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Emissions trading and reducing carbon pollution

CHAIR —I welcome our next witnesses, from WWF Australia.

Mr Toni —Chair, I am going to tender a technical report and I would ask your leave for the author of the report, who is present in the audience, to sit with me in case you have any questions.

CHAIR —That is not a problem. Is a report a carbon sink or a carbon emission!

Mr Toni —Well, it is a carbon sink, and quite a substantial one!

Senator PRATT —Provided we hang onto it—

Mr Toni —Yes, that is true

Senator PRATT —and keep it in our files—

CHAIR —It depends on the international accounting rules at the moment!

Senator PRATT —and do not shred it and use it for biofuel or something.

Mr Toni —This is Dr Karl Mallon, from Climate Risk Pty Ltd.

Senator IAN MACDONALD —Could you tell us what Climate Risk Pty Ltd is.

Dr Mallon —Yes, Senator. We are an independent consultancy. We work for the private sector, so we do a lot of work with insurance companies like Zurich, also companies like Telstra, to advise them on how to adapt to climate change impact. We have been doing a lot of work with insurance brokers on how to advise their SME clients on how to adjust to extreme weather—flooding, bushfire et cetera—and also with companies on how to adjust to a low-carbon economy. We also do a lot of work with local governments under the federal government’s scheme to assist local councils with implementing risk management plans for climate change, and we also do work for organisations like WWF on technical analysis of policies.

Senator IAN MACDONALD —Is it relevant who the owners are? Perhaps it is not if they are just ordinary people or an ordinary company. I just want to clarify that you are not owned by WWF or the Wilderness Society—well, it would not be the Wilderness Society if WWF were using you. Is that relevant?

Dr Mallon —No. We are independently owned by the directors.

CHAIR —Thanks. Mr Toni, do you have a statement?

Mr Toni —Thanks, Chair. Australia must drastically reduce its carbon emissions, and do so quickly. We believe that in order to foster a breakthrough agreement, as opposed to an international agreement that is business as usual, Australian should be willing to offer a 25 per cent cut by 2020 and an 80 per cent cut by 2050, provided other countries make comparable emission reductions. However, delaying this scheme will cost Australians dearly. While we would seek amendments to the scheme, including deeper cuts, WWF believe that the scheme should start in 2010 if we are to have any chance of reaching medium- and long-term pollution reduction targets.

The central thesis of WWF’s argument is that we, Australia as a nation, need to do two things at the same time. The first is we must do what we can to foster an international agreement. An effective international agreement will see many of the competitiveness issues, which are causing difficulty in the debate in Australia and elsewhere in the world, being significantly reduced. The second arm of the thesis is that Australia as a nation must take substantial steps to reduce its own emissions. We are one of the most carbon-intense countries in the world. We will require enormous change to our energy, industrial and agricultural infrastructure and way of doing business to reduce emissions.

It is for this particular reason that I seek to tender this report for your consideration. This report is different from economic modelling. It is a report that reviews the feasibility of transforming Australia’s industries to greatly reduce their emissions. Contrary to perhaps widespread belief, industries are constrained in the speed and depth with which they can grow. Typically, you see this in times of war, where there is an ultimate limit to the speed with which transformations can take place. However, it is visible in ordinary times, too, where we see things like a lack of skilled labour—a lack of nurses, for example, despite the fact that this country has a very large health budget, has had one for many years and will have one into the indefinite future. The modelling that Climate Risk has done for us shows that the transformation needed requires emission cuts in the region of 18 per cent to start this transformation in a sustainable fashion. So I would stress that this is not a negotiation, as it were; there is actually a threshold here that must be overcome.

I suppose the second part of the thesis is that the report identifies tremendous opportunities, and it is necessary for us to recall that economic modelling of the type that has been done, which has been very thorough in Australia, nevertheless does not model the opportunities that arise; it models the costs only. We know from transformations that have taken place in the past—the Industrial Revolution, the automotive revolution, the revolution in air travel—that while some doors shut others open, and the economy as a whole grows and transforms in the process. Thank you.

Senator FEENEY —Mr Toni, you said in your remarks—and I think you appreciated in your remarks—the fact that Australia is home to a commodity based economy. Our manufacturing base is emissions intensive and trade exposed. We are a nation that has largely dismantled our tariff and trade barriers and so we remain, in a lot of key parts, exposed to an international world price to an extent that I at least would contend is greater than that of Europe, for instance. In that context, the transformation towards a low-carbon economy is particularly difficult for Australia in comparison to, say, the United Kingdom—a topical example for today. Obviously, that represents enormous upfront costs for Australian industry in terms of changing the trajectory of our emissions in this country. In that vein, and with you having said, I think, in your opening remarks that you fundamentally appreciate that dynamic, how is it that you imagine we can go for deeper and harder cuts without risking serious carbon leakage?

Mr Toni —We do appreciate that Australia is unusually exposed, and that is probably true of the United States as well. The EU and the United States are large, insular economies which have a certain amount of protection just because of their scale. I suppose I would divide the response into two. In terms of the fostering of an international agreement, a breakthrough international agreement will address many of the competitiveness issues because, in fact, the number of countries—developing countries, even—that have the sorts of industries that we have here, particularly alumina, iron and steel, is a comparatively small number, and so a breakthrough agreement would, in one way or another, start to reduce the scale of their growth.

Senator FEENEY —So you are only contending that our cuts should be larger and deeper if they are mirrored by similar targets in our trading partners?

Mr Toni —‘Comparable targets’ is the term I would use.

Senator FEENEY —So, in that context, then, you would support the government’s legislation as it presently exists, in the sense that it does not realise your greater aspirations because of the particular circumstances of international negotiations at the moment?

Mr Toni —No. I think there are two key elements in a response to that. One is: it should articulate the ambition. So it should state, ‘Australia will reduce its emissions at least 25 per cent by 2020 if other major emitting countries make comparable emissions reductions.’ It should clearly articulate that, because that is an offer to the world that we are seeking a breakthrough agreement. International negotiations are largely incremental, as you all would know. We are in a circumstance where we should try to avoid incrementalism if we can and seek a breakthrough. Australia is as good as any country in the world to do that.

The second element is: in the meantime, how do you protect your industries while you make this transformation? One element is that a reasonable level of protection is appropriate, and the sort of protection that Professor Garnaut spoke of would be reasonable. The amount of protection that has been offered now is probably not reasonable because—

Senator FEENEY —You think it is too great.

Mr Toni —It is too large in the respect that, firstly, it will prevent the long-term transition of these industries to a low-carbon future.

Senator FEENEY —How does it do that? It still provides a price signal for their activities.

Mr Toni —It is a very modest price signal. It is probably going to be even more modest because much will be imported from overseas.

Senator FEENEY —That is carbon leakage, isn’t it?

Mr Toni —Not really. It is important that we move—

Senator FEENEY —Import substitution for domestic production: that is carbon leakage.

Mr Toni —No, I am sorry. Many of the permits will be imported from overseas.

Senator FEENEY —I see.

Mr Toni —I beg your pardon. Really, the long-term future of these industries in Australia depends on us introducing transformative technology. They will just go to whoever has the cheapest price and, increasingly, an element of the cheapest price will be carbon. Australia is very unusual in that it is so energy rich by comparison to most countries and we have large-scale—

Senator FEENEY —You are not talking about being fossil fuel energy rich, though, are you? You are talking about solar—

Mr Toni —I am talking in terms of all sources of energy. The fundamental energy resources are the same. They have not changed in a thousand years: solar, wind, ocean, fire, geothermal and fossil fuels. Some fossil fuels will continue to be used for a long time, probably for the indefinite future, not just for power generation but also for the need for them in iron and steel and things like that. Australia has enormous wind, ocean, and geothermal resources, but to introduce those resources into our grid requires active government policy.

Senator FEENEY —It does.

Mr Toni —Part of that must be that—

Senator FEENEY —A renewable target, a CPRS—

Mr Toni —A CPRS.

Senator FEENEY —and a permit system that enables these—

Senator BOSWELL —What about one of those tariffs—

Mr Toni —companies to survive in the contemporary international environment while transitioning into their new technologies and their new—

Senator BOSWELL —You’ve got to have a feed-in tariff.

Mr Toni —And, arguably, even a feed-in tariff.

Senator BOSWELL —A feed-in tariff would be good.

Senator FEENEY —A feed-in tariff would be good. I think he was being sarcastic.

Mr Toni —We actually have to foster some of these industries, because ultimately, when the price rises to a certain point, the large resource firms are unlikely to abandon us. They will just run down their plant and the new plant will be Iceland or somewhere like that.

Senator FEENEY —Let me hit you with a final question about your remarks concerning the opportunities that a low-carbon economy offers in terms of employment. I wonder if you are able to be more forensic about identifying those job opportunities.

Mr Toni —May I tender another document which I did mean to hand up—

Senator BOSWELL —Just tell us. We have millions of documents.

Mr Toni —This is a summary of the report that I just handed up.

Senator FEENEY —So in this document I will find?

Mr Toni —You will find the data that supports it.

Senator BOSWELL —Where are all these jobs coming from?

Mr Toni —The document I am providing copies of is a graphic but robust representation of the low emission technologies that would achieve a 20 per cent cut in Australia with five per cent being imported from outside Australia in Australian emissions. You can see that it is a very large infrastructure project but it would generate a very large amount of economic activity as well. The renewable energy target in its present form will get us some way to achieving these emission reductions, but the structure of it will draw them into the market one at a time on the basis of lease cost. That is desirable in one sense, but in fact each time a new technology moves into the market it brings you up against industrial constraints such as a lack of labour, a lack of easements for pipelines and for transition lines, a lack of lawyers to draw the contracts and so on.

Senator FEENEY —I suppose we could bring in lawyers from India.

Mr Toni —We would have to bring them in, I am afraid. There will be a series of bottlenecks, whereas a RET, a renewable energy target, that actively fosters these or other government policies that actively foster these will lead to a smooth transition to very large scale cuts by 2020.

Senator HEFFERNAN —What would happen if the algae thing in coal fired power stations works and it gets up within four or five years, because it is now in the MOU stage along with Loy Yang and others? What would that do to this if we could actually prove that we could do coal fired power stations with zero emissions, which is what they are aiming to commercialise? Would that make all this redundant?

Mr Toni —It would not make all of it redundant.

Senator HEFFERNAN —It would make a fair bit of it redundant.

Mr Toni —May Dr Mallon answer that?

Dr Mallon —Just to clarify that technology—because we have investigated that quite carefully, as Mr Toni was pointing out—there are really not an infinite number of resources. With fossil fuels, we think of oil, gas and coal, and we have separate policies for each of them. With renewables, it is a very similar area. Essentially you have biomass, which you are talking about, solar, wind, geothermal and ocean based technologies. The particular capture option that is being discussed is quite interesting. In principle, it does not make those facilities zero-emission. What it actually does is recycle the carbon. So once you have pulled the coal out of the ground and you have burnt it, that carbon then enters the biosphere. It becomes part of the atmosphere and part of the biosphere. By bubbling it through the algae you are recapturing the carbon using solar energy. That is where the energy source comes from. It can then be used to make a fuel. So what you are doing is using solar energy to get an extra bang for your buck from the coal plant.

Senator HEFFERNAN —But if the more-bang-for-your-buck equipment were part of the power station and not external—and I have had this discussion with them; in other words, if it were leased to the power station and what came out the back gate of the power station went out the back of the algae farm—wouldn’t that mean that it was zero-emission?

Dr Mallon —No. Roughly speaking, what it would mean is you used the carbon once to get your electricity and then you used it again to create, say, a fuel, like a diesel, to run in trucks—

Senator HEFFERNAN —The problem is the CO2 going up the stacks.

Dr Mallon —That is true. So what happens is—

Senator HEFFERNAN —It goes up the stacks and it converts into a feed stock. So if instead of feeding cattle something like wheat you feed them this stuff isn’t that an efficiency?

Dr Mallon —But ultimately if you make that—

Senator HEFFERNAN —The cows will fart, but—

Dr Mallon —Exactly. I did not want to say it but you did. Ultimately it comes out, so it just means that you would probably halve the emissions. Imagine you have—

Senator HEFFERNAN —Let us just go with half.

Dr Mallon —Half would be a good indicator.

Senator HEFFERNAN —Isn’t that going to alter this?

Dr Mallon —It would certainly add to it. Within there, we have assumed a high degree of carbon capture and storage, so that is potentially a replacement for the CCS component that we have included there. So it would probably be complementary to that mix.

Senator HEFFERNAN —If every coal fired power station had one of those plants the feed stock would be valuable for the future global food task. We are modelling energy here but we also have to model food. If that was a global thing, wouldn’t that solve a lot of problems?

Mr Toni —I think it reduces it by about half on a full life cycle, so it is a significant reduction.

Senator BOSWELL —Why doesn’t it reduce it by 100 per cent if you are taking it all out and putting it in a pond? Where does it go from there? Into a cow?

Senator HEFFERNAN —It converts into fuel—

Senator BOSWELL —But we are going to have a cow anyhow.

Dr Mallon —If, rather than imagining a cow, you imagine you turned that oil into diesel for a truck then it is quite easy. You can say first up you used it to get electricity, then you turned it into algae, which you turned into diesel fuel and then you burnt the diesel fuel but you could not capture it once it came out the exhaust. That is when it went out into the atmosphere. It has still got out there; you just got twice as much energy for the same process. That is why you could roughly speaking say it would halve the emissions but not remove them entirely.

Senator HEFFERNAN —You would halve the emissions just with that technology. Given that China creates as many emissions with a new power station as we do every year, would that not be a pretty good solution?

Dr Mallon —We are probably a bit more ambitious than that, because we actually assume an 80 per cent capture with carbon capture and storage. In our modelling, we are assuming—

Senator HEFFERNAN —But this is replacing the fuel component. The biodiesel is actually just replacing someone else’s fuel, which is going to do the same. If the technology—which is now under a memorandum of agreement with three big power stations on the east coast—can give zero emissions out the stacks and convert into a feedstock and a fuel, surely the fuel was going to come from somewhere else? The only one that I know is the coal fuel, which reduces the emissions from cars by 35 per cent—which was part of evidence earlier this morning. Surely that would be an advance? It is in the up stage, but no-one is talking about it in the context of this legislation or how you would credit the process. Under the present legislation there is no credit to the power station because the CO2 actually leaves the power station down a pipe instead of out the stack. That is a problem for a start. Surely we should slow down until we get our mind around it?

Dr Mallon —You have probably hit the nail on the head, which is the process of how we get there and which technologies we choose.

Senator HEFFERNAN —I hope someone is listening out there.

Senator BOSWELL —I can tell you that they are not!

Dr Mallon —One of the problems that we identify here is not necessarily a shortage of technology. For instance, you, Senator, have identified one which has a lot of opportunity. We have also suggested that there are others. The issue will be getting them to the scale in the required time. Imagine that you want to mobilise the algae capture technology at scale. One of the critical limitations will be getting those industries up to speed in sufficient time to make a real difference.

Senator HEFFERNAN —I appreciate that, but—

CHAIR —Senator Heffernan, we need to go back to Senator Macdonald, who I think—

Senator HEFFERNAN —Finally, should we not also be developing thorium?

CHAIR —Senator Macdonald has the call.

Senator IAN MACDONALD —Thanks, Mr Chairman. Gentlemen, thanks for your submission. I must say that I am confused. Did I hear you correctly saying that you are suggesting that Australia should have deeper cuts when the rest of the world moves?

Mr Toni —The WWF’s position is that Australia should be making an offer that we will reduce emissions 25 per cent by 2020 provided other countries make comparable cuts. They will vary between developed and developing countries, but we would argue that developed countries make similar cuts and developing countries reduce the growth in their emissions significantly.

Senator IAN MACDONALD —I think if that were the case there would not be a great deal of division within the Australian community.

Senator PRATT —Does that mean that you endorse that position?

Senator IAN MACDONALD —If other countries cut by the same thing, yes, by all means—never any doubt. And I mean all other countries—the bigger emitters.

Senator MILNE —So the coalition agrees with 25?

Senator IAN MACDONALD —I am not the coalition; I am a member and this is my view.

Senator MILNE —I am interested that—

Senator IAN MACDONALD —My views have never changed. If Australia is not being hung out to dry, by all means go or it. That has been a consistent position of mine. But I am interested in WWF’s position rather than my position. The corollary to that, of course, is: what happens if, as I suspect—and I hope I am wrong—that, come Copenhagen, we are not going to get any agreement and we are going to get, for example, the USA saying, ‘Yeah, we’re determined to do this but wait until congress agrees in legislation, and then we should move’? What is the WWF’s position if that does not happen?

Mr Toni —I would partly answer that by saying that the report that we have just tendered shows that about 18 per cent is necessary to have sustainable industrial development of low-emission technology in Australia. But this is almost an issue—

Senator IAN MACDONALD —Are you saying that to get lower emissions you need 18 per cent to make it worth while—

Mr Toni —Yes.

Senator IAN MACDONALD —so we should do that in any case?

Mr Toni —But this is really a situation where we should be putting the best possible offer on the table that we can, and right now.

Senator IAN MACDONALD —I agree with that: go higher if the experts, and that is certainly not me, say so, but as long as everyone else is doing it. And I am pleased to see the WWF is continuing to justify my appreciation of the sense with which they come to conclusions. That is fine, but if it does not happen where do we go?

Mr Toni —I hope it does happen.

Senator IAN MACDONALD —I do not think it will, and informed observers, regrettably, agree with me.

Mr Toni —But nobody has put the offer on the table. We do have a lot of people attending meetings and I appreciate that they are much more experienced than me, but nobody has put this offer on the table.

Senator IAN MACDONALD —Have you, as part of WWF or anywhere else, been to many of these international negotiations?

Mr Toni —WWF attends—

Senator IAN MACDONALD —I know about WWF, but have you?

Mr Toni —No.

Senator IAN MACDONALD —It would be instructive, I think, to read Dr Brian Fisher’s evidence on how these negotiations work. He indicated last night that the team from America to Copenhagen would be the same team that went to Kyoto, where they promised the world and delivered not a thing. But I do know that WWF is experienced in this and I am wondering what WWF’s anticipation is of the outcome of Copenhagen?

Mr Toni —I am really not qualified to express an opinion. These negotiations are handled by the international team and not by me. Certainly WWF’s view is that the Major Emitters Forum is a clear signal that America wishes to get back into being involved in a constructive way in these negotiations, and that it is an extremely good venue—not the only one—to foster a breakthrough agreement. But, especially in the case of the UN, a breakthrough agreement will only come if somebody steps out and joins the existing leader, which is the EU.

Senator HEFFERNAN —Most of those economies are insolvent.

Mr Toni —Which economies?

CHAIR —Comment on the economics of it is not helping.

Senator IAN MACDONALD —Just ignore my good friend and colleague while I have the floor.

0Senator Boswell interjecting

Senator IAN MACDONALD —Now you have made me forget the intelligent question I was going to ask! I will move to another curiosity as I look at this persuasive, as always, publication I have here. Are you in favour of small hydro power stations?

Mr Toni —Certainly. In a small-run-of-river hydro is quite a low-environmental impact form of technology.

Senator BOSWELL —You have got to find the water.

Senator MILNE —Dams.

Senator BOSWELL —What about the platypuses?

Mr Toni —The environmental impacts of most developments need proper assessment but small-run-of-river hydro should have a low environmental impact.

Senator IAN MACDONALD —The Wilderness Society and certain political parties do not have a great deal of time for you, which is perhaps why I do have a great deal of time.

Senator MILNE —Run of the river is not dams.

Mr Toni —That is not dams.

Senator IAN MACDONALD —I was just going to say that your photograph actually shows a dam.

Mr Toni —That is true but the fact is that a picture of the device would be so obscure that we needed to put something that was instantly appreciated.

Senator IAN MACDONALD —Suffice it to say that you are very much in favour of hydro. That was the point.

Senator HEFFERNAN —For hydro you need water.

Senator IAN MACDONALD —There is plenty of water in Northern Australia.

Mr Toni —Not large-scale hydro, but certainly there is still plenty of opportunity, particularly for small-run-of-river hydro.

Senator IAN MACDONALD —Do you have a view on why we do not do that in Australia?

Mr Toni —It is not at no cost. A lot of these things will be fostered once there is a price on carbon.

Senator IAN MACDONALD —I do not really want to get you into trouble with other groups that claim to be environmental groups but, given the problems with carbon emissions, what is your view on the European and Chinese proposals to increase their nuclear energy to save carbon emissions? Is that good, bad or indifferent?

Mr Toni —WWF has a long-standing policy to oppose nuclear power. This is fundamentally an issue of waste or industrial pollution, and to replace one sort of pollution with another sort of extremely toxic pollution would be imprudent.

Senator HEFFERNAN —Even thorium?

Senator IAN MACDONALD —Please ignore my colleague and great mate. You think uranium waste is a bigger problem than carbon emissions?

Mr Toni —I would say it is a problem of equal scale, yes.

Senator IAN MACDONALD —The Europeans and China of course, in their holier-than-thou attitude, keep opening power plants or proposing to open them. They then say, ‘Aren’t we good with our carbon emissions reductions?’ because of it. But do you not think there is merit in that?

Mr Toni —No. There are ample low-emission technologies that are not nuclear, and that is particularly true in Australia.

Senator HEFFERNAN —Thorium does not have an afterlife of a hundred years.

Mr Toni —Yes, WWF really has a very long-standing policy. It has had it for 40 years and it is as a result of its experiences in Europe and—

Senator HEFFERNAN —Thorium was not known about then. Do you know much about thorium?

Mr Toni —I have read a single Scientific American, so I do not, no.

Senator HEFFERNAN —No, there you go.

Senator MILNE —I want to address your target. You are saying that Australia should agree to a target of 25 per cent if the rest of the world comes on board. If the Copenhagen agreement was for annex 1 countries to agree to 25, would that get us to 450 parts per million or less?

Mr Toni —If it were accompanied by some restraint in growth of developing countries, yes. It would give us a reasonable chance of achieving that.

Senator MILNE —No, it is the annex 1 countries we are talking about, because there is no agreement yet that developing countries are coming on board. This is about what developed countries would agree to as their carbon budget in order to allow developing countries to grow. If the annex 1 countries just said, ‘Okay, the global agreement is 25 and we are the ones with the binding targets,’ would that get us to 450 or less?

Mr Toni —No, other developed countries need to be further up the 25 to 40 envelope.

Senator MILNE —Okay, that is the point that I am getting to. Graeme Pearman, David Karoly and a lot of other scientists were here on the first day of our hearings. Graeme Pearman was saying that Australia would have to have at least 30 per cent on the table and Karoly was saying 40 in terms of what developed nations would have to do to give us a chance. They were all saying that 450 is too much and that we should be aiming for lower. I see that WWF’s position is 400. Isn’t 25 a pretty unambitious target and one that is jeopardising a global agreement going higher for annex 1?

Mr Toni —In the view of WWF, no.

Senator MILNE —Which scientists support you in that?

Mr Toni —WWF’s global policy is a 25 to 40 per cent cut for developed countries. As a result of the past and Australia’s carbon intensity, we are satisfied that Australia is in the lower end of that band but certainly, to achieve a 450 and ultimately a 400 stabilisation target, all developed countries would have to be in that band of 25 to 40.

Senator MILNE —But you would give Australia the lowest. Isn’t that rewarding bad behaviour for getting an eight per cent increase in Kyoto?

Mr Toni —It is accepting an existing situation and trying to make a significant step forward from an existing situation. Even in Europe, which are the clear the leaders, I think, in this space, a 25 per cent cut would be recognised as a significant cut. It would also be a signal from a country that is extremely carbon intense—much more so than Europe, more so even than the US—that it is confident that we can make the transition to, ultimately, a virtually zero carbon economy.

Senator MILNE —Wouldn’t you agree that, whilst we are a carbon intense economy, we also have a disproportionate, compared with other developed countries, resource for renewables, given our size and given our resource?

Mr Toni —Indeed. No question.

Senator MILNE —So capacity is absolutely there, contrary to other developed countries.

Mr Toni —No question.

Senator PRATT —What you are recognising, though, is a trajectory that we need to turn around, partly because we have been treated too generously in the past—is that right?

Mr Toni —It is partly that, but it is partly that you cannot grow the industries at the speed you need. It is a very large rate of growth. The poster you have in front of you, which is a summary of the report, is really a very ambitious rate of growth.

Senator PRATT —A higher target is too ambitious for us in terms of our actual capacity to transform ourselves. A very, very high target is too ambitious. But what you are talking about is a real path where we can realistically make those transitions, that industrial revolution, if you like.

Mr Toni —You can always achieve a higher target by purchasing credits from overseas, but that is an ambitious target.

Senator MILNE —Or by protecting your forests.

Mr Toni —Or by protecting forests or, indeed, by planting more forests.

Senator BOSWELL —Should the farmers be in or out?

Mr Toni —At this point in time? There are significant measurement difficulties at this point in time.

Senator PRATT —I wanted to ask about that transformative effect. So the target is one thing; the other thing is our capacity to innovate and compete in these new emerging technologies. I want to ask you about the price for carbon in relation to getting that signal out there. And I want to ask, if we do not act soon enough or quickly enough, how we might be distorting our rewards in favour of old technologies that will become stranded and how we get that balance right in the legislation and the proposals that we have before us.

Dr Mallon —I think that really goes to the heart of the issues that we are starting to identify. The report is called ‘Industrial constraints’. As Senator Milne points out, the capacity and the resources are there, but that is not in discussion. McKinsey, government papers, CSIRO, all of those recognise that these resources are available abundantly. But, as you point out, it is the issue of how you harness the resources and what you need to do in order to get there. The rates of growth for industries that are in here would make any company executive smile. They are year-on-year growths of around 20 per cent per year. What happens if you start to delay that process—if you say, ‘We don’t need to do it now; we’ll leave it till a little bit later’—is what I call the phenomenon. Where your growth starts to push past about 30 per cent, companies become unstable, because year on year you have to get 30 per cent more staff, bigger premises, more capital, more investors. What you have is champagne one day and bankruptcy courts the next day. So either you have an unstable industry, which means that you keep failing to deliver the targets, or you have prudent company executives that say, ‘We’re deciding not to grow that fast,’ in which case the government’s objectives become unachievable because the industry itself is choosing not to grow at the scale required.

Senator PRATT —But we are not at that point yet. We are still at the stage where we are trying to encourage those industries to get off the ground versus continuing to invest in technologies of the past.

Dr Mallon —Exactly. So in order to give those companies the longest lead time that you can, the crucial point is to plant the seeds. The seeds become crucial. With a carbon price alone, with emissions trading alone, what will happen is that it will be least cost first. Least-cost actions are things like avoided land clearing. The more expensive solutions like algal alternatives or geothermal options sit idle because they are not competitive. They wait 10 years or 20 years and all of that is development time which is being wasted. One of the conclusions of the report is that complementary measures to the emissions trading scheme are absolutely crucial and those complementary measures should be structured in a form that encourages a broad suite of resources to be harnessed at the same time. The United Kingdom have a very similar scheme to the RET, but the difference is that it is banded. They actually identify how much they want from wind, how much they want from biomass and how much they want from ocean technologies. Unfortunately under the current RET scheme, which is intended to be complementary to the ETS, we would largely have that with just one technology, possibly wind or maybe wind and a little bit of biomass.

Senator PRATT —Stimulating green jobs in new industries is one thing at stake, but we also need opportunities for existing industries to adapt and become as efficient as possible. Can you tell us about what you have looked at in terms of how the CPRS and the modelling assist transformation and broadly protect jobs in industry?

Dr Mallon —Within the context of the findings which are about achieving those low-carbon figures, the main finding is actually a skills and jobs shortage. At the moment, engineers are in short supply in Australia—in the order of 20,000-plus. That may change with the change in the resources sector of the economy. It has been long identified, especially in some of the impacted energy sectors like coal and gas, that those skills would be in high demand.

Senator PRATT —They would be transferable.

Dr Mallon —Absolutely, if anything, more would be needed as well. Because a lot of the fuel supplies are lower cost, these things are often more labour intensive—for example, renewable energy projects are twice as employment intensive as, say, the fossil fuels sector.

Senator PRATT —In talking about Australia’s skills profile currently, if we get on this path, we have a good opportunity to transform the industry for people’s existing skill sets. What would happen to those jobs if we delay taking action too long? It is probably in those circumstances where we will have the largest problem with unemployment in terms of leaving people in jobs without relevant skills. Surely, the earlier we start to make that transformation the better we are going to be in terms of employment prospects.

Dr Mallon —This is addressed in the report. There is a potential dislocation risk, which is essentially a social dislocation risk when you have such rapid changes. You could see the very rapid demise of, say, a certain project that was fossil fuel intense but on the other hand there would be a skills shortage in another sector. This is where a strategic approach makes sense in that you would potentially seek to cluster your new low-carbon industries in areas where there are existing skills. For instance, you might choose to put a development of certain technologies in the Hunter Valley or the Latrobe Valley because you already have a captive pool of skilled people there.

Senator PRATT —Are you saying it is possible to match these new industries with existing skill bases?

Mr Toni —Often it is a viable alternative. Geothermal is a good example. A lot of the drilling, pipeline and mining skill sets will be necessary for geothermal. Metal fabricators will be required for virtually every technology, so there will be a lot of overlap with existing trade and professional skills. But we do need to enhance a lot of skills. There need to be more structural engineers with the robust technology you need to sink into the ocean, and things like that. There will be a lot of overlap. I did a review—and unfortunately I left my computer on the plane—of reports that analysed the overlap between technology push of this sort and jobs. There have been about seven or eight reports—and if I have leave I can submit—

Senator PRATT —That would be great. A list of those reports would be terrific.

Mr Toni —All the reports really fell into one of two categories: those that saw this sort of technology push as producing more jobs, or those that said that there was virtually no impact. The difficulty with the ‘virtually no impact’ analysis is that it was all cost analysis, which is not taking into account the transformative impacts of this sort of technology push which does create jobs. We know that from getting rid of horses and developing motor cars.

Senator PRATT —And being left behind, for example, in the industrial revolution or the digital age or whatever, if we do not actually keep up with that change.

Mr Toni —We are working in an area where we energy rich; we have tremendous opportunities. If we shifted the aluminium plants to geothermal we would have lower emission plants than exist in Russia or the Middle East. We would have the equivalent of a Brazilian or an Icelandic hydro plant—a zero-emission aluminium plant.

CHAIR —Thanks very much, Mr Toni and Mr Mallon. We appreciate your evidence today and your submission. Thanks for coming along. I hope you find your computer.

Mr Toni —So do I.

[11.57 am]