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Tackling climate change is in the national interest: speech to the [National] Press Club, Canberra



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THE HON GREG COMBET AM MP

MINISTER FOR CLIMATE CHANGE AND ENERGY EFFICIENCY

TACKLING CLIMATE CHANGE IS IN THE NATIONAL INTEREST

PRESS CLUB

13 APRIL 2011

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Today I will explain the steps the Government is taking to tackle climate change by

putting a price on carbon pollution.

The foundation of any such policy is the climate science.

The evidence of atmospheric warming is very strong, and the potential for

dangerous climate impacts is high. The scientific advice is that carbon pollution is

the cause.

Globally, 2010 was the warmest year on record, with 2001 to 2010 the warmest

decade. 2010 is the 34th consecutive year with global temperatures above the 20th-century average.

In Australia, each decade since the 1940s has been warmer than the preceding

decade. With rising temperatures we can expect to see more extreme weather

events, including more frequent and intense droughts, floods and bushfires.

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The environmental consequences translate readily into economic costs - as well as

potential negative impacts on water security, coastal development, infrastructure,

agriculture, and health.

The scientists putting these issues to our Government and others are from

institutions such as CSIRO, the Australian Bureau of Meteorology, the Australian

Academy of Sciences, NASA and Academies of Science from around the world.

Professor Will Steffen, a leading expert in the climate science, has advised the Multi-Party Committee on Climate Change that there is 100 per cent certainty that the

earth is warming, and that there is a very high level of certainty it will continue to

warm unless efforts are made to reduce the levels of carbon pollution being sent

into the atmosphere.

No Government acting in the national interest can ignore such advice.

As a Government we have a public policy responsibility to take action to reduce

pollution, and to play a responsible role in the international efforts to tackle climate

change.

It is in our national interest to take action on climate change. The national interest

case is clear.

The risks of inaction on climate change to Australia - to our economy, to our

environment, and to our way of life -are too big to ignore. The key is economic

reform - climate change is an environmental problem with an economic solution.

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What is required is an economic transformation that decouples growth in pollution

from growth in our economy.

The longer we wait to begin the transformation, the harder and more expensive the

change will be.

Just as the 1980s reforms laid down the bedrock of our current prosperity, pricing

carbon will ensure that the Australian economy of the 21st century remains globally

competitive.

Critical to understanding the national interest case for taking action on climate

change is an acknowledgement that long term reform should also be based on the

principle of intergenerational equity.

Intergenerational equity is a key determinant of long-term economic policy making.

Our obligation is to leave the world a better place, not to pass on the problems we

found too difficult to deal with to our grandchildren and to their grandchildren.

That obligation must in part be met through pricing carbon in such a way that a

clean energy future delivers a clean environment and sustainable prosperity.

There are six key arguments that summarise our response to the climate change

challenge.

Firstly, Australia is one of the world’s top 20 polluters and we release more pollution

per person than any other country in the developed world - more than the US. Not

only is it in our national interest to act, we have a responsibility to do so.

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Secondly, to tackle climate change we need to cut our pollution levels - something

that many other countries are also doing.

Thirdly, it is important to adopt the most economically efficient way of cutting

pollution, and that means a market mechanism to set a carbon price. The carbon

price will create the incentive to cut pollution and drive investment into cleaner

energy like natural gas, solar and wind power.

Fourthly, the carbon price will work by putting a price tag on every tonne of

pollution that is produced. Less than 1,000 companies that are the largest polluters

in our economy will be required to purchase a permit for every tonne of pollution

they emit - the price of the permit is the carbon price.

Fifthly, households will receive generous assistance to meet costs that may be

passed on by the large polluters - pensioners and low and middle income

households will be a priority.

Finally, demand for clean energy will grow because it will become cheaper relative

to the current cost of burning coal for electricity. A carbon price will provide greater

certainty for investors to commit investments in clean energy.

Of course there is a lot more to the debate, but these six propositions provide a

useful summary for discussion of many of the issues. I will therefore expand upon

each of them in turn.

Firstly, to the emissions intensity of our own economy, and our levels of pollution.

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As I indicated earlier, Australia is one of the world’s top 20 emitters in absolute

terms and we emit more carbon pollution per capita than any other developed

country in the world - higher even than the United States. What’s more, our

pollution levels are continuing to rise.

We have industrialised with the benefit of relatively cheap but pollution intensive

energy sources. 80 per cent of our electricity is provided by coal-fired generation,

we rely upon a transport system heavily dependent on fossil fuels, and have had

insufficient regard for opportunities in the past to be energy efficient, or for

example to reduce emissions in our agricultural sector or to sequester carbon in our

landscape.

To tackle climate change effectively these features of our economy will need to

change over time. Innovation, and low emissions and cleaner energy technologies

will provide a pathway for future economic prosperity internationally.

As a small, open economy, we cannot afford the complacency inherent in the

argument that we don't seriously need to tackle this issue - that ‘she'll be right

mate’. Such complacency will erode our long-term competitiveness by making us

less able to compete in a carbon-constrained world.

That complacent attitude generally rests upon the myth that no other country is

taking action on climate change.

It is true to say that the process under the United Nations Framework Convention

on Climate Change, or the UNFCCC, can be painfully slow, overly bureaucratic and

plagued by an out-dated paradigm that pits developed and developing countries

against each other.

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But it's the same process that has seen all major economies submit important

pledges to reduce their pollution, or in the case of many developing countries,

reduce their emissions intensity expressed as a unit of GDP.

These pledges already account for over 80 per cent of the world’s carbon pollution.

This was an important achievement of the Copenhagen and Cancun conferences

that merits acknowledgement.

Whereas there has been a principal focus on the capacity to achieve a globally

binding agreement to implement these pledges in much of the public debate, the

practical reality is that many countries are taking action to reduce their emissions

and their emissions intensity in line with the pledges they have made and in the

absence of a global agreement.

The verification and measurement of the action that is being taken is therefore

pivotal to building confidence. Just as Australia is looking to verify what others are

doing to build confidence in our own policy settings, others are looking to Australia

to build their own confidence. The current debate over carbon pricing is being

closely monitored for this reason.

The Department of Climate Change and Energy Efficiency has published extensive

information about the measures being taken internationally, and it is regularly

updated. The Government has also commissioned the Productivity Commission to

identify where possible the climate change policies and effective carbon price that

operates in key parts of the economies with which we trade.

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Notwithstanding the complexity of the task, the overall message from all of the

information that is available is that Australia is not acting alone.

Globally more money is now invested in new renewable power capacity than in new

fossil fuel capacity.

China - the world’s largest emitter - is now the world’s largest manufacturer of both

solar panels and wind turbines and is definitely reducing the carbon intensity of its

economy. Only yesterday further information confirming China’s plans for emissions

trading in 6 regions was reported.

Despite a hostile Congress and a major economic downturn, the United States is also

taking action at a national level, as well as at a State level.

The US is progressively introducing regulations covering carbon pollution from large

industrial facilities under its Clean Air Act.

The first facilities were regulated in January 2011, and from July 2011, all facilities

emitting in excess of 100,000 tonnes of carbon pollution per year will be required to

obtain operating permits.

President Obama has also announced a new Clean Energy Standard, which will

double the share of clean energy sources in the electricity supply mix to 80 per cent

by 2035.

California - the world’s eighth largest economy, and with a population almost twice

that of Australia - has legislated to commence emissions trading on 1 January 2012.

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India has just commenced an energy efficiency certificate trading scheme that

covers facilities that account for more than 50 per cent of the fossil fuel used there -

it will help reduce carbon pollution by 25 million tonnes per year by 2014-15. It also

has a coal tax levied on both imported coal and coal produced in India, which will

raise around half a billion dollars for investments in clean energy technologies in the

12 months since it commenced in July 2010.

South Korea has had a trial emissions trading scheme in place since January last year

involving 14 cities and provinces, including Seoul. Legislation to commence

economy-wide mandatory emissions trading from 2015 will soon be introduced into

its Parliament.

Emissions trading operates across Europe, including in a number of countries in

conjunction with a carbon tax.

These are just a few of the many examples of what other countries are doing to

reduce their carbon pollution.

This brings me to my third point: that a carbon price will cut pollution and drive

investment into cleaner energy like natural gas, solar and wind power.

Under our carbon price for the first time over a sustained period, Australia’s net

carbon pollution will go down, not up.

Our carbon price will mean our economy will grow and pollution will not.

Some of the types of changes a carbon price can deliver are:

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• promoting more low emissions gas-fired or renewable electricity generation instead of high emissions coal-fired electricity generation;

• encouraging chemical plants to install scrubbers to reduce nitrous oxide emis-sions;

• converting coal-fired boilers to gas-fired boilers in manufacturing plants, com-mercial buildings and hospitals;

• increasing the use of blended cements, which substitute other materials for high pollution clinker;

• making energy-efficient buildings more attractive to tenants; and

• providing an incentive for households and businesses to use energy more wisely.

The fact is that with current, known technologies we can make huge strides towards

a low pollution future. And by putting the right incentives in place, we can unleash

further innovation, create new jobs and encourage economic investment.

Furthermore we can cut our pollution while maintaining an economy that grows

strongly, expands job opportunities and continues to deliver long-term growth in

productivity and real wages.

The carbon price will work by putting a price on every tonne of pollution that is

produced - it will be paid by less than 1,000 companies that are the largest polluters

in our economy.

In fact a relatively small number of companies produce the largest amount of

pollution.

The latest National Greenhouse and Energy Reporting data shows that the 50 largest

polluters account for over 50 per cent of Australia’s carbon pollution.

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When you exclude sectors that will not be covered by the carbon price, the 50

largest polluters will be responsible for around two thirds of carbon liabilities.

A carbon price will mean that our largest polluters will have to take the cost of

pollution into account when they are making their investment and business

decisions. This creates the incentive to reduce the cost by reducing pollution, and

leaves it in the hands of the decision-makers in the marketplace to find the most

cost-effective way of achieving that outcome.

Investment decisions in the energy sector are perhaps most affected as the relative

prices of energy sources will change as the cost of pollution is factored in.

Demand for cleaner energy like natural gas, solar and wind can be expected to grow

because it will become cheaper relative to the current cost of burning coal.

Much debate, however, understandably centres on the impact of the carbon price in

the trade exposed parts of the economy and the potential for carbon leakage

through the loss of production and jobs to overseas competitors.

Carbon leakage is an environmental as well as economic argument. If the imposition

of a carbon price led to production being moved offshore to a country without a

comparable carbon constraint, we could end up with a worse environmental

outcome as well as the loss of Australian jobs.

That is why a large amount of effort was expended by both industry stakeholders

and the Government in developing a framework for providing assistance to such

industries under the former Carbon Pollution Reduction Scheme (CPRS). We are

using this basic framework as the basis for our current consultation with business.

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The Government is committed to providing transitional assistance to our emissions-intensive, trade-exposed industries to avoid carbon leakage, and to provide for a

long-term transitional adjustment for these industries.

The CPRS framework did provide very substantial transitional assistance that is best

demonstrated with some practical examples.

One of the expert advisors to the Multi-Party Committee, Professor Ross Garnaut,

recently posited in one of his papers a carbon price in the range of $20-$30 per

tonne of pollution. Taking the lower range of Professor Garnaut’s suggested prices

as an example, that is $20, let me explain what that would mean for some of our

industries.

At $20 in the steel industry, the average carbon price after 94.5 per cent assistance

for the core pollution intensive activity would be around $2.60 per tonne of steel,

out of a price per tonne of steel of around $800.

In the aluminium industry, the average carbon price after assistance for the core

pollution intensive activity would be around $18.70 per tonne of aluminium, out of a

price of around $2,500 per tonne of aluminium.

In other words, the carbon cost relating to the core pollution activity for steel would

be one third of one per cent of the value of a tonne of steel and three quarters of

one per cent of the value of a tonne of aluminium.

Steel and aluminium makers would immediately say that that is not the only carbon

cost they will face - and that is true. I am referring to the carbon cost in their core

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activity, but the fact is that this is the largest component of their respective carbon

costs.

I also do not underestimate the competitive pressures faced by emissions-intensive

trade-exposed industries - particularly steelmaking - driven by the high dollar, high

commodity prices and the fallout from the global financial crisis in particular

markets.

But let me be clear, the carbon price is not driving these pressures.

I should also make the point that by providing this assistance the Government does

not reduce the signal for these industries to reduce their carbon pollution. If the

assistance is in the form of free permits, these permits are an asset. These

businesses have an opportunity to reduce their carbon emissions and sell surplus

permits. If they cannot there is a very substantial level of shielding against carbon

leakage.

The Government will continue to work with the business community, especially on

the important issues facing the emissions intensive, trade exposed sector, the coal

industry, and the energy sector.

It will be important, however, that there is perspective and facts in that debate, and

a recognition that the Government must act in the national interest, not sectional

interests.

As is our responsibility, we will take stakeholder concerns and interests into

account, we will design a carbon price mechanism with a view to sensible long-term

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economic reform, but we are also firmly of the view that pricing carbon is in our

national interest.

The most pressing point, however, in the current public debate is undoubtedly the

price impacts that may be faced by households.

The Government has already committed that every cent raised from the carbon

price will be used to assist households; support jobs in the most affected industries;

and to encourage the transition to a clean energy future.

The Prime Minister has made it clear that we will put households first.

There will be generous assistance for households to meet costs that may be passed

on by the companies that are paying for their pollution.

Assistance for pensioners and low and middle income households will be a priority.

I can assure you that under our carbon price:

• More than 50 per cent of the carbon price revenue will be used to assist households;

• Millions of households will be better off under the carbon price; and

• The assistance will be permanent.

Providing this assistance will not remove the incentive for households to become

more energy efficient.

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Improving energy efficiency, for example, will reduce the price impact that a

household may experience, and enable it to keep all or some of the additional cash

assistance that the Government provides.

But in the overall scheme, the main behavioural change than a carbon price targets

is at the industrial level - the organisations that emit large amounts of pollution.

The detailed design of the carbon price mechanism that the Prime Minister

announced in February is well underway.

The Multi-Party Committee that includes Senators Brown and Milne and Mr

Windsor and Mr Oakeshott continues to meet and consider key design elements.

Professor Garnaut has completed and published the eight papers that update his

2008 climate change report.

Treasury modelling has been commissioned but still has some time before

completion, likely to be mid-year. The Productivity Commission work that examines

the effective carbon prices in the economies of our trading partners is due in late

May.

The Climate Commission is conducting community fora and other engagement

activities explaining the climate science and carbon pricing.

And the Government is engaged with business stakeholders over the design of the

transitional assistance for the emissions intensive, trade exposed sector of the

economy as well as the treatment of the energy sector.

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There is constructive engagement as well with representatives of unions,

environment groups and other non-government organisations.

For the carbon price to take effect from 1 July next year, as Minister I am aiming to

finalise the detailed design in time to introduce the legislation into the Parliament in

the third quarter of this year.

It is complex and detailed policy work, quite aside from the complexities of the

politics.

On the politics, in any process of reform it is legitimate that there is robust debate.

However, when opposition to reform is based solely on political opportunism and

self interest, and fuelled by fear and misinformation, it must be met and defeated.

Tony Abbott is presenting himself more as a mobile scare campaign than an

alternate leader of our nation.

Tony Abbott’s only interest is his own political interest. Let's not forget that only 18

months ago he used climate change as the means to usurp Malcolm Turnbull's

leadership of the Liberal Party.

Having wrecked action on climate change then, he is trying to do so again. He has

had multiple positions on the climate science and carbon pricing - the only common

theme being his political self-interest.

In a reform like this you have to play the long game.

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Over time Mr Abbott will be exposed for the multiple positions that he has taken on

climate change.

He will be exposed for his misrepresentation and misinformation in claiming that

consumers will bear all costs and never mentioning the Government’s commitment

to provide assistance.

He will be exposed for falsely spreading fear about job losses.

He will be exposed by his commitment to repeal the carbon price legislation - a

promise that means he will have to abolish the assistance that is provided to

households - potentially cutting pensions and increasing taxes.

He will be exposed for having a policy on climate change that involves taking from

taxpayers and paying polluters - a policy that will achieve nothing for the

environment and result in a $30 billion budget black hole costing the average family

$720 a year in extra taxes.

And he will be exposed by the fact that his opposition to this vital market-based

economic reform is not rooted in any tradition of his own party.

Leading Liberals such as John Howard, Peter Costello, Malcolm Turnbull, Joe Hockey

and John Hewson to name a few are all on the record as supporting the market-based reform that the Government is trying to make.

Indeed, in conclusion, it is worth remembering what Prime Minister Howard said in

2007 when he launched his policy for an emissions trading scheme:

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“Australia brings formidable assets to this challenge: an educated,

can-do and adaptable people; a modern, flexible economy; world

class scientific expertise; deep global engagement and an enviable

reputation for institution-building and reform. We have mobilised

these assets before and will do so again to help build a new global

climate change framework and to facilitate Australia's transition to

lower carbon emissions. No great challenge has ever yielded to fear

or guilt. Nor will this one. Human ingenuity, directed towards clean

technology and wise institutional design, remain our best weapon.”

I could not agree more.