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Issues relating to the Fuel and Energy Industry

CHAIR —Welcome. Would you like to make a brief opening statement.

Prof. Wills —I know that I have appeared before the committee before but, for the record, I will make a primary statement on where the association has come since we were last here.

CHAIR —When we last met it was in relation to the Carbon Pollution Reduction Scheme. Have you been made aware as to what the current focus of the committee is?

Prof. Wills —Yes, I have that in front of me. The WA Sustainable Energy Association is now Australia’s largest state based body in this sector, although it is a bit hard to talk about the sector of sustainable energy because it covers all things. We have everybody from architects and builders all the way through to renewable energy generators and retailers. We have both customers and suppliers as members of the association. Membership of the association is based on the criterion that a business is interested in sustainable energy, whether it is as a supplier or product producer or as a customer buying those services or goods. We are delighted as an association with the continuing and growing support we are getting from the business community for our work.

CHAIR —What do you see to be the major issues for Australia in terms of energy security moving forward?

Prof. Wills —There is a whole range of issues that come into play there. Obviously, one is that while Australia is an exporter of non-renewable resource energy in the form of coal and gas we are also a net importer of, particularly, liquid fuels and of petroleum and oil products. There is an opportunity through a range of measures to ensure that we are less exposed to that as a market and, also, less exposed in terms of the rising costs of those products. So there is an opportunity for Australia to take some action in that space.

The cheapest form of action is always energy efficiency. There is a range of measures that exist—and referring to the terms of reference—particularly within taxation that can encourage local production of fuel and a local reduction of energy consumption through energy efficiency. And there are a number of measures in the tax code—referring of course to your terms of reference (f) here—that can have bearing on that from not only a supply and demand point of view but also from the point of view of promoting security and also promoting national productivity. An example may be in the refrigeration area. In 1999, refrigeration standards around the world started to change on the back of both the Montreal protocol to do with ozone depleting gases but also on the back of the European Union’s standards for refrigeration demanding increases in energy efficiency. Within our tax code, if you buy a piece of refrigeration kit or similar sorts of equipment, depreciation schedules are usually for about 16 years so if you find yourself having bought a unit in 1998 or 1999, before these standards changed—when energy efficiency increased—you still have at least another seven years of using that piece of equipment until such time as depreciation schedules allow you to retire it. There is a whole range of products that cross a range of sectors, whether it is printing equipment, refrigeration equipment or motor vehicles, in which many standards have changed in a period of less than 10 years and very often tax deprecation schedules are set for a period of 16 years. I think that is a neat example of where the tax system actually encourages you to keep a less productive piece of equipment than might otherwise be the case if you were allowed to get to accelerated depreciation.

Clearly, one way of dealing with that in the tax system would be to indicate, perhaps through a ministerial measure or through some other measure that is written into the tax code, that there can be a trigger for it at which there has been a paradigm shift in technology, and that trigger point can then be applied to say, ‘This group of equipment can now be retired on an accelerated deprecation schedule,’ and therefore assist the business in becoming more efficient and more competitive as their energy prices or other attributes change. And it may not just be about energy; it could be a whole range of measures that allow that change to occur and create changes that will ultimately be measured in Australia’s gross domestic product and in our productivity.

CHAIR —That is very much on the demand side of the equation. What about on the supply side of the equation? How do you see our energy mix evolving over the next decade or two in the context of meeting what is expected to be a growing demand for energy, even if we are as efficient as possible?

Prof. Wills —I guess that in that space demand side and supply side can be altered through the processes of alternative forms of, for example, delivering energy for motor vehicles. Electricity production is one way of doing that and electric vehicles are one way of doing that. While we are a net coal and gas exporter and, while there are opportunities—for example, for LPG vehicles to be making use of our domestic gas product—to actually impact on the import of oil and petroleum products, if we were actually looking as a nation, particularly though the Green Car Innovation Fund or similar mechanisms, to actually encourage electric car production as a mainstream thing that Australia did and as a mainstream piece of equipment that we utilised, then of course we could actually be using local generation of electricity rather than imported fossil fuels to fuel our motor vehicles and our automotive fleet.

CHAIR —Do you have a view on the hybrid car?

Prof. Wills —There is a range of technologies that we need to look at as we try to reinvent the efficiency of motor vehicle transport. While the combustion engine is a very evolved and very mature technology, it is still only about 20 per cent efficient. The energy that you put in compared to the energy that is utilised is only about 20 per cent. In electric vehicles that factor is about 80 per cent. So there is a dramatic improvement in terms of your ability to input energy and get work out of that energy.

CHAIR —But from an environmental point of view you end up with a battery at the end as a waste product. Those that argue against nuclear often point to the waste. It is a similar circumstance here isn’t it?

Prof. Wills —Only because of the absence of scale in Australia. Batteries are 100 per cent recyclable and the materials are reusable. The problem for Australia is that we do not actually have those recycling facilities in Australia. So with nickel hydride batteries all of that can be recycled overseas; it is just that Australia does not actually have the demand internally to create such a plant within Australia. The other part is that, for example, motor vehicles require high-performance batteries, and once they get to about 80 per cent of their capacity—that is, a 20 per cent reduction in their energy output—they stop being useful for motor vehicles, but they are actually still a valid storage device. So as you build up these banks of batteries, even though a car may no longer find them useful as a storage device, within an energy system there is still at least another decade of life in those batteries. You can actually still usefully store energy in them and take it out. So it is, ironically, an opportunity for the car to be in part an environmental contributor to the reduction of greenhouse gas emissions, to the development of energy storage, and to a range of other technologies that come in concert with that, that ultimately will provide greater opportunity for renewables, especially intermittent renewables, to be introduced into the grid because there will be a storage system as a part of that. The technology I am referring to is becoming widely researched across the world; it is being referred to with the throwaway line of ‘vehicle-to-grid technology’, whereby cars are used as an energy storage system as well as being a form of transport.

CHAIR —So what are the things that you think government should be doing that government is not? And I mean ‘government plural’; I do not mean this particular government. What are the things that governments are not doing that you think they should be doing to facilitate some of these things?

Prof. Wills —In sustainable energy use, there are a diversity of approaches. Energy efficiency is an important part of sustainable energy use. As you go through a process, the very first thing you should do in terms of energy use, just as with water use, is work out what it is that you do not need to use and then avoid its use; and, in the places where you do need to use it, you need to use it as efficiently as possible. In water use, we are seeing improved irrigation technologies and so on being applied, and the same sorts of rules apply to energy. So, within energy, after reducing unnecessary use, the next thing we need to do is be highly efficient in our use of that energy. Looking at the building we are in, I see we are still using some DC down lights, but there is also some compact fluorescent use. That is energy-efficient use: we are still getting the same amount of light but using about one-fifth the amount of energy to deliver it. That is becoming energy efficient.

The step beyond that, I guess, particularly if your target is to reduce greenhouse gas emissions, is to go to renewable energy sources where possible. And then, finally, where you continue to use greenhouse gas emitting fuels, you start to look for offsets and other ways of accounting for the fact that you are releasing carbon emissions, by going to an alternative way of attracting that.

Going back to my starting point about energy efficiency, though, the key there is that energy efficiency is properly acknowledged as the lowest hanging fruit; it is the easiest thing that you can do. In Australia, we really have not grasped that idea as yet. We really have not gone the hard yards to improve our energy efficiency, and in part that is understandable because energy in Australia has traditionally been cheap and therefore to spend money on saving that energy has not necessarily had an economic return. But, although we do not like to see sprinklers left on in summertime—or in wintertime—at the moment we are still quite happy to see the streetlights on.

Senator BUSHBY —Do you have access to any information that suggests what percentage of savings could be possible with a concerted effort on energy efficiency?

Prof. Wills —Yes, I do. There is a good amount of this information on the web, but I can certainly make those resources available, yes.

Senator BUSHBY —Thank you.

Senator HUTCHINS —Professor Wills, you referred to refrigeration and you said there was no taxation incentive to update the technology because of the depreciation—and the trigger point, you said, comes in the technology. Are there any other commodities that are in the same predicament, or is that almost all these devices?

Prof. Wills —Very often, the triggers for changes in the technology are preceded by a regulatory change that requires sudden innovation. For example, refrigeration was one of those, where there was a dual need in relation to ozone-depleting gases as well as a demand for more energy-efficient appliances. The same is true across a whole range of other equipment. Printing presses, for example, also started to be exposed to those European standards in the late nineties. They have changed dramatically. I note that that is something that the printing industry have raised with us as an issue for them. They would like to move to more energy-efficient appliances, but the reality is that, with the relatively low cost of power, the economic investment to do that is not there at this point, until such time as the tax system allows them to do it. So it is more cost neutral, and it is about overcoming that cost neutrality to actually gain some incentive and also to gain some momentum in the market to create those changes.

There are many, many examples. The motor vehicle fleet is another example. Vehicles that were built in the last century generally are less safe, more polluting in terms of particulate emissions and more polluting in terms of greenhouse gas emissions separately from particulate emissions. They are therefore impacting on air quality with the particulate emissions. They are less safe; they generally do not have airbags or a whole range of other things. If you look across many industries—in particular, the push that was created in Europe—there have been significant shifts in many areas and in many technologies, so there are great opportunities to actually harvest those at, I think, a relatively low cost.

Senator HUTCHINS —I presume Europe have high energy costs which have led them to make the changes.

Prof. Wills —Yes, and that is not only electricity but also of course motor fuels. With a much higher level of excise, motor fuels have been and are at least 50 per cent higher to double Australian costs in the same area.

Senator HUTCHINS —Are there any nations that have in their taxation system the ability to rapidly respond, rather than just saying that it is not there in our system at the moment?

Prof. Wills —I am not aware of it and I a must say that I am certainly not a taxation expert. I am simply making an observation about opportunities for change. Having said that, I am also not aware of anybody drawing those examples to my attention—having had these conversations with those people. So I think it would actually be an interesting policy initiative from Australia’s point of view to demonstrate some fairly simple regulatory measures or in this case some taxation measures that could create fairly rapid change.

Senator BUSHBY —Talking about carrots—effectively taxation carrots—what about sticks? Do you think there should be sticks on the other side of the coin in terms of technology that is not as attractive, or do you think that the best approach would be to make the path easier for alternative and more environmentally friendly sources of energy to be developed?

Prof. Wills —I think in any community, whether it is a business community or community more broadly, you always get a group of volunteers and there is always at least three or four per cent of people who are prepared to volunteer and step up to something. That is true in a business community as much as it is across the general public. After that you get a whole suite of folks—whether they are businesses or people—that are actually quite prepared to take measures, seeing that that group of volunteers are doing it, but are not necessarily prepared to change until they are told to. Of course, from a constituency point of view, it is really important that that extra cohort adds up to something over 50 to create some incentive and some support for that change. I think we are actually in that place. We have been in that place with water for 10 years. We are certainly now in that same place with energy.

Senator BUSHBY —You are talking about consumers. I was getting at the taxation treatment. You are talking about depreciation for consumer and business uptake, but what about the development of technologies?

Prof. Wills —Thank you for drawing me to the point. That is where regulatory measures can be quite useful because, in that situation, that scenario where you have at least half the population wanting to see change but really not prepared to undertake it unless they are told to, is where regulatory measures come in. You can only get so much volunteering, even with economic incentives in a population. At some point though people recognise the good of the move; it is just that they are not prepared to make it until they are told to. So in that balance you need character, but you also need stick. You need some regulatory change to create impetus for it.

At a business level, I think a very interesting example is that of Alcoa. Alcoa as a company that globally, since 1990, have reduced their emissions by—I believe the figure is—around 36 per cent of their global operation. One of the significant contributors to that change was in fact Alcoa changing the way that the anode in the smelting process worked. There was no financial incentive to create that change, but there was a technology that existed to assist the change.

Senator CORMANN —You say no financial incentive. Energy costs obviously are a huge driver of costs, so there really is a financial incentive to—

Prof. Wills —Absolutely, but in this instance the anode that they replaced with a new technology or with a different kind of anode did not consume any more energy, but it released a whole range of greenhouse gases. The only incentive was in fact that Alcoa, being an early mover in the US context, said, “Well, if we’re going to see a carbon price coming, we are going to do something about changing our anodes now,” and they changed their anode in this reaction. It was a cost-neutral change. There was no real incentive to change it from a financial standpoint, but with a view to the future of what carbon might cost them. They changed the anode in a cost-neutral way but in a way that actually reduced substantially their greenhouse gas emissions.

Senator BUSHBY —As an example of the stick approach, effectively.

Prof. Wills —Yes, it is.

Senator BUSHBY —There is a potential stick-up there and we would like to avoid that.

Prof. Wills —In a sense, as early movers, they did it by way of volunteering rather than responding to regulation.

Senator BUSHBY —As I understand it, in the aluminium industry there have been energy savings as well as emission savings.

Prof. Wills —There have indeed.

Senator BUSHBY —A lot of that has been driven by the potential, because energy is such a huge proportion of the cost of the aluminium industry. If they can reduce that by even small degrees, there are large savings to be made.

Prof. Wills —Absolutely.

Senator BUSHBY —So there is a financial incentive for them to do that as well. I am wondering to what extent should the government be involved in making it easier for the new technologies to be developed which allow business to then go out and say: ‘There’s something that can provide us with a financial incentive to adopt things like that. It’s good for us as a business, it’s good for the world in terms of emissions; it’s good for the country in terms of its economy.’ Rather than the stick, they are trying to pick winners—for want of a better term—that they can invest research dollars in or provide taxation breaks for if people are investing in technologies which may well deliver those sorts of outcomes.

Prof. Wills —Within the tax system, it is important that the tax system has the capability and expertise embedded within it to recognise those changes and the need for those changes so that the regulators can create measures within the tax system that do that. Moving back to the question of what governments can do, for the most part they can provide certainty in regulation. One example where we have seen a lot of fluctuation, causing market uncertainty, has been in the solar industry. Just about every year for the last eight years we have seen changes in regulations around the solar industry and what this year’s form of rebate or support might be. My members have seen in the last eight years 12 months of sudden stimulus followed by another 12 months of the government backing down and then another 12 months of the government saying, ‘No, we’re going to stimulate the market again.’ That is a degree of uncertainty that has been created by the government. Market certainty is one thing that governments can provide. From the industry association’s point of view, the reason that we would like to see movement on an emissions trading system is to establish certainty. While I understand the complexity and the arguments on both sides as to reasons for moving quickly or slowly, my view is that the reason for moving quickly is in fact to introduce market certainty. We know with seeing that same—

CHAIR —As long as it is not the certainty of a bullet, as somebody else said.

Prof. Wills —That is right. It needs to be appropriately delivered—not the bullet, but the solution.

Senator BUSHBY —We are not here to argue that point.

Senator McEWEN —Aww!

Senator BUSHBY —I would love to take that one up and have a bit of a debate on that, because, in terms of certainty, what business needs in my view—and I would be interested in your view—is long-term certainty about the ETS will look like. That may not necessarily become apparent until we know exactly what the rest of the world is doing after Copenhagen.

Prof. Wills —We could get stuck on an ETS. I agree with you. If I can come back to the point, it is about creating conditions of certainty. Government is the facilitator of all things in the community and is a facilitator of business structures in the community through their legislative powers and through policy and practice. It is really important that there are constant and consistent signals coming from government. One thing might be at the simple base level of the government’s own operations. If a government is looking to support renewable energy and looking to promote energy efficiency then that government should be an icon in doing those things in its own operations. At a federal level, the Australian government is a $200 billion operation. There is a great opportunity through procurement and purchasing decisions for government to lead the way markets develop. The advantage of that is that you can send a consistent market signal as a purchaser of such scale without having to change a law or to change any other factor. There are some great opportunities to create that change as a market force, especially at the starting point. At the start of any new technology and market base, very often the cost is higher. If there is community desire to see those changes occur, then for the government to be expending public moneys to create that change as a starting point is a very attractive option.

Senator BUSHBY —I do not argue with that. That is probably a justifiable role of government. But it has to be balanced against an obligation to also provide taxpayers with value for money in terms of the services that it provides.

Prof. Wills —I agree. But it is also very important to not confuse least cost with best value, because sometimes the best value solutions are not the cheapest solutions. It is important that we keep that in mind.

Senator BUSHBY —I have one final question. In terms of lighting—and this is a very small point but it is quite important for the people it affects—I have had a number of representations from people who have lupus. They are photosensitive as a result of the disease that they live with, and the fluorescent lights actually cause them problems. There are also people with other conditions who are photosensitive and have the same problem. Do you have any views on how people with issues like that should be dealt with? They have real problems with the way that the lighting is going.

Prof. Wills —Yes, certainly. There are a couple of alternative solutions. The first is, of course, using things like modern skylights, which are effectively fibre-optic conduits of sunlight into buildings. That technology is freely available today. That can be used to light a building during the daytime. Clearly at night-time there is a challenge; you need to actually switch on a light. The second part—and this is where government does have a significant role to play—is in regulatory standards around the lighting systems that we install. With the incandescent globe it was by default, without any planning, a suitable light for those sorts of conditions. In inventing and creating compact fluorescent lighting, nobody had any sort of forewarning that this might be an issue. So I think there is an opportunity for government to step into that space as a regulator and say, ‘Actually, we need to be aware of these sorts of things; this is important for the health of the community.’ Ultimately it is the public purse that generally pays for health of the community so it is important that government step into that space as a regulator. I agree it is of concern. I think it can be dealt with. It obviously needs to be dealt with at a global level in terms of setting global standards for this. I suspect the Europeans would be great allies in this as they have always been very good at creating good regulatory environments, for the most part.

CHAIR —Just going back to the question before in terms of valuing, you seemed to suggest that sometimes the more expensive is not necessarily a bad thing. Is that what you were saying?

Prof. Wills —Yes, indeed.

CHAIR —So how expensive is a good thing and when does more expensive become too expensive?

Prof. Wills —Again, where the expenditure of public moneys is concerned, I accept that it can be a sensitive question.

CHAIR —But even private money—

Prof. Wills —Even private money. I guess the very obvious analogy to draw would be—and I have used this now a couple of times; I hope I have not repeated it in front of you before because it will not be new—with the difference in getting engaged between a zircon and a diamond. They both glitter but one delivers better value. One is more expensive and that will get the result you want. You can carry that analogy right across a whole range of products.

CHAIR —Surely—

Prof. Wills —You may not get engaged if you offer a zircon ring; you are more likely to get engaged—

Senator HUTCHINS —Is that the result you were referring to?

Prof. Wills —Yes. If you are trying to avoid being engaged, I guess it is a separate issue! You can take that to a motor vehicle. Clearly people perceive that different vehicles have different values. If a cheaper vehicle has an ANCAP rating of five and a fuel economy of six litres per 100 kays and a more expensive vehicle has that same rating, people may still buy that more expensive vehicle because they perceive more value in it. Sometimes that value is real; sometimes it is not.

CHAIR —Let me go right back to basics in terms of what the committee is focusing on, and that is creating an affordable, reliable, secure supply of energy in as environmentally sustainable a way as possible. Obviously there are a lot of competing pressures in all of this. What we are trying to answer is: how do we find the right balance moving forward, given the energy needs moving forward et cetera? You have talked about energy efficiencies and renewables. Is that going to be enough to ensure that we will have an affordable, reliable, secure supply of energy moving forward?

Prof. Wills —Very often the word ‘affordable’ is thrown in when the word ‘sustainable’ is proposed, and very commonly the response is that, if it is sustainable, it is not affordable. I guess my response, as you may predict, is that very often we are not prepared to pay the true value of things. It is really important I think in the context of—

CHAIR —That is what I am trying to get to: how much do you think it will—

Prof. Wills —One of the challenges for us at the moment is that 20th century economics tells us that we are allowed to have externalities, and through the 1960s we started discounting some of those externalities. Water pollution started to be addressed, and then we started to address air pollution in the seventies. Then that led to tightening of particular emission standards and ozone depletion standards all through the eighties and nineties. As we have actually built business we have recognised many of those things that in the 20th century we regarded as externalities we are now internalising because they do have real costs. What we have to get better at is appreciating the full life cycle cost of a product.

CHAIR —Could I just interrupt, because you are not answering the question. My question is this: we are talking about improved efficiencies and the contribution of renewables, but is it going to be enough to meet the energy needs of Australia, moving forward, on the basis of affordable, reliable, secure supplies of energy?

Prof. Wills —Yes, it is. If we look at all forms of renewable energy that are available within Australia, we know that, for example, there is sufficient wave energy crashing on our shores, if we harvest it, to power most of Australia three times over. With 90 per cent of our population living within 100 kilometres of the coast, wave energy is a fantastic, consistently available energy form.

CHAIR —But not something you can do everywhere.

Prof. Wills —No, but probably two-thirds of Australia’s population could actually be serviced by wave energy.

CHAIR —And you have studies that substantiate that proposition? We are going to visit Carnegie Corporation this afternoon—

Prof. Wills —Fantastic.

CHAIR —and I met with them last week. They have explored a site in Albany and Albany will not work, so they will be doing their first major demonstration project outside Rockingham. They were explaining that it does not necessarily work everywhere.

Prof. Wills —The Carnegie report is quite conservative. They have estimated that they could provide power to 35 per cent of Australia, based on the report that they have. They are better versed in saying what is available from those sources. Certainly, in terms of geothermal resources, the geothermal industry are saying that they have, as an order of magnitude, more energy in geothermal resources than is required by Australia at this time.

If you look at the wind resources in Australia, you will see we have world-class wind resources on our landmass. The Europeans build in oceans purely because their wind resource on land is not as good as ours. They have to build in an ocean, but we do not need to because we have it on land. Admittedly, with wind energy there are still some challenges in despatch and storage, but that is just a question of—

Senator BUSHBY —And parrots.

Prof. Wills —And parrots.

CHAIR —This morning the president of the conservation council, Professor Harries—do you know him?

Prof. Wills —Yes, I do.

CHAIR —He said that he agreed we should keep an open mind in terms of nuclear energy for Australia into the future. What is your view?

Prof. Wills —In terms of a technology and in terms of the association’s view, we are technology neutral, so we do not have a necessarily positive or negative view on nuclear energy. Within the context of nuclear fuels being uranium, uranium itself is a depletable resource that does have a limited life supply. We know that the world’s economic resources of uranium have around 50 to 70 years of supply at current rates of consumption.

CHAIR —Thirty per cent of it in Australia.

Prof. Wills —Thirty per cent of it in Australia. As a mineral resource, is it a good resource for Australia? By all means it is. In terms of Olympic Dam, which potentially will be Australia’s largest uranium mine, it is interesting to note that it is also Australia’s largest water consumer. So a question needs to be considered as to how sustainable extensive uranium extraction in Australia might be, based on the fact that we have limited water resources.

Without commenting on any particular project, this goes back to my earlier point about needing to complete life cycle analyses to understand the real environmental costs of a particular product. In the generation of energy, starting from mine site and going all the way to the delivery of electricity to the kettle to boil water, we need to understand the energy efficiencies, the energy flows and the costs that are associated with that whole life cycle.

Senator McEWEN —I was going to ask about Olympic Dam. You mentioned the enormous usage of water that is required to process the uranium, and I was interested in how you are looking at the whole life cycle, I suppose, of a process. How would you build in the cost of the desalinated water? That, of course, uses power that has to be generated.

Prof. Wills —Yes. Again, just to put another explanation to the Olympic Dam thing, ultimately all I am saying is that we need to actually do the life cycle analysis for Olympic Dam to make sure that it is within that sustainability principle. In terms of a desalination plant, it is the same. To move water, for example, in Western Australia from the Kimberley to Perth, you would need about 16 pumping stations and it would take a substantial amount of energy to move that water about because it is quite heavy. So, from the point of view of creating water from desalination, if you can create that water at the point of use and you do not have to pump it very far then you can actually make energy savings even though you have to expend energy to take the salt out of the water. That is where the life cycle analysis comes in. You have to understand the whole-of-life-cycle energy use to understand whether the way you would produce a particular product is in fact the most energy efficient way you can do it. Moving water 1,600 or 1,800 kilometres with pumping stations is not as energy efficient as using the water locally and getting desalinated water out at the end of it. The only caveat to that is that, if you then had projects along the length of that 1,600 kilometres, you might come up with a different answer to the question. But, if all it was was a long pipe to deliver it here, the answer is that it is cheaper and more energy efficient to desalinate it at the point of use.

Senator McEWEN —Yes, but not energy neutral, because you still have to provide some power for desalination.

Prof. Wills —Of course, unless you are using wave energy to power that operation.

Senator McEWEN —Do you think we do this very well in Australia—this whole life cycle of a project in terms of energy usage?

Prof. Wills —It is challenging. There is nobody around the world who is doing it really well. There are certainly a few places, particularly some of the Scandinavian and other European countries, that are starting to do it pretty well. But in Australia, no, we do not. If you look at a whole range of Australian take-up of technology, particularly in the sustainable energy space, you see that we are actually lagging a long way behind. I recently—a couple of weeks ago—put out a statement that compared Australia’s use of solar energy to Scotland’s. Scotland, as a nation of five million people, has about 11 gigawatts of energy generation; Australia, as a nation of 20 million people, has about 50 gigawatts of energy generation. They have 70 megawatts of solar installed in sunny Scotland, and we have 35. If we were to match Scotland’s investment in solar energy per capita, we would need 140 megawatts. So we are a long way behind what many OECD countries are doing in this space. There are different opportunities in different places, of course. Scotland has 19 per cent of its energy generation from renewable sources, but admittedly a fair swag of that is from hydro. We do not have that opportunity across Australia, but we have other opportunities across Australia that we are not using. It is reflective of the fact that we have a lot of resources that, understandably, folks who have leases on those resources would like to see dug up and turned into wealth in many different forms, but we have similar sorts of resources shining down on our countryside, blowing across it and washing up on our shores that we can use in the same way if we have a will to.

Senator BUSHBY —There is not a direct comparison with countries like Scotland and other OECD countries. One of Australia’s comparative economic advantages is its abundance of cheap energy, and I would imagine that the cost of energy in Scotland—I would be interested in your view; I do not know the answer—would be much higher than it is in Australia, where we have access to cheaper fossil fuel based energy on the whole. You obviously have to balance the policy outcomes you try to deliver. Although Scotland may have nearly 20 per cent in renewables and we do not, there may be a whole raft of reasons why that has come about based on policy issues or even access to energy. Solar may be the best opportunity they have because of the resources they have available.

Prof. Wills —This same report said that out of, I think, 19 or 20 cities that they compared the best place to do this was in Perth and the worst place to do it was in Edinburgh. It is in Edinburgh that they were doing it. Also, coming back to the question of cheap energy sources, I guess the challenge for us in this century will be that we will internalise the cost of carbon. As that cost of carbon gets recognised, it will be shown that what we are referring to as cheap energy sources have really been, in the last century, energy sources on sale. The discount phase is now over.

Senator BUSHBY —But, whether on sale or not, that has provided an opportunity for Australia’s economic development that other nations did not necessarily have. We may well need to face up to the fact, and the debate on appropriate ways of dealing with that, in terms of ETSs et cetera, is certainly full scale at the moment.

Prof. Wills —I accept that. Based on that wealth we have generated, we are the world’s 59th largest nation by population, we are the world’s 15th largest nation by GDP and I think we are the 13th wealthiest people in the world. I think we are a nation that can actually now afford to make some of the changes that we recognise have to be made in the 21st century as a nation. If we are not ready to not only capitalise on the wealth of our renewable resources in the country but also make use of the innovativeness of Australians to tackle that space, if we use our fossil fuel wealth to stall our ability in the renewable space because of a perceived value of continuing to dig up and export coal, then I think we will miss an opportunity. If we see carbon tariffs from the US and Europe and instigated as well by China, who have been talking about it, that is where my concern comes from about energy security and national productivity. If we miss that boat and we are still trying to load a ship with something that we have dug up when in fact we could have taken it from shining on our land then we have missed an opportunity.

Senator BUSHBY —I accept all that.

Senator McEWEN —I hope the chair will allow me to ask this question. Can you give us your view on the ETS legislation that was passed in America yesterday.

CHAIR —Of course I will allow you to ask that question, because the ETS legislation passed in America includes 100 per cent protection for emissions-intensive trade-exposed industries. It is a much better piece of legislation.

Senator McEWEN —Particularly in terms of giving certainty to American industry.

Prof. Wills —I think there is a mix of challenges. First of all, the Europeans copped a bit of flak for their ETS. The problem was not that the market did not work; the problem was that the market did work because there were so many exclusions. The challenge with any emissions trading system is to be able to account for those externalities. A little like the GST, the more exclusions you make, the more complicated it becomes and the more overheads it generates as a consequence. A simple translation of that, of course, is that you should allow only a minimum number of exclusions as a part of that process. It is challenging. I am not an economist and I guess, within the context of what the US are doing, it will be very interesting to see how the Senate deal with it. I know from a recent trip—

CHAIR —Do you mean the US Senate or the Australian Senate?

Prof. Wills —The US Senate; I was about to come back to the Australian Senate. I had the privilege of going to the UK and EU for a fact-finding mission a couple of weeks ago. One of the very strong messages that we got from government officials from both the UK and the EU was that they were looking very closely at what Australia was doing, and a number expressed concern that delays from Australia could translate to delays in Copenhagen.

CHAIR —So what are they doing in Europe to do the things that are being proposed to be done over here?

Prof. Wills —I do not want to linger too long on sunny Scotland but sunny Scotland have now announced Europe’s largest emissions reduction cut, of 42 per cent, as their target for 2020. They have actually taken—and I think sensibly—the same caveat that Australia has, in that they have an escape clause that says that if Copenhagen does not deliver a solution then they will revert to a lower target. But the difference is that Scotland have gone out on the front foot by saying, ‘We will take the high target first.’

CHAIR —Scotland is not a country. It is like—

Prof. Wills —Don’t say that to a Scot!

Senator McEWEN —Yes, steady on!

Prof. Wills —It has got its own parliament and—

Senator McEWEN —It is run by Nationalists, not even the Labour Party.

CHAIR —Okay, it is like saying the great state of Western Australia is a country on its own. Scotland is not a member of the European Union; it is Great Britain that is a member of the European Union. And I would just note again that the EU, when they started their emissions trading scheme, provided more permits than there were actual emissions in Europe at the time and they continue to offer 100 per cent protection to their export industries, as would the US if their current legislation passes. But I ask you this question, given that Senator McEwen brought up the issue: why should Australia, in the absence of a global agreement, go down a path that will not result in a reduction in global greenhouse gas emissions but will put significant pressure on the economy and cost jobs?

Prof. Wills —The first part to challenge is that what the Europeans failed to do was in fact an adequate life-cycle analysis as we have previously been discussing. I guess the second thing is that I would certainly challenge that while the buggy whip manufacturers may go out of business as a consequence of an ETS the new technology innovators will be creating new jobs, new employment, and we will see job growth as a consequence of an ETS overall.

CHAIR —It is funny you should says that because we have had a witness here that was exploring new technology actually around Norseman, with coal to liquids. Essentially they had a process which would significantly lower emissions in the traditional production process to produce petroleum. But there are still emissions and they will be bearing a cost that their competitors overseas, going through the traditional more polluting processes will not face. They are about to leave Australia if the emissions trading scheme comes on board because they will not be able to make it work and viable. Even though it would be a lower emission technology it would not be competitive if they are faced with a cost that more polluting traditional petrol producers overseas will not be facing. How does that make sense? How does it make sense that it will be harder for the LNG industry to reduce emissions for the world and that it will be harder for them to grow in Australia as a result of this scheme? In my view, and I would invite your comment on this, having a domestic focus in a scheme that should have a global focus actually results in counterproductive design flaws.

Prof. Wills —The first challenge will be that ultimately there will be a carbon trading system on this planet no later than five years time. I would say that based on all the political changes that are happening.

CHAIR —But if that happens then there is no problem with Australia getting involved. If there is a comprehensive scheme the problem disappears.

Prof. Wills —The challenge for us is to be on the front foot and to be in front of the wave. We can continue to follow, as we have done, in renewable technologies the rest of the world, because currently that is exactly what we are doing. Australia’s energy generation of electricity from renewable resources is four per cent. We are one of the laggards in this space and have been so despite the fact that we have the world’s best resources in this space. To me if we are going to focus effort to create change and be a part of the 21st century economy we need to be strongly engaging in renewable energy technologies because that area is where the game is this century.

CHAIR —Nobody disagrees with that.

Prof. Wills —I am pleased to hear it.

CHAIR —Senator McEwen, did you finish your questions?

Senator McEWEN —No, and have you finished your lecture? I have another question. It is not related directly to what we were talking about before. I guess this is a hypothetical question. I have noticed when I have gone to Europe that a lot of people drive Smart Cars but in Australia they are oddities. What makes someone in Germany go and buy a Smart Car? Is it the cost of the car? Is it the cost of the fuel? Is it the public sentiment about wanting to do something? Is it about government assistance and regulation?

Prof. Wills —I think the answer is yes to all of those things. The important thing in this space is in fact not to pick winners. The only way you cannot pick winners is to ensure that you are working on all of the fronts because undoubtedly some of the new technologies will fall over and undoubtedly some of them are going to be much greater successes than we ever dreamed—but part of the challenge at the early part of a technology is that it is hard to say what. One of the interesting things for me when I travelled through the UK and Western Europe was to see advertising billboards. By my estimate one in eight or one in 10 billboards in the UK had an energy message on it saying something about climate change or something about energy efficiency. In the north of the UK, up in Scotland, it was probably closer to one in six or one in five. I would have guessed before I went to Brussels that it would be one in two with an energy message saying that acting on climate change is important and that renewable fuels are the way we are going to go. In Spain it was probably about one in five. So there is a much stronger message in Europe than I have ever seen anywhere in Australia. Clearly there is already a much greater political acceptance and that is reflected in the EU’s trading system.

In Australia I guess the other challenge for us is that we have had cheap energy, though everybody is now accepting the fact that we need to act. The Australian Bureau of Statistics on 18 June published a new survey which showed that nine in 10 Australians want to see action on water management and 75 per cent of Australians want to see action on climate change. That is a new study which, interestingly, was not reported in the media. Of all of the news reports on that day, according to Google, the only news outlet had reported it was ABC Online, and I have never seen any mention of it in the press since. Australians clearly are willing and ready to act to have this change and I think what they are waiting on now is the leadership of our governments and our political representatives to actually create the change. I think there is a willingness in the Australian community to see that change happen. I do not know why it has not been reported in the media that way, because that is what the numbers are saying.

CHAIR —Is there anything in particular around regulation of the energy industry, leaving CPRS and renewable energy targets aside, that you think ought to be changed to set ourselves up for a secure energy future?

Prof. Wills —I have touched on a couple and I will very briefly reiterate them. I think the first thing that can be done in that context is market leadership from governments through procurement strategies. There is a great opportunity there. The second thing that governments obviously have direct impact on is legislative frameworks that create those changes. It is important that we avoid any perverse incentives to avoid that change. A classic example which I am sure you have heard is the FBT laws that suggest that the further you drive in a motor vehicle the bigger tax discount you get. That is a perverse incentive in the tax system to actually waste energy. There are lots of opportunities to ensure that our tax code actually reflects the policy of wanting to create change and reflects the need to do that. Then of course there are the larger legislative frameworks and many of these are across different levels of government. For example, local government planning laws in some places suggested that solar panels were unsightly and could not be put on your rooftop. The question is, if you cannot put them on your rooftop, where can you put them? The answer is, nowhere. So if you actually have planning law that says you cannot put a solar hot water system or a solar panel on your roof then clearly they are perverse outcomes to actually create the sort of change we believe we need in the 21st century. So at all levels of government there are opportunities to harbour those changes. I guess it is about being able to identify them and then developing that legislation sympathetically so that it can be complimentary in its outcome.

CHAIR —Thank you very much for your contribution to the committee.

Prof. Wills —Thank you.

CHAIR —We will meet this afternoon at Fremantle.

Committee adjourned at 11.59 am