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ECONOMICS LEGISLATION COMMITTEE
06/08/2009
Renewable Energy (Electricity) Amendment Bill 2009

ACTING CHAIR —I welcome the aluminium industry roundtable. Thank you very much for appearing. We are running a little bit behind time, by 15 minutes, so we will extend your time by 15 minutes. Is there a spokesperson who will make an opening statement? Thank you, Mr Cransberg; please proceed.

Mr Cransberg —Thank you for the opportunity, Senator. As well as being Managing Director of Alcoa in Australia, I am also Deputy Chairman of the Aluminium Council of Australia. We are here in support of the submission presented by the Aluminium Council and also our individual companies. We have representatives with us from Hydro and also Rio Tinto.

Australia is home to six aluminium smelters. We are the key electricity using industry in this debate. We are by far the biggest user of electricity within Australia, and the department’s own analysis shows that aluminium smelting is an order of magnitude more electricity intensive than any other activity. If you look at the last page of our submission you can see that that is starkly portrayed by the graph there.

Nationwide, our industry employs 17,000 people directly and another 50,000 indirectly. These are jobs in regional Australia. They are not fly-in fly-out jobs; these are jobs that build a community and make a community. The homes of these smelters are in Geelong, Portland, the Hunter Valley, Gladstone and Bell Bay, and the expenditure on employment, contractors and materials in these localities is a significant driver of the local economy. We are also a major export earner for Australia. About 80 per cent of our products are sold into export markets. The total value of those exports of aluminium and alumina is about $11 billion, and 80 per cent of that is invested right back here in Australia.

We are the fifth largest producer of aluminium in the world as a country and the largest producer of upstream feedstocks of alumina and bauxite. The reason we are in this country is because we have distinct competitive advantages: we have the natural resources; we have the integrated supply chain; we have a skilled workforce in operating, trades, leadership and science; and we have competitive energy supplies. We think this is an industry that should be encouraged to grow.

The use of aluminium will be very important as we become more and more carbon constrained. It is an extremely important material for future fuel efficient transport systems and is being increasingly used in cars to lightweight them while maintaining performance through its properties and its safety at low weight, therefore saving fuel. It is equally important in other mass transport systems and aircraft manufacture. I will give you an example. If you replace two kilograms of steel with one kilogram of aluminium in a car, you save about 20 kilograms of CO2 over the life of that car. The realities for all of us is that this is a product that is endlessly recyclable. Seventy-five per cent of the aluminium ever used is still in circulation today and the next time you use it, you use about five per cent of the energy initially used in making that aluminium.

If you look at what the world needs, it needs more aluminium. It is certain that as the economies grow in the BRIC countries, they currently use about a fifth to a tenth of the aluminium that we use in the developed world. What is at stake here is that we need to decide where we want to add value to the abundant bauxite resources and hence the alumina processing facilities, whether that value is added in Australia or whether we choose to be a quarry and ship it overseas and let others do it. Somebody is going to make that aluminium and we would obviously like to make this a very viable industry within our country. Obviously the costs of electricity, particularly the costs imposed by government intervention, are crucial answers to that question.

There are two fundamentals we are looking for. Obviously, we want to see the RET decoupled from the CPRS and, secondly, we want to make sure that we get a full 90 per cent exemption from both the existing RET and the expanded RET. I would now ask my colleague Xiaoling from Rio Tinto Australia to give you some background on the financial implications of RET and the CPRS legislation on our industry’s international competitiveness, and then we will talk briefly on what the impact is on each of the companies represented here today.

Dr Liu —Thank you, Senators, for the opportunity to speak with you today about this legislation and the profound impact it will have on the aluminium industry, and the many regional centres it supports. Let me introduce my role. I am the President of Rio Tinto Alcan’s Pacific aluminium smelting operations and I have responsibility for our interests in three smelters in Australia—Boyne smelter in Gladstone, Bell Bay smelter in Tamar Valley and Tomago smelter in the Hunter Valley. These three Australian smelters directly employ over 3,000 regional Australians and contribute $300 million in salaries, in addition to more than $1 billion in payments to more than 500 local suppliers. The combined impact of the proposed CPRS and the expanded RET and Rio Tinto Alcan’s operations is around $1.3 billion to 2020. The RET legislation represents another 50 per cent on top of CPRS cost. No other industry in Australia will be subject to such extreme cost impost on top of the CPRS. Without amendment to this legislation, it is inevitable that these additional costs will impact on our operations. These impacts will cascade, harming regional employment opportunities in communities like Gladstone and the Tamar and Hunter valleys that heavily rely on the aluminium industry.

Rio Tinto Alcan operates 23 smelters globally. All these smelters sell on to the global aluminium market, and therefore additional regulatory cost in Australia cannot be passed through. Australian smelters compete within Rio Tinto for access to sustaining capital, funds which in the current environment are particularly hard to secure. Australia’s smelters have predominantly been in the second quartile on the cost curve—that means below global average cost—and have been well positioned to attract investment. The total cost of climate policy will push Australian smelters into the third and potentially the fourth quartile, where it would be difficult to attract investment to improve operational efficiency and remain competitive, which will inevitably lead to the path of curtailment and even to closure. Early last year, we were fortunate enough to attract $685 million for significant upgrades at our Boyne smelter in Gladstone. This will not expand production but simply replace some cranes, a carbon baking furnace and provide for some major structural repairs.

This type of investment is required periodically in all smelters to maintain their operational efficiency and asset integrity. In my opinion, unless there are changes to Australia’s climate change policy, including this legislation, we will not be able to attract that kind of sustaining capital in the future. The impact will be inevitable, predictable and commercially rational over time. It would be regional communities like Gladstone which will ultimately bear the brunt of this legislation.

Australia is blessed with 25 per cent of the world’s bauxite reserves. Alumina refining and aluminium smelting value add to this strategic resource, creating $11 billion in export earnings and thousands of highly skilled, highly paid jobs in regional Australia. I urge this Senate committee to consider the amendments proposed by the aluminium industry so that Australian smelters can attract the ongoing investment they need to operate and to continue to provide jobs and opportunities for regional Australians. I will hand now back to my colleague Alan.

ACTING CHAIR —I remind the witnesses that we have only got one hour for this segment and the senators have a lot of questions.

Mr Cransberg —I will be brief and then I will pass to Trevor from Hydro to talk about the implications for his industry. Alcoa has two smelters in Victoria, three refineries in Western Australia, a couple of mines in Western Australia as well as a power station at each of our refineries plus one in Victoria. We are Victoria’s largest exporter. We employ around 7,000 people directly across Australia and typically we inject close to $500 million into the Victorian economy each year. Again, as with Xiaoling, these are vital components of the regional communities where we operate and those communities would look very different without Alcoa in their midst.

By its very nature we know this is an electricity intensive industry. The combination of the RET and the CPRS could have an impact of up to $1 billion over the next 10 years for our industry. Similar to Xiaoling, that would make us think seriously about where we invest. We are a global company—we have refineries on many continents and in many countries—and that sort of cost impact would make us significantly rethink about investing back here in Australia.

While we support the implementation of the carbon price in Australia, we think that the costs imposed by the RET and the CPRS will make it very difficult for our businesses to be sustainable in the long term and with the amendments we are proposing, which Miles will talk about later, we think we can continue to make sure that these are value-adding, competitive industries within Australia. I will now pass to Trevor.

Mr Coombe —I am from Hydro Aluminium Kurri Kurri in the Hunter Valley. Our plant employs around 600 people and it has done so for the last 40 years. It is a small plant by world standards but it is significant in the region of the lower Hunter. In the past three years we have held discussions in New South Wales with the intention of expanding this plant. This involves capital expenditure of about A$5 billion. It would add a further 1,000 permanent employees in the area; however, the CPRS, coupled with the RET and for the time being the global financial crisis—and I would be a fool not to mention that at least—have significant impacts on this decision to expand. I have a commercial-in-confidence document—and I would like it to be kept that way if possible.

ACTING CHAIR —If you have a document that is commercial-in-confidence, I have to advise you that other than in the estimates process if a document is submitted on a confidential basis and the committee agrees to accept it on such a basis it should pass a resolution that the document be treated as evidence taken in camera. Documents submitted and received in an estimates hearing are automatically published, but that does not apply to a committee such as this. We would need to have a private meeting to accept your document as a confidential document. You have distributed it now. Do you wish to withdraw that until we have a private meeting?

Mr Coombe —No, I will leave it stand. I am really more concerned about slide 5, which highlights the true value of the CPRS and RET on our operation. It highlights the fact that the costs by 2020 of the CPRS and RET—

Senator CAMERON —Slide 5? There are no page numbers here.

Mr Coombe —It is entitled ‘Impact of CPRS and RET—historical average’, page 5.

ACTING CHAIR —I have just been advised by the secretary that if there is no disagreement that we will treat this as confidential, we do not need to have a private meeting. Is there anyone on the committee who is not prepared to have this treated as confidential, including those on the phone?

Senator XENOPHON —I have no problem with it being treated as confidential.

ACTING CHAIR —Thank you. We will treat it as confidential.

Mr Coombe —Thank you. It highlights the fact that the cost for these two environmental legislations is about $55 million. Our operation has an average profit of $65 million. So you can see that the impact is quite dramatic.

Senator BOSWELL —That is in 2030, is it?

Mr Coombe —That is in 2020. In 2020 you are looking at $55 million.

Senator BOSWELL —And what is your profit—$65 million?

Mr Coombe —It is $65 million. That is the average of the last eight years, although it is not going to be the same going forward.

Senator CAMERON —I am just raising the issue that this is being broadcast.

Mr Coombe —I am fully aware of that, Senator. I am just highlighting the effect for our organisation. As to the document itself, I am merely just highlighting that page 5 is the issue for the discussion. I have no problem in saying what I am saying.

ACTING CHAIR —As long as you are aware of this.

Mr Coombe —Yes. We as an organisation would urge that senators be aware of the Australian Aluminium Council’s submission and its recommendations. We would hope that the Senate makes amendments to ensure that the growth, stability and viability of employment in the industry are maintained. I will now pass to Roy Gellweiler.

Mr Gellweiler —Good morning. I am the Chief Financial Officer at Tomago Aluminium Company. Tomago Aluminium’s smelter is located in the Hunter Valley and directly employs around 1,200 people. It is a world-class asset. It currently around the 11th largest smelter in the world—out of around 200 smelters. Currently it sits in the lowest quartile of costs on the world cost curve. Historically, it has growth at about three per cent per year. It has been operating 25 years, and in that time it has more than doubled its production. It is still growing today and has more potential in the future. It is a well-maintained, well-positioned asset. As I said, it is 25 years old. In the absence of external threats, like the CPRS and RET, it should have a life of another 25 to 50 years.

In our submission we outlined our main concern, which is the combined effects of both the CPRS and the RET for our company—$125 million per year by 2020. It is easy to throw numbers around, but I will put that in context. That is equivalent to our current wages bill, which is around $110 million per year. The cost to us would be the same as if we were actually having to double our 1,200-strong workforce. The current proposal for both the CPRS and RET, as proposed today, would push us up on the world cost curve by a full quartile. Currently we are sitting in the upper end of the first quartile and it would push us to the mid-point.

It would jeopardise future investment in the plant. We are not talking about starting to jeopardise investment in 10 years time; we are talking about investment in the coming years, because it is an industry that is very capital intensive with very long-life assets. So the decisions that we make now on capital, we expect to be in place for a long time. Therefore, the current proposals are going to jeopardise that investment. Inevitably, they are going to lead to the premature closure of the smelter and the loss of jobs—probably decades earlier than would otherwise be the case. So it is not an issue for the next two years or five years; it is more an issue for the next 10 years plus. We strongly support the AAC proposal for a true 90 per cent exemption. I will leave it there.

Mr Prosser —In the interests of moving quickly to questions, I would just like to emphasise the specific amendments that we have included in part 1 of our submission. We have had those amendments drafted to achieve two main outcomes. One is for a 90 per cent exemption from the full RET for industries that are both emissions and electricity intensive, and we believe that is consistent with government policy. The second is a decoupling of the RET from the CPRS. At the moment, with them coupled the way they are there is an uncertainty over a future cost of tens of millions of dollars per smelter. In the face of that uncertainty it is not possible to make rational investment decisions, and those investment decisions would be ones that would deliver for both the economy and the environment. In the interest of getting to questions, I will leave it there. Thank you.

ACTING CHAIR —I would like to open the questions by asking you about this decoupling. You have made a case there. If the decoupling of the CPRS and the RET is not achieved, can you detail the impacts on your industry in terms of job losses and its general viability?

Mr Prosser —I can certainly put it in dollar terms. Some of the company representatives might be able to take that further in terms of job losses. We have quoted in our submission that the current proposal under RET would expose us to a cost of about $700 million across the industry over the next 10 years. That assumes that the exemption being proposed in the RET bill survives. If it is linked to the CPRS bill and for whatever reason the CPRS bill does not pass in its current form, that $700 million would more than double in magnitude of cost exposure for the industry. I will throw to the companies to make some comments on what that means for job losses and investment.

ACTING CHAIR —If you would. This decoupling is a very important issue. The coalition is very interested in it.

Mr Cransberg —I think Trevor raised the point using precise numbers. You get to the stage where, if you are not making a return on the capital investment, you choose to harvest a facility and over time that facility will close. Smelters take a lot of capital to continue to run them. You are investing at times to rebuild a bake furnace, which is part of the process. You invest $100 million. You get that return over the next five to 10 years. So we need to make sure that we understand the climate that we will be operating in to make those significant investments early on. If we do not decouple, you add another level uncertainty and companies like mine will choose not to invest in these facilities and will invest in others where we have those options.

ACTING CHAIR —When you talk about ‘others’, are you talking about outside Australia?

Mr Cransberg —Absolutely.

ACTING CHAIR —So, in other words, if there is not decoupling we are going to see future investment occurring not in Australia but selectively in other countries.

Mr Cransberg —Exactly—as any company would. We are 40 per cent owned in Australia by Alumina Limited, which is an Australian company, but they are partners with us in many operations offshore. This is a good industry. We are keen to see this industry not only survive but grow, because it is very competitive by world standards. If we move into the third or fourth quintile, which a number of us have talked about, then if I am investing money I will choose to invest in a place that is first or second quintile, as any of us in this room would.

ACTING CHAIR —What about the viability of existing smelters? Is that going to be impacted on by not decoupling?

Mr Prosser —I will make a comment about investment. Investment is not just in terms of expansion or in new facilities but also in sustaining investment in the existing facilities. So when we talk about a loss of investment from Australia, that is a loss of investment that would sustain the existing facilities. You would see them on an inevitable path to closure if that investment ceased to occur.

ACTING CHAIR —Over what time span are we talking?

Mr Cransberg —Right now, for example, we are choosing not to make investment decisions until we understand the magnitude of the CPRS and the RET.

Mr McAuliffe —It is not responsible to make those investment decisions.

Mr Cransberg —Yes. Once we understand the rules and we can lay out a pathway that says, ‘These are going to be economic facilities and right now they are struggling because of the current global financial crisis, as a lot of other industries are.’ We will make those investment decisions when we know we have an economic future.

Mr Prosser —It is the nature of a smelter that you would tend to invest in rebuilding key components on a five-to-10-year cycle. If you stopped that investment, I think you are really buying yourself no more than a five-to-10-year life for that smelter.

ACTING CHAIR —In other words, if the coupling remains you will make one set of decisions which will probably mean less investment and such consequences as job losses and so on. If there is decoupling, which is a position the coalition supports, then that is a different scenario and will lead to further investment.

Mr McAuliffe —It is about the potential financial impact. If the coupling remains and the CPRS bill is uncertain, as Mr Prosser said then that increases the financial exposure. It is part of it. The key factors are the coupling, the total financial exposure and, for that matte, the uncertainty.

Mr Prosser —That financial exposure comes from a number of places. It comes from RET and it comes from different components of the CPRS, and the coupling of those two just increases the uncertainty and the magnitude.

Mr McAuliffe —Correct; that is exactly it.

Mr Cransberg —I am not sure the committee is aware, but we have no ability to change our prices. It is set by the London Metal Exchange. Alumina is sold as a percentage of the London Metal Exchange, so we have no ability to say, ‘Hey, our costs have gone up; we’ll pass that on,’ because it is a globally traded commodity.

ACTING CHAIR —For the record, do you want to advise the committee what, specifically, the ‘components of the CPRS’ are that you mentioned?

Mr Prosser —Sure. The key sources of costs for us under the CPRS are the requirement to buy proportionate permits. Initially, that will likely be no more than 10 per cent for smelting; it will make that 90 per cent category. It is less clear what category alumina will fall into, so there is a requirement to buy permits for some proportion of alumina’s emissions. The decay in those permit allocations over time while other countries do not face those costs will increase the burden of that cost over a period of time. There are issues associated with the calculation of permits that are attached to the electricity supply; does that fully cover the sort of increases in electricity prices we are going to see? They are the three main elements under the CPRS. In addition to that is the RET cost exposure.

ACTING CHAIR —Can you expand on your point about electricity supply and how important it is to the aluminium industry?

Mr McAuliffe —Perhaps I will do that. That is a particular issue that Alcoa has expressed concern on in several committee hearings. There is a part of the calculation in the proposed CPRS that relates to a thing called the electricity allocation factor. What it assumes is that the carbon pass-through from power stations into the marketplace will be based on one tonne of CO2 per megawatt hour. If you like, the EIT permit allocations assume that you can get power at that carbon intensity. The reality for us in Victoria—because, like all Victorians, we rely on brown coal for the majority of our power—is that it comes at a higher carbon intensity. The best we will probably be able to do is 1.25 tonnes of CO2 per megawatt hour. What that means is that the permit allocation will assume 1.0 but, when we come to pay, the carbon price in the power that we use will have to be paid based on 1.25. That would, effectively, take a 90 per cent allocation down into the mid-70s. When you are an aluminium smelter—or, in the case of Alcoa, two aluminium smelters—you are a very large consumer of electricity. That 0.25 represents tens of millions of dollars. It is probably about $40 million per annum as a starting point. That is a very significant concern to our company, and we believe it is a significant disadvantage for Victoria.

ACTING CHAIR —So that cost of $40 million is just for your company.

Mr McAuliffe —Correct. In most of the other states, you are able to get a power mix that would come at a carbon intensity of one or less. That is certainly what the Treasury modelling showed in terms of the spot market. It is a bit different for aluminium smelters because we rely on long-term contracts. Because of the capital intensity, you cannot invest the sorts of numbers that we have been talking about here on short-term contracts; you have to underwrite them on long-term contracts. That means we will pay for high-carbon power in Victoria. On that point, what we have asked is that the electricity allocation factor reflect what the marketplace will actually pass on.

ACTING CHAIR —Which states do you have smelters in?

Mr Prosser —I could run through the smelters around the country if you like. We will start with Rio Tinto.

Dr Liu —Rio Tinto has smelters in Queensland, New South Wales and Tasmania.

Mr Prosser —And Alcoa?

Mr Cransberg —Alcoa has two in Victoria.

Mr Coombe —At Hydro we have a smelter in Kurri Kurri and we own a small percentage of the Tomago smelter.

ACTING CHAIR —In other words, this is going to affect most states.

Mr Prosser —Yes. There are two smelters in Victoria, two in New South Wales, one in Queensland and one in Tasmania.

Mr McAuliffe —And six regional communities, basically.

ACTING CHAIR —That is quite a major impact. And this all, essentially, comes back to this issue of decoupling.

Mr McAuliffe —It is decoupling and the extent of the exemption. We cannot underplay the fact that the current proposal is for an exemption ffrom expanded RET. It would still leave the smelters fully exposed to the existing RET, and there is a large amount of money at stake in that. I should say there is a large amount of international competitiveness at stake. That is the reality.

ACTING CHAIR —Thank you. I will leave it at that. Unless you want to ask a subsequent question, I will go to Senator Cameron.

Senator BOSWELL —Go to Senator Cameron. I will come in later.

Senator CAMERON —Mr Cransberg, you are with Alcoa, are you?

Mr Cransberg —I am.

Senator CAMERON —Okay. I just wanted to clarify that. Dr Xiaoling?

Dr Liu —Rio Tinto Alcan.

Senator CAMERON —I understand, yes. I know where you are from. When was your 2008 annual report published?

Dr Liu —The 2008 annual report was published earlier this year.

Senator CAMERON —When that report was published, you would have been well aware of the government’s approach on both RET and the CPRS?

Dr Liu —We are aware but we also understood at the time the committee saying it recognised electricity intensity. The discussion was about both electricity intensity and trade exposure. We were aware and we were under the impression that the electricity intense nature of the aluminium industry would be taken into consideration in the final RET policy.

Senator CAMERON —What is the biggest impact on aluminium in the short to medium term? Is it the global financial crisis or RET?

Dr Liu —Both will have an impact. In terms of short-term impact, the financial crisis obviously is significant in terms of return to our shareholders. Also, we borrow from banks to sustain our operation. In terms of long-term investments, the short-term financial crisis will be over but policies like the current legislation and RET will have more impact in our decision on whether we can attract sufficient capital to keep our asset continuing to operate. The key issue here is that it is a very capital-intensive industry. It needs continuous investment.

Senator CAMERON —In your annual report, Tom Albanese, your Chief Executive, announced an 11 per cent cutback in aluminium production.

Dr Liu —That was in response to the current financial crisis. Because the market is reducing so is its demand for aluminium, but we believe that is in the short term.

Ms Johnson —Excuse me, Senator Cameron. If I could comment on that 11 per cent cut—

Senator CAMERON —No. I am happy with that response. I do not need any more.

Ms Johnson —You are happy with that? Okay.

Senator CAMERON —It is a reduction of 450,000 tonnes of metal per year. The Chief Executive, Mr Albanese, went on to say:

The fundamentals of the aluminium industry nevertheless remain strong.

Has he got it wrong?

Dr Liu —No, he has not got it wrong.

Senator CAMERON —Is your chief executive wrong?

Dr Liu —No.

Senator CAMERON —Is he telling lies?

Dr Liu —No, he is not telling lies.

Senator CAMERON —What is he doing?

Dr Liu —As Mr Cransberg said, the world will continue to demand aluminium. The consumption in China and India is a very small portion of that of OECD countries. We believe the living standard improving in those countries will continue the demand for more aluminium. The fundamentals are still there, and the people will use aluminium also because it is actually greenhouse friendly when you use it in the cars and reduce the emissions.

Mr Prosser —Could I just make the point? The point being made here is that—

Senator CAMERON —I am asking Dr Liu. If I want to ask you a question, I will ask you a question. Dr Liu, Mr Albanese goes on to say:

Higher energy costs are raising the aluminium cost curve, particularly in China, to the advantage of lower cost producers like Rio Tinto Alcan.

Am I reading this right that Rio Tinto is actually becoming more cost competitive against China?

Dr Liu —You are right in a sense.

Senator CAMERON —Am I reading this right? Is the chief executive right?

Dr Liu —You need to put it into the context of a Rio Tinto average rather than Rio Tinto Australia.

Senator CAMERON —Why didn’t he do that in the report?

Dr Liu —We have significant assets in Canada—Quebec—using hydropower. Overall, as I say, we are competing among the 23 smelters. We are also ranking with the 23 smelters. This is talking about a Rio Tinto average. We are here talking about the Rio Tinto Australian operation.

Senator CAMERON —But you come here and say that it is doom and gloom; it is the end of the world, basically; there is no more investment; and jobs are going down the tube. Your chief executive failed to raise these issues in a recent annual report. In fact, the chief executive said:

I am therefore confident that our aluminium operations—

not one but plural operations—

will continue to play a vital role in helping Rio Tinto meet its commitment to creating value.

Is the chief executive spinning a line to the shareholders, or has the chief executive not spoken to you about these issues? What is going on?

Dr Liu —What is going on should be put into context. This is our chief executive talking about Rio Tinto aluminium globally. Every company is looking for new opportunities to invest. Have we heard of many new smelters in Australia recently? No, we have not. We are here to talk specifically about the potential cost impost in Australia that will make our operations here less competitive. We have always been able to compete internationally.

Senator CAMERON —Why aren’t you alerting your shareholders to this issue?

Dr Liu —We are continuing to invest but we are investing where we have more certainty, where we believe we will remain competitive and be able to return high value to our shareholders.

Senator CAMERON —Are you talking about within Australia or about your international operations?

Dr Liu —Internationally, globally.

Senator CAMERON —Why didn’t Mr Albanese raise the very same issues that you are raising here? Why aren’t your shareholders being told that Rio Tinto faces no further investment in the aluminium industry in Australia? Why aren’t they being told that there will be job losses? Why is the chief executive telling them something completely different from what you are telling us here this morning?

Dr Liu —In our report we talk about 2008 results. We talk about certainty. Here we are saying that we would still like to see the Australian government realise that the aluminium industry is a very important industry—a big export earner for Australia. We would like it to have a future and to continue to attract investment.

Senator CAMERON —Do you agree with the chief executive when he says that he is confident that your aluminium operations will continue to play a vital role in helping Rio Tinto meet its commitment to creating value? Do you agree with that?

Dr Liu —I agree with that in a global sense but I have significant concerns for local Australians and regional jobs.

Senator CAMERON —Why weren’t investors in Australia told about this concern?

Dr Liu —Again, we are here in the context of talking about the 2008 return overall.

Senator CAMERON —I am talking about investors in Australia being given an opportunity either to stop investing or to invest in your aluminium operations here. On the one hand, the chief executive is saying, ‘Everything is looking good, prices are going up and we are competitive’, but, on the other hand, you come here and tell us a completely different story. I just do not understand it. I might move on because I have done enough with Rio Tinto. Maybe I will have a look at Alcoa. By the way, I would like you to take some questions on notice. Could you provide us with your annual turnover in Australia and what you see as the cost impost in comparison to that annual turnover?

Dr Liu —Sure. We will take it on notice.

Senator CAMERON —Mr McAuliffe, I have not had a chance to look at your annual report, but does it reflect what you have put to this hearing this morning?

Mr McAuliffe —We have made public in a wide variety of ways the concerns we have over RET and CPRS.

Senator CAMERON —What do you say in your annual report to your shareholders?

Mr McAuliffe —I would have to go back and check the exact wording. The point is: are we being public about this? Absolutely. We have been public about this now for more than 12 months.

Senator CAMERON —That is not the point. I am asking you about what you are telling your shareholders—and that is important. You come here and tell us that it is going to cost you $40 million a year. What is that $40 million to your annual turnover?

Mr McAuliffe —The $40 million relates to the electricity allocation factor. You will find that in every submission that we have made to the various Senate inquiries. You will find it on our website. You will find it in our communications to our staff and in the statements that we have made publicly. I accept what you are saying: we need to be public about our concerns. What I am saying is that we have been—very much so.

Senator CAMERON —You have come here and told us again about this doom and gloom. To be frank, in my view, you are putting the worst case scenario—

Mr McAuliffe —We are putting what we believe is a factual case.

Senator CAMERON —Are you telling your shareholders that position?

Mr McAuliffe —Yes. As I said, we have made that public on numerous occasions. Let me give you—

Senator CAMERON —What did you say in your last report?

Mr McAuliffe —Until I see the exact words, I am not going to get that wrong. For example, every submission that we have made to the various inquiries in relation to the CPRS and the RET have been publicly available. None of that has been confidential. As I said a moment ago, we have put it on our website. We have put it in various reports. And we have spent quite a lot of time trying to make our employees aware of that as well. Have we made it public? Yes, repeatedly.

Senator CAMERON —In terms of the current short-term global financial crisis, what is the biggest cost of the RET?

ACTING CHAIR —I am just watching the time.

Senator CAMERON —Are you going to back to other coalition senators?

ACTING CHAIR —Senator Cameron, all senators have the right to ask questions, regardless of party, and that is the formula we will follow. After you, we are going to Senator Xenophon and then back to Senator Boswell.

Senator CAMERON —Please do not bang your fist at me. I am simply trying to get this—

ACTING CHAIR —I am about to advise you that you have a limited period of time left.

Senator CAMERON —How long have I got?

ACTING CHAIR —You have about three minutes—until half past eleven.

Senator CAMERON —Other senators will have an opportunity then; that is fine. Mr McAuliffe, you are not sure what is in your annual report. Can you provide the inquiry with details of where you specifically indicate the problems in your annual report?

Mr McAuliffe —I am happy to, Senator. There are plenty of examples.

Senator CAMERON —Has anyone else got their annual report?

Mr Gellweiller —We are an unincorporated joint venture so we do not have a published annual report.

Senator CAMERON —Hydro?

Mr Coombe —I do not know what they have said in Norway—

Senator CAMERON —You do not know what they are saying about your operations in Australia? Are you fair dinkum? You do not know what they are saying about your operations? You do not know what your parent company is saying about you?

Mr Coombe —Because we are combined into the thing. I will get the copy of the—

Senator CAMERON —What are you saying about your operations? Do you do an annual report?

Senator BOSWELL —He has just told you what he is saying. He cannot make it public, otherwise he is in trouble—big trouble.

Senator CAMERON —Senator Boswell, just behave yourself. What does it say in your annual report? Do you do an annual report?

Mr Coombe —We do not do an annual report.

Senator CAMERON —Basically, you have all come here to say that it is doom and gloom, yet it is not reflected in your annual reports; it is not what you are telling your shareholders. Why wouldn’t I take the view that you are simply rent seeking?

Mr McAuliffe —We just pointed out that we do tell our shareholders that. I thought I mentioned that.

Senator CAMERON —But you cannot tell me exactly where.

Mr McAuliffe —Yes, I can give several examples, including every submission we have made to every Senate inquiry, numerous media statements, the information that is on our website and the communications we have with our employees. That is at least half a dozen.

Mr Prosser —The comment I would like to make is that the council’s submission and each company’s evidence here today is about the impacts on the Australian aluminium industry. There is no question—in fact, we have made it quite open here—that the world will continue to use large amounts of aluminium. Aluminium is a healthy global industry. What is at play here is: how much of that aluminium will we produce in Australia? There is no question that Rio Tinto will continue to produce aluminium and, if the market holds good, we will make money out of it. Alcoa will continue to produce aluminium and, if the market holds good, we will make money out of it. The question is: will we produce any of that in Australia, or will we produce it in operations in China, the Middle East or Brazil? We have not come here and said that the global aluminium industry is about to fall on its face.

Senator CAMERON —Tom Albanese, the chief executive—

Mr Prosser —Is running a global aluminium company—

Senator CAMERON —is saying that we are competitive and that we are increasingly competitive against China—

Mr Prosser —Because he runs some of the low-cost operations in those other countries.

Senator CAMERON —But that is not what your chief executive is saying.

Dr Liu —There is no contradiction here. What he is saying is correct. We are currently competitive. We are saying that we want to maintain that competitiveness. Also, in a global sense, aluminium will be demanded; it will grow. The issue is whether we will do it in Australia or whether we can get more value from our bauxite elsewhere.

Senator CAMERON —Mr Albanese seems confident, so I am happy with that.

Mr Prosser —He has a number of smelters in Canada that would give him some confidence.

Senator CAMERON —Mr Albanese seems confident so I am happy with that. There was an article in the Australian Financial Review on Monday, 15 June 2009 by Charles Berger, the Director of Strategic Ideas at the Australian Conservation Foundation. I am sure that every one of you took an interest and read that article. In that article Mr Berger says:

Analysis by Goldman Sachs JB Were found only four major Australian companies would be exposed to an impact on earnings of greater than 5 per cent, even with no compensation from government.

What is your comment on that?

Mr Cransberg —We have done our own modelling based on the Treasury numbers. We will certainly be impacted by more, and I am not sure if he included us as an Australian company—or our Australian partners, Alumina Limited—but we will certainly be impacted. It is a business where if a significant chunk of your profitability disappears you choose to invest elsewhere.

Senator CAMERON —How long have you known that there would be a carbon pollution reduction scheme in Australia?

Mr Cransberg —Three to five years.

Senator CAMERON —So you did not listen to John Howard.

Mr Cransberg —We listened to John Howard; we listen to everybody.

Senator CAMERON —So even though the opposition indicated that they would deal with this issue, you have known for only three or four years?

Mr Prosser —Going back to the question about the ACF, which we did not get a chance to answer, if they are assessing it at a company level, it comes back to the point: if you have got a global company, the impact of the Australian scheme at a global level, on global returns, will be quite low. But there will be a major impact on the Australian operations of that global company.

Senator CAMERON —I am happy for you to put that answer on notice. I need to deal with this other issue I have just asked. I am running out of time.

Mr Cransberg —So we have known about this issue and we are making decisions about where we invest right now that will affect our long-term future. We are very keen that those regional jobs and the regional activities we have, and successful operations, remain that way. Frankly, that is going to be very dependent on the shape of the CPRS and the RET.

Senator CAMERON —How much are the aluminium companies investing in research and development on carbon capture and storage?

Mr Cransberg —I cannot speak for the other companies but we run a global R&D centre for aluminium, and we run a global R&D centre for alumina within Perth, Western Australia. We are investing significant amounts. We have found a way of locking up CO2 in our residue areas, and we have currently locked up about 70,000 tonnes of CO2. We have reduced our intensity of greenhouse gas emissions since 1990 by 61 per cent for every tonne of aluminium made. In our rolling industry we have reduced our energy usage by 21 per cent; in our refining aspect we have reduced it by about 12 per cent—

Senator CAMERON —How much have you invested in Australia in research on carbon capture and storage?

Mr Cransberg —We invest in our R&D facility in Western Australia about $40 million per year in the alumina industry.

Senator CAMERON —How much of that is on carbon capture and storage?

Mr Cransberg —I would be guessing. I would have to come back to you.

Senator CAMERON —Can everyone take on notice how much you are investing in carbon capture and storage. You all come here with these horror stories about what—

Senator BOSWELL —They are horror stories.

Senator CAMERON —They are the worst case scenarios, they are horror stories about what is going to happen that are not consistent with what your chief executives are saying. I would like to know what you actually doing on the positive side in relation to carbon capture and storage and the investment you are putting in place.

Mr McAuliffe —Energy efficiency has also been a key research area for us because of this.

Senator CAMERON —I am happy to know what you are doing on that as well.

CHAIR —Thank you, Senator Cameron. We will move on to Senator Xenophon.

Senator XENOPHON —Thank you, Chair. My first question is: what is the difference in terms of energy-intensive production of aluminium here in Australia compared with elsewhere, including China?

Mr Cransberg —If you look at the value chain, I will start with the alumina, which is the first part of it. The greenhouse gas footprint of a tonne of alumina made in our operations in Western Australia is a half to a third of the greenhouse gas footprint of a tonne made in China. So somebody is going to make that alumina and somebody is going to make that aluminium. If you look at the aluminium, the direct intensity of our industry is lower than our competitors around the world. In fact, we run a forum through the Australian Aluminium Council where we are assisting the Chinese to reduce their greenhouse gas intensity for the tonnes of aluminium that they make.

Senator XENOPHON —What is the difference, though, in approximate terms?

Mr Prosser —I will jump in there. We can provide, on notice, some graphs and some figures on that, but for the aluminium smelting industry the electricity intensity of Australia’s industry is lower than most other parts of the world, other than Africa, where the smelters are newer technology. On the alumina side of things, again I can provide some exact figures but it is of the order of more like 10 or 20 per cent improvements in efficiency in Australia in terms of energy use.

Senator XENOPHON —Could we get that sooner rather than later, because we need to report on this.

Mr Prosser —Yes. The amendments we proposed were mainly to achieve two outcomes. One was the decoupling to take away that level of uncertainty and the other was to provide the full 90 per cent exemption from the RET burden.

Senator XENOPHON —I understand that. In terms of the interaction between a CPRS and the RET bill, if the electricity price rises under a CPRS were not as great, what would that do to your attitude to RET?

Mr Prosser —We would have to have a look at any alternative proposals. Ultimately, the approach we have taken to all these things is to look at the total magnitude of the cost burden being imposed on Australian producers that is not being imposed elsewhere. To a large extent, the way that is imposed is immaterial. It is the total magnitude of the cost burden that Australian producers bear that is not borne elsewhere.

Senator XENOPHON —Going back to the whole issue of RET, we have the situation in the US and in Europe where they are looking at ambitious RET targets—some would say more ambitious than ours. Why should you be isolated from an ambitious or not so ambitious RET target when other countries are going down that path?

Mr Prosser —I have two points on that.

Ms Johnson —In the same way that it can be difficult to compare different emissions trading schemes, you have to look, when you look at renewable energy targets in different jurisdictions, at the other things within those jurisdictions that make them different. For example, I know that the renewable energy scheme in the United States proposes to allow energy efficiency credits to also be included under the renewable scheme. That is quite different to what you have in Australia. I know that Europe does have more extensive targets in terms of the composition of renewables. They also have an incredibly different grid structure that means that, if the wind is blowing in Denmark and then stops blowing in Denmark, they can import electricity from Germany or France where it is provided from a completely different baseload source. In Australia, we do not have a grid structure that allows that type of transmission across long distances for a relatively sparse population.

Senator XENOPHON —Can you provide some further details on notice. I am interested in terms of those energy efficiency credits and the like. Could you send that through to the committee.

Mr Prosser —Can I just make two comments on that? Firstly, we are not asking for a free ride under the RET. We are talking about taking on some RET costs but not so many that it makes us uncompetitive with other countries. Secondly, the comparison to schemes in other places: Australia’s main competitors in these markets are in the Asia-Pacific region and I am not aware of any proposals that would impose costs on aluminium producers elsewhere of the magnitude being proposed here.

Senator XENOPHON —The Chinese are looking at intensity aren’t they in terms of reducing their emissions, which would ultimately impose costs on their industries?

Mr Prosser —I am not suggesting that there is no cost in other countries, but the magnitude of costs being imposed here is far and away higher than what is being on imposed directly on producers elsewhere.

Senator XENOPHON —I would still find it useful to look at some of those comparisons and where you say they are different. That would be useful.

Senator BOSWELL —We are supposed to be voting on this bill in the next couple of weeks. Have you received any response from the government either on the decoupling or on your amendments? Are you in negotiations?

Mr Prosser —I would not say that we have received any official response. We have been trying to talk to government as we have been trying to talk to others in the political process about our concerns. We have not received what I would call a response from government about their view other than what we have heard publicly, which is that they are not too interested in further changes.

Senator BOSWELL —If the government were to decouple the ETS from the RET and not proceed with this amendment or goes ahead with what you get now is what is on the table under CPRS, which is a part of 90 per cent, and that was to apply to RET—as you would get that transferred from CPRS to RET—what effect would that have on you?

Mr Prosser —I need to be sure that I understand the question.

Senator BOSWELL —The question is: we have decoupled but we have not given you your amendment. We go ahead as per what is on the table now.

Ms Johnson —If we were to still receive a partial exemption on part of the scheme then the decoupling provides certainty that we will only get 55 per cent, not a true 90 per cent. So you get more certainty but you get certainty that you are still not getting what you are after.

Senator BOSWELL —So you would go from 90 per cent to 55 per cent? Is that what you are saying? If we decoupled, you would go from 90 per cent to only 55 per cent.

Ms Johnson —If we were still to receive only a partial exemption on part of the scheme, then the decoupling provides certainty that we will only get 55 per cent, not a true 90 per cent. So you get more certainty, but you get certainty that you are still not getting what you were after.

Senator BOSWELL —So you would go from 90 per cent to 55 per cent? Is that what you are saying?

Ms Johnson —At the moment, because—

Senator BOSWELL —If we decoupled, you would go from 90 per cent to 55 per cent?

Ms Johnson —At the moment we only get 55 per cent; the decoupling will achieve certainty that we only get 55 per cent. The main point of the Aluminium Council’s submission is that the 90 per cent exemption applies only to part of the costs. So 90 per cent of part means that it is actually only a 55 per cent exemption—hence the fact that the aluminium industry is seeking a true 90 per cent, not a partial 90 per cent, which is nowhere near that.

Senator BOSWELL —So what is on the table at the moment is 55 per cent?

Mr Prosser —Correct.

Senator BOSWELL —And what you are asking for is 90 per cent?

Mr Prosser —Correct.

Senator BOSWELL —If we go ahead with the 55 per cent, what is the result for the aluminium industry?

Mr Prosser —At 55 per cent, we estimate that is a burden of $700 million over the next 10 years, in the context of a combined CPRS and RET burden of about $4 billion over that 10-year period.

Senator BOSWELL —So $700 million—

Mr Prosser —It is $700 million out of the total $4 billion of the CPRS and RET combined.

Senator BOSWELL —So you would have a $4 billion liability under the RET, or you would have a $3.3 billion liability under RET and $700 million—

Mr Prosser —Under the current proposals, $700 million under RET and $3.3 billion under the CPRS.

Senator BOSWELL —What would that do to the industry?

Mr Prosser —I will leave it to the companies to describe that.

Senator BOSWELL —Well, that is the question, is it not?

Mr Prosser —At that level, that is a greater annual cost than the companies had been reinvesting right across the industry in Australia on an annual basis.

Senator BOSWELL —But what does it mean? Does it mean closing places down in Gladstone or—

Senator CAMERON —Here we go—typical, closing down! What a load of rubbish!

ACTING CHAIR —Senator Cameron, Senator Boswell is entitled to ask his questions in peace, just as you were.

Senator CAMERON —Senator Boswell and the fear factor!

Senator BOSWELL —Someone has to speak up for the blue-collar workers.

Senator CAMERON —You have never stood up for a blue-collar worker in your life.

Senator BOSWELL —The Labor Party have been missing in action on this.

Senator CAMERON —You are a WorkChoices warrior. You have never stood up for a blue-collar worker. Give us a break!

Mr Cransberg —As we have described, the impact on profitability will change the investment profile in our facilities. If we cannot get the return on capital that we require to ensure that is a good investment, we will invest elsewhere. If you look at the current modelling, I would be very concerned about the aluminium industry within Australia. Based on some of the amendments, we believe that we can still remain competitive.

Ms Johnson —If you look at the industry, we would currently typically invest per site per year about $50 million. That money is spent locally. So, while you would not necessarily see immediate job cuts directly from our operations, what you would see is cut-backs in contractors, because we would not be spending that sustaining capital which is predominantly spent within that local community.

Senator CAMERON —That is not what the chief executive is saying. The chief executive is not saying these things.

ACTING CHAIR —Senator Cameron, you must not interrupt witnesses. You have had your go; now give Senator Boswell a go.

Senator BOSWELL —Senator Eggleston, would you keep Senator Cameron in line, please.

ACTING CHAIR —We would stand him in the corner!

Senator BOSWELL —In two weeks time this legislation is going to come before the Senate and we are going to have to make a decision on it.

Senator CAMERON —Malcolm will help!

Senator BOSWELL —The situation we have at the moment is that you will get a 55 per cent exemption and a $4 billion liability. What is that going to do in the short term and in the long term?

Dr Liu —In the short term it will reduce the attractiveness of our Australian asset in terms of attracting investment. As I said, it is a very capital intensive industry. It needs continuing investment to make it viable. We are not saying that it is going to cause closure in the next year; we are saying that it will inevitably lead to that position. It is commercially rational. When you know you are not going to get a return and you know you can get a larger return from another country, that is where the decision will be made. So, ultimately, our assets will become less attractive and no longer worth more investment and that will lead to curtailment and eventual closure.

Mr Prosser —So, in the short term, it stops that investment and, in the longer term, stopping that investment closes those facilities.

Senator BOSWELL —What is the ‘longer term’? When do you start shedding jobs—five years, three years?

Senator CAMERON —This is a big call for you guys.

Mr Cransberg —You then become very dependent on the aluminium price and the exchange rate. But, over time, it is not a viable industry with that sort of cost impost.

Mr Prosser —You put your facility in the highest quartile of the international cost curve and the next time the market goes down, global companies look across their portfolio and they work out which facilities they are going to shut down in response. If you are in the highest quartile of the cost curve, you are in the gun sights.

Senator CAMERON —Why is it that only the Australian operations are seeing this and the global operations are seeing something completely different?

ACTING CHAIR —Senator Cameron, Senator Boswell has the call. Allow Senator Boswell to finish his line of questioning.

Mr Prosser —Sorry; if that was a question, I did not hear it.

Senator BOSWELL —Do not encourage him by answering; I have got the call.

Mr McAuliffe —Our European operations have raised the same concerns about the impact of the European scheme.

Senator CAMERON —So that will level up the playing field, will it?

Mr McAuliffe —That is Europe. That is one example.

Senator BOSWELL —One of the claims that you have made is that the aluminium industry thrives in Australia because we have got natural advantages of alumina and labour power costs. Senator Cameron would say that the world is going to go into a renewable energy phase and so you have got to be part of that renewable energy phase and you have got to be able to compete with the renewable energy sector. I do not think that is particularly realistic—that you can develop an aluminium industry on renewable energy. I believe you would lose your competitiveness. I think we have also got to think about where Australia derives its trade advantages from—and it is low-cost power. Can you give us a view on running an aluminium refinery or smelter using substantial amounts of renewable energy?

Dr Liu —If I look at Rio Tinto Alcan overall, 64 per cent of our power globally is from hydro-electricity. Locally, the Bell Bay Tasmanian smelter is actually running on hydropower. So, if we are talking about a 20 per cent target, as far as Rio Tinto Alcan is concerned, 20 per cent of our smelting is under renewable energy. But, unfortunately, it is not being recognised that Bell Bay is using a renewable energy and it still has to pay for a renewable energy certificate. So, to an extent, it is not truly about renewable energy here; it is about policy legislation. In terms of renewable energy in Australia—

Senator CAMERON —Your boss says that Bell Bay is well placed. That is what he says in the article: that Bell Bay is well placed.

Dr Liu —It is hydropower but unfortunately it has not been recognised by the government’s legislation as a renewable energy power.

Senator CAMERON —Who is telling the truth here? Is it you or is your chief executive?

ACTING CHAIR —Order! Senator Boswell still has the floor. Do you have any other questions, Senator Boswell? If not, we will go to Senator Farrell.

Senator BOSWELL —Senator Farrell has a question.

Senator FARRELL —You have obviously painted a fairly pessimistic picture for us today. But Mr Kleinfeld, from your company, in his report talks about Australia. In the most recent report he talks about Australia and he mentioned some other countries and says ‘all of which present opportunities for substantial growth. The position is in fact more optimistic than what you are saying, is it not? He does refer to a number of problems, and I will read further so that we get the full picture He says, ‘Government policies and other economic factors, including inflation and fluctuations in foreign currently exchange rates and interest rates affect the results of the operations in these countries.’ So he does explain some of the problems, but the company is in fact quite optimistic about its opportunities in Australia.

Mr Cransberg —We have terrific assets here and we want to continue to grow these assets. If you go to the south-west of Western Australia, without Alcoa there, they would look significantly different. Just as Senator Cameron was doing, there is a comment here on 16 June from crikey.com that:

... Alcoa of Australia’s repeated advice to investors via annual reports, ASX advices and prospecta about the uncertainty arising from the impact of the ETS and its specific concerns about each iteration of the Government’s ETS, with the failure of other companies to do the same.

So we are recognised as being transparent in this area.

Yes, with the right government legislation this is an industry, not only within Alcoa but within Rio Tinto and Hydro and Tomago, that we should be able to grow. We have got a quarter of the world’s bauxite resources. We have the option of picking it up, making it into alumina and shipping it overseas or we can send it to these six regional centres where we are a large presence and we can value-add within Australia.

Senator FARRELL —That is not a threat, is it, Mr Cransberg?

Senator BOSWELL —It is the reality.

Mr Cransberg —It is reality. You understand business as well as I do. It is a reality.

Senator CAMERON —Not according to your chief executive.

Senator BOSWELL —I have one final question.

Mr Cransberg —We have been very transparent. People have commented on our transparency.

Senator CAMERON —It is a bit rich coming here and doing this spin but telling the shareholders something completely different.

Senator BOSWELL —Stop bullying the witnesses. Bullying is the last refuge of a person who cannot get his argument across.

Senator CAMERON —So that is why you have been so loud.

Senator BOSWELL —If the RET exemptions were to be decoupled from the CPRS legislation, the activity definitions and all technical details regarding EITE activities would need to be put into either the RET legislation or the regulations. Have the EITE activity definitions being finalised so they can be put into the RET legislation?

Mr Prosser —There is an activity definition for alumina refining and an activity definition for aluminium smelting that have been discussed between the industry and the department and have been agreed for the purposes of data collection, and data collection is occurring. That does not cover the entire industry. There are rolled products as well. But the two main activity definitions are at the point at which they can be put into legislation and used for data collection.

Senator BOSWELL —Have you got an agreement on them with the government?

Mr Prosser —Both the government and the industry have been careful about whether they have said they are agreed. They are agreed for the purposes of data collection.

Senator BOSWELL —I want to know whether they have agreed for the purpose of legislation.

Mr Prosser —One of the uncertainties we have as an industry is that you do not know what level of permit allocation you get until something passes through the parliament. At the moment we do not have that level of certainty. So we have a document that is an agreed activity definition but we have no guarantee that that may not get changed by parliamentary processes.

Senator BOSWELL —Is this the same with all the other industries, that their activity statements are locked in?

Ms Johnson —There are, I believe, eight activity statements that are listed in the draft EITE regulations under the CPRS. Alumina and aluminium are not on that list because we have not yet finished the data collection. Due to the onerous level of that data collection required, it has taken many months and we are still continuing.

Mr Prosser —So there are eight at the very end of the process in the draft regulations but they are only draft regulations. All other activities are further back from that.

Senator BOSWELL —What happens if they do not give into the regulations?

Ms Johnson —Then there is no exemption.

Senator FARRELL —When will the information be available?

Mr Prosser —The data verification side of it? It will happen over the next weeks to months.

Senator MARK BISHOP —Weeks or months?

Mr McAuliffe —From our company, we hope to have it completed soon after the end of this month. We have been working on it and we have had auditors running on for several months now. So about a month.

Mr Prosser —It involves auditors auditing against a standard that is evolving at the time, so it is difficult.

Senator MARK BISHOP —When that data is finally signed off by the respective companies, you provide it to the department and then presumably the government make a decision to include this industry or not. Is that correct?

Mr McAuliffe —Presumably, yes.

Senator MARK BISHOP —So it is an absolute priority.

Mr McAuliffe —It is certainly a priority for us, yes.

Senator BOSWELL —So you have not got that activity statement down as yet.

Mr Prosser —There is an agreed definition of the activity. It does not appear in any draft regulations at this stage.

Senator MARK BISHOP —Why has it taken you so long when the other eight industries have been able to get the information?

Mr Prosser —It is about the complexity of the activity. None of the eight there involve multi-sites, multi-company, multi-activities to the extent that it does here.

Mr McAuliffe —This is an industry that has been reporting its greenhouse data for many years and the standards of the verification processes is so onerous that even with that base it has taken many months and many hundreds of thousands of dollars as well.

Senator MARK BISHOP —But cement and steel are all finished.

Mr Prosser —They are not any of the eight that have come through. They are in a similar situation to us.

Senator BOSWELL —If eight have come through, how many have not come through? I know this is a general question.

Mr Prosser —There is some thought that all up there will be more than 50 or 60 activities, perhaps more than 100.

Senator BOSWELL —We are expected to pass legislation when there are 60 activity statements that are not in regulations. That is asking people to take the Labor Party on absolute good faith.

Mr McAuliffe —That is partly why we have asked for the decoupling.

ACTING CHAIR —I think that is a problem overall with the CPRS, that the details are in the regulations and we have not seen that. If Senator Joyce there? No. Senator Milne, are you there? No. Senator Xenophon?

Senator XENOPHON —Yes, chair.

Senator CAMERON —You will have to get to me sooner or later. You can try them all but you will have to come back to me.

ACTING CHAIR —I must admit I am trawling. Senator Cameron, you now have the opportunity.

Senator CAMERON —I am just going through the 2008 Alcoa annual report. I have looked at all the risk factors that the chief executive laid out, and way down the bottom of the risk factors is climate change regulations and greenhouse effects. It is a highly generalised point of view that is put forward. There is no mention of closures in Australia. There is no mention of job losses or potential job losses in Australia. There is none of the rhetoric and scaremongering that you have put forward here this morning from your chief executive. In fact, the big angle that your chief executive puts forward on climate change is a risk of changing temperature levels, sea levels, rainfall patterns, storm patterns and intensities. It does not go to the issues you have raised here today. Who has got it right: is it the chief executive or is it the spin doctors in Australia?

Mr McAuliffe —I thought you I heard you say that it did mention regulation as an issue.

Senator CAMERON —Only at the bottom.

Mr McAuliffe —It mentions it as an issue for a very good reason, and that is because it has the potential to have great impact.

Senator CAMERON —That is not what your chief executive says.

Mr McAuliffe —What we have presented to you today is consistent with what we have presented to government and parliament for that matter and the public and our workforce and our shareholders over many months, that there is an opportunity to get this right. We hope there will be a vibrant future for our industry in our sites here in Australia, but the reality, not spin, is that if this government policy is wrong then it will have significant impacts on us.

Senator CAMERON —But that is not what your chief executive is telling the shareholders. Why are we getting a different spin from the rent-seekers that here this morning compared to the chief executives? I just do not understand this. I think the Australian public are entitled to know what is going on here.

Mr McAuliffe —I do not know how many times we say this, but we have said to the public over and over what we believe these impacts are. They are based on calculations of the costs. It is as simple as that. When we come out and we quote a figure, we quote it based on calculations that are in many cases fundamentally underpinned by Treasury estimates, such as the price of carbon, such as the expected escalation, such as the figures that we put into the public arena around our greenhouse gas emissions. So, Senator, they are factually based and we try to be as consistent as we can and we have been over many months in the public arena.

Senator CAMERON —There are three pages of business risks in your chief executive’s report. The climate change risk is way down the bottom. It is not even seen to be an issue that should be dealt with separately.

Mr McAuliffe —Jump on the Alcoa Australia website and have a look at what it says in there about risks and about regulation.

Senator CAMERON —But who is telling the truth, you or the chief executive?

Mr McAuliffe —Let me say again, if you jump on our website and have a look and have a look at what it says on there around this as a risk. There is even a video on there.

Senator CAMERON —I am not interested in your spin. I am interested in what you are telling the market and I am interested in what you are telling shareholders. That is your obligation. What you are telling the market and the shareholders is completely different from the spin that you have put here.

Mr McAuliffe —Senator, that is not correct.

ACTING CHAIR —I think Mr McAuliffe has made his point and explained that point.

Senator CAMERON —I hope I have made mine as well.

ACTING CHAIR —That remains to be seen. It is now time for us to conclude this segment. I thank the witnesses for appearing. We could have a five-minute tea-break and then we will have to eat into the lunchtime break to make up this 15 minutes we have gone over with these witnesses. Thank you.

[12.03 pm]