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Emissions trading and reducing carbon pollution

CHAIR —Welcome back. I invite you to make an opening statement and I ask that you keep it short. As you have heard, we are well behind time and we do need to try to catch up somewhere, if we can.

Mr Clark —I am representing the view of the Grain Growers Association in association with that of the Grains Council of Australia. Just to reiterate, I will make a couple of quick points. We are relatively pleased that the CPRS to date does not include agriculture, but we think there is an opportunity for building a portfolio of responses in the other complementary measures basket, where agriculture more comfortably sits. So we are quite keen to promote activity within the agricultural sector along those lines, including carbon sequestration in soil and plants, other than trees; support for renewable fuels; greater use of rail rather than road for bulk freight transport; and encouragement of small-scale solar and wind and biofuel production. In addition, we would like to see a scheme that would allow agriculture to provide the widest range of domestic offsets to match those available from international sources. I think that will do for my opening statement.

CHAIR —Thank you very much for being brief.

Senator PRATT —I understand that ABARE modelling shows the grain industry coming under climate change scenarios because of the mitigation opportunities and that, relative to other agricultural products, it should come out ahead. Can you please comment on that?

Mr Clark —What mitigation options are you referring to?

Senator PRATT —I know that they do not exist at the moment and we need to resolve such things through an international agreement; but, ultimately, the globe will need to grapple with soil carbon issues in order to bring that contribution online to address climate change. So, in the first instance, there is that. In addition, there are the relative productivity levels. Grain is going to be relatively advantaged compared with other agricultural sectors; is that right?

Mr Clark —Be careful with what you think of as an advantage. In an absolute sense, you are right: the grains industry is not as disadvantaged, if you like. As far as I can tell, there are no agricultural sectors where there is an advantage to having the CPRS, neither its presence nor its coverage. So in both cases it adds cost on to an industry and we have no means to mitigate that. That is part of our concern: the general erosion of terms of trade resulting from the scheme’s presence let alone its coverage.

Senator PRATT —But, in that sense, agriculture, is no different to any other sector that uses fuel and electricity, is it?

Mr Clark —I think it is, in that we do not have the capacity to pass it through, which is some of the difficulty with it. A differently structured scheme may well have some of those things. In terms of relativities though, the impact is that the individual enterprises in a number of agricultural sectors may qualify in the event that they are covered for emissions-intensive support; that is not the case with the grains industry. We are a $10 billion industry with the largest single export from agricultural sectors in Australia and we have no support coming through. With the impact of the scheme itself, if we were covered and if any ITE were applied, as is currently contemplated, the grains industry would miss out on those things; so, within the construct of the scheme, the grains industry would be relatively worse off from that. We think there are better options than this scheme for trying to achieve an outcome around climate change.

Senator PRATT —Yes. Some of those options might be looking at complementary measures. Can you talk to us about the kinds of complementary measures that you support?

Mr Clark —We think there is a suite of them. The point we have been trying to make is that, if we are trying to come up with a solution to managing atmospheric CO2 levels at 450 parts per million, we should look at all options available to us for doing that. Agriculture, in a global sense, is a component to doing that. I will touch on carbon or sequestration in a moment; however, I think more obviously, in terms of our economy, it is interesting that we do not have, for example, a focus on rail. We are removing our rail capacity. As we understand it, rail uses one-seventh of the energy used presently to shift large quantities of product around the countryside, yet it is being and has been for a long time undermined through underinvestment, largely in the states. That would be one of the options, for example, that we could take up. We think the options of solar and wind energy in this country correspond with farm management. How do we farm those energy components? The issue there is not that we can farm them; there is an economic issue with them in the first instance. But, more broadly, it concerns the connectivity. It is very difficult to have a single wind generator on a single farm connected to the grid. So there is an offset component that might be possible, but grid connectivity is a real issue. So it is more that there are infrastructure issues that go with contemplating that sort of response.

Senator PRATT —Around the globe, we have the US and Canada as big grain producing countries, but we are not really early movers in relation to farmers possibly bearing these extra costs, particularly in terms of those pass-through costs. It is those key pass-through costs that you are arguing about, because we have not brought agriculture into the scheme yet. You are arguing about the impact of the costs that you cannot pass through in terms of fuel and electricity, but surely this is about levelling the playing field. We have the US, Canada and the European Union. The cheapest system for the whole of the globe will be one that distributes those costs most equitably. Where do you want to push those extra costs to? Who is going to pay for that bit of footprint, which is the farming community’s fair share?

Mr Clark —I think that is an interesting question. It is not so much about doing a fair share; we should do more than a fair share; if we can do better, we should do it here. I think part of our issue is that the US and the EU, which you have referred to, are not contemplating agriculture as a component.

Senator PRATT —No, but we are arguing about the pass-through costs of the current scheme currently. That was my question to you.

Mr Clark —Okay, and they have those things; but they also have very heavy support systems, which we do not have. Their agricultural and farmer support schemes are dramatic, in terms of the general application of those things.

Senator PRATT —But we have support schemes for things like drought assistance. I do not know that we should necessarily reduce this to an argument—

Mr Clark —But not even in comparison to their common agricultural policy.

Senator PRATT —about support schemes. We are arguing about those input costs of fuel and electricity. We could start arguing about the other relative levels of subsidies and trade, if you like, but they are not the core issues at the heart of what we are debating here today. Surely, we are talking about a level playing field for those other fuel and electricity inputs.

Mr Clark —I am not familiar enough with the designs of the schemes in those other places to be able to say how they impact on agriculture, but we know that their contemplation of agriculture, in general, is to support agriculture. At least in the US, there has been the development of a voluntary market, which we think is a useful precedent for it. It provides an option for growers to source a secondary income so that some of that cost is offset by those activities and the income generated from those things. We think that ultimately is the way to go here: to allow new income sources into the farm so we can offset the costs of the scheme.

Senator PRATT —Ultimately, in terms of fuel and electricity inputs, if the rest of the globe moves more quickly than Australia does, farmers will be paying for the carbon liability we have not paid for. That is true, isn’t it?

Mr Clark —In general terms, in the same way that the rest of the economy is doing; but it is then the relative performance of those. Why, for example, would an Indonesian flour mill want to buy grain out of Australia that is priced higher to cover the costs of production, when it is not necessarily priced like that out of the Ukraine?

Senator PRATT —But, ultimately, if we move towards a global agreement—which we know that we need to have for the sake of the globe and even for agricultural productivity in this country, because we will be very affected by climate change—where everyone takes responsibility for carbon mitigation, and the rest of the globe moves before Australia, we will have a carbon liability that we have not paid for. Surely the best idea is to get the whole of the globe moving as quickly as possible towards a global agreement that locks in that carbon liability so that everybody is paying their fair share.

Mr Clark —Absolutely. I have think agriculture is one of the lead opportunities, and we do have a strong opportunity to provide leadership at a global level in agriculture. We think that the spot for agriculture is in part of the solution. It is not about contemplating how much its emissions are but how much we can sequester. This is half of the debate that we have not yet had, particularly, and I know that a number of people are trying very hard. But agriculture’s role is in the sequestration component and not in the emissions component. We need to do that on a global scale because we are going to have nine billion people who need feeding by 2050. A lot of subsistence industries will need to mechanise and use more fertiliser than they have ever used before, and we who have experience in these things should be able to provide leadership.

Senator PRATT —Can you comment for us on your assessment of the risks and opportunities that exist with biofuels in the grain sector in Australia?

Mr Clark —Yes, biofuels are interesting. I guess I need to temper my response slightly, as I know that the Manildra Group are here and are quite concerned about the application of the CPRS and the potential for its impact on ethanol production itself. But I think the real opportunity for the agricultural sector is probably in biodiesel more than in ethanol.

Senator PRATT —Yes.

Mr Clark —I think there is a reasonable argument that the footprint of ethanol per se is questionable, if what you are trying to do is think of the carbon relativity, notwithstanding that you mean they may run out of oil and we will have to find an alternative anyway. But, if you are looking for a better solution, we would be much more interested in biodiesel and not only because it can be produced on individual farms so that farmers could just replace their own. The difficulty with that is that it needs to meet particular grade, if you are to be a recipient of the refund of the excise. That is another barrier to investment in that area, which probably needs to be contemplated in the contest of the CPRS development.

Senator PRATT —Notwithstanding the food security issues, a carbon price will help create demand for those kinds of carbon fuel—

Mr Clark —As long as the system encourages that type of production. You can have the price that you would like. But, if there are no production facilities and no distribution facilities, no matter what that price is, you cannot get it. So, when we are looking at the opportunities for our economy, we have to overcome some of these structural issues as well.

Senator BOSWELL —Have you done any costing of the government’s climate policy on the grains industry?

Mr Clark —No, we have not done it specifically; we have been relying on work done through the Australian Farm Institute.

Senator BOSWELL —What are their costs?

Mr Clark —There is a whole range of them and, off the top of my head, I cannot tell you what they are. However, again from ABARE analysis, based on $40 a tonne, agriculture costs will rise by three per cent for livestock and 4½ per cent for cropping, if agriculture is excluded from the scheme. If agricultural production is included in the scheme, the costs rise to 18 per cent for livestock and six per cent for cropping; but that is tempered by the distribution of the EITE support, on the basis of inclusion.

Senator FEENEY —Is that 18 per cent driven by methane emissions from livestock?

Mr Clark —Yes.

Senator BOSWELL —This is the contentious question and we seem to be getting conflicting views on it. Are you going to get EITE on grain?

Mr Clark —No.

Senator BOSWELL —So your costs will be six per cent. The Treasury models in the green paper assume that everyone—Somalia, Ethiopia, Libya—is going to come in. That is not going to happen, with all due respect to everyone and with the best will in the world. So I suspect that all this modelling, if it relies on everyone coming in, is completely out of whack. How can you guys in the grain industry and other industries base your future on climate change modelling done by experts in Treasury that has been done on a false presumption?

Mr Clark —We agree.

Senator BOSWELL —How can anyone in the grain industry or any other industry go out there and say, ‘Look, here’s the Treasury modelling and it’s going to cost us six per cent’? That is based on the rest of the world coming in—and it is not going to. I take your point on rail, which is another issue like the single desk issue. You have 23 people, or whatever the number is, trying to put everything on rail and get everything out at one particular time rather than spreading it out over a 12-month period. What is the situation with the rail industry as far as grain is concerned? If the government is fair dinkum about climate change, they will have to go back to some of their states—although there is one conservative state. The states are backsliding on rail and they are not putting infrastructure in. How is that affecting the grain industry?

Mr Clark —It is quite bad. I will just pick up the modelling discussion first. You are quite right: the ABARE modelling is highly unreliable in relation to the agricultural sector. The government has done no sectoral modelling around agriculture, other than the broad general equilibrium model. Their assumptions are that everybody comes in relatively quickly and that—

Senator FEENEY —By 2025—just to get forensic about your term ‘relatively quickly’.

Mr Clark —Thank you. So we do not think that modelling is a reliable source. We like the CIE’s modelling that was commissioned in the past by the Australian Farm Institute. But, in the end, models are models; they are based on sets of assumptions. The great problem is that everyone will have to rely on some of those to come up with the right sort of scheme. We think there is a better and smarter model for agriculture than the one proposed through the CPRS. I do not know why we cannot contemplate something that looks at how we benefit rather than what penalty is involved in this.

Moving to the rail issue, we have declining rail infrastructure and principally this relates to the branch line networks. We have five lines marked for closure in New South Wales at present and, over a long period of time, we have had a historic decline in funding; accompanying those things has been underinvestment. Ultimately, we get left with the road as a solution. We get federal governments pushing off costs on to local governments, who are dealing with these things. We end up with a high-energy solution to the situation. We would certainly like to see much more investment start to occur in this country based around branch lines and the opportunity for agriculture and other things rather than just reliance on the road system and what is left of the mainline system.

Senator BOSWELL —You say that your costs will go up six per cent.

Mr Clark —That is ABARE’s estimate.

Senator BOSWELL —That is based on what we consider to be inaccurate information. In percentage terms, how much grain do you put on the world market?

Mr Clark —Of the global supply?

Senator BOSWELL —Yes.

Mr Clark —I do not know off the top of my head, but it is significant.

Senator BOSWELL —Is it two per cent or five per cent?

Mr Clark —It depends also on what sort of grain you are talking about.

Senator BOSWELL —I am talking about wheat.

Mr Clark —In terms of wheat, I cannot answer off the top of my head, but it is significant.

Senator BOSWELL —If the costs are going up six per cent or more, how do you compete against Canada, America and Russia, which is a big competitor? How will you sustain your market?

Mr Clark —We are concerned about that. The trade aspect of this, we think, is one of the ones—

Senator BOSWELL —Is there any way that you can get your costs down?

Mr Clark —We think so. We think there are opportunities for growers to become more efficient—not that there are no opportunities—such as with changes in technology, certainly; changes in plant breeding, although they take a long time to eventuate; and changes in our marketing capacity and in the general dynamics of the world market. But, as I have said, you would not want to see a situation continuing where Australia was applying a CPRS that had an adverse outcome on our trade industries—and, in our case, grain—that then was not matched. I think the very great risk is that we see a number of countries designing different things or coming up with different trade distorting mechanisms—

Senator BOSWELL —Or none at all, as in the case of Russia. I think they have just opted out completely, haven’t they?

Mr Clark —Exactly.

Senator BOSWELL —Is that right? Am I correct in saying that Russia have said they are not going to be part of this?

Mr Clark —I do not know about Russia per se, but I would imagine that they were one of the slower ones coming up. But, if you have grain coming out of the Ukraine or places like that that do not have a similar sort of scheme or do not have it applied in the same way, there is opportunity for distortion. Certainly, we also have countries like the European Union and the United States, which have a very strong history of support mechanisms; they are experienced in these things. We would not like to see them start to apply non-tariff trade barriers or other measures and pressure their trading nation partners to act in the same way so that we would be disadvantaged in the marketplace.

Senator FEENEY —Looking at the various challenges that beset your industry and Australian agriculture generally, such as those reflected in the OECD figures in terms of tariff and trade barriers, it seems to me that, on the Richter scale of challenges, the CPRS falls a long way behind some of those. Is that a fair remark?

Mr Clark —I think that is probably more so in sectors other than grain; but it is a fair comment, yes.

Senator FEENEY —But, for instance, when we looked at grain, we found there were tariff barriers in the US—this is according to an OECD report—of 3.3 per cent, in the EU of 64 per cent and in some Asian economies of over 200 per cent. These are enormous barriers for Australian grain producers to tolerate with or without a CPRS. Is that a fair remark?

Mr Clark —It is.

Senator BOSWELL —Another six per cent is not going to help.

Senator FEENEY —Sure. In Western Australia, we heard from a Mr de Fegley of Sustainable Forestry Management. He painted what, at least for me, was a compelling picture of some of the opportunities that an ETS could offer the agricultural sector. He talked about how an ETS can create revenue streams for agriculturalists that can then help them remedy critically difficult challenges, such as erosion, salinity and the rise in the watertable, the need for reforestation, incentives to move to more efficient and effective tillage and a whole range of soil carbon issues, all basically collectively capable of transforming use of the Australian landscape for the betterment of both profit and the environment. In fact, he spoke to us specifically about a test case property, which they were working on in the wheat belt of Western Australia, that had all of those problems—erosion, salinity and so forth. I am interested in hearing what sort of opportunities you think an ETS can provide in terms of driving some of those important works in your sector, particularly in fighting the risks that climate change poses for you in terms of land degradation.

Mr Clark —I think there is a strong opportunity, if you design the right scheme. The problem is that we do not have the right scheme design.

Senator FEENEY —Sure, but perhaps we can have some optimism.

Mr Clark —Absolutely.

Senator FEENEY —I hear a lot of pessimism.

Mr Clark —Okay.

Senator FEENEY —Perhaps we can have the Grains Council turning its mind to a bit of optimism.

Mr Clark —If we can design a scheme—we have put one forward based on the CCX model—where farmers start to derive income from these things through better land management and different practices, such as tree management and other things like that, we definitely see this as a strong opportunity. But the current system does not allow us to do that; it is a system of penalties and not of rewards.

Senator FEENEY —Between now and 2015, the agricultural sector will be exempt and—

Senator ABETZ —It will not be exempt.

Senator FEENEY —Well, not directly exempt—and, between now and 2013, there will be a terrifically important public policy discussion about how your industry can harness the opportunities of an ETS system. In that context, I am interested in hearing from you about opportunities.

Mr Clark —Ultimately, it relates to the international rules. The international rules, as they stand at the moment, do not treat agriculture particularly well; in fact, in general terms, they do not contemplate agriculture. There are some specifics in those rules that say your cattle emit particular amounts and your cropping has a particular profile to it and that the only thing you can do about those things is reduce your fertiliser use and your number of cattle. That is a bad system. That just needs redoing.

Senator FEENEY —Yes, and we have heard evidence about Kyoto accounting and how it is bad. So maybe you could talk to us a bit about how we could—

Mr Clark —Perhaps we can flip that around and say that we are going to need to produce all sorts of things. You might want to do that by saying, ‘We accept that all current practices are at a particular level, but we want to establish a rewards system for anyone doing better than that here rather than worse.’ I think a system like that would be very useful.

There is also the contemplation of how you get the money out of it. Ultimately, if you apply the scheme, food prices will go up, on the assumption that agricultural producers could actually pass these costs through. They are supposed to be rewarded at some point, but the difficulty is that they are not. So should we design a scheme that says, ‘Could we levy, in some form, food at the consumer end? That would create a pool of funds, which could then be distributed back perhaps through a market mechanism that says, ‘If you are undertaking tillage practices that do not disturb the soil so greatly, here is some reward for doing so, because that is better than contemplating full tillage’—or methane flaring out of piggeries or intensive livestock and other bits and pieces.

Senator FEENEY —But some of these things can improve the productivity of the land, can’t they?

Mr Clark —They can, as well as the resilience of the land. Improving the carbon content of the land will also improve water holding, nutrient flows and other things so that we will get more productivity or at least the ability to trade off that which we are likely to lose under climate change scenarios.

Senator FEENEY —The attraction with that for policymakers is that we might have a stronger agricultural sector and a more productive landscape into the future.

Mr Clark —If we design the right scheme.

Senator FEENEY —Yes, but obviously that is driven by revenue streams that flow from a well designed ETS.

Mr Clark —Yes, which we do not have.

Senator FEENEY —I keep hearing the whingeing; I want to hear about the opportunities.

Senator BOSWELL —Change the legislation and you will not—

Mr Clark —That is it. Can we change the legislation, because—

Senator ABETZ —It is always everybody else’s fault.

Mr Clark —You gave us the opportunity to put this on the table.

Senator FEENEY —You will have to harness a debate that basically will take place between now and 2013.

Mr Clark —But our issue with doing that is that it stalls the—

Senator Cameron interjecting—

Mr Clark —What can we do now?

Senator Cameron interjecting—

CHAIR —Senator Cameron, please.

Senator IAN MACDONALD —You would be aware of your international competitors in the grains trade. Has your council done an analysis of where each of those countries is in relation to a domestic ETS system?

Mr Clark —Not a formal analysis, but I guess we have been watching it. We know that the European scheme does not apply to agriculture at the moment. The US, as we understand, is not contemplating agriculture. The various state schemes that exist in the US do not contemplate agriculture. Agriculture in the US has got itself slightly together through the CCX and has started to work through it. We would imagine that the presence of that will have an influence on what the US domestic scheme might look like and how it contemplates agriculture out of it. New Zealand clearly is involved with agriculture but is having difficulties with it. Canada have started to contemplate agriculture and have included it, but I think they are struggling with it. However, principally, most countries are not contemplating agriculture.

Senator IAN MACDONALD —Who are your other big competitors—Russia, one of the South American countries?

Mr Clark —It depends on where you are and which sort of grain it is. Obviously, rice is through the Asian countries and also the United States. A lot of grain comes out of particular areas in Southern Europe and Eastern Europe. Principally, a lot of agricultural products are consumed where they are grown, so we are a major component of the export supply.

Senator IAN MACDONALD —But your assessment is that, as against your major competitors, you will have costs that they will not have.

Mr Clark —Absolutely; and, as a major exporter and dominant player within the export markets, we are going to be disadvantaged, we believe, in that marketplace.

Senator IAN MACDONALD —I am not aware of how much effort this would take but, if it is easy to do, would you be able to give us a bit of a table listing your major competitors in the grains that we are big in exporting and just a comment on your understanding of where your competitors are at? I would only ask you to do that if it is not a big job. I suspect that a lot of it will be around your offices somewhere.

Mr Clark —We can try.

Senator IAN MACDONALD —Thank you very much.

Senator CAMERON —On this issue of competitiveness, do you have a competitiveness index?

Mr Clark —No.

Senator CAMERON —Why wouldn’t you have such an index in terms of interest rates and exchange rates? Why don’t you look at those issues? Why are you looking only at the CPRS as part of your competitiveness? It is only one factor, isn’t it?

CHAIR —I do not think he actually said—

Mr Clark —It is the thing that is going to change.

Senator CAMERON —But interest rates change.

Mr Clark —They have always been changing.

Senator CAMERON —Exchange rates change.

Mr Clark —The new factor is the CPRS.

Senator IAN MACDONALD —Sorry, Doug.

CHAIR —Just going back to some of the mitigation issues that Senator Feeney was asking about, effectively, the thing locking agriculture out of opportunities at the moment is the design of the CPRS, which basically looks backwards towards Kyoto and the design rules that were based at Kyoto. Looking forward, what is your understanding of how the negotiations are going? What changes and opportunities might come out of Copenhagen?

Mr Clark —I think agriculture has been late to the table and, generally, it has not been part of the contemplation. Recently we have become engaged with the Department of Climate Change’s international negotiating group to provide them with some assistance and advice with how that might move forward. But frankly, I suppose, we are six months from the Copenhagen meeting, and putting new claims on the table for agriculture with the development of the post-Kyoto agreement 2012 is going to be challenging. But we have tried to provide some advice. The FAO and others are certainly batting very hard about agriculture and its opportunities. It is fair to say that a lot of the opportunities in agriculture mean that emissions rise, in fact, because of the multiplier, once you start looking at how you supply global population growth and what have you. So the best way to consider agriculture is by efficiency and possibly by practice. There is also the opportunity for sequestration in soils. There is strong recognition that soil sequestration is a big opportunity, but harnessing that opportunity is quite challenging.

CHAIR —It is going to depend on modifications to the rules, for one thing, isn’t it?

Mr Clark —The rules, absolutely. In the first instance, we need to allow the separation of anthropogenic from non-anthropogenic; and, secondly, the permanence issue with it needs to be overcome. That will take quite a lot of work and quite a lot of discussion, and I suspect that 2012 will probably be too early for a positive response. That is not to say that we should not start to work and continue along those lines. This is probably more a private view, but perhaps there should be an opportunity for us to contemplate two schemes: firstly, the industrial scheme, as is roughly contemplated currently; and, secondly, a biological scheme that includes sequestration and emissions coming in and out because of the cycling nature of those things.

Senator FEENEY —With that remark, aren’t you just highlighting the fact that we need several more years for this public policy debate on agriculture to unfold?

Mr Clark —I think we need that almost for the entire scheme.

CHAIR —You are the ones who want to pass it by June, Senator.

Senator FEENEY —We could continue an exemption for agriculture.

Mr Clark —If you are contemplating an exemption for agriculture, make sure that you apply an exemption and not just a whole series of costs that we cannot do anything about for five years.

CHAIR —Senator Cameron asked whether you have a sense of the time frame within which this might come in. It is recognised pretty broadly that sequestration in soils through a number of methods may be one of Australia’s big opportunities and perhaps one of our huge natural advantages.

Mr Clark —Yes.

CHAIR —Do you have a sense of when this might be able to occur and have a significant bearing on the overall debate?

Mr Clark —We have been arguing that we should be able to start now; do not stall investment by considering what we are going to do. We have said, ‘Can we build something that allows us to start now?’ We would like the voluntary scheme. While we understand that is not comprehensive, we think it gives us a starting framework so that we can tailor things, make regional approaches and get individual farmers engaged and moving forward trialling some of these things. Things will have to be done on a ‘no regrets’ basis—‘We tried and we failed, but it was done with goodwill.’ You do not want some sort of system that just penalises people and says, ‘Because we haven’t been able to think about you yet, we’d prefer you to stay where you are with your tillage practice than to move to minimum tillage.’

Senator MILNE —Mr Clark, you were here for our first roundtable on biocarbon and the idea of a complementary measure for biocarbon, which would require taking plantations out of the CPRS and then dealing with the whole biocarbon issue as one. Can you indicate whether you support that idea of taking plantations out of the CPRS and putting them in a complementary measure so that you incentivise the right things? Secondly, do you have a view about how that complementary measure for green carbon might look? A lot of people say that it has the potential to reduce emissions dramatically. Clearly, on the forests, that is obvious; and, depending on how you treat soil carbon, native veg and so on, that is obvious as well. But have you considered what it might look like and what regulatory changes would be needed to facilitate it? How quickly could we put together a serious national roundtable to develop a complementary measure on biocarbon?

Mr Clark —On the basis that it will evolve, I think you could do it relatively quickly. If we are trying to get everything perfect, that will take some time. As I said at that roundtable, I think we also have to provide a framework that allows farmers to innovate. They will come up with the solution, if we give them the right signals. So our view is that the voluntary market, which could start now, is possible. But, in terms of the construct of the CPRS and what to do, it does allow removal units. It seems to be a new concept that has developed up and we only saw it with the draft legislation, but it does not really contemplate agriculture. We have asked this of both departments—climate change and agriculture—and their only response has been, ‘No, we can’t do stuff, because the government has said that we are going to contemplate it later.’ So we just have this stalling of everything, when we think it should be possible to start now. If you say, ‘Whatever you’re doing now is the base and, if you do something better than that’—however you determine it—‘there will be a credit or a payment or some sort of incentive,’ it should be able to be done.

Senator CAMERON —Where would this money come from?

Mr Clark —That is an issue. But the design of the CPRS needs to allow for the widest range of Australian domestic offsets as possible; I think it is as simple as that. The current scheme says that you can go offshore and get some credits from CDM opportunities there; why wouldn’t you open it up to say, ‘Let’s explore all those opportunities in Australia and design that?’ So the scheme itself would exclude agriculture but allow agriculture to participate in a voluntary market, along with forestry and others, and allow the mind to be opened, I suppose: not to lock ourselves into practice A or practice B, but to say, ‘Anything that provides an offset and can be shown to do so is allowable and can generate credits for our scheme.’

Senator MILNE —Nothing is stopping us from doing that right now and it does not have to be led by the government. You could put together a mechanism which operates in the voluntary market, which requires leadership from somewhere; but it will be undermined, if the plantations stay in the CPRS. Do you agree that we should take them out and then try to design something as a complementary measure, notwithstanding that the price in the voluntary market will be much less?

Mr Clark —Not necessarily. If you established a voluntary market with an appropriate set of rigour around it, a credit would be a credit; however you generate it, you should be able to get the right price for it.

Senator MILNE —Providing that it is audited properly.

Mr Clark —Yes. But you are quite right: at the moment we can do this in a voluntary space, apart from there being no confidence around it and it is likely to shut down because of the design of the scheme. No-one in their right mind would do that; however, with something that had a liability attached to it, like soil carbon, they might. The right spot for all of these things, I think, is in the voluntary space and we could start now. But the voluntary market needs to be designed at the same time as the regulatory market. The money, Senator Cameron, would come from the compliance market and whatever other mechanisms exist for generating revenue. A unit is a unit, once it is generated; it is just a matter of how you generate it.

Senator CAMERON —But it has to come from either, say, existing EITE companies or households. Where do you say it should come from?

Senator FEENEY —Effectively, there is a question, say, with the exchange—

Mr Clark —Yes, but we have started a dialogue to say that the intent of the CPRS is that, in the end, food would be more expensive. Can we levy that to construct something that makes food more expensive? You would just add something to GST to generate the pool and you would capture offshore products as well. That gives you a funding pool as well, which might go into R&D, which might help some of these things or facilitate the market and oil the wheels as well. It is not out of the realms of possibility, but it is not part of the current design.

CHAIR —We will have to draw to a close; thank you very much. Can you tell us finally when the department started to engage with you? You said that you have recently had engagement with the department; can you tell us when that was?

Mr Clark —Within the last month.

CHAIR —Thank you very much for your evidence today. We appreciate your coming before us.

[12.37 pm]