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Thursday, 3 November 2011
Page: 8112


Senator XENOPHON (South Australia) (11:04): I have long supported action on climate change. I believe that there are real risks that if you do nothing the risks are great. I think anthropogenic climate change presents Australia, and indeed the world, with a very serious and complex policy problem. British sociologist Lord Anthony Giddens said that it is a paradox that politicians will not often take action on a problem when the impact is many years away, but when the impact of the problem becomes apparent it could well be too late to do anything about it. That is what I think has been broadly referred to as the Giddens paradox.

I think it is absolutely crucial, however, that any scheme that is introduced into an economy to combat climate change needs to be credible internationally and sustainable domestically. It needs to make a real difference to the environment. I want to pause to reflect on the process not with rancour but with disappointment. I understood that we were going to have all of next week to deal with the committee stage of the carbon legislation. My understanding is that that will no longer be the case. I think that is a mistake. The Clean Energy Bill 2011 and related bills are important legislation. Whilst the numbers may be certain—and I respect that—for the passage of this legislation, I think it is important to ventilate as fully as possible such a huge policy change, and I believe I am consistent on these positions, whatever side of the debate I am on, in that you should not unnecessarily constrain debate. I for one would have been not so much happy but willing to attend this place on a Friday, a Saturday, a Sunday—however long it took—so that there would be no suggestion that debate was in any way constrained. I am afraid that there will be that very strong suggestion. I know this is an issue that we have debated on many occasions, but this is an important piece of legislation. It is complex, it is technical and I think there are legitimate questions that need to be asked.

I thought that the process that we had with the CPRS a couple of years ago was a good process in the sense that it was adequately ventilated and everyone had a fair go to raise their concerns. I acknowledged then that I thought that Senator Wong, as the minister responsible, the minister in charge of the legislation, did do a magnificent and dignified job in dealing with the issues, even though that legislation was ultimately defeated. I believe that if we choose the wrong scheme—if it causes irrevocable damage to our economy or does little for the environment, or both—then it is not legislation that we should support. I believe that this legislative package currently before the Senate will be damaging to the economy, will do little for the environment and could well serve as an excuse for other nations, particularly nations in our region, not to act, because of the design of the scheme. There are some seminal, fundamental issues that I want to address shortly—the issue of a mandate or in fact a reverse mandate.

It is fair to say that, contrary to the opposition's claim, we are not going it alone when it comes to action on climate change. There are a number of other countries that act on climate change. The United Kingdom, the European Union of nations, the United States, New Zealand and Japan, to name but a few, are taking action, but the scheme design varies widely, the impact on the economy varies widely and the targets vary widely. So the question today is not whether we should take action on climate change but whether this scheme will ensure that true environmental benefits are achieved without damaging Australia's economy or disadvan­taging local industries. And of course there is that mandate issue as well.

I believe that imposing large adjustment costs in the economy with no prospect of incremental global abatement gain is simply not an efficient or economic proposition and is not responsible. I have long advocated for an intensity based scheme, as proposed by the economic consultancy Frontier Econ­omics, where heavy polluters pay and those who keep their emissions below the benchmark in their industry are credited for their cleaner approach. Senator Wong in estimates and in other forums gently teases me, saying that she admires my loyalty to Danny Price of Frontier Economics, who I have dealt with for many years and who I have found to be uncannily accurate in his predictions. He is someone who has an enormous amount of credibility. My loyalty is not to Danny Price; my loyalty is to good public policy. Good public policy would be to seek the will of the people. Good public policy would be to adopt an intensity based approach.

The modelling was done when Mr Turnbull was opposition leader. We jointly commissioned Frontier Economics to undertake the research, and the modelling was undertaken by the same economic modellers using the same model used by federal Treasury. It found that with the Frontier scheme you could actually have deeper cuts, a 10 per cent target rather than a five per cent target, with much less cost to the economy because you do not have the same level of recycling of revenue, which is inherently inefficient and causes damage to the economy. It is important to have an approach that is a combination of carrots and sticks, rewarding those who do the right thing and punishing those who do not, and to do it in a way that does not involve the same level of recycling and the same price effects. Therefore, there is not the same need to compensate as much, because you do not have the distortion effects in the economy.

I believe the government's approach will result in much economic pain, with very little environmental gain. I note that this target is the same as the target that the government put up in the CPRS, which all non-government parties and senators rejected just two years ago. I believe a higher abatement target can be pursued under an intensity based scheme due to the economic cost savings and because the scheme will result in lower energy prices, which will make the low-carbon transition more acceptable to consumers.

This is all about transition. How do you best transition your economy to a low-carbon future? This bill will not do it. I note the comments of Professor Garnaut, the government's key adviser on climate change. He has said that if you want to bring about reform you need to have tax reform and a whole measure of reforms in place in order to allow for that transition. I do not believe that this package does that in any way, shape or form. I note the comments of the Productivity Commission, who have expressed concerns about having a dedicated fund in the way that is being proposed to deal with the issue of abatement, and Professor Garnaut has echoed those concerns. That is something that can be discussed later, at the committee stage. I believe in an intensity based approach. The Frontier approach preserves the same intention the government has, to reduce Australia's emissions, but it would not unnecessarily raise tax revenue or prices for consumers in the same way the proposed carbon tax or the proposed emissions trading scheme that will follow it will.

I also have concerns about the clean energy legislation package because, based on existing modelling that has been provided by Treasury, taxpayers may face a multibillion-dollar shortfall. Treasury has assumed a carbon price of $29 per tonne in 2015. However, analysts with Bloomberg energy futures—200 analysts around the world including here in Australia, people who live and die forecasting the price of carbon—have assumed a per unit carbon price of $16 per tonne in the international market. As compensation to households, which under the government's proposals is in the form of lump sum compensation, will not change in line with the carbon price, the concern is that if Bloomberg's forecast is correct carbon revenue will fall to about half of what has been predicted. This means that households would in effect be overcompensated and the government would see a significant deficit—a shortfall in revenue. For example, revenue from the sale of permits in 2014-15 is expected to be $8.6 billion. If the price in 2015-16 is $16, as predicted by Bloomberg, not $29 per carbon unit, then this revenue will fall to approximately $4.7 billion, close to a $4 billion shortfall to the budget.

I put these questions to Treasury during the recent Senate estimates and it came down to a question of what the price per carbon unit will be in 2015. The fact is, if the price is anything less than $29, as modelled by Treasury, there will be a revenue shortfall. Under the intensity based model proposed by Frontier Economics, this would not be an issue, as compensation to households would fall with the carbon price. It would not be fixed as it is in the case of the government's legislation.

I indicate now that I will be introducing a number of amendments that will adapt the government's legislation to a model that is in line with the scheme proposed by Frontier Economics, and I am grateful for the good, impartial advice of Danny Price and of his colleagues Matt Harris and Amar Breckenridge, who work in this field extensively giving advice to governments, to industry and to NGOs. I know that those individuals are concerned about getting the right policy response for effective action for climate change. Whilst these changes will not be a baseline and credit model, which was the basis of the GGAS model designed by Danny Price and Frontier Economics—that model was all carrot and no stick, and that is not appropriate if you want to deal with this in the long term and on an effective basis—it will adapt the carbon price to work with the same effect based on energy intensity and it will provide the transition that this economy needs. It is worth commenting on the coalition's direct action plan. I believe that plan is grossly inefficient. It carries with it risks to fiscal policy. It carries with it risks to the budget bottom line. It is incredibly clunky. It is about, in a sense, picking winners. I do not support that plan. The only advantage I see of that plan is that you can switch it off more easily and adapt to a much more efficient emissions trading scheme—that you will not be locked in. That is the only advantage. In a sense, I am damning the coalition's plan with very faint praise, but the ability to switch it off ought to be acknowledged.

The amendments I will move will be, firstly, to increase the target reduction of emissions to 10 per cent less than 2000 levels by 2020. Those emissions reductions are achievable at a lower cost because you will not have the revenue recycling. You will not have the inherent inefficiencies in what is being proposed. I believe we can achieve this higher abatement by 2020, and it is a better springboard for greater reductions. I also believe that the establishment of a clean energy standard will provide incentives for the electricity generator sector to reduce emissions. By allocating a number of free units each year and using a formula to reduce the number of permits issued under a benchmark for each year until 2030, this will encourage the electricity sector to reduce their emissions without substantially increasing energy prices to consumers, and it will give certainty to the electricity sector, as I think it must.

My great fear is that we will face a critical energy shortage in this country in the coming two to three years, and that will have enormous effects on our economy. We are not getting the investment that we need. The investment ought to be skewed, of course, to cleaner energy, but I just have real concerns about that. Wind power, whilst welcome, is not an answer to the baseload electricity generation that we require.

I also believe that amendments to establish a national energy efficiency scheme, or a white certificate scheme, would promote and recognise those who are introducing commercial and domestic efficiency measures. I note the advocacy of Senator Milne and others in the Australian Greens over a number of years for this. I believe that is appropriate. The white certificate scheme is the approach that we should take. These schemes are successfully operating at some level in Australia; they are also common in Europe. It would lower compliance costs for electricity retailers already facing multiple energy efficiency schemes across different states and would support an increased emissions reduction target.

I also believe we should recognise voluntary action. It is important that the government recognise and provide incentives for voluntary action without reducing the obligations of emitters. Voluntary action by the Commonwealth, states and territories and by local government bodies, other entities or individuals to reduce or offset greenhouse gas emissions, which is not otherwise accounted for under the scheme, should be rewarded.

The government's proposal provides for emissions-intensive trade-exposed businesses to receive assistance, and I will move an amendment to provide that they receive 100 per cent assistance, not the 86 per cent that is currently provided for in the legislation. But I also believe that there must be a quid pro quo. If there is industry assistance, that should be tied to getting better outcomes in energy efficiency in terms of reducing emissions. It should not be a blank cheque. I believe that there ought to be greater compliance by these emissions-intensive trade-exposed industries to receive this assistance.

I have a fundamental, seminal issue in relation to this legislation. Unlike the opposition, I do not believe the Prime Minister lied when she made the statement shortly before the last election that there would not be a carbon tax. I believe she did not lie—that she told the truth at the time. That was her intention at the time. But she changed her position after the election, given the realities of minority government. I understand that. I also understand that the Australian Greens have been entirely consistent in their position on this, and I commend them for their consistency and indeed for their environmental advocacy. But I have a fundamental problem, in that, when a government say just before an election that they will not do something and after the election they turn around to say that they will do the opposite of what they said, in a way that could well have materially influenced the outcome of the election, and I think that is axiomatic, given that we now have a minority government.

I think it is incumbent on the government to go back to the people to seek a mandate. That was my position in my time as a member of the South Australian Legislative Council. I stood up to the then Liberal government to oppose the privatisation of the state's electricity assets because then Premier Olsen said just before the 1997 state election that there would not be a privatisation and a few months later he changed his mind. He was entitled to, but he should not have privatised the state's biggest assets in the absence of endorsement by the will of the people. My position is entirely consistent in relation to that. We might have a new paradigm, but that paradigm needs to have the will of the people acknowledged in terms of that.

That is why I will be moving an amendment for the proclamation of this legislation to occur only following the next federal election and after the 44th Parliament has met. My colleagues, my constituents in South Australia and the wider public know that I believe that we need to have responsible action on climate change—not this scheme and not the opposition's scheme; there is a better way to achieve outcomes, but you need to bring the people with you. There are many people I speak to who I believe have been traditional Labor supporters, and they are angry that they were told one thing before the election and that something different is being done now. Even though I get hissed and booed sometimes, I do not believe that the Prime Minister told a fib. I do not accept the opposition's assertion. I believe she acted in good faith in what she said just before the election. But, having said that, because circumstances have changed, you need to get a mandate from the Australian people.

I believe the Frontier Economics scheme, carefully modelled, carefully researched, using the same modelling as the Australian government's modellers used, would achieve a more ambitious carbon emissions reduction target and would be more attractive in managing adjustment concerns because the scheme has lower cost properties in it. This would be desirable from an environmental perspective and in terms of sending a more credible signal internationally.

I look forward to debating my amendments during the committee stage. I get the feeling, however, that I will be quite lonesome with those amendments, but it is important that they be debated, because we cannot avoid the debate about having the best possible way to reduce emissions in this country. There is also the fundamental issue of obtaining the consent of the Australian people for such a monumentally significant piece of legislation. Because of the seminal issues that I outlined, I cannot support the second reading stage of these bills. I also have real concerns about the processes involved—and I say that again without rancour. I just do not think that this sets a good precedent. I think it would have been much better if we had slugged it out here in the chamber for a few more days. That way the process would have been much fairer, and I think, indeed, that many Australians would demand that process for such an important piece of legislation. I look forward to the committee stage of this legislation, and I assure my colleagues that I will participate in that stage constructively and in good faith. But I do worry that this legislation, this approach, is not the right way to go.