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STANDING COMMITTEE ON ECONOMICS
27/03/2009
Exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme

CHAIR —Welcome. Would you like to make an opening statement.

Prof. Flannery —I would like to begin by reflecting on the difficulty of the job that you face as politicians dealing with this scheme. And remember that it was only 20 years ago that the first significant global leader warned us of the dangers of climate change, and that was Margaret Thatcher, in 1988. It is only 20 years since the world’s first jurisdiction started measuring greenhouse gases; that was California, in the same year. If you compare that with the long history we have of dealing with economic issues, which go back centuries, and even social policy, which goes back at least a century, I think I can see that we have a very shallow history here and we cannot expect to get everything right all at once. It takes a lot of experience and a lot of time to get complex policy like this right.

So I would like to just suggest at the beginning that our politicians really have to have the will to fail on this. You have to have the will to learn through failure because that is the way that good policy is forged over time. The failure in this case may be an individual policy that is flawed or suboptimal but you nevertheless have an obligation to the people of Australia to forge an overall effective response to this very urgent problem of climate change. That means that the ETS will be one element within a series of learning approaches to this and we shall find out as time goes by which are the most effective.

I said that this was an urgent issue and it most certainly is. We were warned just two weeks ago by 2,000 of the world’s climate scientists gathering in Copenhagen that the real world changes in the climate system were tracking the worst-case scenarios of the 2001 IPCC report. The situation in brief is more grave than we thought. We have less time than we thought and there is a risk that if we leave things go the climate system will tip into a new state and therefore any action we take will be useless.

We are seeing lots of effects from climate change in Australia. Of course, many of the things we see have multifactoral impacts on them. But I would like to just show you one example that I brought along with me. I am a biologist by training and I care deeply about our biodiversity. Perhaps the clearest example we have in our country of an impact of climate change is the near extinction of a particular creature that comes from your state, Senator Joyce. It is the Mount Lewis form of the lemuroid possum, which is from the tropical rainforests of north-east Queensland, which is a world heritage area. It is a very protected environment where there are no other impacts that we can detect, except for climate change. This possum is now on the brink of extinction and the Mount Lewis form of the lemuroid possum will go extinct most likely within the next few years unless we do something. So it is not just the Murray-Darling river system in crisis or extreme fires; there are quite deep-seated impacts on our environment and ancient endemic life forms in this country.

In terms of the safe concentration of CO2 in the atmosphere and where we need to be aiming globally, there is considerable debate on this. We are already at 390 parts per million of carbon dioxide in the atmosphere. Some argue that 350 is the safest level. Some say 450. Whatever the case I think that there is a widespread view in science that early action and effective action is what is required now rather than continuing to wait.

Nicholas Stern made a very clear case in his report that there is not a single jurisdiction in the world that relies only on an emissions trading scheme to achieve its objectives in dealing with the climate problem, and Australia should not be alone in that. In fact, emissions trading schemes are widely considered very necessary in dealing with climate change but not by themselves sufficient; other measures are required. Australia’s emissions trading scheme is rather unambitious on the global scale. European nations as a whole are aiming at a reduction beyond 1990 levels of about 20 per cent by 2020. The new US position is to return to 1990 levels by 2020. The Australian position, once you strip away all of the land-clearing concessions and so forth, seems to add up, the best that I can reckon it, to an increase of 34 per cent over 1990 levels by 2020. That is a relatively unambitious scheme, but that is what we are stuck with.

The other major sectors that I think we need to look at in addressing this problem are clearly within the biological carbon area that Leader of the Opposition has very clearly focused on and targeted in his response. Biochar, a permanent form of sequestration, which has many other benefits, need to be invested in, as does forestry. We have done reasonably well with stopping land clearing in Australia, although it is remarkable that we have collected no figures on land clearing since 2006 in this country, so where we stand in terms of our Kyoto commitment is very unclear to biologists such as me. Of course there is also the area of better range lands management. For all of those things we can sequester carbon in the soil over the longer term. In my view, we need better metrics around all of those potential sequestration options, and it is probably best not to link any of them to the emissions trading scheme but to deal with them separately. The risk of failure is too great if we link these approaches.

I think we also need to consider in this country that termination of conventional coal burning by a particular date as another policy initiative. What that date will be is, of course, open to conjecture. If we wish to stabilise CO2 at 350 parts per million, the optimum date is probably around 2030.

I have a few problems with the ETS as it is put forward. One is the maximum price on permits, which was mentioned earlier. Also a broader view which I think is important is that no government scheme should take away the volition of the individual to do good, and this scheme has considerable potential to do that by capping all emissions at five per cent. I believe that individual actions should be additional to that target because if I go out and decide to plant a tree or do something with my own money I do not want that to be seen as insignificant. I think it needs to be additional to the industrial target we set for our 250 largest emitters. Within the scheme, we need to design it carefully to allow that to occur.

There is a very interesting initiative now in Europe called project sandbag where individuals buy emissions permits. The reason that occurs in Europe is that the Europeans gave away too many permits in the beginning, the price fell too low and there was very little action in terms of emissions reductions. Individuals put their own money through project sandbag into buying permits and effectively destroyed them and therefore increased the price of carbon. That should be permissible, I believe, within the scheme that we are contemplating here in Australia. It is very important not to take away the volition of the individual in terms of doing good.

Overall, my personal recommendation is that you pass this scheme for all of its faults, but to realise that we are very early in the experiment of regulating carbon and that we need other legislative initiatives to go alongside the ETS, and they would include an increased focus on biological carbon and elimination of conventional coal burning, so a shift to CCS or to other technologies, within a reasonable time frame, and that if we do that we will be in a much better position to deal with this very significant threat. Thank you.

CHAIR —Professor Flannery, I understand that, talking about the volition of the individual as part of the scheme, you were saying that biochar, the sequestration and the termination of coal burning are better kept separate. I am wondering if other initiatives in encouraging households and individuals to reduce their carbon emissions might be done in the same way. My understanding is that under the current ETS if individuals choose to buy permits then they can—that is part of the current scheme—and then those permits are voluntarily relinquished. So would it not be better to have a separate scheme? Because a number of householders are already undertaking activities to reduce their emissions, without being able to buy permits or being part of an emissions trading scheme but simply because they see the need. I take your point that, under an emissions trading scheme, that may allow someone else to emit more for longer; but would it not be more effective if you gave them other kinds of assistance?

Prof. Flannery —I agree. I do not think that involving individual households in the emissions trading scheme is at all desirable but I do believe that any abatement that occurs at that level should be accounted for separately and in addition to the industrial cap that we set at five per cent or whatever it happens to be.

Senator XENOPHON —On the issue of voluntary action in terms of abatement, Dr Richard Denniss from the Australia Institute says that the more individuals do the more permits it frees up for heavier polluters. That is what you are alluding to in the context of that.

Prof. Flannery —It is.

Senator XENOPHON —There is another issue, which Dr Dennis referred to, that if we have such a low target of five to 15 per cent and Copenhagen in a few months time comes up with 20 or 25 per cent then there is a risk for taxpayers that we will have to make up the difference in terms of those additional permits. Do you think that we ought to wait, as some in the environmental movement have said, so that we can aim for a more ambitious target—given that if we are lock ourselves in to the five to 15 per cent then that exposes taxpayers to a significant risk and also sets a bad example to the region if we want to show regional leadership on this.

Prof. Flannery —I agree that potentially it does, and I can see no logic to adhering to an upper target of 15 per cent. I think we should wait for the international negotiations.

Senator XENOPHON —But we have to vote on a bill that refers to a target of 15 per cent.

Prof. Flannery —I would try to trade away the 15 per cent, if you can, and just leave that open. Why would you have an upper target? We do not know what the international negotiations will be. We have committed ourselves to five per cent but the upper target surely is contingent on the global agreement, I would have thought.

Senator XENOPHON —As I understand it the legislation—and I am sure Senator Cameron will correct me if I am wrong—says that it is five to 15 per cent. So that is the upper target in black and white in the draft exposure bill. You are saying that that is something that would unduly constrain us given Copenhagen is coming up at the end of the year.

Prof. Flannery —Absolutely, the five per cent I can accept, and see that that is our own national target; but I fail to see the logic of having an upper target of 15 per cent when we have no idea what those negotiations will produce.

Senator XENOPHON —Professor Flannery, I know that, controversially amongst some quarters, you have said that we should be looking at nuclear power in terms of reducing emissions. Are you particularly wedded to this particular design of the CPRS or are you more interested in the destination and you do not mind if we have alternative paths to get there as long as we get to that destination of a target of 350 parts per million?

Prof. Flannery —I do not think we know what the best pathway is to get to that target of 350 parts per million. As I tried to explain, this is an extremely complex piece of legislation. It is dealing with a very complex problem, because the industrial emissions are part of it and there is a whole lot of biological carbon as well. Our experience in dealing with these matters is very limited—it is a matter of only two decades since we have really recognised that we have a problem. Therefore I have suggested in my statement to you that we hedge our bets by having a number of different policies—the ETS being one of a number—because we just do not know. We do not have the wisdom to know.

Senator XENOPHON —Further to that, and finally because I know other senators want to ask questions, I did not quite follow you when you said there is a need for better metrics and you do not co-link. Can you just elaborate on that?

Prof. Flannery —In terms of biological carbon, we have only begun to realise relatively recently that there is significant potential for sequestration of carbon over the long term in agriculture and forestry and in our rangelands. The first study, for example, of Aboriginal burning and impacts on carbon in Northern Australia was only completed by the CSIRO in January this year, and that was a desktop study without on-the-ground metrics. We need more investment in understanding what the potential scale is for those sequestration options and what the impacts of those options are, should we exercise them. Because we have a very large job to do and we are uncertain as to our pathway, I suggest decoupled policies, not interlinked policies. We do not know which one is going to work, and we do not want the failure of one to then impact upon the other. We need to hedge our bets in that regard and that is why I am suggesting that whatever we do in the biological carbon areas on farms is delinked from the industrial emissions scheme. After all, we are really dealing with two very different things. Industrial emissions and emissions trading are all about measuring, quantifying and paying for something that never existed, an emission that never occurred, an avoided emission. When we come to the on-farm stuff what we are actually dealing with is what I would call ‘atmospheric cleansing’, that is, drawing carbon out of the atmosphere and sequestering it in the ground. There is no equivalent between the two and there is no a priori reason why we should be linking those two approaches.

Senator XENOPHON —Is that funded? Does that mean you are saying that we are putting too many of our policy eggs in the one ETS basket and we need to be a bit broader than that?

Prof. Flannery —Absolutely. You need a series of policies, I believe, because we are uncertain as to which the best pathway is.

Senator XENOPHON —Thank you.

Senator FURNER —In your preliminary submission you indicate that the planting of a tree would not count against Australia’s national emissions. The draft bill has actually set out mechanisms to recognise reforestation and, in turn, the mechanism allows for the creation of permits for reforestation, and those permits count towards the national targets. So if you plant a tree, providing it locks in carbon, it counts. What other voluntary actions would you consider should count towards the Kyoto target?

Prof. Flannery —Can I just clarify the issue of planting trees? I am not really convinced that linking tree planting with the ETS is the best policy. I think perhaps we need a separate policy, as I tried to explain. Nevertheless issues like that are, in my view, not fatal to the adoption of the ETS. Other things that could be counted towards the national achievement of emissions reductions would be, effectively, the action of individuals or groups outside that ETS. Housing is a good one. I know that the government is going to start with the Green Loans campaign at some stage in the future. That will, hopefully, result in significant emissions reductions from housing; just from people’s houses and reduced energy use. I would argue that those sorts of things, because they result from the individual action of someone trying to do good, should be accounted for as additional to the target.

Senator FURNER —Similarly someone committing themselves to reforestation. Farmers have been doing it for years in terms of reforestation on their lands so that is an indication towards the fact that they are committed to reducing carbon emissions.

Prof. Flannery —Could I just say though that they are quite different things because, if I insulate my house, I then cause less coal to be burnt and less emissions to go into the atmosphere. You can imagine it as part of an emissions trading scheme or however you want to do it; that is a similar sort of thing. Whereas, if you plant a tree, what that tree does is draw carbon dioxide out of the atmosphere. It is not actually an emission as such; it is a reduction of carbon dioxide from the atmosphere. So just from an intellectual position there is no reason why you would link those two events. Sure they are all part of the carbon balance but they are two different things. The reason the emissions trading schemes are somewhat difficult is that we are trying to estimate something that never happened and avoid an emission. They are structured around that particular enterprise, not the enterprise of atmospheric cleansing or drawing carbon out of the atmosphere.

Senator FURNER —Are you in a position to update the committee on the latest science coming from the recent Copenhagen climate change conference?

Prof. Flannery —Yes, I am. I was not at the conference but I did read the communique and I have various colleagues who were there. The conference at its termination handed a document to Anders Fogh Rasmussen, who is the Danish prime minister. The principal finding was that earth’s climate system is tracking the worst-case scenario of the 2001 Intergovernmental Panel on Climate Change projections. It is no longer the median projections that we are tracking but the worst-case scenario. We are on track to warm the planet by four degrees or more by the end of the century, if no action is taken.

Senator FURNER —So that is why it is imperative to act and without delay.

Prof. Flannery —It is, indeed. This is much worse than we thought. That upper margin was 10 per cent probability in 2001. So the probabilities have changed. It is now looking like we are on track to achieve it.

Senator FURNER —Okay. Thanks.

Senator CAMERON —On that point, what are the implications for agriculture in Australia of the recent Copenhagen findings?

Prof. Flannery —Once you get further downstream from the basics of the warming, CO accumulation and sea level rise you get increasing levels of uncertainty in the models, because you are trying to then model average soil temperatures and rainfall patterns and so forth, which are quite complex. The CSIRO projections are, though, for continued and substantial decreases in rainfall across southern Australia, and for substantial increases in the soil temperatures, which means we have less soil moisture and therefore things are more difficult for farmers. We have already seen a very significant shift, I believe, over the last 12 or so years in the Murray-Darling Basin in that regard. The Copenhagen findings suggest that we will get to that endpoint sooner.

Senator JOYCE —Thank you very much, Professor Flannery. Is it global warming or climate change? Which one is it?

Prof. Flannery —There are three factors: the greenhouse effect leads to global warming which then leads to climate change.

Senator JOYCE —So the proposition is that the world is getting warmer—that is the issue that we are looking at?

Prof. Flannery —It is in actual fact that the world is getting warmer. There are 20 satellites and 17,000 earth based stations which have been recording the warming for a century or so.

Senator JOYCE —I am not disputing that. I just want to make sure that it is clearly on the record that it is about the globe getting warmer. If we take the carbon back to 350 parts per million, are you stating that the climate, therefore, would not change?

Prof. Flannery —No, I am not. The best estimate is that, if we get back to 350 parts per million, the earth will ultimately warm by less than two degrees, which will be insufficient to cause destabilising or dangerous climate change. Two degrees of warming is generally considered about the level where you start getting very significant impacts.

Senator JOYCE —Do you believe that by the manipulation of carbon dioxide in the atmosphere you can affect in perpetuity the temperature of the globe?

Prof. Flannery —The Kyoto protocol at its most basic is really an attempt by a species—our species—to regulate the gaseous composition of the atmosphere for the benefit of all life. The protocol is one step in a very long—it will be a species-long—attempt to do this, because we are now such a significant element of life on earth that we have no choice but to regulate our inputs into that atmosphere.

Senator JOYCE —So you believe we can regulate the temperature of the globe—if we could do anything that we liked with carbon, we could regulate in perpetuity the temperature of the globe?

Prof. Flannery —At the moment we are in a position where we could avoid dangerous climate change, were we able to reduce CO levels. Centuries from now, as we become wiser and better at doing all of this, perhaps we will be able to do as you suggest. But at the moment we are at the very early stage, taking infant steps, in that regard.

Senator JOYCE —So we could avoid a future ice age or something by regulating carbon in the globe?

Prof. Flannery —The next ice age is about 80,000 years away and by then, I think, we will probably be good enough to be able to do that. All that coal we have got, of course—that is when we will need it, because you need to put a lot of carbon in the atmosphere to do that.

Senator JOYCE —We should be pumping it up into the atmosphere then?

Prof. Flannery —That is right.

Senator JOYCE —Do you believe that there is a general community consensus that global warming is bad and something should happen about it?

Prof. Flannery —There is not a consensus, but if you look at the trajectory of public opinion over the last decade you can see a very significant shift towards that view.

Senator JOYCE —Can you show me any actions that are perceptible in the way the community is working at the moment that shows that they are concerned about that? Are they driving their cars less, are they using their power less, are they making different decisions in their consumption?

Prof. Flannery —I think the last election was a significant indicator.

Senator JOYCE —Was that on global warming, you think?

Prof. Flannery —I think that and Work Choices are widely viewed as being to two of the more significant issues for the electorate. In terms of what people are doing voluntarily—

Senator JOYCE —That is a vote, but it doesn’t cost anybody anything to vote. What about in the way they spend their money?

Prof. Flannery —About 10 per cent of people—somewhere between eight and 10 per cent, I think—are buying voluntary green electricity now in New South Wales. We have seen a shift to smaller cars.

Senator JOYCE —Do you think that that has nothing to do with the price of fuel?

Prof. Flannery —It has had something to do with the price of fuel as well. But everything is multifactorial in this world. We can only claim a proportion of this as likely to be due to a new awareness about climate. When you couple that with the voluntary green electricity buy, you might say that perhaps only 10 per cent of people were doing that—that is something for economists to look at—but I do believe there is a groundswell of concern and I do believe that that is translating into voluntary action.

Senator JOYCE —Do you believe that if there is a community benefit that there should be a community cost?

Prof. Flannery —That is right. We are investing in the future.

Senator JOYCE —Well why didn’t they compensate the farmers for land clearing?

Prof. Flannery —Because at that stage the government did not make it clear to farmers that this was a trade-off between the farmers and the miners. That was, I think, a very, very bad thing to do.

Senator JOYCE —So basically there was no whole manipulation of it: it went through state parliament, so they did not have to pay compensation?

Prof. Flannery —Yes, it was a catastrophe. I think it is extraordinary that even today most people do not realise that the Kyoto clause—the special clause—was just a direct wealth transfer from farmers to miners.

Senator JOYCE —That is correct. So you can understand why the farming sector would be, in essence, sceptical, because they have already been burnt once and they can see this coming up and burning them again.

If there is a five per cent change in carbon emissions in Australia on, whatever it is, 1990 levels, is that actually going to affect the temperature of the globe?

Prof. Flannery —Can I just explain, to the best of my understanding, what the five per cent is. I hope I am correct on this. If you take away all of the forest offsets and everything and just deal with emissions—just deal with the burning of coal and other fossil fuels—what our policy will get us to, I think, by 2020 is a position where we are producing 34 per cent more emissions than we were in 1990. So it is not a five per cent cut; it is 34 per cent more rather than 39 per cent more. It is five per cent off that trajectory. That is the best of my understanding of it. Will that affect the globe? It depends upon how that impacts on Australia’s leadership at Copenhagen.

Senator JOYCE —But in isolation, will Australia’s change affect the temperature of the globe?

Prof. Flannery —There is no single change being considered by any government anywhere in the world that I am aware of that would affect the temperature of the globe. They all add up together to something.

Senator JOYCE —What you said there is very important—what is the effect of all the other nations in concert as to how it affects it. Do you firmly believe that Australia is in a position where the world cares about what we do?

Prof. Flannery —I was at COP 14 at Bali when Rudd made the announcement, and it was a very significant moment. The other nations of the world that were represented there certainly did care. It had a big impact and it had a big impact in terms of global news and , so I do think that at that level they do care.

Senator JOYCE —That is a very good point—the Bali announcement. Have other countries since come on board—Indonesia, being predominantly one, because it was in their backyard; China? After they finished clapping, did they go home and change or did they just finish clapping and go home and giggle?

Prof. Flannery —Australia’s ratification has probably been one factor among many that has caused very significant changes globally. If you just look at the green stimulus packages globally, for example, the three that greenest by far are China, South Korea, which is the very greenest, and the USA—and they are some of the largest as well. That did not come about just because Australia ratified the Kyoto protocol, but I am sure it was a factor—one of many factors—that brought about that outcome.

Senator JOYCE —How do you come to that belief?

Prof. Flannery —How do I come to that belief? Just from observing the negotiations and observing, through my network, what goes on. You see a build. As people start switching and making commitments, it starts to build toward a particular outcome.

Senator JOYCE —You are a professor; you are far more diligent and esoteric than me. Is there anything empirical that you can put your finger on and say, ‘I can prove to you that that affected their decision, because in this report they gave reference to Mr Kevin Rudd and this is why they made this decision’?

Prof. Flannery —Politics is not an empirical science. It is not that way. This is something about feelings. It is about the sense that people are standing with you so therefore you are more able to go ahead and do something effective.

Senator JOYCE —Okay. Let us go to the 15 per cent target. We have heard that it is all about certainty. Some people who come in here give that as their main argument: they want this because of certainty. You have stated that what we should be doing is rubbing out the 15 per cent ceiling so that if we need to we can go higher. How do you think that that matches with certainty?

Prof. Flannery —There will always be investor uncertainty just because government regulation does not negate risk in total. What would we be doing by rubbing out the 15 per cent ceiling? I would have to think through this. But if the world agreed on a higher target, would an investor group such as the ones that we have just had in be happier or not with Australia having a differential target? I do not know the answer to that question. You would perhaps need to ask some businesspeople that one.

Senator JOYCE —Dr Flannery—sorry, Professor Flannery. I imagine that you have a PhD. I can call you ‘Dr’, can’t I?

Prof. Flannery —That is all right, yes.

Senator JOYCE —I can call Professor Garnaut ‘Dr’ too, because he would have a PhD. I am sure that he would have one stacked in his cupboard somewhere.

Senator CAMERON —You have called him a few more things than that.

Senator JOYCE —I did not call him a whacko.

Senator CAMERON —You have.

Senator JOYCE —That was what Joe’s father called him: ‘Whacko Garnaut’. We have not. You would have to be at the forefront. You are bang smack in the media spotlight on environmental issues. You carry a picture around in your wallet of Mount Lewis possum, which is unusual.

CHAIR —Let us not discuss unusualness, Senator Joyce!

Senator JOYCE —I think that unusual is nice; it is better than bland. Let us say that you epitomise what would be the avant-garde of a way of life that is trying to change the world. I pose to you the question that I posed to the other gentlemen, and I think it is right to do so. What I am espousing is that this does not really change anything. Is this a social clique where you say, ‘I’m changing because I can afford to change, and if you can’t afford to change with me, stuff you’? Is it just a cultural decision that nice rich people can make that other poor people can’t? How did you get here today?

Prof. Flannery —I got here in my little Toyota Prius.

Senator JOYCE —Good. Why didn’t you catch a train?

Prof. Flannery —I had to drop into the university first and I wanted to be here on time.

Senator JOYCE —Do you drive your Prius everywhere?

Prof. Flannery —Not everywhere, but I drive it a reasonable amount.

Senator JOYCE —Do you always—

Senator CAMERON —Are we going to have a clause on Professor Flannery’s car?

Senator JOYCE —What did you call the Prius, Dougie?

CHAIR —We are going back over this. Senator Joyce, we are trying to discuss this exposure draft.

Senator JOYCE —But there is an important point here. Do you honestly believe that it will resonate with the Australian people—or any people—if we go out there with a stick approach and try and beat them into submission for the purpose of the globe?

Prof. Flannery —No, I do not. I will address the question that you raised, which is a very important one, about whether I represent some deep green end of the spectrum or not. I do not. I am an absolute pragmatist on this. As Senator Xenophon has said, I am not opposed to uranium mining, because I see it as being an important element in places like the China and the USA in a viable energy future. I am an absolute pragmatist in terms of this. I chair a thing called the Copenhagen Climate Council. Among my councillors is the largest Chinese energy generators, the Virgin group and Intel. They are some very big companies. So I am not a green fringe person; I am pragmatic and pretty much in the centre—and perhaps towards the business end of things more than anything else.

Senator XENOPHON —I drive a Yaris, not a Prius. You referred to the issue of eight to 10 per cent of people in New South Wales and other states opting into green energy. From a policy point of view, what would say if it was a case of an opt out system? In other words, we would all be deemed to be opting in to green energy and we would have to opt out if you did not want to be. Is that the sort of thing that would see a more significant take up of green energy in terms of that change of behaviour?

Prof. Flannery —I am certain that you would see a more significant uptake of green energy if you had an opt out clause. That is a very sensible approach.

Senator XENOPHON —Can I just go back to the issue where you are troubled and I think a lot of people are troubled by the 15 per cent target, particularly in terms of getting down to 350 parts per million. Given that we have a piece of legislation that says 15 per cent, are you saying that we should amend that to at least 25 per cent or keep it flexible so that, post-Copenhagen, we can adjust that target?

Prof. Flannery —I am not a politician but I would have thought it would be sensible to have no upper target at all until we know what those negotiations are, just to give ourselves flexibility to sign onto what is the global deal.

Senator XENOPHON —If there is an absolute choice between a take-it-or-leave-it upper target of 15 per cent now or wait until Copenhagen, what would you do if you were faced with that absolute choice?

Prof. Flannery —I would ratify that legislation past the ETS.

Senator XENOPHON —Even though that will lock us into 15 per cent for up to 10 years?

Prof. Flannery —Yes, I am afraid so. My view there is simply that we are in the infant stages of learning how to deal with this and we need a number of policies. I am not convinced the ETS is even going to be the most significant of the policies that we end up deploying.

Senator XENOPHON —It is a bit of a Hobson’s choice though, isn’t it?

Prof. Flannery —It is a very difficult choice.

Senator XENOPHON —Thank you.

Senator BUSHBY —I was interested in your comments that you are at the business end in terms of the balance and are a pragmatist. I think pragmatism, in particular, is a very good way of approaching most issues. Also I was interested in the comment you made just then that the ETS may well prove not to be the most significant weapon in the fight against climate change. Today we are here looking at the draft exposure legislation for an ETS, which I acknowledge the purpose is to effect structural change so that we can actually shift from a high-carbon emissions society to one that is lower, to some extent. In doing so we have had a lot of evidence that the ETS will impact on various industries and also on certain regions that are dependent upon some industries in varying ways. Although, as I said, it is a deliberate thing to actually force that structure, part of the legislation that we are looking at today is designed to deal with the transition from the high- to the lower-carbon emissions economy. I guess a lot of the argument that revolves around this draft legislation relates to the transitional elements. You have raised some issues with ETS as well, and I think it is a good time to do it because it is only an exposure draft and there is an opportunity for the government to take on board things that are raised and fix them. I, like you, have a problem with the aspect that takes away the incentive to individuals. I would hope that they will fix that because there is a lot of goodwill out there and this is just going to remove any incentive for anybody to do that.

Coming back to the specifics of some of the issues on the transition, there has been a lot of talk about carbon leakage. You were recommending early action and I understand your argument there. If early action implements an ETS which has the effect of putting up the price of goods that are made in Australia subject to the ETS and making goods that come from places where they do not have an ETS and possibly are even less efficient in terms of emissions when they make those goods, is that a good thing to do early or is that something that we should try and get right in terms of the global solution?

Prof. Flannery —It is a good thing to do early. I have just come back from India and attended the council of Indian businesses, which has 9,000 of the largest businesses in India, who presented their paper on climate change. They made the point one of the reasons that Indian business is so successful and so competitive is that they are faced with a perpetual energy drought and they have become very, very efficient at using energy. I was approached recently by someone from the TWU about a Buy Australia scheme, and they asked me how it would look environmentally. The answer is, ‘a catastrophe’. You would be much better off buying iron ore from Brazil or aluminium from Iceland, which is produced more sustainably than in Australia.

At these meetings that are coming up in COP 15 it is quite possible that the United States and China will come together at that meeting with a common understanding of what needs to be done. Once you get the large blocs on board the chances of carbon border tariffs coming into play in the future are not insignificant. My view would be to get our industry into the best shape we can early by making it value energy and assisting it in whatever ways we can to make that transition but do not delay, because delay is dangerous in itself for the reasons I outlined.

Senator BUSHBY —I hear what you are saying, but there are examples, particularly amongst some of our largest emitting industries like aluminium, where they have taken significant steps in the last 10 years or so to improve their efficiency—by 40 per cent, from memory. As I understand it, aluminium refining in this country is possibly the most emissions efficient in the world and up to seven times more efficient than some countries, including China, I think. Given an example like that, the argument you use does not really work.

Prof. Flannery —It does because, as efficient as they are, they are still tied to a polluting energy base. So, while they may have done marvels in terms of increasing their efficiency, until they loosen the apron strings to that dirty energy base they will be vulnerable to any global tariffs on carbon that may come into play in future, compared with somewhere like Iceland, which is doing it all through hydro or deep geothermal. We have the potential in this country to shift—in the next three decades or so, I would say—to a very clean energy base.

Senator BUSHBY —I have no arguments with that, and that may well negate the need, if we retain an aluminium industry, for such carbon based tariffs to be implemented against us, because hopefully through a whole suite of measures that you are discussing we may well move to lower carbon energy provision. It is the high use of energy in the aluminium industry that is the problem, not the fact that it comes from carbon based sources. If we had alternative baseload sources to supply it, it would not be such an issue.

Prof. Flannery —I met the president of Alcoa, Klaus Kleinfeld, and some of his senior executives in October last year in Spain, and they were deeply concerned at the Australian aluminium industry because of the high carbon exposure. They are moving as quickly as they can towards low-emissions aluminium within their portfolio of global assets. I can see within that industry that it is not that they want to stay tied to dirty energy; they need assistance and a way forward. I would say their view is that it is inevitable that, wherever they go, that will be a problem for them at some time or other.

Senator CAMERON —I noted your concern about locking into the 15 per cent and the upper ceiling. Are you aware that the Prime Minister has indicated that post 2020 Australia will play its part in any global agreement?

Prof. Flannery —I was not aware of that, but I am very glad to hear it. If you will forgive me for saying it, it is easy for a Prime Minister who is unlikely to be in power in 2020 to make such a statement. Perhaps the job of our politicians today is to put some flesh on that statement. If we were, for example, to look at some of the longer term policy adjustments that are required outside an ETS, by way of biological carbon or a phase-out of conventional coal burning at a particular point beyond 2020, that would start putting flesh on that assertion in a real way.

Senator CAMERON —2020 is not that far away!

Prof. Flannery —Perhaps I am being too pessimistic, but certainly three or four elections is a good run!

Senator CAMERON —Wouldn’t any politician in 2020 be faced with an absolute lay-down misere that they have to be part of a global agreement? Don’t you think the culture and the politics will have changed so much, and the climate will have changed so much, that by 2020 this country will play its part regardless of who is in power?

Prof. Flannery —I hope you are right, and that is my general sense—that we will be drawn more into a global deal. But there is so much to be done. I can imagine a scenario where the Copenhagen meeting falls over for one reason or another, people are thrown into disarray and we do not know where we are going to go globally at that point. We are at a very delicate moment in those negotiations now. I hope you are right, but it could be wrong.

Senator CAMERON —It could still be Kevin from Queensland, you know!

Prof. Flannery —That is right. For his sake I hope so.

CHAIR —Thank you, Professor Flannery, for coming along this afternoon.

Prof. Flannery —Thank you.

[4.20 pm]