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STANDING COMMITTEE ON ECONOMICS
24/03/2009
Exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme

CHAIR —Welcome. Mr Rowley, do you have an opening statement you wish to make?

Mr Rowley —Yes, I do. But first I would like to mention that we will be submitting a written submission to the committee tomorrow, as per the due date. We were grateful for the extension. As many of you will know, Santos is the major producer of natural gas here in Australia for domestic use. We also are a producer of liquid natural gas, through one of our joint ventures up in Darwin. We are looking to further develop the LNG industry here in Australia, particularly up in Queensland, with other investments in this area.

We strongly believe in the issues around climate change and, in particular, around the need for the abatement of greenhouse gases—CO2 and equivalents—but also the need for some form of carbon impost to be put on the economy. Without that impost, we do not see an economic and practical way of limiting the carbon emissions that are occurring. We are also very much believers in a market based solution, a cap in trade system, as per the CPRS that the government has been architecting. We see this as essentially the lowest cost form of abatement practically possible in the current economic environment. We note that the European system is based on the same type of approach and it appears that the Obama administration in the US is also going down a similar route.

One issue we have with the CPRS legislation, one of the key requirements we see of the scheme, is the necessity to allow the cost of carbon to be reflected through the economy and appear in the price of goods and services to the consumer and to businesses. Without that, you will not get a change in behaviour and the choice between low-emission technologies and high-emission technologies. We believe natural gas has a big future to play in a low-emission technology area. We believe that, to some extent, natural gas has been overlooked in a lot of the debate around climate change. We tend to hear about both extremes around coal and around renewables but, once there is a reasonable carbon impost in the economy, we believe that natural gas, particularly for stationary energy generation, can produce a lot of the abatement opportunities required over the next 20 or 30 years to reduce greenhouse gas emissions and therefore climate change. As an example, if you replace one of the coal-fired power stations with gas-fired power, we can produce the same savings, or 80 per cent of the savings, that you would get by retrofitting CCS to those coal-fired power stations. So we believe in low emissions and we believe in a cost for carbon. We also believe that that needs to be reflected through the economy so that people can make a choice towards low-emission technologies—there is a strong pricing signal for that.

So, although we are very supportive of the CPRS and the design of the scheme, our particular issue with the draft legislation at the moment is around the flowthrough of carbon and the cost of carbon through the economy. So, for an industry like us in the gas industry or other fossil fuel producers, there are two types of carbon emissions and therefore costs which have to flow through the economy. The first one is the cost of the carbon as it is emitted when the fuel itself is burnt, and the CPRS and the legislation has a mechanism, known as the OTN—the Obligation Transfer Number—to allow that to pass through the industry. We are very much in favour of that and believe that is a powerful way to ensure that the flow of the carbon cost of those goods and services, particularly electricity, is reflected in the pricing in the economy.

There is another form of emissions that occur in an industry like ours, which is when we actually produce the gas out of the ground. When gas comes out of the ground, typically it is not just pure methane that you burn on your stove, for example. It actually contains CO, which has to be separated and vented, and we will suffer a liability—correctly—for the emissions from those venting operations in our gas fields. Unfortunately, though, as with a lot of capital-intensive industries, we engage in long-term supply contracts with our customers, the retailers and large industrial users of gas in Australia. Those long-term contracts often go back years in terms of when they were signed. The idea of an ETS, or carbon trading system, was not agreed on at that stage, so, unfortunately, in not all but a number of those long-term contracts, the wording is not right to allow the passing of those carbon costs through the system. So we have suggested to the climate change minister and the department the idea of a statutory override to allow that to occur in much the same way as there was a transitional requirement in the case of GST for these long-term contracts to allow the passage of carbon through them.

Fortunately, in our view, the white paper, issued last December, came to a policy position where the government decided to do nothing about this particular issue. The arguments for their reasoning on that were basically threefold. Firstly, they believed that there was a constitutional issue, a legal issue, with introducing statutory override. We have done extensive inquiries on this issue, and we firmly believe there is not a constitutional issue in introducing a statutory override to allow carbon to pass through. Not only is there not an issue with it, but the particular clause in the Constitution, if it were triggered, would not involve the government being liable to compensation, as it is claimed in the white paper—in fact, it would allow the provision to pass through.

So we do not agree with the white paper’s view on there being this legal or constitutional involved. We will supply more details on that in our written submission to you tomorrow. If you want to, we can go into the details, but I am keeping it somewhat broad at the moment. So we do not believe that is an issue.

We also do not agree with the second reason that the white paper suggests as to why this carbon cost pass-through would be difficult to employ for these particular emissions. They believe that it would be ambiguous as to how much the costs are that we pass through for any particular contract to any particular retailer, for example. As you are probably well aware, with the introduction of the national greenhouse emissions reporting standards we now will have very strict standards around the measurement of these emissions. First and foremost, those emissions and reporting will be audited by independent third parties. So we do not see any issue in being able to allocate the costs and being able to, if you like, stand behind what needs to be passed through, just like we do with the lot of other costs that we have to pass through in contracts with joint ventures et cetera.

The third issue that the white paper raised that we disagree with is what we would regard as a somewhat spurious issue that there is a belief that, if we are allowed to pass the costs of carbon through, there is no incentive for us to reduce our emissions. On the surface, it sounds like a reasonable argument. But just digging underneath it, the reality is that it is only some contracts where we have this issue and it is only a transitional issue. In other words, it is only for these contracts that were signed pre-June 2007, when bipartisan support did not exist for an ETS. So there is a natural sunset on this, and it is only some of the contacts. We still have a lot of other short-term contracts where carbon cost will be reflected and it is very much in our incentive to actually reduce emissions for that. Lastly, the whole idea of a CPRS, the whole idea of changing behaviour towards lower emissions technology, is totally reliant on carbon costs being passed through so that consumers and customers see the cost of carbon in the price of their services and goods.

In summary, we do not believe that the white paper position is correct on this. We believe it is a fairly simple insertion in the legislation to change this and allow this to occur. It is only for contracts which were signed prior to June 2007, we believe. It is only for contracts where it is ambiguous as to what should happen with carbon pass-through. Many are not, so it is only those cases. Thirdly, it is only in those cases of contracts for the supply of goods post when the scheme was introduced, because that is when it is affected. That is our key issue and our key position and we have put a simple solution in our written submission to this. It is very much along the lines of what was done in the case of GST. It is a large issue. This is tens or hundreds of millions of dollars in terms of cost not just to us, not just to the gas industry but for others such as coal and other resource-based industries, and fossil fuels in particular.

There is one other issue I would like to discuss with the Senate committee, and that is in relation to the so-called emission-intensive trade-exposed industries, of which the LNG industry would claim it is one. I know there has been a lot of heat and light around this in many hearings and the like. Without talking about the specific issue, I guess our point about the legislation as it is drafted at the moment is that all of the meat around these ET issues is not in the legislation; it is basically being pushed into the regulation, as we understand it. Whilst we agree with the architecture of the scheme, there are some very important details that had to come into that regulation, not just around ET but around the actual cap limits and the actual extent or exposure or breadth of the scheme as well. The regulation is very important and it is going to be very important that we have due process in the formulation of that regulation.

This is not to say that we are not having due process, but there is a lot of hidden light in the air around so-called deadlines for when schemes are introduced et cetera. We believe the issue is not around deadlines. It is around the scheme, and the elements of the regulation are very, very important to get right, because that is really the meat of a lot of what will happen out there in terms of the impacts—and not just in our industry but in others. We would suggest a process like what was gone through with the NGERS, the National Greenhouse and Energy Reporting System, for the development of the regulation there, where due time, consideration and consultation is given to the development of those regulations.

That, in summary, is what we would like to put to the committee. We believe natural gas has a big future in moving to low emission technologies in a carbon impost world, and, as to the CPRS in general, we agree with the architecture of it. There are just a couple of points that we believe we need to clarify and ensure are designed correctly.

CHAIR —Thank you, Mr Rowley. In relation to the long-term contracts, can you advise the total value and number of the contracts, or at least a proportion of contracts that do fall into this pre-2007 area?

Mr Rowley —I do not have the exact number with me, but it is a significant number in terms of value, so it is not so much the number of contracts but the value of the gas that is supplied through those contracts that is significant. For example, from our Cooper Basin operations, at the moment it is probably around a third, but I will need to get back to you on the exact numbers.

Senator FURNER —In that regard, can you tell us when those contracts were negotiated and agreed upon?

Mr Rowley —Many were around 2000 and 2002. They were the time frames when they were agreed upon. They are quite long term. Most expire or come to their natural end, if you like, around 2015 or 2016. What we are proposing in terms of this statutory override would naturally fall away once those contracts expire.

Senator ABETZ —On the proposed statutory override, I assume those contracts are for international supply?

Mr Rowley —No, they are for the domestic supply of gas. They are with retailers or end user customers here in Australia—eastern Australia, principally.

Senator ABETZ —Without trying to put my lawyer’s wig back on, if it is a domestic producer supplying a domestic market, I would have thought that with a statutory override you would not have the issue of where the contract was entered into and which jurisdiction and what law should apply; it would all be within the bounds of Australian law and, if the government were to legislate as you have indicated, that would be possible. Have you obtained a QC’s opinion in relation to this matter of statutory override?

Mr Rowley —We have made a number of inquiries. At the moment we are still looking into that.

Senator ABETZ —Could I put this proposal to you: if you were to obtain an opinion that you were willing to share with us, I for one at least on this committee would be very appreciative of being armed with that legal opinion for the ensuing discussions in the Senate about the issue of statutory override. Whilst I have got the call, can I indicate that your commentary about the need for further investigation of the regulations is a matter that I have been putting to other witnesses. You have obviated the need for me to ask any questions in relation to that.

CHAIR —Yes, the committee would be happy to accept any supplementary submissions even after you have put in your report, if that opinion becomes available.

Senator EGGLESTON —I would like to ask you a general question. You support the CPRS, which is a cap on trade system, but some people criticise it on the ground that you pay for emissions and can purchase credits from, say, Indonesia, where there might be a forest and other options like that, and that in fact overall it does really very little to reduce carbon emissions in the world because emissions here remain much the same and nothing is done about the Indonesian emissions in that example I gave you. What do you say to that kind of criticism about the cap on trade system?

Mr Rowley —There is a lot of criticism in the market around CDMs and CERs in general. I guess the whole point is that it is a global issue and so a global solution is going to be required. We are supportive of the idea of using CDMs as a bridge to that. Ultimately, the systems should all be linked around the world to enable that to happen. We believe in a market based system. We believe the market can work in this environment. In short, we are supportive of the CDMs and CER mechanisms and the ability to surrender those into Australian emission units. We believe it provides more liquidity into the market and is a good balance on price fluctuations in the emissions.

Senator EGGLESTON —Nobody disagrees that a global system is a great ideal, but many people think it will be a long time before it is implemented because the kind of countries we are dealing with, like Indonesia, India and Malaysia, are not going to have emissions trading schemes in the foreseeable future. So, whilst it is an ideal, it is not necessarily a very practical basis upon which to work. Some people have suggested that, in fact, a carbon tax would be a better approach and say that a carbon tax is preferable to a carbon trading system because it is more efficient, effective, simple, flexible, transparent and, more importantly, has the added benefit of providing revenue which could be used to cut other taxes, including domestic taxes. A revenue neutral carbon tax may have little or no economic cost to us in Australia. Economic cost is a big issue because it may translate into loss of jobs and have an adverse effect on our economy. What do you say to that?

Mr Rowley —The point I would like to make is that, whether the carbon impost is put in via a cap and trade scheme or a carbon tax, the reality is that around things like passing that cost through to prices in goods and the issues around trading with the rest of the world are the same. They are the same issues. You either have to give some relief on tax or you just have to put in mechanisms to allow that tax to through flow through the system. In our view, it actually does not change some of the key issues that we are facing with the introduction of the CPRS. The other argument that people use is that a carbon tax is more certain in terms of price versus a cap and trade scheme, but the reality is that putting capital in an industry like we are in—like putting in a power station like we are doing down in Victoria; gas fired power generation—is a 20- to 30-year investment. A carbon tax is not going to be certain over 20 to 30 years. It might be certain for five years, but that is not going to help us in terms of a 20- or 30-year payback on our investment. So we do not see what advantage there would be in having a carbon tax versus a cap and trade scheme. That is just our view.

Senator EGGLESTON —Yesterday the Griffin Company in Western Australia expressed great concern about the modelling that had been done concerning coal powered electricity stations versus gas. They thought that gas was disadvantaged under the model. Do you have a view on that?

Mr Rowley —Which modelling was that?

Senator EGGLESTON —In Western Australia the electricity system is largely based on gas. Griffin was of the view that the government’s model was based on coal, which has a higher output of carbon than gas, and that gas was thereby disadvantaged. Do you share their concerns?

Mr Rowley —We share some of the concerns around the Treasury modelling of the amount of coal fired power generation that will exist into the future. I think a lot of the uncertainty in that is around the assumptions in the modelling, particularly around the cost of carbon capture and storage, as we see it. We all have different views on what it costs to do that. I guess that is where the key variable occurs: how much you think gas versus coal versus renewables will come into the power generation mix.

We do have a reasonable amount of experience in carbon capture and storage. We are the largest carbon capturer in Australia at the moment, so far as I am aware. We captured about a million tonnes of CO at Moomba, when we separated that CO from the stream of sales gas. We have our own views on the costs of capturing carbon and also for storing gas on the ground. It is very dependent on geology and where the operations occur. We would share some of Griffin’s concerns around that.

Senator JOYCE —Carbon sequestration, to the best of my knowledge, has not occurred anywhere yet, has it?

Mr Rowley —Certainly not on a commercial basis, but it is certainly occurring, particularly in the North Sea. The Norwegians are doing that—I cannot pronounce the field—

Ms Smith —Sleipner.

Mr Rowley —that is the one; thank you very much—but that is due to large incentives, or should I say disincentives, from the government for venting CO. Again, it is from the gas that has come out of the North Sea that they are basically reinjecting into aquifers.

Senator JOYCE —Is it commercially viable? Anything is possible, but is this commercially viable?

Mr Rowley —Our view is that you would need a carbon cost north of $100 a tonne to make it viable.

Senator JOYCE —What happens to the Australian economy?

Mr Rowley —I guess if you look at the Treasury modelling, I would say it is a one or two per cent impact on GDP at that stage. It is not necessarily just how much, but when that occurs—and they are agreeing back in the 2020s.

Senator CAMERON —The issue of government intervention in commercial contracts is quite a serious proposition. I am not sure that governments have intervened as a matter of course in contractual obligations. Why should we intervene now?

Mr Rowley —I put it to you that the whole introduction of a scheme, such as the CPRS, is actually an intervention into the obligations that parties have in a contract. You are right; it is not to be done lightly, absolutely. It is to be done with due consideration. This is not a position that we come to lightly. But if we are looking at a scheme—to be honest, it does not matter whether it is a carbon tax or a cap and trade system—it will only work if the cost of carbon flows through and is reflected in the price to the end user. It is a fairly simple solution we are offering. It is with precedent. We believe it is, therefore, lower risk and we believe it is fair. It is only in the case when the meaning is ambiguous as to what should happen with carbon costs passed through the operators.

Senator JOYCE —To not interfere in the market, Mr Rowley, as proposed by Senator Cameron, do you believe that would be espousing—

Senator CAMERON —That is not—

Senator JOYCE —a neoliberal view of economics? Or do you think that would be espousing an interventionist view on economics?

CHAIR —Senator Joyce, that is getting into an area beyond our inquiry.

Senator CAMERON —Barnaby, your behaviour has been pretty good so far; let us keep it that way. Apart from that proposition, you are generally supportive of the broad architecture of the scheme and the government’s position. That seems to be at odds with some of the other minerals producers and gas producers that we have had before us. It seems to me they are taking a very short-term approach on this. Why is Santos taking a different view?

Mr Rowley —I cannot comment on others and where they are at. Our view is firmly that we believe there is enormous opportunity for gas, as a low emission technology, to replace a lot of the high emission technologies out there—gas-fired power generation in particular. But that will not happen unless we have some form of carbon impost instituted. We just cannot compete, particularly with black coal fire power generation, for base load power. Enlightened self interest is one way of saying it. We believe our product is right for the times and is right for the environment of a low in carbon economy. That is the basic reason why we have the view that we have, aside from our own personal views on greenhouse gases and climate change in general.

Senator CAMERON —What is the employment creation which you would estimate from expansion of your business as a result of this scheme?

Mr Rowley —For example, what we are seeing up in Queensland at the moment with the LNG projects: we have put on 300 people in the past nine months in the projects up there. We also think there is a very good opportunity for coal seam gas in New South Wales, not so much for LNG, but for gas-fired power generation for the domestic market as well. So there are thousands of direct jobs, but then obviously there is an indirect flow-on in developing this resource, not only to meet our domestic carbon abatement needs in lowering emissions and for power generation, but also to help overseas in LNG production as well.

Senator CAMERON —Do you believe that this scheme has to have an international linkage, that we must engage with the rest of the world in carbon pollution reduction?

Mr Rowley —It is somewhat speculative, but from Santos’s point of view it is a global problem; it has to be in some way linked with the international markets. As many have said, if we solve our emission issues here in Australia, it does not mean anything in terms of climate change unless the whole world comes on board. But Santos believes in this country taking a lead in this matter, and the linkage internationally will be very important because that is how you get the lowest cost abatement. At the end of the day, the goal is reducing emissions—not enhancing gas, not promoting renewables, it is reducing emissions. And if we can do it at the lowest cost, we can afford more reductions in those emissions. Whether that is here in Melbourne or whether it is in Shanghai, ultimately it does not actually matter. But at the moment, we can only affect what is here in Australia. We have to start somewhere.

Senator XENOPHON —You said that Europe has had a scheme for some time now and that there is a need for certainty. From your industry’s point of view, you need to have some certainty but a carbon tax may not provide that certainty. Does that accurately represent your position?

Mr Rowley —Not quite, I guess is the short answer. What we are saying is that business love certainty, that is a sure, but it is certainty around the process and the environment basically of what we are operating in. We are not saying that we have to know the exact price of carbon now and into the next 10 years. We are used to dealing with uncertainty. When we put in a gas-fired power generation plant, we do not know what the future cost of gas is going to be, we do not know what the future cost of capital is going to be either over the 10 to 20 years of its life. We certainly do not know what the electricity price is going to be. This is just one more uncertainty that we can manage as long as we know the rules around them.

Senator XENOPHON —You made reference to Europe. The price of permits in Europe has collapsed in recent times. It does not provide any price signal for cleaner energy. How would we avoid that sort of situation occurring here in Australia?

Mr Rowley —Maybe this is not answering you directly, but hopefully it is. The price of oil has collapsed incredibly in the past six months. We handle that as an industry. We handle variations in the price of commodities and items all of the time. So when we are making our investment decisions, we are making them over 20- to 30-year horizons, whether it be development of an offshore gas field or development of a gas-fired power generation plant. We have the tools and skills and technology to take into account those uncertainties, so it is not an unusual thing.

Senator XENOPHON —The European scheme does not give any incentives now to go green because of the collapse in the permit prices. With the current design of this scheme, can you see that it is possible to have that sort of problem occurring here?

Mr Rowley —Look, obviously there is always going to be ups and downs in a market-based mechanism, but I would take issue with you saying there is no incentive for greens in Europe. When I last looked, a day or two ago, the price of carbon was around A$21 in Europe. It has been lower previously, absolutely. Around $21 is the entry price people are predicting for the 2010 launch of the scheme here in Australia. That makes us viable in terms of gas-fired power generation versus coal-fired power generation for base load. It is still a signal for low emission technologies. It may vary from time to time, be stronger and weaker, but in the long term, which is what people do these investment decisions over, it is still a strong signal.

Senator FURNER —Can I just take you back to the preliminary answer you gave me about when you negotiated those preliminary contracts and agreed upon them in 2002. At that stage, the previous government had issued discussion papers on an ETS. Didn’t you consider at that point in time that it was appropriate to consider a carbon pass-through appropriate clause to go in those contracts?

Mr Rowley —In many contracts, that is exactly what happened, but in some of them the wording is not quite—it is really a legal technical issue in many of them that things were mentioned, such as carbon tax, fees, charges or levies. There is still a legal exposure that that does not cover in those contracts from a legal point of view, we are told.

Senator JOYCE —I have two questions. In the first question, Mr Rowley, I want to take you back to your comment about international carbon trading and the fact that that mechanism is not truly available here if you want to trade with China or something like that. From your knowledge of this system, will the Australian scheme actually have any effect in any sustainable or evident way on global climate?

Mr Rowley —If you are restricting it just to the Australian scheme, no.

Senator JOYCE —I am restricting it just to the Australian scheme.

Mr Rowley —No, it will not.

Senator JOYCE —My second question is this: if there were an alternate scheme and it was proposed to you that you could just get a 150 per cent tax deduction for capital investment upfront that reduces carbon emissions through some defined way, would that be of interest to you in such a way that you would—

Senator CAMERON —New policy on the run!

Senator JOYCE —Madam Chair, you have to let me now interfere with Senator Cameron’s line of questioning; okay? Is that fair enough?

CHAIR —Maybe! Go ahead, Senator Joyce.

Senator CAMERON —That makes us even!

Senator JOYCE —Would that be something where you would inevitably invest in avenues that would reduce carbon without having any real flow-on effects to the consumer?

Mr Rowley —We are always interested in proposals around this, so we would be—

Senator JOYCE —There is a 150 per cent investment allowance, or there has been in the past. Why couldn’t we just encapsulate a policy that we already have down there to incorporate carbon emissions?

Mr Rowley —It is hard to comment specifically on this without a detailed proposal, but I understand where you are coming from in trying to alter at the input side, so to speak, in terms of the investment side, and steer it towards low-emission technologies, which I think is what you are saying. I guess our only fear on that is just how efficient that will be. We do not have a firm view, so I am just telling you what I think right now. But it is just how efficient that will be and how open it might be to vested interests one way or the other in terms of pushing what is included and what is not included, in terms of who gets the investment allowance and the like.

Senator JOYCE —What we have here is a permit scheme, isn’t it—a permit that can be traded on a market? Would that be a fair call? Santos is a publicly listed company. What is roughly the commission that you know is on share transactions? Is it about 1½ per cent?

Mr Rowley —I do not know, sorry.

Senator JOYCE —It is about 1½ per cent. If we had the capacity to churn these permits and I were in a position to collect a commission on it, I would have a vested interest in getting this scheme to go forward, not because it is going to improve the climate of the globe but because it is going to absolutely increase my propensity to earn an income from trading.

Mr Rowley —Yes.

Senator PRATT —I am interested in your position on the time line for the introduction of the scheme. The government has set out a very clear time line for its introduction. Is that something you are supportive of?

Mr Rowley —The issue is the time line, but the issue is not so much when the scheme is introduced. We believe it is a question of design as opposed to deadline. We need to get the design right. I come back to the point I made about the ET industries in getting that regulation right. There needs to be a correct process, a thorough process, to develop all that, because that is where all of the meat, so to speak, of the CPRS will be put. We have no problem with the 2010 deadline as long as it allows time for the regulations to be developed properly.

Senator PRATT —Those issues may or may not fall your way; I cannot speculate on that—we are here to listen to you. In regard to the time line, what are the implications for investment decisions, particularly in this kind of economic climate, of too much delay in getting a scheme up and running?

Mr Rowley —I think there are three things. One is the delay in deciding what the scheme is, and another is the delay in the details around the scheme. Another is the delay of the implementation of the scheme. I think it is very important to have the first to make sure that there is some certainty about what the ground rules are going to be. Secondly, as I said, really the deadline as to when it is introduced should just depend on getting those design rules right. It is important to have certainty for business decisions, investment decisions, around what the ground rules are. That is the key point we would like to make about that.

Senator PRATT —Is it in our interest to get those ground rules right as quickly as possible? We are in the middle of a global economic downturn. We are all hoping that that is going to pick up sooner rather than later, but, if there is uncertainty that remains in what this scheme is going to look like, surely that means that companies will be delaying investment decisions and in turn that will slow down our economic upturn.

Mr Rowley —The uncertainty will impede the investment decisions. I think there is no doubt about that. One point we would make is that we believe a well-designed market based mechanism should be able to handle economic downturns. If it does not, we have a real problem in this. You cannot just pull the scheme once we have a downturn in the future. That is one of the attractions we see of a market based mechanism: when there is a downturn and demand falls down, emissions tend to reduce and the price will come down as well, so there are some checks and balances in a market based mechanism which we find attractive. As I say, it is important to get the design right—not necessarily to be as focused on the deadline but to get the design buttoned down basically as quickly as possible—and then people can go on and make decisions about investments.

Senator JOYCE —Mr Rowley, this whole scheme has been proposed by a government that is giving a warrant that the efficacy behind it is to reduce carbon emissions, which we hope in the long term, if it were incorporated in some magnificent form, would reduce the temperature of the globe. With information yet to come to light that we do not know, if there were a minuscule chance that they were wrong, is there anything in the scheme that you have observed such that they would refund your money after you have bought these permits?

Mr Rowley —Not that I am aware of.

Senator JOYCE —Do you think it is peculiar that anybody would sell a product such that, if it did not work, they would not send you back your money?

Mr Rowley —That is an interesting question. I am not sure. I am not sure that you could count this as a product, but is an interesting point of view.

Senator JOYCE —How would you go if you sold gas to someone and it did not actually light up? Do you reckon they would ask for their money back?

Mr Rowley —They certainly would—and a make-good provision as well.

CHAIR —I believe Senator Xenophon has a question on notice.

Senator XENOPHON —There had been discussion about the Moomba site in South Australia being a likely location for a major geosequestration facility, but earlier there this month there were reports that you had suspended the project. Can you give the reasons for that?

Mr Rowley —It is not actually suspended as such; we are reviewing the project at the moment.

Senator XENOPHON —Can I follow that up, Chair?

CHAIR —Go ahead if you want to follow that up.

Senator XENOPHON —Do you have time?

Mr Rowley —That project is under review at the moment. As I think I alluded to—for those who may not be aware of it—we are taking this million tonnes of CO2 that is emitted from Moomba and the idea is to sequester it underground. We are finding that the costs of doing that are very high. That is why it is in review at the moment.

Senator XENOPHON —Higher than anticipated previously?

Mr Rowley —Higher than what we anticipated. So it is in review at the moment. We will land on a point very soon on that, but the costs are high for sequestration in this particular geology under these particular circumstances at the moment.

Senator XENOPHON —So it may not go ahead.

Mr Rowley —Correct.

CHAIR —Thank you to everyone from Santos for coming in today.

[11.46 am]