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Monday, 26 November 2012
Page: 9768

Senator XENOPHON (South Australia) (19:46): I thank my colleagues for accommodating my need to speak a little earlier in relation to the Clean Energy Amendment (International Emissions Trading and Other Measures) Bill 2012. I indicate that I will not be supporting the bill for a number of reasons. I believe it is bad policy and I believe that what the government is doing is building on an already shaky foundation in terms of the existing piece of legislation, which has failed in its architecture, its design and its very foundations. Adding on to it is really going to cause additional problems.

I want to put on the record that I believe that anthropogenic climate change is a real issue and a factor that must be dealt with—or, to quote Rupert Murdoch of all people, that you need to give the planet the benefit of the doubt. It is important to take sensible measures to manage the inherent risks, the potentially very grave risks, of climate change, but this scheme passed by the government really does not do that and I think the amendments will just make a bad situation much worse.

I want to quote extensively from an opinion piece by Danny Price, the Managing Director of Frontier Economics, and I disclose that Danny Price's Frontier Economics undertook an analysis—for both me and the Hon. Malcolm Turnbull when he was opposition leader—for an alternative pricing scheme, an alternative emissions trading scheme, that would have actually been greener, cheaper and simpler, one that was based on an intensity base model, one that was subject to the rigours of modelling by the same modellers as Treasury actually used. I know that because I coughed up in part for that modelling. It was not cheap but it was worth it because it showed that there was an alternative way to deal with this issue.

Back in Senate estimates in October 2011, I asked questions of Treasury in respect of analysis by Bloomberg New Energy Finance which predicted back then a $16 a tonne carbon price in 2015. I asked Treasury officials whether this would create a $4 billion revenue shortfall in the budget. I think it is fair to say that Dr Martin Parkinson, the Treasury secretary, basically said that if the world price was lower than the government's predicted $29 a tonne price there was a 'potential fiscal downside' for the Commonwealth budget. Dr Parkinson, in fairness to him, also said:

… There has always been that in the same way that, if permit prices were higher, there was always a sense that you might find there would be more revenue, but you would need to think about returning that to households or what you were going to do in terms of compensation.

This scheme is deeply flawed in terms of what is being proposed and I want to quote extensively from an article, an opinion piece by Danny Price in the Australian on 5 September 2012. To put this in perspective, I first got to know Danny Price during the Olsen Liberal government's privatisation of South Australia's electricity assets in the late 1990s and he was critical of what was put up by the state Liberal government back then, saying that it was a very badly structured privatisation deal leaving aside the issue of a broken promise and a breach of mandate. What Danny Price said back then—and he was working for a different economic consultancy—was to warn of severe power price rises and of real issues in terms of competition in the marketplace and how consumers would be hurt. Everything he predicted was right, despite the fact that the then Liberal government did everything they could to pillory him. With some melancholy bemusement I note that this government has been highly critical of Mr Price now in terms of his predictions, but I get the feeling that Mr Price will be vindicated by history. In fact, these changes in a sense vindicate his concerns about the scheme. This is what Mr Price said, and I could not have put it better myself:

WHILE last week's backflip—

that is, back in late August of 2012—

by the government on the removal of the carbon pricing floor was broadly welcomed by those facing the prospect of paying the world's highest carbon price, this most recent change in policy direction lays the foundations for more problems down the line.

I could not agree more. Mr Price makes this point about the minister:

Greg Combet justified the move by saying that it was important to link the Australian carbon pricing scheme to the European scheme and other emerging trading mechanisms. But the fact is this kind of trading was already allowed under the existing arrangements.

Mr Price asks this question:

So why remove the floor price? One sensible reason—

he postulates—

could be to reduce the costs of cutting emissions for Australian businesses and consumers. But the problem with admitting this is that it would imply lower government revenues and further undermine the government's promised budget surplus.

He goes on to say:

The government's spin on the backflip was to deny carbon prices would be lower despite knowing full well that informed stakeholders believe the opposite. When Combet was asked whether he thought the Treasury modelling showing a $29 a tonne carbon price in 2015 was overegged, he rejected the claim, stating that he had full confidence in Treasury's predictions.

I have great respect for our Treasury, but when you have analysts from around the world for Bloomberg Energy who are involved with setting, making and staking their livelihoods on what the carbon price will be in 2015-16 and beyond, I think we need to listen to those analysts at Bloomberg and to other independent analysts as well. Mr Price asks:

… if the carbon price really is going to be $29 a tonne, why do you need to remove the price floor? Indeed, leaving the floor price in place would give investors in low-emissions technologies greater confidence to make long-term investments—the very argument the government made for imposing the floor. None of the government's position on this matter makes sense and reminds me of something that economist John Kenneth Galbraith once said: "It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought."

I have been a great fan of John Kenneth Galbraith and I think those words have a lot of weight in the context of this debate. Mr Price says:

If the government had thought this through it would realise that its removal of the carbon floor price lays the foundations for further policy backflips.

Reductions of carbon emissions will come largely from investment in new technology, mainly from investment in new electricity generation technology.

He goes on to say that this backflip will give a windfall to the dirtiest generators of all—the brown coal generators. That is the great irony here. That is what Mr Price was warning about when he was doing his modelling when he was preparing a report for both Malcolm Turnbull and me in relation to an alternative scheme for emissions trading. He went on to say:

A carbon price lower than $23 a tonne will mean Australian coal generators will remain viable for many years and gas generation will remain out of the money, renewables even more so. This will mean little to no investment in clean technology will occur in Australia because of low European prices.

He says that we will not see the transformation that has been touted in respect of the government's scheme and goes on to make the point that Frontier Economics 'warned the government back in October 2009 of this inherent fiscal price risk in its scheme design and it ignored our warning.'

He 'expects this budget black hole will be about $5 billion a year or about $25 billion across five years'. The beauty of the Frontier scheme was that the compensation would adjust, would vary, according to the carbon price. There was that flexibility and variability in it, which this scheme does not have. What is the perverse outcome of this scheme? Mr Price says that the 'one group that will see only upside from the abolition of the price floor is the private brown coal generators in Victoria and South Australia'—the dirtiest emitters. Mr Price further says:

The government handed them billions of dollars of cash compensation and permits in the high fixed-price period, based on the Treasury modelling of carbon prices across many years, not just the fixed price period, that now look unrealistically high. Ironically, this makes the dirty brown coal generators more valuable than if the government had never priced carbon and compensated for it.

It also makes the dirty brown coal generators relatively more valuable than the cleaner, government-owned black coal power generators in NSW and Queensland that have not been compensated.

The waste from these handouts to brown coal generators eclipses the waste of the pink batts scheme and the school halls program.

Those are harsh words, but I can understand his frustration in relation to this. Mr Price's comments in relation to brown coal generators were subject to some comments by the Leader of the Australian Greens, Senator Milne, who quite rightly expressed her concern about this sort of compensation, this windfall, being given to brown coal generators. To my mind, supporting this legislation will just perpetuate a bad scheme. The architecture of this scheme is built on very shaky foundations. What the government is asking us to do is effectively add another couple of floors to a scheme that is already showing signs of cracking and already showing signs of real decay in its building structure. That is why I cannot support this legislation.