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Joint Select Committee on Australia's Clean Energy Future Legislation
Clean Energy Bill 2011 and related bills

COMLEY, Mr Blair, Secretary, Department of Climate Change and Energy Efficiency

GALLAGHER, Mr John, Unit Manager, Indirect Tax Division, Treasury

JACOBS, Mr Martin, Acting Principal Adviser, Personal and Retirement Income Division, Treasury

KENNEDY, Dr Steven, Deputy Secretary, Department of Climate Change and Energy Efficiency

QUINN, Ms Meghan, General Manager, Macroeconomic Modelling Division, Treasury

ROBINSON, Mr Marty, Manager, Household Modelling and Analysis Unit, Treasury

SAKELLARIS, Mr Tas, Assistant Secretary, Department of Climate Change and Energy Efficiency

THOMPSON, Ms Rachel, Business Tax Division, Treasury

THOMPSON, Ms Shayleen, First Assistant Secretary, Land Division, Department of Climate Change and Energy Efficiency

WILKINSON, Ms Jenny, First Assistant Secretary, Climate Strategy and Markets Division, Department of Climate Change and Energy Efficiency

WINZAR, Ms Peta, Group Manager, Department of Families, Housing, Community Services and Indigenous Affairs

Committee met at 9:18

CHAIR ( Ms AE Burke ): I declare open this public hearing of the Joint Select Committee on Australia's Clean Energy Future Legislation inquiry into the Clean Energy Bill 2011 and related bills. The bills implement the government's decision to introduce a cap-and-trade emissions trading scheme, which will commence on 1 July 2012. For the first three years the carbon price will be fixed at $23 per tonne of carbon dioxide, and from 1 July 2015 the price will be determined by the market. The legislation provides that the carbon price will be paid by liable entities, which include those that have facilities that emit 25,000 tonnes or more of carbon pollution a year. The bills provide for assistance to support jobs and competitiveness in emissions-intensive trade-exposed industries and assistance to electricity generators.

In addition, the legislation package provides for tax reform and assistance to households. The proposed legislation provides the creation of th e Clean Energy Regulator, which will work with liable entities to ensure compliance with the mechanisms. It will be charged with educating and advising entities about how they may comply. It will also provide for an independent climate change authority which will advise government on key aspects of the mechanism and review its effectiveness over time. The committee will examine the adequacies of the bills in achieving the policy objectives and, where possible, identify any unintended consequences. I remind witnesses that while the committee does not require you to give evidence under oath I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. The evidence given today will be recorded in Hansard and will attract parliamentary privilege. I refer members of the media who may be present at this meeting to the need to fairly and accurately report the proceedings of the committee.

We have received a written submission to this inquiry from you. As you have all indicated you do not wish to make opening statements we will go to questions. I will kick off the questioning as the Treasury modelling has been released this morning.

Senator CORMANN: That is very convenient timing.

CHAIR: It is beyond my control.

Senator CORMANN: People who were suspicious would think the government had something to hide. It is hardly open and transparent government to release it this late.

CHAIR: Now is your opportunity.

Senator CORMANN: We do not have a copy. Where is it?

CHAIR: We are not proceeding with this inquiry under this—

Senator CORMANN: Have you got a copy?

CHAIR: No, I have not. All I have seen—

Senator CORMANN: How are you going to ask questions about modelling when you have not seen it?

CHAIR: I have not got a copy. That is why—

Senator CORMANN: That is ridiculous.

CHAIR: All I have seen is the press release.

Senator CORMANN: The government is treating this committee with contempt.

CHAIR: Fine, then we will not deal with the modelling if you do not wish to.

Senator CORMANN: It is absolutely ridiculous.

CHAIR: I was going to ask them to give us a quick briefing on it. All I have seen is the press release from the Treasurer this morning.

Senator CORMANN: The Treasurer is treating us with contempt.


Unidentified speaker: That was minutes ago, Madam Chair.

CHAIR: It was literally minutes ago. It came through minutes ago so I was going to see—

Senator CORMANN: That is disgraceful.

CHAIR: Right, I am not going to allow this committee to descend into a farce at your convenience at the outset.

Senator CORMANN: It is the government that is making it a farce.

CHAIR: Order! I have authority as chair to exclude people from the hearing and as members know I have no harm in doing it in my role as deputy chair in the House. So, if you want to proceed in that manner we will not have a hearing. If you do not want to deal with the modelling we can wait and we will recall Treasury at a later stage. I will therefore hand to Senator Milne to kick of with relevant questions.

Mr TONY SMITH: You confirmed at the beginning of this public hearing that the updated Treasury modelling, which was promised to be released with the legislation, has been released minutes before the opening of this hearing. That has just occurred now and copies are just coming into the room now. It is quite reasonable that members of the committee regard that as an utter contempt of the committee and, also, disrespectful to you, Madam Chair. You are the chair of this committee and you have said just now that you—

CHAIR: The member for Casey will well know that this is an inquiry into the bills before us today. You have the bills—they have been there. This is additional information that goes with the bills. I will—

Senator BIRMINGHAM: Which was promised to be released with the bills.

CHAIR: We are not in question time. We are not in the various chambers. We are in a public hearing and we will treat it with the respect it deserves. In that matter—

Senator BIRMINGHAM: It would be nice if the government treated this committee with the respect it deserves.

CHAIR: Senator Birmingham, if you let me finish. In that matter I am going to treat you with the respect you deserve and therefore we will not deal with the modelling today. We will recall the Treasury officials on Monday. I think that is reasonable.

Senator BIRMINGHAM: Just what questions are we meant to ask?

CHAIR: I thought I was assisting everybody. My apologies!

Senator MILNE: I would like to begin by addressing the main bill, the Clean Energy Bill 2011. In particular I would like to ask about the provisions that provide for linking with other emissions trading schemes around the world when we go to trading in 2015. I particularly want to ask about the issue of the lowest cost abatement in the Australian economy. I would like somebody to explain to me what the potential is for linking to other schemes, where other schemes are projected to be operating by 2015, and the issue pertaining to costs relating to 100 per cent meeting the abatement task in Australia as opposed to the provisions in the bill for 50 per cent?

Mr Comley : I will kick off and then we will move to the specific provisions of the bill and either Mr Sakellaris or Ms Wilkinson may like to comment. The bill provides a framework in which you can link to schemes. If part of the question is: what schemes do we envisage at the moment as being the most prospective to link to? I think there are probably three schemes that are the most prospective to link to in the first instance. The first is the CDM market under the UNFCCC, the Clean Development Mechanism market. The second is the European Union Emissions Trading System. The third is the New Zealand Emissions Trading Scheme. They seem to be the most prospective at the moment. The main reason that they are the most prospective at the moment is that they have already been established, so there is a track record with them. They also conveniently fit under the Kyoto protocol, so they have the common accounting mechanisms and assumptions that would be applied to those schemes. It is possible that other schemes would be available for linking over time, but they are the most prospective at this stage.

It is perhaps worth commenting on the size of those schemes, because one of the questions that has often been put is: will there be enough permits available if Australia seeks to import permits? The current size of the European Union Emissions Trading System is about 2 billion tonnes a year, or 2,000 megatonnes. In the Treasury modelling, and I am referring to the initial modelling and not the update—Ms Quinn may want to comment on this—the amount of permits expected under that modelling that may be required in 2020 is in the order of 100 million tonnes a year, which is around one-twentieth of the European scheme and also significantly less than the Clean Development Mechanism.

With respect to the European Union's scheme, it would require a formal agreement with the European Union to link to that scheme. We have already begun discussions with the European Union as to whether that is prospective. Whilst they have not committed to link we have already identified the types of issues that would need to be identified, and that can be worked on over the next number of years to look at that linking arrangement. I am happy to leave it there and perhaps go to the specific provisions, but that is the overview of where we would see the linking occurring over the next few years.

There are two other things I was going to add. There are other mechanisms one could consider linking to—for example, REDD-Plus or other things that may come into prospect. The reason I have mentioned those other schemes first is that they have been established and their rules are established. So in the sequence of what would be first priority those schemes are likely to be first priority in linking discussions. The final point I would make is that the Treasury modelling obviously provides the estimates of how many permits may be required at a particular point in time. Treasury has obviously exercised the best professional judgment in coming to those estimates; however, there is some history in other market based environmental schemes that you often do get more abatement than first expected. So it is certainly not impossible that there would be less reliance on international permits than would be envisaged in the modelling that has been put forward. That is in no way undermining the modelling—it is just saying when you take modelling based on known technologies and cost curves it gives you one readout. That is probably as good as it we have, but in the history of other market based mechanisms you often find other abatement when you put those incentives in place.

Mr Sakellaris : The Clean Energy Bill contains provisions to apply both quantitative and qualitative restrictions on the use of international units. Regarding the quantitative restrictions, in the fixed price period there will be no ability for liable entities to surrender their units against liabilities; that comes into play in the flexible price period only. There is a provision in clause 133 of the main bill that allows liable entities to surrender only 50 per cent of their liabilities in terms of international units. T

The qualitative provisions define exactly what sort of international units are eligible to be surrendered and these are found, essentially, in the Australian National Registry of Emissions Units Act, which was passed recently by the parliament. The definition of eligible emissions units includes certain units under the Kyoto protocol, including certified emission reductions, emission reduction units and removal units that result from forestry and other land activities.

Additional international units might be prescribed in regulations if there was, for example, bilateral linking with another country or if a new international scheme gave rise to new types of international units. The legislation, and existing legislation, broadly sets out the types of units which would be available to liable entities to surrender, but there are also restrictions that can be added through regulations to exclude units if they are found subsequently not to have the level of environmental integrity that international units are required to have.

Senator MILNE: One of the accusations that has been made in relation to trading and international units is that they will not have integrity or that the system may be rorted. Can you just reiterate for me the qualitative provisions that apply under this bill and the linked legislation that has just passed, and explain how quickly you may be able to act if there are problems, even with that rigorous application of standards?

Mr Sakellaris : If concerns do arise about the integrity of particularly international units, the minister may prohibit their surrender through regulations under clause 123 of the main bill. The minister may also cancel the eligibility of any units that are prescribed in regulations simply by amending those regulations under the national registry act. This could happen very quickly, but there is a provision that allows liable entities to use any units that they already hold for the purpose of that financial year. This provision is there so that people who purchase these on a bona fide basis are not disadvantaged by changes in opinion about those units but they would not be able to use those units for subsequent compliance periods.

Senator MILNE: And can you indicate whether nuclear is available?

Mr Sakellaris : The government has already made announcements that certain additional types of units will be excluded from surrender provisions, and that includes nuclear projects because these are not allowed under the Kyoto rules. The government has also indicated that it will exclude units arising from the destruction of certain industrial gases—trifluoromethane and nitrous oxide, which is used in the production of adipic acid—it will also exclude large-scale hydroelectric projects that are not consistent with criteria that have already been adopted by the European Union and are based on the World Commission on Dams' guidelines. In addition, the minister would also have the capacity to prohibit even the entry of units that are not acceptable in terms of environmental integrity. This is in addition to surrender restrictions. In addition the minister would also have the capacity to prohibit even the entry of units that are not acceptable in terms of environmental integrity. So there is an addition to surrender restrictions.

Senator MILNE: I want to go to the question of cost and the Treasury modelling issues about lowest cost abatement and overseas trading.

Ms Quinn : Treasury has found that forgoing cheaper international sources abatement would roughly double the economic cost of achieving the 2020 target. This is analysis that was released in the Strong Growth, Low Pollution report. If there were no ability to import permits then you would need a higher carbon price within Australia. That higher carbon price would be what would drive the higher economic cost.

Senator MILNE: To continue that line of conversation, if we had an emissions trading scheme that attempted to achieve at a minimum a five per cent reduction by 2020, you are saying that it would double the cost to the Australian economy to achieve that minimum five per cent reduction if we did not go to some level of international trading?

Ms Quinn : That is consistent with the Treasury modelling, yes.

Senator MILNE: What price would you estimate would be necessary in Australia in the absence of international trading?

Ms Quinn : Somewhere around $62 or above.

Senator MILNE: The issue here with international trading is the overall cost to the Australian economy of reducing emissions?

Ms Quinn : Yes.

Senator MILNE: Thank you. You mentioned before, Mr Comley, in relation to the latest Treasury modelling, and I know we are not going to come to this, but since you raised it in relation to this issue you might want to comment on what this modelling actually says on this particular issue.

Ms Quinn : The updated modelling does not change the conclusions that international linking allows lower economic costs to achieve environmental target. The amount of abatement that is achieved at 2020 under the updated analysis is only slightly different from what was released before. It does not change the overall conclusions that it roughly doubles the costs if there are no international permits able to be used in Australia.

Senator BIRMINGHAM: On the updated modelling, can you tell me when it was completed?

CHAIR: We are not going to the updated modelling today.

Senator BIRMINGHAM: That is the question I have asked.

Senator CORMANN: It is not a question on modelling, it is a question on the process taken.

CHAIR: You asked me not to ask questions of the modelling.

Senator BIRMINGHAM: We did not actually ask you that, Chair.

Mr TONY SMITH: You made the point that, given the modelling had been released within minutes of you opening the hearing, we should call Treasury back.

CHAIR: If you wish to ask this question, please ask it and we will proceed.

Senator PRATT: We won't bring them back later.

CHAIR: No, we will.

Senator PRATT: I beg your pardon.

Mr TONY SMITH: I do not know why your Greens deputy chair is made to interrupt so often.

CHAIR: Order! The member for Casey is pushing it. Senator Birmingham has the call.

Senator BIRMINGHAM: When was it completed?

Ms Quinn : Within the last week.

Senator BIRMINGHAM: Could we be a little more precise than that.

Ms Quinn : I would have to check, because there are different elements to the modelling. I was just trying to think that the very last set of analysis was completed. I would have to check the exact date, but it is within the last week.

Senator BIRMINGHAM: When was the document that we have been handed today completed?

CHAIR: Senator Birmingham, the issue I have is that this is an inquiry into the bills. It is a very distinct area. We are inquiring into the bills. This is not Senate estimates. If you want to bring this up in Senate estimates, feel free. We are having a legislative inquiry into bills. If you want to go to the bills, please do. This has no relevance to the bills. When—

Senator BIRMINGHAM: Chair, this is very relevant to the merits of these bills.

CHAIR: No, when the modelling was done or not has no relevance to the bills. If you want to ask a question about the bills, please do.

Senator BIRMINGHAM: This modelling is very relevant to these bills.

CHAIR: Yes, but when or where or how is not.

Senator BIRMINGHAM: Its provision to this committee and therefore this committee's ability to do its job properly in analysing these bills and their impact is all extremely relevant.

CHAIR: Senator Birmingham, can I please ask you to go to what is before the terms of reference, which is the bills today.

Senator BIRMINGHAM: If the modelling is not directly related to the bills then I do not know what is. I would just like a straight answer from Ms Quinn—

CHAIR: I did not say the modelling was not. What I said was that when or where it was not done is a political question you are asking and it is not related to the bills. I do not dispute that the modelling is very relevant.

Senator CORMANN: On a point of order, clearly the Treasury modelling goes right to the heart of the impact these bills will have on the economy and on the emissions and so on. The timeliness of that information being put into the public domain clearly goes to our capacity as a committee to properly assess the impact these bills will have on the economy, on jobs, on the cost of living and on global emissions. If we cannot ask questions around the process that has been followed by this government in trying to get this legislation through the parliament then quite frankly what are we supposed to be asking questions about.

CHAIR: You are meant to be asking questions in relation to the legislation.

Senator CORMANN: Which is exactly what we are doing.

CHAIR: Senator Birmingham.

Senator BIRMINGHAM: Thank you Chair. Ms Quinn, when was the document we have been handed today completed?

Ms Quinn : As is the usual practice with documents that are put in the public domain, the document was finalised yesterday, in terms of formatting and appropriate checks.

Senator BIRMINGHAM: But the content was completed well before yesterday?

Ms Quinn : Yes, there have been various drafts with time. But it was finalised for publication on the web yesterday.

Senator BIRMINGHAM: Thank you for providing that detail to us. Clearly a briefing on the content was provided to the Treasurer prior to Sunday, because he referenced it in his economic note?

CHAIR: Ms Quinn does not need to answer that, Senator Birmingham. It is a political question. She is a public servant. Let's get real.

Senator BIRMINGHAM: When advice is provided to a minister to a Treasurer is not unusual questioning.

CHAIR: This is not Senate estimates. If you are going to proceed like this we will not be getting very far.

Senator BIRMINGHAM: Chair, if you are going to rule every question out of order we are not going to get very far.

CHAIR: I did not rule any of Senator Milne's questions out of order, so I think I am pretty good at letting questions go through.

Senator BIRMINGHAM: How amazing that is.

CHAIR: They were relevant to the legislation, that's why.

Senator BIRMINGHAM: Do the 19 bills before us constitute the entire legislative package?

Mr Comley : No. Well, in terms of the package that was announced as part of the Clean Energy Future there is a bill that will be forthcoming on the Clean Energy Finance Corporation and there is also a bill that will be forthcoming on ARENA, the Australian Renewable Energy Agency.

Senator BIRMINGHAM: When will those two bills be forthcoming?

Mr Comley : It is still to be determined.

Senator BIRMINGHAM: Is it the expectation that they need to be passed by the parliament this year, as well.

Mr Comley : That is not a matter for me. The reason I say that is that some of these bills are clearly interlinked. If you look at the commencement provisions they are interlinked. So, for example, the charges bills et cetera are linked to the operation of the main bill. The operation of the Clean Energy Finance Corporation does not have a legislative linkage with this package even though it is part of the overall policy package. The same is true of ARENA.

Senator BIRMINGHAM: Do you have an expectation as to when those bills will be released.

Mr Comley : I am not in a position to give an estimate of when it is going to be released.

Senator BIRMINGHAM: Referring to issues that Senator Milne asked about in terms of the operation of the international carbon market. Mr Comley, I am sure you are aware of the World Bank report, State and trends of the carbon market 2011?

Mr Comley : As my colleague just pointed out to me, that carbon farming initiative legislation, which has already passed, is also in practice part of this package.

Senator BIRMINGHAM: Yes. We have seen and done that one. So you are aware of the State and trends of the carbon market 2011report by the World Bank?

Mr Comley : I am not. Ms Quinn is.

Senator BIRMINGHAM: That report found that the value of the CDM fell by double digits for the third year in a row. Is that correct?

Ms Quinn : It found that the primary CDM fell but the secondary CDM went up.

Senator BIRMINGHAM: And that the primary CDM is lower than it was in 2005?

Ms Quinn : That is correct. In 2005 there was $2.6 billion of primary CDM issued and in 2010 it was $1.5 billon.

Senator BIRMINGHAM: Is it also correct that that report found that the EU ETS scheme contribution to the global carbon market rose to around 97 per cent of all activity?

Ms Quinn : That is not the number I have, but it is certainly true that the share of the overall market accounted for by the EU ETS has risen over time.

Senator BIRMINGHAM: What is your belief in terms of the share if it is not 97 per cent?

Ms Quinn : The information I have before me is it is over 84 per cent.

Senator BIRMINGHAM: I believe the World Bank report indicates 97 per cent, but in either instance that is a more than overwhelming majority, isn't it?

Ms Quinn : That is correct.

Senator BIRMINGHAM: And how does that then give the government confidence in the operation of a global carbon market with such dominance by one scheme and one entity?

Mr Comley : The question of a global carbon market is a separate question from whether there are sufficient permits available for Australian domestic needs, which is really what I was trying to get to in the answer to Senator Milne's question. I think the other thing that is very important to note about the CDM is the supply has slowed down largely in response to uncertainty about the international regime post 2012 but also in terms of which markets are likely accept CDMs. To date the European Union has been the primary expected market for CDMs. In a world where Australia or other countries intended to access the CDM, I think most market analysts indicate that that would have an effect on the supply of CDMs.

Senator BIRMINGHAM: Thank you.

Senator CORMANN: I will ask a few more questions about assumptions on global mitigation efforts and the operation of the global carbon market. I will rely on the original Treasury modelling released in 2011—not on the update—and the CPRS modelling when appropriate. In an answer to a question on notice, Ms Quinn, you told me:

The modelling assumes comparable carbon pricing in other major economies from 2015-16, and the phase out of transitional assistance over five years starting in 2022.

That is correct, isn't it? That is your assumption.

Ms Quinn : Yes.

Senator CORMANN: How realistic is it that other major economies will have carbon pricing comparable to what is proposed for Australia from 2015-16 with a phase-out of transitional assistance over five years starting in 2022?

Ms Quinn : To take the second part first, the phase-out of assistance relates to the assistance within Australia through the jobs and competitiveness package, so that is a matter of future policy decisions and is more difficult to answer. In relation to international action, what is important here is what the access to international permits is and what their price may be in terms of determining their overall economic costs for Australia achieving a particular target. The question is what would be the international carbon price over time. That comes down to the amount of demand for permits and the amount of supply of permits. The demand for permits comes from international action as countries achieve certain environmental targets. In that case, we have taken the Cancun and Copenhagen pledges as something that governments will be implementing. The supply of permits comes down to countries allowing firms and entities within their borders to access international markets either through demand in permits or providing permits through mechanisms such as the clean development mechanisms.

Senator CORMANN: Do you have any indication that from 2015-16 the US would have a comparable carbon pricing mechanism to the one proposed for Australia, phasing out their transitional assistance over five years starting in 2022? Do you have any indication that even Europe, China, India or any country would have a carbon pricing mechanism comparable to ours in its intensity and heavy impact? Do you have any indication that any of these economies would have a carbon pricing mechanism comparable to what is proposed for Australia?

Ms Quinn : I think you are taking the words out of context.

Senator CORMANN: I am paraphrasing them.

Ms Quinn : In terms of comparable, it was talking about the level of the carbon price. The important thing is what the permit prices are in a floating market and the economic impact on Australia. If countries have arrangements in place that are different from Australia, but they allow their firms to access them, either as suppliers or demanders of permits, then that is an appropriate way to get an international carbon price. It comes down to the price of international permits. As we expect Australia to import permits from overseas, it will be the international price of permits under that arrangement that will set the carbon price for Australia in a floating price system.

Senator CORMANN: If we look at the world carbon price, there seems to be a bit of inconsistency in the Treasury modelling document. On page 4 of the overview in your main modelling document, you talk about the world carbon prices being higher than in the 2008 Treasury modelling. The reason is given as: 'delayed and less coordinated international action on climate change pushing up world carbon prices needed to achieve the same environmental outcome.' Yet in chapter 3, on global climate change mitigation, the modelling says that countries' pledges of international negotiations 'suggest international mitigation effort has been brought forward compared to what Treasury modelled in the CPRS scenarios in 2008'. How can these comments be reconciled, and which one is right?

Ms Quinn : They are consistent with each other. To give you an example, in a hypothetical scheme if someone decides they want to target a certain amount, but they restrict the coverage of the economy with which they are going to get that abatement, you may well have more abatement but coming from a narrower base. That would result in a higher carbon price.

Mr Comley : In other words, it is question of how efficiently they do it. If you come to the US in particular, their Cancun pledge was for a 17 per cent reduction by 2020. It is true that there are few people in the US at the moment that think they will achieve that through an economy-wide carbon price. So they are currently exploring a whole range of regulatory measures. In the US, the dominant source of their emissions is the transport sector and the electricity sector put together. They have just announced in the transport sector improvements in fuel efficiency standards which would reduce average vehicle fuel use by around four litres per hundred kilometres by 2025.

Senator CORMANN: I do not have much time, so I will keep drilling down on this. You are saying that the world carbon price is now higher than what we thought it would be three years ago because there has been 'delayed and less coordinated international action'. At the same time you say the price is going to be higher than we thought only three years ago and argue that we are likely to do better than we thought only three years ago. How can you reconcile those two statements?

Mr Comley : They reconcile because there are two different concepts here. One is the level of abatement action that people are taking. The second is what the international carbon market looks like. In a world where lots of people take a lot of abatement action, but they do it in a relatively inefficient way, that would result in a certain level of abatement action with higher traded carbon markets because you are not accessing as low cost abatement.

Senator CORMANN: I read in the Sydney Morning Herald today—and I am sure you expect a question on this—that the climate change department headquarters are going to use cheaper and dirtier Chinese aluminium. So already manufacturing businesses in Australia are—

CHAIR: This is not relevant—

Senator CORMANN: This is totally relevant to the legislation. Please bear with me, Chair. It is relevant and I will bring it to you. The point is that this legislation will make Australian manufacturing the most environmentally efficient and less competitive than higher emitting manufacturers in China. Even now your own department will end up in headquarters that use cheaper, dirtier aluminium. How much worse will that problem become? What chance will manufacturers have if this legislation gets up to compete with cheaper, dirtier imports from places like China and other parts of the world? Given we already have a problem now, how much more of a problem are we going to have once this legislation is in place?

Mr Comley : If you are coming to the Jobs and Competitiveness practice and taking the example of aluminium, the first question you would have to ask is—and you have used the language 'dirtier aluminium'—

Senator CORMANN: That was the way it was described in the paper.

Mr Comley : I understand you were quoting. It is far from clear that the emissions intensity of aluminium from any source around the world is higher than Australian aluminium. The principal reason for that is that aluminium is often referred to as congealed electricity. The most important source of emissions for aluminium is the electricity used in the production. Around the world aluminium is produced from a range of sources, many of which have lower emissions intensity in terms of electricity supply than in Australia. Aluminium has been assessed as a high emissions intensive activity under the Renewable Energy Target Scheme and one would expect that when the regulations are produced for this package it will also be found to be a high emissions intensive activity. That assessment process leads to an assistance rate of 94.5 per cent based on the emissions intensity of aluminium in the period 2006-07 to 2007-08. An important part of the Jobs and Competitiveness package is any improvements in efficiency that have been made since that assessment period do not reduce the rate of assistance. That is a very substantial level of shielding of any difference in carbon costs. In fact, that is the motivation to not have a significant change in industrial activity.

Senator CORMANN: Despite the transitional assistance, manufacturing businesses in Australia are still going to carry a cost that is not going to be imposed on their competitors in other parts of the world, irrespective of whether those competitors in other parts of the world actually put out more emissions for the same level of economic output.

Mr Comley : It is not quite as straightforward as that. As the Productivity Commission report indicated, there is actually significant carbon costs being imposed in a range of countries, including in China. In fact, if you look at the summary measure of the costs imposed on the electricity sector in China compared with Australia, as a proportion of GDP they are roughly of a similar order of magnitude. My recollection is—and Dr Kennedy has put the paper in front of me—that the Chinese number was in the order of 0.03 to 0.04 per cent of GDP whereas in Australia it was in the range of 0.03 to 0.05. With the assistance rates associated with the Jobs and Competitiveness package it is far from clear that there is a higher effective carbon price imposed upon aluminium in Australia than other countries.

Senator CORMANN: Is it correct that the Treasury's projections for China's annual CO2 emissions in 2020 are now 1.8 billion tonnes of CO2 per annum higher than what Treasury assumed and projected only three years ago in the 2008 modelling?

Ms Quinn : I do not have the exact number in front of me, but it is certainly the case that the Chinese economy is now expected to—

Senator CORMANN: I refer you to page 31 of the 2008 Treasury modelling and to page 164 of your 2011 modelling. You will see that in 2020 you assumed that Chinese emissions would be 16.1 billion tonnes of CO2 by 2020 and now you are projecting that Chinese emissions will be 17.9 billion tonnes of CO2 by 2020. How is that consistent with the claims made by the government, by Treasury and by the climate change department at various times that China is taking more stringent action on climate change now, given that in three years your assessment as to where China will end up by 2020 has deteriorated by 1.8 billion tonnes per annum, more than three times as much as Australia puts out in a whole year in CO2 emissions?

Ms Quinn : There are two elements to that question. The level of emissions that any country emits is a function of their overall economic output, their GDP—

Senator CORMANN: Which will go up in China as ours goes down.

Ms Quinn : and then it comes down to the emissions intensity of the economy at hand. What happens when people take action typically is that they shift the emissions intensity of their output and do not change the level of their GDP. We find in history that the level of GDP has grown quite strongly in countries while their emission intensity has fallen through time. That is the intention of the overall package to put a price on carbon. You get continued growth and emissions falling or emissions staying the same and emissions intensity falling. What we have found over the last three years is that, as part of the economic adjustment that has been going on through the global financial crisis and other developments in the international economy, developing countries have performed very well and that expectations of Chinese development have improved relative to the situation in 2008. We have raised the level of output in China, taking on board the recent information. However, the Chinese government have announced policies to reduce the emissions intensity of their economic growth going forward. The balance between those two things is that the level of emissions is higher in China but our expectation is that, if people meet the Cancun Agreements, overall emissions in the world, which is what is important for tackling climate change, would be broadly consistent with the 550 parts per million trajectory, assuming people take action beyond 2020.

If we go back to when we did the modelling in 2008, which is your point about the characterisation of the international action assumptions in the 2011 modelling versus the 2008 modelling, there were significantly less international statements from governments about what action they would take. So our assessment of the pledges on the table in 2011 as a result of Copenhagen, Cancun and other domestic policy measures that countries have announced is that there are more prospect for international action now than there was at the time of the 2008 modelling.

Senator PRATT: I have some questions about modelling also. Treasury has modelled the changes in parameters of previous modelling based on the new legislation. Modelling has also seemingly been attempted by state governments. How accurate are the regional level results as presented by New South Wales, Victoria and WA and why?

Ms Quinn : There has been other analysis released by state governments and other stakeholders over the recent period. The analysis at a state level is broadly consistent with what has been released through the Commonwealth Treasury except for one or two outliers. In general, the state level and national numbers have been very similar. There is an issue about going below a state level in terms of substate regional analysis. Treasury is on the record several times and in our publications in relation to the veracity of the data below a state level. The tools we have available to us to be able to accurately predict what is going to happen are such that we do not feel that presenting that information provides a balanced assessment. Other people have presented the results and they have always caveated those results for the substate regional level. For instance, the analyses by the Queensland Treasury and by the Victorian government point out that it is a better reflection of the relative impacts across regions in a qualitative sense rather than a very good measure of the quantitative impact at the substate regional level. That is because the tools we have do not allow us to take account of changes in behaviour. They assume that the structure of the economy as it is today at a substate or regional level stays fixed. The whole point of looking forward is to see how the economy will change as a result of putting a price on carbon. So it seems somewhat strange to then hold the economy shares fixed when you do that analysis.

Senator PRATT: Which state treasuries have done the analysis in that manner, as opposed to how it should have been done?

Ms Quinn : The tools we have available do not make it possible, across a large number of regions, to look at the analysis. The analysis done for the New South Wales, Queensland and Victorian governments all had analysis at a substate regional level. Where it is easier to look at what happens at the region is where you do detailed analysis of sectors, such as the electricity generation sector, where we look at generator by generator analysis. That gives a more accurate picture of what is happening. For example, we published some information about the La Trobe Valley based on that very detailed electricity sector analysis.

Senator PRATT: If the New South Wales electricity sector modelling has higher impacts than Treasury's modelling, is that why it would show that? That would go to the inaccuracies of that modelling.

Ms Quinn : The New South Wales government has not actually released the detailed electricity sector analysis underpinning their state based numbers. So it is not possible for me to talk about their electricity sector analysis.

Senator PRATT: What about the WA Treasury's criticism of the assumptions about the availability of an international carbon market? We have had some discussion about the impacts of that on modelling. WA Treasury seems to argue that we should not be relying on that market for the purposes of our modelling. Is that a valid criticism?

Ms Quinn : They were raising a concern that, if there is no international market, the economic costs of achieving emission reductions would be greater. That is something we concur with. They were raising issues about the size of the international market, the availability of permits and what the price of those permits would be. As we have canvassed today, the size of the CDM market as it stands today would be sufficient for the amount of emission reductions that we anticipate, based on the modelling released in July—for the amount that Australia would be required to purchase overseas.

Senator PRATT: So why are the carbon costs higher in the Victorian modelling than in Treasury's modelling?

Ms Quinn : The analysis released by the Victorian government this week suggests higher economic costs for the nation as a whole and for Victoria. It appears that they have a much higher abatement task at 2020 than is consistent with the expectations of Treasury and the department of climate change. The Victorian government seems to expect emissions to be 30 per cent higher by 2020 than we expect. A larger abatement task will require more action and that is one of the reasons for the higher economic cost. They also have a larger impact on employment than is found in other analyses.

Senator PRATT: Lastly, I ask about the effective carbon price for heavy road vehicles from 2014. That is one of the things that has changed in this set of modelling compared to previous modelling—because of the changes in the parameters of the legislation going forward. What does that do to the overall burden on the rest of the economy and therefore to our gross national income?

Ms Quinn : It is a general proposition that, if you use a narrower base to achieve the same amount of environmental action, it will raise the overall economic cost. In our analysis we have found that if you do not apply an effective carbon price to heavy on-road transport in the future, you will need to buy more permits from overseas. That raises the overall economic cost slightly. The important thing here is the relative difference between achieving the abatement in Australia versus achieving the abatement overseas. It is not the same calculation of just not covering that abatement. The abatement occurs; it is just where it happens and so it is slight increase.

Senator PRATT: That burden is more efficiently shared across the economy?

Ms Quinn : The wider coverage of action the greater opportunity there is for low-cost abatement to be found, and the more low-cost abatement the cheaper it is for everybody.

Mr WINDSOR: I want to follow up on the fuel issue. There seems to be some confusion in many contributions within the parliament in relation to the bills about the role that fuel plays, the shadow pricing and the direct arrangements. Could someone explain how fuel is treated in the bills?

Dr Kennedy : All passenger vehicles and vehicles less than 4½ tonnes are out. There will be no effective carbon price applied to those vehicles. The government has announced an intention that for heavy vehicles on-road it intends to apply—

Mr WINDSOR: I am referring to what is in the bills, not what the government's intention may be.

CHAIR: Please be very clear, because Mr Windsor is very clear on this point too and so are the bills.

Dr Kennedy : In the bills there is no effective carbon price to be applied on heavy vehicles or on passenger vehicles. On the off-road use of liquid fuels, there is an effective carbon price to be applied. In the case of aviation, it will be applied through excise adjustments. In the case of other fuels, fuel offset changes will apply an effective carbon price to off-road use of those fuels.

There has been a change between the exposure draft and the current legislation. The government has created the potential for large users of liquid fuels to voluntarily opt into the carbon price mechanism in the future. The government will be consulting around those opt-in arrangements. They are involuntary arrangements and it is intended that that will not commence until July 2013. To be crystal clear about what is in the bills, no effective carbon price will be used on on-road liquid fuels. An effective carbon price in the broad will be applied to off-road use of fuels. There are some further details which I could ask my colleague to comment on now, if that would help you.

Mr WINDSOR: Thank you.

Mrs GASH: Could you define a heavy vehicle?

Dr Kennedy : A vehicle of size 4½ tonnes.

Mrs GASH: That is what you are classing as a heavy vehicle. So anything other than that will be charged the tax?

Dr Kennedy : No it will not. To be crystal clear, in these bills there is no effective carbon price to be applied to those vehicles. As the chair directed me a moment ago, the government has announced a policy around those heavy vehicles but in these bills there is no effective carbon price be applied to those vehicles.

Mr WINDSOR: A heavy vehicle is anything over 4½ tonnes. A light vehicle commercial is under 4½ tonnes.

Mrs GASH: I understand that, but you said there will be no carbon tax on heavy vehicles.

Dr Kennedy : In these bills that is correct.

Mr Gallagher : I confirm Dr Kennedy's summary of how the vehicles are to be treated. The legislation specifically excludes from the fuel tax credit reductions the industries that were announced that would be excluded—agriculture, fisheries and forestry. It also specifically excludes fuel for use in a heavy on-road vehicle as described, which is the gross vehicle mass of more than 4½ tonnes. The legislation contains a specific exclusion.

Dr Kennedy : If I could just follow on; that is a very important point I missed and that Mr Gallagher has brought up, Mr Windsor. Off-road use of fuels for agricultural emissions also has no effective carbon price. That is excluded, as Mr Gallagher outlined.

Senator CORMANN: We have had this discussion in a different inquiry. Can you give us an exhaustive list of all the fuel uses that will have an effective carbon price imposed on them? You describe it in a generic sense as off-road fuel use, but could you provide us with an exhaustive list of which off-road fuel use will have an effective carbon price imposed on it through this legislation?

CHAIR: Can we put that notice? Would that be all right?

Senator CORMANN: Only to give an indication now. Is it something that is long and difficult to provide, or is it something—

CHAIR: I honestly do not know, that is why I am asking.

Dr Kennedy : It is contained within the bills. Mr Gallagher, do you want to list them off quickly?

Mr Gallagher : The legislation operates, as I mentioned, by specific exclusion, which implies that everything else is in or subject to fuel tax credit reductions.

Senator CORMANN: Yes, sure. What is in? I am keen to get from you a list of all the things that you envisage for off-road fuel use which will have an effective carbon price imposed on them through this legislation, whether it is by implication or by explicit inclusion.

Mr Gallagher : Other than those exempted industries, all other industries will be impacted.

Senator CORMANN: Such as?

Mr Gallagher : Mining, construction—

Ms Quinn : Rail, shipping, aviation—

Senator CORMANN: So, on notice, you are going to give us an exhaustive list of everything that you envisage—

Mr Gallagher : Yes.

Dr Kennedy : It is contained in the bills, but we are happy to do that.

Mr Gallagher : It also relates to the actual fuels as well.

CHAIR: It is in the bills, but it is not actually—

Senator CORMANN: It is by implication not by—

CHAIR: Yes, that is fair enough. So we will put that on notice. You are still in Mr Smith's questions.

Mr TONY SMITH: That is no problem—I am an agreeable person, as you know.

CHAIR: On occasions!

Mr TONY SMITH: I want to ask some questions about the changes to income tax. Who should I direct those to? Mr Jacobs, if I could just take you to the bills—I am looking at the document produced by the government back in July. If I just take you to the fiscal tables, which are in appendix C on page 131. I will start, because you will be very familiar with the figure in there. I just want to get some clarity for the committee on some of the costings there because of the changes. I am just focusing on tax, I am not focusing on increases in transport payments or assistance for low-income households. I am looking just at that particular line entitled 'tax reform'.

It deals with the increase in the tax-free threshold and the increase in the 15 per cent rate and the 30 per cent rate. Obviously, the increase in the tax-free threshold has a particular cost to revenue, some of which is clawed back by those increases in rates. I wonder if you could just give us some idea of the components of each of those? Obviously the LITO is involved as well, but could you perhaps could just talk us through some of the figuring generally? Then I have some specific questions. By all means, any additional information you do not have we are happy to have on notice.

Mr Jacobs : I might hand over to Marty Robinson on the actual breakup of the costings.

Mr Robinson : As you mentioned, there are a range of changes as part of the personal tax reform. In particular, one of the main changes is the increase in the statutory tax-free threshold from $6,000 to $18,200 from 1 July 2012 and an adjustment in the marginal rate from 15 to 19 per cent. We also have a change in the balance between the low-income tax offset, which has been partially cashed out as part of these changes. So the low-income tax offset—

Mr TONY SMITH: And the 30 per cent rate as well.

Mr Robinson : Yes, that is correct—which is the change out of the low-income tax offset. The low-income tax offset, which is currently $1,500, reduces to $445 and the withdrawal rate reduces from four per cent to 1½ per cent. Currently what happens is that through the range from about $37,000 to about 67½ thousand dollars people are effectively paying 34c in the dollar currently, being 30 per cent on the statutory rate and four per cent on the withdrawal of the low-income tax offset. Effectively what the changes do is rebalance and make more transparent the rate that people are paying. So the effective rate will still be 34 per cent through $37,000 to about $67,000.

Mr TONY SMITH: My first question is: when you are doing the calculations for these, if you cost the lift in the tax-free threshold from $6,000 to $18,000 what does that cost and then what is do you claw back by raising 15 to 19, 30 to 32½ and the change in the—

Mr Robinson : We have not actually broken down the overall cost if you like. If you have a look at the fiscal tables, broadly the overall cost of the changes comes in at about $2.3 to $2.4 billion a year. The higher costs in the first year of $3.35 billion reflect primarily the impact of timing changes. Part of the low-income tax offset is available for taxpayers through the year via withholding arrangements from ordinary fortnightly pays and so forth. The other half of the tax offset is available on assessment when a taxpayer lodges their tax return. Part of the effect of cashing out part of the low-income tax offset into the higher tax-free threshold brings forward some of that cost, which manifests itself as a kind of one-off cost in the first year in 2012-13. After that one-off timing change, if you like, has washed through, the ongoing costs of the tax reform are about $2.3 to $2.4 billion a year.

Mr TONY SMITH: I can see that in 2013-14 and 2014-15. Just to be clear, you said 'some of'. Is it 'some of' or 'all of'? I am not trying to point to anything else, but is the entire difference the result of that point you just made—that being just over a billion dollars? I am looking at the difference between 2012-13 and 2013-14.

Mr Robinson : So it is largely the low-income tax offset. There are some other offsets which individuals utilise at the end of the year. Other examples would be, for example, the mature age worker tax offset, various deductions and those sorts of things which people utilise—

Mr TONY SMITH: But your point is it is largely the low-income tax offset. To the extent that it is not it is other offsets.

Mr Robinson : That is correct.

Mr TONY SMITH: We are safer then in assuming that the entire difference in that higher figure in the first year is totally due to offsets, not to any other—

Mr Robinson : That is right. It is purely a timing change. It is just bringing forward when people will get their assistance. That is correct.

Mr TONY SMITH: Just to go back to where I was, you said you do not have figures on what it would cost just as a standalone on lifting the tax-free threshold to $18,000 and then how much you claw back. I take that at face value, because the model just factors that in, does it?

Mr Robinson : That is right. The modelling has been undertaken using the Treasury personal tax microsimulation model, which uses a sample of personal taxpayer records. We are able to simulate the effects of changes in the tax rates, so we put those changes in—

Mr TONY SMITH: But you could get those figures because they are embedded, aren't they?

Mr Robinson : Yes, so theoretically—

Mr TONY SMITH: Would you be able to provide those to the committee?

Mr Robinson : I could certainly take that on notice. Perhaps you could think of it this way. If you looked at the impact of the change to the low-income tax offset and the increase in the tax-free threshold from $6,000 to $18,200 in isolation, a taxable income of $20,000 is going to give about $600 worth of tax benefit to the individual. There are roughly 10 million taxpayers, so if you made that change alone without making any of the other adjustments that actually claw some of that tax cut back then you would be looking at a cost in the order of $6 billion a year. The other changes in the rates and thresholds are effectively just improving the targeting of the level of tax cuts to low- and middle-income earners.

Mr TONY SMITH: If we just focus on that first year one-off additional impact, would you be able to provide us with a breakdown of the $1 billion, which is the difference between 2012-13 and 2013-14, all being entirely due to the offsets—mostly the low-income tax offset but to the extent it is not those other offsets that have been introduced over the years?

Mr Robinson : Again, I would have to take that on notice.

Mr TONY SMITH: I do not expect you to have that with you, but you can take it on notice.

Mrs GASH: I cannot seem to find anywhere exactly how many companies are actually going to be paying the carbon tax. I hear various reports. Can somebody clarify it for me?

Mr Comley : I will let Dr Kennedy answer in a second. The government has said that around 500 are intended to be covered. It is important to make it clear that it is not as though the bill targets a number of companies; it sets a threshold of a certain number of emissions before you come into the system. So things like how the economy changes over time will impact on the number of people in the system. The current estimate is around 500. We have put out a fact sheet on this. Dr Kennedy can walk you through that or provide you with the reference.

Mrs GASH: Do you know who the companies are, Dr Kennedy?

CHAIR: Speak to the fact sheet and then we will go there.

Dr Kennedy : Okay. We are happy to provide this fact sheet to you. Of the around 500 business that we expect to be covered under the carbon-pricing mechanism—these are businesses that will have to acquit a liability, if you like, under that mechanism and, as we were discussing earlier with Mr Windsor, there is an effective carbon price also being applied through the fuel tax arrangements—around 60 businesses are primarily involved in electricity generation, around 100 in coal or other mining, around 40 are natural gas retailers, around 60 are primarily involved in industrial processes such as cement, chemicals and metal processing, around 50 operate in a range of other fossil fuel intensive sectors and around 190 operate in the waste disposal sector.

Mrs GASH: So that includes local government if they have methane gas plants and so forth?

Dr Kennedy : A local government that has a waste facility that exceeds the threshold—25,000 tonnes—would be liable for that landfill facility. If it had a facility of more than 10,000 tonnes within a prescribed distance from a large landfill facility, one greater than 25,000 tonnes, then that facility would also be liable. Local councils are liable through landfills. They would face other costs—electricity costs or other fuel costs—but as liable entities they would be drawn in through their tips.

Mrs GASH: So you do know who they are basically? Have you contacted them to let them know? How does it work?

CHAIR: They are not contained in the bills, Joanna.

Mrs GASH: They are not contained in the bills?

CHAIR: No. The parameters are in the bills, as have been described by the department, but the companies are not described in the bill.

Mrs GASH: So how will we know when those companies are contacted so that we can answer questions in our electorate on this?

Dr Kennedy : A number of companies are already reporting under the National Greenhouse and Energy Reporting arrangements. Around 500 businesses already report their emissions through that act, which was introduced in 2007 from memory, and they would have reported their emissions for the last couple of years. The government will have and does already have an engagement strategy for waste facilities for people who may be liable under those facilities and has published estimates and is currently running workshops for anyone who may be liable in those arrangements. We do not go out and directly identify companies in that manner. Companies will be liable if they exceed the threshold—if they produce more than 25,000 tonnes of emissions. Ms Wilkinson would you like to add to that?

Ms Wilkinson : I might just clarify. The person who will be liable under the scheme is generally the person who has operational control. For example, local councils may have operational control over their waste facilities or they may not; they may have subcontracted to another entity who has operational control. In the majority of cases it is the entity with operational control who will be the liable party under the scheme, and liability is determined not at a company level but at the facility level—it depends on what your emissions from a given facility are. Just because one facility is above the threshold it does not mean that you are liable for all the facilities.

Mrs GASH: If local governments are covered in this, naturally there is going to be a payoff for the ratepayer if they have to pay tax. Would that be correct?

Ms Wilkinson : If there are costs—yes, that is right. It is also the case that there are other provisions within the Carbon Farming Initiative which provide opportunities for legacy waste to generate credits. The net of those would have the impact on the costs.

Mr HUSIC: Mrs Gash has spoken to you about local government and landfill. If I understand correctly, landfill facilities that emit 10,000 tonnes of CO2 or equivalent are the ones that are impacted. In terms of the price the mechanism covers—

Dr Kennedy : The mechanism will cover landfill facilities of 25,000 tonnes or greater. The only way landfills of greater than 10,000 will be drawn in is if they happen to be located within a prescribed distance from that larger landfill facility. Obviously, the intention with those arrangements is to avoid the unintended consequence of waste being diverted to smaller facilities because they happen not to be covered.

Mr HUSIC: If councils take steps to capture those emissions, are there any benefits that accrue for that activity?

Dr Kennedy : Yes, there are a number of benefits. I will hand over to Ms Thompson to explain them in a moment. Those landfills will not be liable for legacy waste. This will be for waste deposited after July 2012 ,and of course the emissions off waste take a number of years to emit. While the legacy waste will be used to set the threshold as to whether you are covered or not, your actual liability under the scheme will be for waste that is collected after July 2012. Landfills will have quite a small liability in those first few years because there will be few emissions coming off the waste that is deposited in the first few years. They can put in place technologies to capture gas from the waste that has been deposited previously. They can generate Carbon Farming Initiative credits off that and it is envisaged that those could be used by liable entities in the scheme to meet their liabilities. I might just hand over to Ms Thompson to explain how that would work.

Ms Thompson : As Mr Comley mentioned earlier, the government recently passed the Carbon Farming Initiative legislation and that legislative framework provides landfill operators and councils with the opportunity to generate carbon credits as a result of action like flaring methane from landfill. We are very close to having a methodology ready to be put out into the public domain and finalised that will assist councils and others in taking that abatement action. That abatement is Kyoto compliant, which means it is part of Australia's accounting towards its Kyoto protocol target. As Dr Kennedy mentioned, what that means is that those permits will be able to be used to meet liabilities under the carbon pricing scheme and can also be exported to compliant markets overseas. There are some quite strong opportunities there for the legacy waste side of those emissions.

Mrs GASH: When will that modelling be completed so councils can organise their finances?

Ms Thompson : What I am referring to is in fact an approach that will allow councils to put in place carbon farming projects that will allow them to generate these credits. It is the way that they would go about measuring the abatement that they generate.

Mrs GASH: You said you had some modelling or something coming very shortly.

Ms Thompson : Methodology.

Mrs GASH: When are you going to have that ready?

Ms Thompson : The methodology we hope will be available before the start of the carbon farming scheme itself, which is due to commence on 1 December.

Senator BIRMINGHAM: Back to Mrs Gash's 500 companies and the facilities and sites covered within that, is there an estimate of the total number of facilities or sites that are picked up and trip the threshold within the 500 companies?

Mr Comley : We will have to take that one on notice.

Mr WINDSOR: With regard to the issue of local government landfill and some of the initiatives that are built into the packages that may ameliorate the issue, is it possible to have some modelling done or some examples of, say, landfill being 40,000 tonnes CO2 equivalent emitted with no legacy waste? What types of assistance packages are built into the total package that that landfill arrangement may be able to access in terms of reducing the methane?

Mr Comley : We could assist the committee by providing some examples. I can imagine a scenario where you have a tip with a lot of legacy waste and it is able to reduce its emissions by a certain amount per year. As its liability builds up you could get a sense of how many years it might be in front, if you like, before the legacy weight issue was less important than the new liability.

Mr WINDSOR: There is no doubt there is some confusion out there. I was on the committee and I am still a little bit confused, so I can understand why others are. I will follow up on what Mrs Gash just asked of Ms Thompson regarding the arrival of the methodology and the timing between that and the implementation of the determination of whether you are in or out in a landfill sense. There have been some concerns raised that that time period may be too short to allow people to make adjustments so that they are under the threshold at kickoff time. You can take that on notice if you would, unless someone would like to comment. That is a concern that I am getting from people that may be able to be explained but I have not been able to explain it.

Mr Comley : Just one important point to make here. Access to the CFI credits is available whether you are in the scheme or outside the scheme. So if a tip or a council wants to avail themselves of the benefits under that scheme it is not contingent on whether they are covered or not. If they see that it is a commercial thing to do to apply under the methodology, that does not prejudice their position under liability for the scheme. It can only help them because, if anything, it reduces their emissions and reduces their likelihood of being liable. The advice to them would be that it is almost a no-regrets measure to go ahead and try to qualify for the benefit stream.

Ms Thompson : There is one other point that we could make in that regard. The Carbon Farming Initiative legislation itself has a back-dating arrangement for credits from landfill which means that people will be able to claim abatement where there is good record keeping and a robust methodology that goes back to 1 July 2010. That means that there is a bit more of a window to get a benefit from that arrangement.

Senator URQUHART: This question will probably go to Mr Comley. I just want to outline some claims that have been made by the Australian Trade and Industry Alliance. I will read them out, although I am sure you are aware of them, or of at least three of the claims that have been made. The first of those three claims is: 'Why do Australians have to pay the world's highest carbon tax when we are only responsible for less than 1.5 per cent of world emissions?' The second claim is: 'Why will Australia, a country of 22 million people, be asked to pay more than 14 times as much as the EU which has a population of 500 million?' The third claim is: 'In its first 6½ years the EU ETS raised $4.9 billion, but Australians will pay $71 billion in the first 6½ years of its carbon tax. Is this fair?' Are those claims accurate?

CHAIR: Also, Mr Comley, to be fair to the rulings I have made, if you have an answer in relation to the bill and how it applies to the claims made when the exposure draft came out, I will allow the question. However, if you cannot reframe it within the terms of the actual bill, then I will have to be consistent and say that the question is not in respect of the bills. So if there is something you can point to in the bills then I am happy to allow it. If not, then I think it would be inappropriate.

Mr Comley : Chair, I will seek your guidance on this, because I think the question really goes to the economic impact of the scheme compared with other schemes.

CHAIR: And I think that is reasonable, as we went to those earlier in your questions. So perhaps you can phrase it in those terms rather than using the actual examples.

Mr Comley : Let us first go to the question of the EU versus the Australian scheme, or any other Australian scheme you might have. I think this is quite important. The first point to make is that those claims purport to rely on revenue as a measure of what the impact of a scheme is. I want to choose my words carefully here.

Senator CORMANN: No, give it to us straight!

CHAIR: No, he has to choose his words carefully, because he is trying to direct them to the bill, and I think that is reasonable.

Mr Comley : I am choosing my words carefully, because I think the idea that you would analyse a piece of legislation in terms of the amount of revenue raised as a measure of the impact on the economy is a quite extraordinary way to seek to analyse something. Perhaps I could give you an example. If I turned around tomorrow and banned all coal fired power generation by regulation, I would raise no revenue. I do not think any of us would support the idea that there is therefore no impact on the economy as a result of the decision to ban coal fired power stations. So the idea that the amount of revenue raised is a measure of the economic impact is something that is not supported.

The second point is that if you asked most economists how they would measure the impact of a set of measures on an economy they would typically say that they would consider the coverage—that is, how broadly does the measure apply across the economy?—as well as the effective carbon price of that measure. If I was using a straight economy-wide carbon price and I was thinking about how significant the measure being taken are, I would start looking at the price and the coverage, and then I would have to take into account what is done with the revenue—for example, is it redistributed?

The claims made by the ATIA make quite a strange comparison. They do not compare like with like, on a number of bases. They start off by taking a trial period of the EU emissions trading scheme and then they net off all the permits that are allocated for free in calculating the revenue. All the economic analysis that has been done says that the economic impact of a scheme is not so much to do with how you allocate the permits but is a matter of the price of those permits and how broad the coverage is. They end up with a very small number for the first phase of the EU scheme because a lot of permits were allocated for free. But I think it is fairly well known in the analysis of the EU scheme that whilst permits were allocated free to electricity generators they increased their prices to consumers in the same way as if they had paid for the scheme. So the economic impact was measured by the price of permits, not the way they were allocated.

The other curious thing that they do in those claims is that when they calculate the revenue raised by the Australian proposed scheme they do not actually net off permits allocated for free. So they take a measure, which is the total value of the permits in the Australian scheme, but in the EU scheme, for a different period—which was explicitly a trial period—they net off all permits allocated for free.

If you were to try to do a comparison of the equivalent market size over the same period—the three years in the EU scheme of 2013-15—and the Clean Energy Future package, the number for the EU ETS would be around 145 billion and the number for the Clean Energy Future package would be around 27 billion—if you were actually doing a like-for-like comparison. You would have the EU scheme being more than five times the size of the Australian scheme in the overall permit allocation on a like-for-like basis.

I think the reason that these claims are a little unusual is that they are making comparisons of the first phase of the EU scheme, which was explicitly a pilot phase. They are netting off all permits, even though those permits have an economic consequence, and then they are comparing it to the Australian scheme without netting off the permits that are allocated free of charge as well. When you put all those things together, to my mind the right comparison about whether a scheme has a significant impact on an economy should be with coverage and carbon price, or effective carbon price. These comparisons certainly do not do that.

Senator URQUHART: You did touch a little bit on the benefits to farmers about the plan. Could you explain to us what the different components of the land sector package in the bill are? That may not be you; you may want to—

Ms Thompson : At the time when the Clean Energy Future package was announced the government announced a set of measures for, as you say, the land sector. Indeed, I think they are a very coherent and coordinated approach to supporting emissions reductions in the land sector.

Basically, you can conceptualise them in one of two ways. They are either intended to support people participating in the Carbon Farming Initiative—the offset scheme we talked about earlier—or they are intended to help address some of the issues that the Carbon Farming Initiative itself was not necessarily going to deal with explicitly. In that regard we have the Biodiversity Fund, which is nearly $1 billion over the first six years of the life of that measure. That is very much intended to support action that would build carbon on the land through things like preserving vegetation that is already there or planting new trees, recognising that the Carbon Farming Initiative was actually geared around building carbon sequestration, not necessarily ensuring that biodiversity values were also supported.

The thought is that it is actually the operation of the Biodiversity Fund and the Carbon Farming Initiative crediting scheme working together that will give you some very strong outcomes both on the carbon side and also on the biodiversity side. There is particular emphasis on action that would lead to building landscape resilience to ensure that landscapes and ecosystems are connected, and also to deal with pests. One of the problems is that when you start to build ecosystems that connect with each other they can also be superhighways, if you like, that pest species can travel along and make that problem worse. It is those things that the Biodiversity Fund is attempting to address.

On the other side of the equation, perhaps looking more to measures that are of particular interest to farmers, we also have the Carbon Farming Futures Program. That is in the order of $420 million over six years. That basically breaks down into four or five components, depending on how you want to look at it. As part of that there is a very strong emphasis on research. There is around $200 million intended for supporting research into technologies and practices that will help farmers take action on their land. There is going to be a particular focus on soil carbon because we have had quite differing views amongst experts as to what can be achieved from the soil. That will be one of the areas people will be having a look at. Other areas for research relate to things like reducing emissions from livestock, which is also a very promising area of endeavour.

The next element of Carbon Farming Futures is to take some of those research outcomes and translate them into ways we can generate carbon credits. Part of the Carbon Farming Futures program is looking at methodologies that people will be able to use to generate emissions reductions from that sort of activity.

The next component of Carbon Farming Futures is called Action on the Ground. That is, as the name suggests, giving support to farmers in the range of $99 million to take some of the outcomes from the research and from the methodologies and take action on their own farms in terms of supporting activities. A subelement of that, if you like, is the refundable tax offset, which we estimate will be in the order of $44 million of value. The idea there is that farmers will be able to get a refundable tax offset to purchase conservation tillage equipment again in an effort to build their soil carbon and increase the resilience of their properties to drought. I am not sure if our Treasury colleagues would want to say more, but the benefit of a refundable tax offset is that even farmers who are in a tax loss position will be able to benefit from the measure.

Those are the two biggest ticket items in the land sector package. We also have support for Indigenous communities to participate in carbon farming. That has two broad elements to it. The first is, if you like, some support for capacity building, which will be really looking to help Indigenous communities set up projects and negotiate through the complexities of the native title arrangements. The other component of that is building on the research and the methodologies for things like reducing emissions from savanna fires, which will also be an important part of that component.

CHAIR: I am sorry, but I am going to have to stop you there. I have heard you do this before and I really appreciate your passion. We do have to finish at 11.15 am.

Senator URQUHART: If we could get that information on notice, it would be really useful.

CHAIR: I do not want to be rude but, if we could be short, sharp and sweet, that would be great.

Mr CHRISTENSEN: I want to ask about compensation for the punitive impacts it might have on not-for-profit organisations and charitable groups. That is all contained in the Low Carbon Communities program; is that correct?

Dr Kennedy : Yes, any direct assistance to those organisations is. The other thing worth bearing in mind is that the general compensation package that goes to individuals and the way effectively the Treasury models this is they are purchased services by people, so their income capacity in order to make donations is higher than it otherwise would be.

Mr CHRISTENSEN: The Low Carbon Communities program is $330 million and, from what I can gather, $130 million of that is directed towards households, so we are left with $200 million for the not-for-profits; is that correct?

Dr Kennedy : Yes.

Mr CHRISTENSEN: For an organisation like the Royal Flying Doctor Service, and I just want to quote the Prime Minister from an article in the Australian on 12 July, where she said:

… we will work with them to deal with any impacts they feel from pricing carbon. … If the Royal Flying Doctor Service needs further direct assistance then we will provide it.

I am trying to get an understanding about this for organisations like the Royal Flying Doctor Service, which are out there saving lives, and also organisations up and down the coast, particularly in regional communities throughout Queensland, where we have rescue aviation and helicopter services. The Regional Aviation Association of Australia chief executive officer, Paul Tyrrell, has said to them that his advice is to quote what the Prime Minister says and surely there will be compensation.

Some of these places are facing bills—and you have talked about the increase in aviation fuel costs—in excess of $10,000 and $20,000. That is the impact this is going to have on their fuel costs. How are any of the subprograms that I see in the Low Carbon Communities program going to offset those large costs for aviation rescue service providers?

Dr Kennedy : There are a couple of aspects in answering that question. With Low Carbon Communities, the government has the intention to consult and announce guidelines around how those organisations can access those monies to improve their energy efficiency, if you like, or to lower their costs. I would also add that wherever there are indexation arrangements in place—for example, wherever government monies are provided and they are indexed, such as monies which are provided to the states and which are provided to these organisations, or directly and there is an indexation arrangement—the extent to which carbon price feeds through into the CPI, as outlined in the Treasury modelling, would automatically flow through in those arrangements. But beyond those arrangements where payments are made and they are indexed, these organisations could apply under the Low Carbon Communities arrangements. They are probably the two primary mechanisms for assistance.

As Mr Comley said, to the extent that costs are passed through—where there is a charge or a service that comes with that community cost—that is the purpose of the household assistance, if you like, to meet the costs that come through in those—

Mr CHRISTENSEN: I just want to drill down into what you have just said there. Are you saying that the Federal government will pay the states, who will then pay all of these rescue aviation providers the full costs of this increase—

Dr Kennedy : No, I am not saying that.

Mr CHRISTENSEN: Okay. So given that aviation fuel costs have no correlation with installing low-energy light bulbs or whatever, I am trying to work out where it is. If it is not in here, then how do I justify the Prime Minister's statement, 'we will provide direct assistance to the Royal Flying Doctor Service'?

Dr Kennedy : I am sorry, I do not have the statement in front of me.

Mr CHRISTENSEN: I have got it.

Dr Kennedy : From memory, the Prime Minister outlined that this fund was available and that these communities could access this fund for assistance. And, from memory, the Prime Minister also noted that the government would work with such organisations if they had additional costs. As I understand it those are the arrangements.

Mr CHRISTENSEN: Where is that in the package that is before us in the legislation?

Mr Comley : The reason it is not there is because Low Carbon Communities is a grants and outlays program.

Mr CHRISTENSEN: Okay, but it is not covered in the Low Carbon Communities program. Effectively, we established that from your answer. So I am trying to understand where—

Mr Comley : I do not think that is true. The program guidelines will cover potential access to Low Carbon Communities for people like the Royal Flying Doctor Service.

Senator BIRMINGHAM: What would the maximum grant be that people will be able to access under the Low Carbon Communities package?

Mr Comley : That has not been determined yet.

Senator BIRMINGHAM: Will it be enough to offset aviation fuel for the Royal Flying Doctor Service?

Mr CHRISTENSEN: The $17,000, $20,000 fuel bill increase?

Mr Cheeseman interjecting

CHAIR: No, this is actually very relevant to the bills. I think this is an extremely relevant question and so I am going to ask—because we do need some clarification around this and I think it is a very valid question—if you could take that on notice and get some clarification around it. It quite clearly says that it is a grant scheme and that the issues are not identified in the bills but the grant scheme is in the bills. This is something that we need to get some answers for and I do not think that is unreasonable. If you do not have any more we would like you to take that on notice. Did you have anything else?

Mr CHRISTENSEN: In relation to electricity providers, I understand that electricity generators and compensation going to them is not going to public sector black coal power generators in New South Wales and my home state of Queensland but it is going to private generators. Does that mean that state taxpayers in Queensland and New South Wales are going to have to foot the bill for the major loss in asset value for those generators resulting from this legislation package on top of the contribution for footing the bill of compensation to private generators?

Mr Comley : The legislation does not make a distinction between private and public generators. What the legislation does is provide assistance to generators in proportion to the expected or likely change in their asset values. It is targeted at those with an emissions intensity above one tonne per megawatt hour. Whether they are private or private, they will qualify if they are above that threshold, they will not qualify if they are below that threshold. Those that are receiving assistance receive it roughly in proportion to their additional intensity above the threshold, which is a close proxy for the expected competitive disadvantage they would have within the state.

There are different modelling exercises to what the impact on generators are. In fact some of the states, who have made claims about asset value changes, have also put information in the public domain about electricity price increases that would have the implication there was no change in asset value. In fact there would be an increase in the asset value of those generators because they have claimed very, very high increases in prices, which is not what the Treasury modelling indicates. The legislation is set up neutrally between the public and private sector. It is just a question of who qualifies by having very high emissions intensity.

Mr HUSIC: In relating to something Ms Quinn said about New South Wales Treasury, can I just clarify—and correct me if I am wrong—did you indicate New South Wales Treasury has not done modelling about the impact of these bills on electricity prices in New South Wales?

Ms Quinn : No. They have done analysis on the impact on the electricity generation sector but they have not released the detailed analysis underlying that information. In the analysis that the New South Wales Treasury did, they took information from that detailed analysis and then used other information that was based on previous modelling for the CPRS, so they sort of stitched together two sources of information. The question was more about what is happening to the generation in New South Wales. That detailed information was not released with the other information.

Dr Kennedy : Can I clarify a comment I made, and my apologies, Mr Christensen, we do not have members from our deputy here who work on Low Carbon Communities. On the issue you raised around support for services such as the Royal Flying Doctor Service and those sorts of issues, at the release of the legislation the government announced a full stream of the Low Carbon Communities program. This stream is to be known as the Charities Maritime and Aviation Support Program. It will offer a rebate for the carbon price impact on essential maritime and aviation fuels used by organisations such as air and sea rescue services. My apologies for not drawing your attention to that earlier.

Mr TONY SMITH: Dr Kennedy, that was just brought to your attention, was it?

Dr Kennedy : I actually asked Ms Wilkinson. I was aware of the government's consideration of those issues but I am not responsible for them.

Mr TONY SMITH: I thought it might have just been brought to your attention by the official a minute ago.

Dr Kennedy : It was, that is why I wanted to clarify.

Mr TONY SMITH: Who was that official, that public servant?

Dr Kennedy : That was an advisor from Mr Combet's office. It is on the public record of course.

Mr TONY SMITH: It is not in this document.

CHAIR: You are right. It is not in that document. It was brought down with the bills as part of the exposure draft process. I think we need to understand that we are in a process here.

Ms Wilkinson : There were additional funds that have been allocated to provide that assistance. If you compare the fiscal table in that document with the fiscal table in the explanatory memorandum you can see that there is an additional $17 million which will sit with the Low Carbon Communities program and that is in relation to that fourth stream. That is over the forward estimates.

Mr CHESTER: The Victorian government modelling that was released yesterday—did that deal with the question of where new investment, including new jobs, might go as a consequence of this package?

Ms Quinn : It is difficult to be precise because not all the information is in the public domain. I presume, based on previous statements about the analysis done by the organisation which did the modelling, that at a state level it would capture the shifting of jobs from high-emission to low-emission sectors. The issue is that the tools are not available to capture such things at below the state level and there is no information provided about the tools they used for that analysis.

Mr CHESTER: Senator Milne asked questions on international linking—I think it might have been her first question. Does the modelling indicate that there will be a net flow of liability into our domestic market or into the international market?

Mr Comley : The modelling indicates that we would be a purchaser of permits from the international market. Let me just be clear: all the modelling which has ever been done—I think I can say that; 'ever' is always a dangerous word—by pretty well everyone, not just the Australian Treasury but internationally, indicates that the abatement costs in Australia are typically higher than in other countries around the world. So you take up all the low-cost abatement in Australia and then you go and purchase internationally. That is what the Treasury modelling shows.

Mr CHESTER: As a consequence of that, the permit cost in Australia will be a lot lower.

Mr Comley : It would be lower than it would be if you did not have access to those permits. That is right.

Senator BIRMINGHAM: Just so that we are clear—because I know there has been some misunderstanding in the public debate about this—when those international permits are purchased, they are purchased by Australian companies to allow Australian companies to emit above and beyond the permits available under the government's scheme.

Mr Comley : They are above the supply made available by the government; that is right. They represent reduced emissions in other parts of the world.

Senator BIRMINGHAM: So they represent, assuming that all permits available from the government are purchased, an additional cost to Australian businesses in addition to the funds that will flow through to government from the sale of permits.

Mr Comley : That is right. The total liability of firms is their total emissions—and in total that is whatever it is. If it is above the cap that is being auctioned, the difference is made up by the international payments.

Senator BIRMINGHAM: Those costs will flow through the economy and flow through the pricing structure. That is built into all the modelling and assumptions of the government.

Mr Comley : That is correct.

Senator BIRMINGHAM: I just turn to a statement the Prime Minister made on 11 July 2011, when she said:

Compensation is going to keep increasing so that as the carbon price moves, household assistance is permanent and it will continue to increase as well

How does this legislation fulfil that promise?

Mr Comley : Treasury can come up the table and talk about that if they want. That is a question of the tax law. But I believe that is a policy commitment—the intention of the government going forward.

Senator BIRMINGHAM: Does this legislation fulfil that promise? Does it ensure that, as the carbon price moves—and there are assumptions in the modelling about where it moves between now and 2020 and indeed beyond 2020—the compensation built into this legislation moves with the price?

Mr Comley : The compensation in the package at the moment is for the expected carbon prices, but there is an annual review mechanism which would consider any changes in carbon prices. That would then feed into consideration of compensation arrangements.

Ms Winzar : There is also a standard provision for indexation of income support payments and family payments going forward beyond the period covered by this first phase.

Senator BIRMINGHAM: That is only part of the compensation, though?

Ms Winzar : That is true.

Senator BIRMINGHAM: And it does not reflect the income tax adjustments.

Ms Winzar : No, the income tax adjustments are handled separately.

Senator BIRMINGHAM: There are only two phases of income tax adjustments—is that correct?

Ms Winzar : Yes.

Senator BIRMINGHAM: Those phases occur next year and at the point of transition to the floating price—is that correct?

Ms Winzar : Yes.

Senator BIRMINGHAM: And that is the only time line that is reflected in the forward estimates or the fiscal tables that have been published?

Mr Comley : The forward estimates, almost by definition, only go for the forward estimates.

Senator BIRMINGHAM: During that forward estimates period the purchase of international permits is not allowed, is it?

Mr Comley : That is correct.

Senator BIRMINGHAM: However, beyond the forward estimates it is.

Mr Comley : That is right, but it is important to say that the purchase of international permits does not affect the forward estimates because they are not being purchased by the government—they are being purchased by liable parties. Back to our previous conversation, the forward estimates only collects information about what flows in and out of the government's budget. Purchases of international permits by domestically liable parties do not go into the budget in any way because they are not through the government.

Senator BIRMINGHAM: Yes, indeed, Mr Comley, as you said before; however, those companies will pass on the costs, won't they?

Mr Comley : Yes, and that is factored into the modelling.

Senator BIRMINGHAM: Can you explain how it is then that the government will be able to keep compensation up with those costs that are passed on when the government is not receiving the funds for those international permits that are purchased?

Mr Comley : It still has sufficient funds to do that because of the expectation of auctioning the permits.

Senator BIRMINGHAM: How do you know? Can you present some evidence that there are sufficient funds?

Mr Comley : We have not got modelling beyond the forward estimates, but the government has made a policy commitment to do that on an ongoing basis.

Senator BIRMINGHAM: Sorry, you have done work beyond the forward estimates?

Mr Comley : No. There are no budget estimates beyond the forward estimates, but the government has made a policy commitment to maintain the compensation.

Senator BIRMINGHAM: Has the department of climate change or the Department of the Treasury actually undertaken any work as to how the government's policy commitment would be implemented beyond the forward estimates?

Mr Comley : We have done some work as to how the policy evolves over a longer time period than the forward estimates, but we have not done formal budget costings of the period beyond the forward estimates. We have looked at the indicative fiscal impact.

Senator BIRMINGHAM: Can the fiscal impact of keeping compensation measures to households up with the adjustments in the carbon price be met purely from within the government's revenue stream from the sale of permits?

Mr Comley : It depends what happens with other elements of the package. I do not think I could go into a hypothetical discussion of what may or may not change in the second half of the decade or beyond.

Senator BIRMINGHAM: So to meet it within the government's income stream you may have to reduce industry assistance further to be able to pay for household compensation?

Mr Comley : Not necessarily, except for those elements of industry assistance that have already been preannounced will cease. For example, there is the Energy Security Fund effectively over six years that will cease and will no longer be a call on funds after the first five-year period, but there could be other elements of the package that change over that time frame.

Senator BIRMINGHAM: In terms of the work you have done as to what could happen beyond the forward estimates, you are relying upon the expiration of programs that have been announced to date to fund by any means the upkeep of household compensation?

Mr Comley : Not necessarily. I just pointed to one that is actually quite significant—in the order of $1 billion a year—and programmed to end because it is a one-off transitional assistance fund. How a government would deal with any assistance beyond that period would be more speculative.

Senator MILNE: I want to go to the Steel Transformation Plan Bill. I want to clarify first of all that steel companies are liable entities under the scheme and will be getting free permits according to the scheme as outlined and that the Steel Transformation Plan Bill is additional to the compensation that is deemed to be appropriate in terms of the level of trade exposure. That is the first thing. The second thing is, in relation to bringing forward the $164 million in competitiveness assistance in 2011-12, that is limited to circumstances where Australian steel manufacturers undertake activities that will significantly enhance the competitiveness and economic sustainability of the steel industry. I want an answer to the first, and in relation to the second is there reference to the energy efficiency opportunities reports which those entities would have required to say what energy efficiency opportunities were available to them and therefore, in the long term, reduce their liability and their exposure?

Mr Comley : I will answer the first part of the question. I think it is clear that the steel companies will be liable parties under the scheme and they would also be eligible for the Jobs and Competitiveness Program. Consistent with the renewable energy target arrangements, integrated steel making gets assistance at the highest rate of 94.5 per cent. That is the first part. Ms Wilkinson will take the second part.

Ms Wilkinson : I was going to say that there are two activities within steel making. There is steel making through the integrated facilities and then steel making from the electric arc furnaces. Both of those are eligible for assistance under the Jobs and Competitiveness package. You are right that the steel transformation plan is assistance which is being provided to the sector in addition to the assistance that will be provided under the scheme. The steel transformation plan is about providing assistance to the sector in order to help it transform into a sector which is going to be viable in the long term in Australia. It reflects the particular circumstances that the Australian steel makers are facing at the moment.

Ms Edwards : I will talk in relation to the second part of your question which relates to the competitive assistance advances. The bill sets out the full details of the competitive assistance advances, and it is at the discretion of the minister to determine what the conditions of those advances will be. In relation to environmental outcomes under the bill the second part of the scheme will be a self-assessment scheme similar to the automotive transformation scheme. The details of environmental outcomes will be set out in the disallowable instrument which will be formulated in the second part of this year.

Senator MILNE: I was specifically asking about the thinking in relation to the energy efficiency opportunities because, surely, competitiveness into the future for steel depends on them reducing their exposure to carbon liability. If you are not going to deal with energy efficiency opportunities and everything is at the discretion of the minister, what sorts of activities are you envisaging might be paid for which will enhance competitiveness and economic sustainability?

Ms Edwards : As I said before, the bill sets out that it is at the discretion of the minister to determine under what conditions the advances will be made. The advances are an advance of their entitlement on the self-assessment scheme. The way it will work is that, when assistance is made under the self-assessment part of the scheme, any advances made up until that point will be taken off the company's entitlements.

Senator MILNE: I understand all that. What I am trying to get to is the difference in the words that say 'enhance their competitiveness in the longer term' and the activities that might do that, which are separate from just providing cash to tide them over against a high dollar and against higher input costs.

Ms Edwards : I draw your attention to particular wording in the bill which relates to the kinds of things the minister has to take into account in determining an advance. Section 6 of the competitive assistance advances states that the bill provides the minister with the authority to approve a payment of a competitive assistance advance if the minister is satisfied that the advance is necessary to assist the corporation to undertake activities that will significantly enhance competitiveness and economic sustainability in the Australian steel manufacturing industry in a low-carbon economy. The minister does need to take those factors into account in determining what advances will be made.

CHAIR: As we are desperately running out of time, and I actually have not asked the question, I would like to go back very quickly to Joanna's point about small business.

Mrs GASH: I will be very quick. Small business and medium-sized enterprises will certainly feel the full flow-on effect of increases to electricity and so forth. How much compensation have you modelled in for small businesses?

Mr Comley : The first point to make is that many small businesses will actually pass on the costs that they will face. It is not a form of compensation but if you think of one which is not particularly emissions intensive in the broad scheme of things—a dry cleaner et cetera—they face little international competition and they would pass that on.

For most small businesses it would really be their capacity to change prices—fully reflected in why the CPI increases by 0.7 per cent as those businesses pass it on—which is the first port of call. The second port of call is that small to medium-sized enterprises would have access to the industry assistance programs that provide for grant based assistance for people putting in energy efficiency programs. Those programs total about $1.2 billion. I suppose that the other indirect measure is, of course, that many small businesses have a dual identity as both individuals and small businesses, and they would have access to the general compensation arrangements in the package.

Mrs GASH: Do you have any idea how many small businesses you suspect will apply for this funding?

Dr Kennedy : I would just add that there is one additional mechanism that Secretary Comley did not mention, and that is the instant small-business asset write-off from $5,000 to 6½ thousand dollars.

Mrs GASH: Yes, I understand that.

Dr Kennedy : Our Treasury colleagues could talk to that in detail, but that is for small businesses.

CHAIR: But there will actually be no impost on small business to do any paperwork, to undertake any action in relationship to this legislation?

Mr Comley : No. There is not a direct impact. The question I was taking—

CHAIR: No, I know. It is just that it keeps coming up, that the impact on a small business in a paperwork sense will be great. But there will actually be no impost on small business in relation to—

Mrs GASH: Sorry, in addition to that—this was in my question: how much would they have to pay to access the compensation themselves, be that paperwork or expenses? How much do they have to pay themselves?

Mr Comley : If they have to do paperwork to pass on costs to other people where they can, no, that is just a normal pricing decision that they would make in their business.

Mrs GASH: What about financially? Would they have to pay anything in financial costs themselves to access the compensation fund?

Mr Comley : With any government program people have to make a judgement about whether they want to bear their own administrative costs. There is not an admission fee or anything of that type.

Mrs GASH: No, I understand that. I am talking about costs.

Mr Comley : It is just a question of how much time they themselves would take to avail themselves of the assistance.

Dr Kennedy : Talking about the instant asset write-off, that is already available to them. So there is no additional paperwork there, the value will just be increased.

CHAIR: Thank you for your attendance here today. If you have been asked to provide additional material would you please forward it to the secretariat. You will be sent a copy of the transcript of your evidence to which you may make corrections of grammar and fact. As Hansard may wish to check some details concerning your evidence would you please check if editors have questions before you leave.

No one is going to seek to table or make any additional things to make my life a misery, are you? Oh, good, thank you so much.

Resolved (on motion by Mr Smith):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 11:24