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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. Do you have an opening statement you wish to make?

Mr Pascoe —Thank you; that would be fantastic. Thank you very much for your time today. I will start by reading a brief statement. For background information, I am sure you all have heard of the Australian Conservation Foundation before. Our aim is to inspire people to achieve a healthy environment for all Australians. We have been operating in Australia for over 40 years. We were established in 1966 with Sir Garfield Barwick as our first president. We continue to work with the community, business and government to protect, restore and sustain our environment, and our supporters number over 30,000. We have been campaigning to prevent dangerous climate change for over 10 years. One of our most successful projects has been through Al Gore’s Climate Project in Australia, in which we have trained 250 people to give the presentation that Al Gore gives in the movie An Inconvenient Truth. At the end of 2008 we were pleased to announce that we had reached over one in 100 Australians through those presentations.

Over recent years we have been campaigning to increase the use of renewable energy, to help households reduce their carbon footprint and for the introduction of an environmentally effective emissions trading scheme. The Carbon Pollution Reduction Scheme as outlined in the white paper and to be implemented through legislation does not constitute an environmentally effective emissions trading scheme, and we do not support the introduction of the scheme as it currently stands. It is in Australia’s national interest to act early and strongly to tackle climate change. Australia’s best climate scientists warn that, if effective global action to achieve deep cuts in greenhouse gas emissions does not begin in the near future, Australia will see a future of dramatically increased days of extreme bushfire and heatwave stress, more severe and regular droughts in southern Australia, more destructive cyclones and risk of mosquito-borne diseases in the north and devastating damage to the Great Barrier Reef and many of our other natural icons which the Australian Conservation Foundation has been campaigning to protect.

The recent bushfires—and this is particularly relevant as we are in Victoria today—and the heatwave disaster we have seen in Australia are a foretaste of a much worse future if we do not act now. A recent joint CSIRO and Bureau of Meteorology study on the impacts of climate change found that parts of Victoria will face up to 65 per cent more days of extreme fire risk by 2020 and 230 per cent more by mid-century.

There are four key problems that we hope to outline today to the committee and that we will put in writing through the submission process. Our primary concern with the Carbon Pollution Reduction Scheme and the exposure draft legislation are the weak targets that have been set to cut Australia’s carbon emissions by the year 2020. The weak targets proposed of five to 15 per cent if adopted globally would condemn Australia to a future of dangerous climate change. The Australian Conservation Foundation advocates for a target of at least 30 per cent and moving to 40 per cent in the context of an international agreement.

The government’s proposed target of 15 per cent in the context of an international agreement is not consistent with the Prime Minister’s statement that the government accepts the findings of the Garnaut climate change review and in particular that it is in Australia’s national interests to see atmospheric levels of greenhouse gases constrained to 450 parts per million or lower by mid-century. The Garnaut review and modelling equate Australia’s full and fair share of a global outcome of 450 ppm or lower as an Australian target to reduce emissions by 25 per cent or more. That is the key issue that we needed to raise with this legislation. We believe this legislation can be fixed to be able to implement targets that are more aligned with the science.

Another issue that we will be raising in our submission is the locking in of pollution overallocation through the excessive provision of free permits. The excessive handouts can also entrench a high-carbon economy and weaken our transition to a low-carbon future. Finally, there is the lack of support for renewable energy, energy efficiency, healthy ecosystems and voluntary and additional action by Australian households. I will ask Simon to make a quick statement in response to some of the issues that were raised by the Energy Supply Association of Australia in an earlier hearing.

Mr O’Connor —I thought it might be worth putting forward to the committee some information. A question was put to the ESAA on the number of coal-fired plants that had been commissioned in the last decade. Our information is that there have been a total of seven plants in the last 10 years, out of a total of 31 plants around Australia. That comes back to the discussion on the capital requirements of the coal-fired power sector in Australia. I am happy to comment a little more on that as we go through some of the questioning.

That says that approximately 80 per cent of the energy supply sector and the coal power sector long in advance had warning of a carbon pollution reduction scheme, emissions trading scheme or a price on carbon that was imminent in regulation. The first indication of that was probably in 1992 when Australia signed onto the UN Framework Convention on Climate Change, which committed Australia primarily to avoid dangerous climate change. The energy supply sectors had advanced warning to prepare themselves, adjust their balance sheets and prepare for correct asset valuations as there has been a long lead time for that industry.

CHAIR —You had three reasons why you are unhappy with the legislation. One was the targets, another was the excessive use of free permits and the third was lack of support for renewables, reduction in household consumption et cetera. Was there another one that you said before?

—Yes. Two of those headings are fairly similar, but there are a couple of different issues discussed there. One issue that needs to be raised is that, through the white paper proposal to increase Australia’s emissions targets for 2020, the only mechanism available to the current government or a future government is to purchase international permits. To move to something in closer alignment with the science, we would be looking at a bill of around $3 billion per year in international permits to go from a 15 per cent target to a 25 per cent target, for example. That is how the proposals can actually lock in that pollution overallocation. A slightly separate issue there but one with a similar heading is that $9 billion in handouts is being given to the emissions intensive industries and the coal-fired sector out to 2012. The big issue for us is the opportunity cost. The $9 billion has a massive potential to invest in the low-carbon economy and in green jobs in Australia. We would see that as a much more productive use of those funds.

CHAIR —You have not identified any problem with the particular type of system proposed—the cap and trade and the market based system? Is that right?

Mr Pascoe —That is right. We would see the emissions trading scheme as the most effective regulatory mechanism currently available; it is more effective than a carbon tax in that it allows us to set a limit on greenhouse gas pollution rather than to set a price with uncertain environmental outcomes. So we have been big supporters of an emissions trading scheme. We have done a lot of work with our members and other organisations to build support for emissions trading to be introduced in Australia, and we are profoundly disappointed that we now have a system that is not able to deliver in the short term or the long term.

CHAIR —To clarify: you were talking about a target of greater than 30 per cent. Is that from the year 2000, as is the current five per cent to 15 per cent?

Mr Pascoe —We refer to 1990 as the internationally more accepted baseline through the Kyoto protocol. However, we are aware that emissions in Australia in 1990 and 2000 are rather similar, although different across sectors.

Senator JOYCE —I will be upfront, Mr Pascoe. I would say that you and I have different views overall, but one thing we do agree on is that we are not happy with the current scheme. That would be a fair call, wouldn’t it?

Mr Pascoe —Yes.

Senator JOYCE —Your view can basically be encapsulated by this example: if the house is on fire, this scheme is like a dripper-hose through the house; it is not actually going to put out the fire. That being the case, are you more likely to support or not support the scheme?

Mr Pascoe —We will not be supporting the scheme unless there are major changes. Our position is that we do not support the scheme as it is currently proposed, but we do think there are really good opportunities to fix it and that those opportunities should be taken this year. We do not have time for delay. Every year of slowing action locks in a worse future for dangerous climate change. We do not support the scheme as it currently stands; we would like to see it fixed.

Senator JOYCE —Although the Australian Conservation Foundation does not hold my views; nonetheless, it is a respectable foundation. You would be making the recommendation to the Senate not to support the scheme?

Mr Pascoe —Yes, as it is currently proposed. Also, we need to look at what the issues are in regard to the policy and the legislation. As it is currently proposed in the white paper and implemented by the exposure draft legislation, we are recommending that it not be supported unless there are some major changes. The key change is the target range. There has been some discussion in media reports about different advice from legal circles on whether the legislation actually constrains action out to 2020 with that five to 15 per cent target range. That is a really crucial issue. We have been advised by the department of climate change that the intention of the legislation is not to provide the minister with flexibility to examine those issues in coming years, or potentially to re-examine the science or to move in regard to what is happening internationally with negotiations, technology and climate science but rather to constrain action to that five to 15 per cent target range out to 2020.

Senator JOYCE —What would be required to take you out to where you want to be at 30 to 40 per cent? Let us be honest here: do you see a future for a coal industry in Australia when you talk about 30 to 40 per cent carbon reductions?

Mr Pascoe —We would not see a role for further coal-fired power generators in the different segments of the coal industry in Australia. We would see a role for gas-fired generation in the medium term, but we need to aim for a future where we are getting closer and closer to being completely powered by renewable energy and moving to some of the emerging technologies like solar thermal and geothermal.

Senator JOYCE —Can I go through one of those: geothermal. Are you talking about hot rocks?

Mr Pascoe —Yes, that is right.

Senator JOYCE —What makes the rocks hot?

Mr Pascoe —I understand it is radioactivity.

Senator JOYCE —So it is a form of natural nuclear power, basically?

Mr Pascoe —It could be thought of in those sorts of terms. It is obviously very different from, for example, mining uranium, processing uranium, enriching uranium and building nuclear power stations.

Senator JOYCE —It is a latent heat from the degradation of granitic material that produces the heat. Do you support nuclear power and, if not, why not?

Mr Pascoe —We do not support nuclear power in Australia. We see the nuclear life cycle as far too dangerous and something in which Australia should not be involved in terms of the potential environmental outcomes of nuclear power, contamination and pollution and in terms of nuclear proliferation.

Senator JOYCE —That is a fair call. Do you support the exporting of uranium?

CHAIR —Senator Joyce—

Senator JOYCE —Chair, I am getting there; give me a chance.

CHAIR —Very slowly, Senator Joyce.

Senator JOYCE —Do you support the exporting of uranium?

Mr Pascoe —No, we do not support the exporting of uranium.

Senator JOYCE —Do you support the exporting of coal?

Mr Pascoe —We are not black and white opposed to the exporting of coal.

CHAIR —Senator Joyce, we are discussing the legislation.

Senator JOYCE —I am talking about that. Since you support the exporting of coal and the 30 to 40 per cent reduction, aren’t we just moving the carbon problem to a place where we have no control over it?

Mr Pascoe —That goes to the issue of carbon leakage. I think the issue of carbon leakage has been overstated in this debate. I am yet to see any really good evidence that there will be carbon leakage in Australia. The evidence from the EU is that any form of carbon leakage is undetectable or very close to being undetectable. We are hearing predictions of different industry groups saying, ‘Yes, we’ll move offshore.’ But when you look at the factors involved in a decision to move a large facility, climate change regulation would be a very small factor in such a decision.

Senator JOYCE —If I were to show you an example of carbon leakage, which might be 40 ships parked off Hay Point, Mackay, wouldn’t that be an extremely good example of carbon leakage? I am glad that they are there; otherwise, we would all be stone motherless broke. Wouldn’t a classic example of carbon leakage be one where we put the coal—little black rocks of carbon—into the boats and send them over to China, and then they stick it back up into the atmosphere?

Mr Pascoe —You are right that, without an effective international agreement, we cannot get to the climate change outcomes for avoiding dangerous climate change.

Senator JOYCE —Do you acknowledge that, with current five per cent reduction of 1½ per cent of global emissions and your talk of three to four per cent anthropogenic carbon, Australia’s scheme is going to have absolutely zero effect on the global climate?

Mr Pascoe —The effect that our policy will have is that Australia can support a strong international agreement that leads to the outcomes that we need to see to protect the Great Barrier Reef and the Murray-Darling Basin. When we go to Copenhagen in 2009, we do not want to say, ‘We’re going to hold back action and only act if other countries do.’ We need to go there and say, ‘We’re willing to put our cards on the table and do what is necessary, and we want to bring other countries along with us and encourage other countries to act.’

Senator JOYCE —Do you sincerely believe that Wen Jiabao, Obama or Dimitri Medvedev really care about Australia’s position on carbon emissions?

Mr Pascoe —I think Australia has shown through the Kyoto negotiations that our position on climate change actually held back action. It gave excuses for other countries not to act. At one point, we were the only country standing there alongside George W Bush saying, ‘The Kyoto protocol isn’t the way to go.’ That was effectively helping to hold back action. This is in Australia’s national interests. We would like to see the government arguing for Australia’s national interests and doing everything within its power to encourage other countries to act.

Senator XENOPHON —The CPRS is a means to an end, isn’t it, in terms of reducing greenhouse gases? If there were an alternative approach that would lead to deeper cuts and could be shown not to have the same economic impact—you are worried about the reduction in greenhouse gases; you are not particularly wedded to this model, are you?

Mr Pascoe —It is fair to say that our policy is about the environmental outcome, and we think this is the best regulatory mechanism that is available at the moment. But we would certainly be open to a policy that would see deeper and quicker cuts in carbon emissions.

Senator XENOPHON —And it is not inconsistent in terms of the work that the ACF has done to have a parallel approach as an addition to, say, an emissions trading scheme to get the low-hanging fruit in terms of energy abatement. Is that something you have considered? I am not endorsing the opposition leader’s policy but he did talk about the issue of biochar and using agriculture as a way of soaking up carbon. Is that the sort of thing you have considered as well?

Mr Pascoe —Absolutely. In the debate in Australia we have really seen the emissions trading scheme being proposed as an overarching framework that will capture everything and the only thing we will do on climate change.

Senator XENOPHON —Is that a false construct?

Mr Pascoe —Absolutely. When you look at the way other countries are acting—areas of California, for example—the emissions trading scheme is seen more as the cherry on top of a suite of policies. You do need an overarching price on carbon—that is very important. However, there is a lot of low-hanging fruit that can be picked up, particularly in energy efficiency. It is not just from an environmental perspective but from the perspective of increasing Australia’s energy productivity and leading to benefits to our economy and employment through policies that improve our outcomes for carbon and energy use.

Senator XENOPHON —So you are open to alternative methods of getting a better outcome?

Mr Pascoe —Absolutely. Certainly you would need to assess the package of measures that are put together. We certainly welcome the discussion on biochar and reafforestation but we would really need to see more detail in order to assess whether that is going to be effective. I might just highlight one of the issues that we do have with the white paper—that is, the way the caps and targets are set is such that it is all thrown into the one bundle, so even if Australia were to develop a really strong biochar or reafforestation policy that still would not lead to increases in our national targets beyond the five to 15 per cent range.

Senator XENOPHON —You are picking up the criticism of Richard Dennis of the Australia Institute, aren’t you?

Mr Pascoe —Partly, yes. He has been talking a lot about household action and state level action and noting that it also applies to reafforestation and the agricultural sector.

Senator XENOPHON —The front page of yesterday’s Age newspaper made a similar criticism. I think they received some information from the Victorian government that no matter what is done at an individual level it will not make any difference. Is that a scheme design flaw that you are particularly concerned about?

Mr Pascoe —Absolutely. We would certainly agree with that assessment. We really need to see a transparent, fully accounted for mechanism that would see those sorts of voluntary actions that state governments, local governments and companies going carbon neutral—people who want to contribute to this problem must be provided with a mechanism by which they can do so in a transparent manner and for that not to be left up to the minister’s discretion, which it is in the white paper caps and target-setting process.

CHAIR —You were saying before that you do not support this legislation. Other people who have appeared before this inquiry do not support it for other reasons. Assuming that this legislation does fail to get through, is that how you see the country going? Is it through individual households and state and local government being persuaded to reduce carbon—

Mr Pascoe —Absolutely not. We do need an overarching regulatory framework on climate change, but we need one that does not lock us into failure, or that is designed for failure, and for no improvements to be made after 2020. I do not want to hypothecate here but I want to say that if this legislation is not passed this year we would like to see an amended piece of legislation passed in the second half of this year or the first half of next year. We would want to see it—

CHAIR —I do not think you have much chance of that.

Senator PRATT —You have said that every year delay further contributes to climate change. What if the alternative to passing this scheme is to have no scheme in the foreseeable future?

Mr Pascoe —It certainly would be a bad outcome. That is not to say that we do not want to act on climate change or to hold off action on climate change; we need to come up with a better solution and we need to do it fast. I am repeating myself here, and I apologise for that, but if we do not go to the Copenhagen meeting in 2009 with a strong position on climate change then we are really waving the white flag on seeing a global outcome which is in line with what the government has said its policy is, which is to hold greenhouse gas concentrations at 450 ppm or below.

Senator PRATT —If we cannot make progress at a national level here towards a scheme in the near future, surely we will not be doing our bit to help create a global agreement. So, in failing to get a scheme up now, which could possibly happen if we cannot get a mandate to get it through the Senate, we will be undermining international efforts for an agreement, surely?

Mr Pascoe —If there were a very negative outcome then, yes, we could be. However, we do not see this as a like-it-or-lump-it situation. We look forward to the parliamentary debate in the Senate on this, and we hope that improvements can be made.

Senator PRATT —You have done a lot of work as a campaign organisation building up community support for as robust a scheme as possible but, clearly, it is difficult to create community consensus across a diverse range of issues. Do you recognise that government ultimately is only going to be able to go as far as it has an electoral mandate to go and that, in partnership, we have to educate the community to enable us to take this as far as possible?

Mr Pascoe —Absolutely. We do need to see more of a consensus across the community. The interpretation of the electoral mandate is obviously one that can be widely discussed, but my understanding is that there was a commitment to bring the Garnaut review in and to have an evidence based examination of what we need to do on climate change policy. Professor Garnaut’s key recommendation is that we needed to say that we were willing to go to a 25 per cent reduction in greenhouse gas emissions by the year 2020 and that we would be willing to do that as part of an international agreement. We are implementing that recommendation.

Senator PRATT —Clearly the government has to put in place a scheme that transitions the economy in a responsible manner, particularly in the light of the global financial crisis. Surely the government has to work hard to get that balance right and that is what it is seeking to do at this point in time. Do you acknowledge that?

Mr Pascoe —The issue of balance is one that is hard to reconcile with climate change science—to say that we can just do a little bit because we have a global financial crisis. Professor Garnaut has highlighted that emissions might be slowing slightly, ever so slightly. They are still on a path towards really dangerous climate change—towards complete loss of Arctic sea ice and towards the destruction of the Great Barrier Reef by the middle of the century. To tell our grandchildren that we did not act on climate change because we were concerned about balance and a global financial crisis is not an argument they would be prepared to accept.

Mr O’Connor —In addition to that, our belief is that a lot of the economic costs of climate change and this legislation have been well and truly overblown, particularly by a lot of the corporations that have come out loudly seeking compensation. The evidence that they are producing does not seem to correlate with the evidence of a lot of financial analysts who are currently assessing these companies and the potential impact of a carbon price on the EBITDAR or the earnings or the revenue of these companies. This has happened on numerous occasions, whether it be Woodside or, more recently, Xstrata.

I think what we continue to miss out on in this debate is not that we have a potential huge cost impact but that there is a massive opportunity side impact. Something holding this whole system back even further means that we have less of a chance to capitalise on this opportunity. To date, the evidence does not support that jobs will lost. To date, the evidence that we have is that tough environmental policies have stimulated a lot of green jobs and a lot of new green innovation, and that evidence comes from Germany, the UK and CSIRO’s own reports. There is a lot of data to support that in fact the outcome has been jobs creation. CSIRO’s analysis out to 2030 indicates that even in those extractive industries—the high environmental intensity industries—there is still jobs growth under a zero carbon protection.

Senator PRATT —If we delay introducing this scheme in the current financial environment, surely we are going to deny certainty to business in a way that might actually slow it and prevent the economic pick-up because there will be existing uncertainty as we need to get—

Mr O’Connor —Absolutely. It seems to only exacerbate that uncertainty. We have energy companies such as AGL saying, ‘Get this legislation through; we need that certainty’. So in fact the calls to put off legislation are quite incongruous with what some of the companies are calling for themselves. In fact, we have Germany saying that part of their stimulus out of this recession will be investment in the green economy, green jobs, and that that will actually draw them through this recession and lead to less of a negative impact on their growth over this year and next. So, absolutely, I think it is a really important thing to focus on.

Senator EGGLESTON —You said that one of the reasons you do not support this scheme is because it really does not produce the outcomes we would like in terms of contributing to the reduction of carbon around the world. I suppose part of that is the inherent trading of credits—people will pay for a credit and trade it off with buying some counterbalancing whatnot somewhere overseas and that does not reduce emissions either in Australia or in the place that the credit is purchased from. What about a carbon tax? Some see a carbon tax as a better global aspiration than emissions trading because a tax or agreement on an internationally harmonised price to apply domestic permit trading schemes would avoid both the questions of distribution between countries inherent in a cap in trade system and the potentially destabilising effects of large-scale international flows. What is your view about a carbon tax in terms of achieving the goals which we would all like to see?

Mr Pascoe —In an Australian context or an individual country context we would much prefer an emissions trading scheme. The basics there are that an emission trading scheme allows us to set the cap on greenhouse pollution, and to achieve that cap with a tax, that is the price, and we have to model and estimate what greenhouse gas reduction outcome that would have. The imperative here is obviously that the reason we are doing this is to reduce greenhouse gas emissions, so we think it is better policy to more closely align your mechanism with what the stated policy goal is. On an international perspective, we are moving towards a global carbon market through the Kyoto protocol and through the Copenhagen negotiations. There are some benefits from that as well as some risks. There is a risk in terms of environmental impact in that we need to make sure that any international credits that we are bringing into Australia are actually environmentally effective. Also, to try and restart those negotiations and restart that framework on the basis of a carbon tax internationally would be taking a step back, in our view.

Senator EGGLESTON —But it might produce a better outcome in the longer term and you might involve some of the countries that are unlikely to introduce emissions trading schemes at all, such as Indonesia and various other countries.

Mr Pascoe —It is possible. My understanding of the worldwide experience is that carbon taxes have not been effective. I believe we have seen carbon taxes in the UK and some of the Scandinavian countries. My understanding is that very little effect on greenhouse gas emissions was brought about by those carbon taxes. There was a key issue about the willingness of a regulator to set a carbon tax that would be commensurate with the sorts of reductions that we need to see, and having those negotiations on an international level would be fraught with danger. We are not convinced that we could see a good global outcome on the basis of a carbon tax. However, we are always keen to look at these options and to look for new evidence on these issues.

Senator EGGLESTON —There is an organisation called the Institute of Public Affairs, which has the view that a carbon tax could work a little bit like the GST. The mechanism is there and we have seen it already. They talk about it as an energy tax and say:

The aim of the proposed carbon tax is to incentivise everyone to use less carbon dioxide emitting fuel.

That is a mechanism which we know about, which is in place and which we could adopt fairly quickly. Perhaps that is something you should consider in your commitment to achieving the objectives you would like to see.

Mr Pascoe —If there were a carbon tax that resulted in a carbon price higher than what we are likely to see under the CPRS—perhaps if there were a proposal for a carbon tax of $30 or $40 a tonne starting in 2010—that might actually see more and quicker action than the Carbon Pollution Reduction Scheme. However, I have not seen any current figures on a carbon tax. Chiefly, our concern here is what the outcome is and not necessarily what the mechanism is. Our view is that the emissions trading scheme is a more effective regulatory mechanism. If there were a proposal for a very strong and environmentally effective carbon tax that was wide reaching and able to be integrated with the global negotiation framework, that certainly could lead to a better environmental outcome.

Mr O’Connor —There would also be the concern from the social equity perspective that it would most likely be a regressive tax. The way an ETS can be structured at the moment, there can be compensation for low-income households, which is an important part of the ETS.

Senator EGGLESTON —There would also be loss of jobs and various industries as a result of the ETS.

Mr O’Connor —This is what I was referring to before. There is no evidence to substantiate a loss of jobs. The evidence that we currently have tells us the opposite is true. Until the evidence is produced, it is highly unlikely that we can claim a clear correlation between loss of jobs due to the ETS—

Senator EGGLESTON —But various industries say they will close down.

Senator ABETZ —How can you assert the opposite is true if you say the evidence is unclear? You deny that assertion and assert the opposite but then say the evidence is still not in. Aren’t you having it both ways on that?

Mr O’Connor —I am saying that the evidence that we currently have at hand asserts that, in fact, jobs growth is the likely outcome from this, as opposed to the other way around. I can cite a number of reports to that effect. In the report of CSIRO to the Dusseldorp Skills Forum, Growing the green collar economy, CSIRO modelled 52 sectors of the economy under deep emission cuts and found that employment would increase by 2.6 million by 2025 and by anywhere up to 7.5 million by 2050. I can also quote the UNEP Green jobs report, which indicates, interestingly, that recent history shows that the labour intensity of extractive industries has reduced over time and that in most countries employment levels have reduced over time in extractive industries. At the same time, it demonstrates evidence of the US having half a million green jobs and China already having up to a million green jobs.

Senator ABETZ —Part of the problem we face generally is that the Treasury modelling, the Garnaut modelling et cetera are all based on virtually identical assumptions. One of those assumptions is international action, which is one huge assumption to make; the other is that the economy is going to keep going as it always has and that we can just somehow push aside the global financial crisis, not to mention the other changes in our economies that have never been predicted even 12 months or two years in advance, let alone five decades in advance. The modelling is all based on similar parameters, so it is not surprising that the CSIRO, Treasury and Garnaut all throw up similar conclusions.

Mr O’Connor —I would agree that computer general equilibrium modelling has a lot of flaws. The other flaw is that the opportunity side and the innovation that is actually created from a price on carbon is also not incorporated, as Garnaut himself has indicated. Also, the non-market impacts are not incorporated—that is, the impacts through the loss of, for instance, the Great Barrier Reef over that period of time. They have not been incorporated, so on both sides of the equation there are some shortcomings in the CGE modelling, absolutely.

Senator JOYCE —Modelling can be very dangerous, especially when you do not have the empirical to back up the anecdotal.

Mr O’Connor —Absolutely, but I would argue that producing figures that are not substantiated by any analysis is even more dangerous. The greatest example of that is last week’s discussion by Xstrata of the threat to cut X thousands of jobs when in fact they have not said that publicly. In fact it is more likely that that number of jobs will be lost as a result of the global financial crisis, of the 50 per cent fall in thermal coal prices out of the Newcastle port and of the lack of capital to invest in the expansion of coalmines. To draw a correlation between that and a proposed ETS is even more dangerous than detailed modelling.

Senator JOYCE —Correlation should never be confused with causation.

CHAIR —Senator Furner has a question.

Senator FURNER —I would be interested to hear your opinion of those businesses that claim that the ETS is radical.

Mr Pascoe —It is an interesting view. We would obviously see it as more radical to sit back, look at the evidence that is coming out of, for example, the Copenhagen science conference in the last couple of weeks about what is happening on climate change and decide, ‘Actually, we’re not going to believe those 2,000 scientists; we might just sit on our hands and not do anything about climate change.’

Mr O’Connor —I am often interested to note what proportion of the actual economy is coming out forthrightly and saying that an ETS is radical. My understanding is that, if you dissect the economy into those groups that are actually vocalising their opinions through the BCA and the ESAA, they often do not reflect a majority of our economy. The majority of our economy is not vocalising such an opinion. So it is really important just to dissect where the loudest voices are actually coming from. It is often not reflective of the true economy.

Senator FURNER —I am asking that question on the basis of what Professor Garnaut said yesterday in Perth. He indicated there were some major concerns about the scheme being defeated before the Copenhagen conference and that such a defeat would create big difficulties for Australia. He criticised lobby groups and also politicians for making ignorant statements about climate change policy. So certainly he is identifying some critics out there that may jeopardise the possibility of it being passed before December this year.

0Senator Abetz interjecting

Senator FURNER —What’s that?

Senator ABETZ —Sorry, I was being facetious.

CHAIR —Would the witnesses care to respond to the question?

Mr Pascoe —Sorry, could you repeat the question.

Senator FURNER —It was based on Professor Garnaut’s criticism yesterday of the view of those people, whether they be politicians or lobbyists, about what is happening with the scheme in particular and making ignorant statements about the scheme. I am just wondering what your views on his comments about that being a catalyst for the scheme failing before the Copenhagen conference.

Mr Pascoe —I think there are certainly are some extreme views being put about the impacts of the Carbon Pollution Reduction Scheme on businesses’ bottom lines and other issues. There are some very extreme views being put about how much compensation is necessary and about potential job losses, as we have discussed, through scare campaigns around the country about job losses.

Senator FURNER —One of the current initiatives of the government, as a result of the Nation Building and Jobs Plan, is insulation. Certainly that will generate benefits and add to assistance towards the ETS. What else do you think can be done for low-income earners in that respect?

Mr Pascoe —Certainly energy efficiency is something that can benefit Australian households and help them to live more comfortable lives and lower their energy bills. We have been supportive of action for a national energy efficiency strategy, not just for the rollout of insulation but other mechanisms that we can use such as solar hot water, solar PV panels and other household modifications for better design that can help to lower bills of low-income households. We have been supporting the work of organisations such as the Brotherhood of St Laurence, which has been working in that sector.

Senator CAMERON —We have had varying views put forward to the committee so far, going from maybe your view—not to the extreme, but saying that we are not doing enough—and there are the views that we are doing far too much. The government has determined to go down a certain path to start the process of transformation. If we do not manage to get this through parliament, what is your estimate of when any government could get a transformation process put through parliament?

Mr Pascoe —We certainly need to see something put through parliament and we would hope it would be this year. I would not want to estimate what the likely views of a government would be, but we certainly know that the Australian public wants strong action on climate change and that they do not want to see a system that will not deliver the sorts of reductions that we are going to need to see. We certainly think it is important to see legislation passed. We would really like to see a robust Senate debate and some modifications to the scheme so that we can see something that is environmentally effective. That is the outcome we would like to see.

Senator ABETZ —Is the ACF opposed to nuclear power per se or just nuclear power in Australia?

Mr Pascoe —We are opposed to nuclear power per se to the full cycle of the nuclear industry.

Senator ABETZ —In relation to the issue of carbon leakage, you indicated earlier—I think in answer to Senator Joyce—that you thought that issue had been somewhat overplayed. Would you like to flesh out a bit more for us as to why you have come to that conclusion?

Mr Pascoe —Sure. I can refer to a couple of bits of evidence from our green paper submission on this. There have been reports from organisations like MIT, and it has been written in the Economist, that show that the evidence that is available does not support the rhetoric that has been calling for this carbon leakage. For example, a study out of Cambridge concluded that carbon leakage from the implementation of the EU ETS is unlikely because transport costs, local market conditions, product variety and incomplete information all tend to favour local production. Further analysis on the iron and steel industries demonstrates little evidence that carbon price had any impact on competitiveness. There are a number of other studies available, after the fact as well as looking into the future, that show that the likelihood of the carbon price being a key factor in deciding the location of a company is fairly minimal. This is not really relevant to Xstrata and its operations, but, as an example of overstating the issue, I believe the impact of a $20 carbon price on Xstrata was something like 1.7 per cent of revenue.

Mr O’Connor —It was 1.7 per cent of—

Mr Pascoe —So to say that that is the main factor in deciding to sack thousands of workers is overstating the issue.

Senator ABETZ —Thank you for your view on that; I am not sure that I share it. In your commentary there was also the suggestion that, if Australia took the lead, it would be rewarded or be seen positively in the world community. Could you nominate any countries that you believe would say, ‘Yes, now that Australia’s gone down that track we will too’?

Mr Pascoe —The EU, for example, has a policy that they will cut emissions by 20 per cent by 2020 and that they will increase that to 30 per cent if other countries act. That is one example of where we would see someone moving closer to what the government has said is in our national interest.

Senator ABETZ —So you are saying that, if Australia acts, that would be enough to put the EU across the threshold to take that further step?

Mr Pascoe —No. There are also statements by United States President Barack Obama referring to Australia’s action on climate change. We are talking about an international negotiation here and there are hundreds of countries involved. Australia is high up on the list as one of the highest per capita emitters and it is up there in terms of being one of the biggest economies in the world, from the G20. We are a player in this negotiation and we do have an influence. We have seen Australia have a positive influence on international negotiations in other realms, from the establishment of the United Nations.

Senator ABETZ —Yes. We saw it in Bali, where I thought it very ironic that the new Prime Minister of Australia was given a standing ovation because he had signed up to Kyoto—

0Senator Cameron interjecting

Senator ABETZ —You undid your own argument with Santos, Senator Cameron.

Senator CAMERON —I more than happy to go there, Senator Abetz—10 years of nothing.

Senator ABETZ —You undid your own argument with Santos by telling them that they had 10 years notice, courtesy of the Howard government.

CHAIR —Senator Abetz, have you finished with your questions?

Senator ABETZ —No. I could not help observing the irony of all these representatives of various countries in Bali applauding Australia for finally coming on board, when Australia is in fact on track to meet its Kyoto targets but all those counties that stood up to applaud were in fact on a huge trajectory to well and truly overtake their Kyoto targets. I am wondering what actually motivates the international community. It seems that the symbolism is a lot more important than the substance. I would have thought Australia should have been applauded for being one of the very few countries to meet its Kyoto target as opposed to all those countries applauding and being in complete denial as to their own breaches.

Mr Pascoe —In response to that, there are certainly some flaws in the Kyoto protocol that need to be addressed, and we hope we have learnt a lot since the establishment of the Kyoto protocol about committing to actions and following them up. We do note, however, that Australia did meet its Kyoto target largely through action in the agriculture and land management sectors and that we had done very little—

0Senator Cameron interjecting

0Senator Abetz interjecting

CHAIR —Thank you. We have now strayed to Kyoto rather than staying on the legislation and we are well over time, so I thank the ACF for their appearance here this afternoon.

[2.24 pm]