action is recognised, encouraged and facilitated within the scheme. I call on senators like Senator Birmingham to keep advocating for the best outcome. Do not let your party settle for a set of inadequate amendments. Please do not cave in to the government and destroy the economy for little environmental gain. No matter how you tinker with it, a flawed plan is still a flawed plan. When someone hands you an inedible, rancid sandwich there really is no point in asking for the salt.

The government’s CPRS requires substantial amendment, as outlined in the Frontier Economics modelling. The Frontier model is a better way; it allows us to go greener. In fact, further advice I have received from Frontier Economics indicates that their approach could allow for a minimum 20 per cent reduction by 2020, and still be affordable. That is close to what the Greens are proposing, which is a minimum 25 per cent cut. Obviously, if I had a choice between the Greens proposal of a 25 per cent minimum mandatory cut, the government’s approach and the coalition’s approach, then I would support the Greens, because it is the responsible thing to do. If scientists are saying that we need to get to at least 450 parts per million and other scientists are saying it should be 350 parts per million then this approach of the government’s, with these very low targets, will not cut it.

In contrast to the government’s scheme the Frontier model does not reach as deeply into the pockets of business to create a kind of giant government pork barrel. This CPRS would see the government having complete control over who gets some of those funds and how much they get. I think Senator Ryan made a good point by saying that it will almost be a state of patronage. It would be like the days of the old tariff board, where you have to roll up and hope that you can get some government support in order to keep going. And I do not think that that is good for the economy.

If the compensation arrangements revealed so far by the government are anything to go by, it seems that rewards are more random than earned. I think that has been confirmed in what has occurred today. It seems that those who are best looked after are the largest and the loudest. To me that seems fundamentally unfair. For any scheme to work we need to reward good environmental and economic behaviour and punish bad behaviour so that there is a constructive change in behaviour. That is the beauty of the Frontier scheme: it is not all punishment, like the government’s scheme; it is a combination of carrots and sticks. By making the heavier polluters pay, it punishes those who should be punished, and does so more efficiently. For those doing the right thing, by keeping their emissions below the benchmark in their industry, there is no need to pay for the permits—in fact, they get credits. And for those who excel there is the potential to sell the permits they do not use to increase their business bottom lines. There is less churn and you switch the merit order in terms of pricing much more efficiently—these are important things.

I foreshadow that I will be introducing a number of amendments that will adapt the government’s proposed CPRS to a model that is in line with that recommended by the Frontier Economics study into possible modifications to the CPRS and to make it clear that I believe we need to go for a much deeper target. While these changes will not result in a ‘baseline and credit’ model in the purest sense, they will adapt the CPRS to work with the same effect, based on energy intensity. I believe the government’s model results in far too much churn, will impose too big an impost on the Australian economy and will not deliver enough for the environment.

This leads to my second amendment, which will lift the target for cuts to a minimum 20 per cent on 2000 levels by 2020. Again, Frontier Economics modelling has demonstrated that this target is not only possible, but possible to exceed. Surely this is an outcome that all Australians would want. Who wouldn’t want a scheme that has less impost on business and which produces better outcomes for the environment? If that amendment is unsuccessful I will be moving an amendment that would lock in 10 per cent cuts under the Frontier scheme. This is the ‘greener, cheaper, smarter scheme’, in the words of the Leader of the Opposition, which he praised just three months ago. I call on the coalition to vote for what your leader said not so long ago.

Another of my amendments sets the baseline for the model and provides for how businesses can receive assistance. Importantly, it also provides criteria by which business plans must be used to demonstrate that they are working to reduce emissions while not putting jobs at risk. I have no problem with compensation and transitional funding going to businesses that are doing the right thing, but we need to be sure they are delivering. In short, businesses that do not produce a plan or perform against these plans will be liable to relinquish their assistance either in full or in part. If you take the cash, you have to change—it is that simple.

Fourthly, my amendments introduce a voluntary action plan. I know that the government has gone some way in relation to that with these amendments, but I am concerned that it is not robust enough. I believe it is important to both recognise domestic action and protect domestic savings. My amendments protect domestic savings from being taken up by polluters to reduce their requirement for action, which is completely undesirable. I am keenly aware of concerns in the community that people do not want their environmental action to go to waste. What this amendment will do is ensure that every Australian who makes a choice to reduce their emissions through voluntary action can do so knowing that they are contributing to a reduction in the emissions cap. The difficult aspect of this is how one measures voluntary action. Hence, my amendments would introduce an independent body to investigate and take submissions to quantify voluntary contributions. Let us have a robust process to deal with it. This will provide an important opportunity for community groups to develop environmental campaigns to document people’s reduction in domestic emissions and, through submissions to this body, see their efforts making a difference. It also means businesses will be able to pollute more because households are polluting less.

Fifthly, my amendments enable agriculture and any emerging green technologies to be eligible for offsets. It is so vital that we encourage those emerging green technologies. I agree with Senator Milne and her colleagues that we have so much potential to really lead the world in terms of renewables and new technologies—and that is what we must do; that is what we must encourage. It is important we encourage every measure to reduce our emissions and value-add to the carbon pollution reduction model that is adopted. To do this into the future we will need flexibility, and these amendments will provide for that. I am worried that we will lock ourselves into failure with this scheme.

Finally, my amendments provide for extensive consultation as part of the development of a national white certificates scheme. I pay tribute to the work that Senator Milne and her party have done in relation to this. We need a white certificate scheme. This is something that is already operating in New South Wales, Victoria and my home state of South Australia. It can be expanded on and developed. It is a smart way of reducing emissions. It is a smart way of having a scheme in place that will actually make a substantial difference to reducing emissions in this country. Significant expertise has emerged from developing those schemes, and there are others in the community who have useful ideas on how such a scheme might work. This amendment provides for extensive consultation over a 12-month period for the minister to come up with the regulations, but it provides a framework for a comprehensive national white certificate scheme that will make a significant difference in emissions—in the millions and millions of tonnes. I will elaborate further on these amendments during the committee stage.

Finally, I wish to foreshadow that I will be introducing a second reading amendment in the terms circulated in the chamber. This amendment would halt the progress of the bill until such time as the government releases adequate documentation in relation to the advice it has received on the Frontier Economics report. The Frontier report was released publicly on 10 August. Nine weeks later, on 12 October, the Treasurer launched an attack on the Frontier scheme, claiming Treasury had found a $3.2 billion hole in the Frontier modelling—although he was not willing to release the Treasury modelling that might prove this claim. The Treasurer asserted that there was a black hole, but I have to say I think the real black hole was in the Treasurer’s credibility in not even releasing the modelling in relation to that. It was a bit like being tried in some kind of kangaroo court, where they find you guilty but they will not tell you the evidence against you.

I believe the government has not come clean with the Australian people, by withholding key information that would provide a fuller picture of the options before us. Again, I agree with Senator Milne that there should have been modelling done on much higher targets. It would not have been difficult to do. It would not have been expensive to model the costs on a 25, 30 or 40 per cent target, but the government has not done that. Last week in the Senate, after a Senate order for production of documents, Senator Sherry provided a short summary of Treasury concerns, which raised more questions than answers. While willing to criticise the Frontier modelling, the government once again has proven less willing to provide evidence for its claims. I seek leave to table a report entitled ‘Response to Commonwealth Treasury’s critique of Frontier Economics’ provided by Frontier Economics.

Leave granted.


Senator XENOPHON —Thank you. I have here just some of the mistakes made by Treasury in its critique on Frontier. On the first page the Treasury note claims the Frontier electricity intensity based scheme is not a fully fledged policy proposal. This is demonstrably wrong. The reality is that more effort was made to flesh out the fiscal effects of the Frontier model than the government’s scheme and that the Frontier scheme is fully accounted over a 20-year period.

Let us go back a few steps. There is a real concern here that there has never been a good look at alternative emissions trading scheme approaches. The Garnaut report, the green paper and the white paper looked only cursorily at a baseline credit approach, which is not what the scheme is all about. That is very disappointing. I do not think government has been served well by the lack of adequate economic modelling on alternative scheme designs that could still fit within a cap-and-trade model.

The Treasury approach also involves some creative reading of Frontier’s work. For example, Treasury claims that Frontier’s modelling confirms that under the CPRS Australia would continue to prosper. My response to that is yes and no. Frontier did conclude that we would experience growth, but that growth would be $50 billion dollars less over 20 years than under the Frontier model and some regions would not experience growth but decline. So the growth would be uneven and inequitable and it would be patchy in some parts of the economy, particularly in the regions.

Treasury claimed that the Frontier scheme would do little to encourage energy efficiency, completely ignoring the white certificate plan which forms a key part of the Frontier scheme and which would lead to significant advantages in energy efficiency. Frontier also argues that some of the Treasury conclusions arise from simple arithmetical errors in the MMA modelling. Specifically, when it comes to claims that abatement in the electricity sector in 2020 would come from improved electricity conservation by users and lower growth in energy demand, it is important to note this is what is known as a simple accounting estimation—it is a guess which does not take into account the relative inelasticity of demand for electricity and therefore the likelihood of price rises. Effectively, it is a guess, and I think we deserve better.

Perhaps most astonishingly, the Treasury critique claimed that, unlike the CPRS, the Frontier proposal would not provide any compensation to households. As a result, most households would be worse off under the Frontier model, the Treasury paper says. This completely ignores the fact that compensation is not needed under the Frontier scheme because wages would be higher by $800 a year and, what is more, under the Frontier plan there would be more jobs. Moreover, Frontier’s price rises would be slow and moderate, not sharp and radical as they would be under the CPRS.

Treasury also claims that the Frontier scheme is untested internationally. But guess what? Being internationally tested is hardly the be all and end all; we have seen the problems with the European scheme. Treasury also argues that its scheme would provide economic certainty for businesses. This is what I take the greatest issue with. For hundreds of thousands of small and medium-sized businesses in Australia, the only certainty is that things would get a lot harder as they faced a sharp significant rise in energy prices with no assistance from the government under the CPRS. Today, the government announced that it would give $1 billion. That would not be anywhere near enough to assist small businesses who would face price rises.

In the Frontier scheme models, based on the government’s own modelling, price rises would be five per cent for the first three years under the Frontier scheme compared to 25 per cent under the government’s scheme. That is based on the assumption that every other country—the rest of the world—will come on board by 2011. I just do not see that and I predict here and now that the price rises could be in the order of 40 to 50 per cent or even more in the next three years. That would be a shock to small businesses, again for little environmental benefit.

My plea to Liberal Party senators is this: if you lock in a fundamentally flawed scheme, there will be no going back. We will lock ourselves into low targets, we will lock ourselves into higher electricity prices and you will simply not be able to change it, because, in the electricity sector, hedging contracts worth billions of dollars will be signed by generators and retailers on the day of royal assent. That is the sort of thing that needs to be considered. I urge the Senate not to support this bill unless there are significantly higher targets and unless its design is fundamentally improved.