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Address to the Hunter Business Chamber’s Mining Industry Luncheon, Warners Bay



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THE HON GREG COMBET AM MP

MINISTER FOR CLIMATE CHANGE AND ENERGY EFFICIENCY

Address to the

Hunter Business Chamber’s Mining Industry Luncheon

The Glades and Wedding and Conference Centre, Warners Bay

20 May 2011

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Thank you for the opportunity to address the Hunter Business Chamber today.

Introduction

Climate change is an issue of particular interest for the Hunter region. The

Hunter is home to significant coal mining, aluminium smelting and is the heart

of the state’s electricity generation.

Newcastle, as we know, is the world’s largest coal export port. And, like many

coastal regions across Australia, the region’s coastal settlements are vulnerable

to the impact of climate change through sea level rise.

The Government is committed to taking action on climate change and to

meeting Australia’s bipartisan emission reduction targets. The challenge is to

strike the right balance between reducing carbon pollution at least cost to the

economy and society, while ensuring a clean energy future for Australian

industry and regions.

Climate Change Science

The foundation of any such policy is the climate science.

The evidence of atmospheric warming is now indisputable, 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.

The environmental consequences translate into economic costs - as well as

negative impacts on water security, coastal development, infrastructure,

agriculture, and health.

The Government’s approach to Climate Change

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.

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.

What is required is an economic transformation that decouples growth in

pollution from growth in our economy.

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.

In this debate, I often return to six key arguments that summarise the

Government’s 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.

 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 and a carbon price will

provide greater certainty for investors to commit investments in clean

energy and other abatement technologies.

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.

The price signal will provide incentives for existing power generation to

become cleaner. For example research at the University of Newcastle is looking

at how the use of geothermal power to pre heat water can reduce the carbon

pollution of Hunter Valley generators by 25%.

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.

As I’ve said before, 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. 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.

Impact on Trade Exposed Industries

I know many in the audience will have questions about the impact of a 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.

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.

Our previous framework, which we are looking at as a starting point, did

provide very substantial transitional assistance that is best demonstrated with

a practical example.

At a hypothetical $20 carbon price, the average carbon price after assistance in

the aluminium industry for the core pollution intensive activity would initially

be around $18.70 per tonne of aluminium, out of a price of around $2,500 per

tonne of aluminium.

This is in the context that in the last year aluminium prices have risen by at

least $100, even taking into account the increasing value of the Australian

dollar.

In other words, the direct carbon cost and increased electricity costs relating to

the conversion of alumina to aluminium would be three quarters of one per

cent of the value of a tonne of aluminium.

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

emissions-intensive and trade-exposed activity.

It is also important to place this assistance in the context of the carbon price

imposed in other countries. The Australian Aluminium Council gave evidence

to a Senate inquiry this week that Chinese Aluminium already faces a carbon

price of 85 US cents per tonne of CO2.

A similar unassisted carbon price imposed on Australian aluminium producers

and electricity suppliers would equate to around $14 per tonne of Aluminium.

About $5 less per tonne of Aluminium than what an Australian carbon price

starting at a hypothetical $20 would cost them with the assistance previously

proposed.

Carbon costs are also expected to rise in China over time as they implement

their latest 5 year plan. In fact, the Chinese climate change minister recently

confirmed that differentiated electricity prices were being applied to high-energy industries - including aluminium, steel, cement and iron - to encourage

them to save more energy. And energy-intensive enterprises that do not reach

specific energy consumption standards will face penalties.

It is essential that we continue to analyse the level of international action in

these markets so that we protect our competitiveness and debate these issues

on the basis of facts, not fear.

We need to be frank that there is a significant cost being caused by Mr

Abbott’s fear mongering. Deloittes has recently completed a review that found

that if the uncertainty surrounding the introduction of a carbon price continues

over the long term, the cost to electricity users would be around $5 billion per

annum.

This translates into a $16 per Megawatt Hour increase in the wholesale

electricity cost. For the average aluminium smelter, this will mean a $240

increase in the cost of a tonne of aluminium.

This is the cost of Mr. Abbott’s continuing scare campaign on a carbon price

and his unwillingness to take climate change policy seriously. This is the cost

that every electricity user will face when they switch on their lights or run their

smelter. Mr. Abbott’s fear mongering is creating the equivalent, at a 94.5%

assistance rate, of a $250 carbon price in the aluminium sector.

Impacts of a carbon price on coal mining

I’d like now to turn to the implications of the carbon price for the mining

sector. The mining sector in Australia is strong and covers a broad range of

activities that feed into domestic consumption and world production.

Coal mining is the one of the most important economic activities in the Hunter

Valley and the Lake Macquarie regions.

I have heard and I acknowledge the concerns that some people of the Hunter

have expressed about the impact of a carbon price on the coal industry and

their region. As a former coal mining engineer and representing an electorate

with eleven coal mines I am acutely aware of these concerns.

It is sometimes claimed that the impost placed on coal mines from a carbon

price will result in a rash of mine closures and job losses. This is not true.

The coal sector is unique in that there is a very wide disparity in the emissions

intensity of coal mines throughout Australia.

At a hypothetical $20 carbon price, the average liability for methane emissions

is around $1.60 per tonne of coal. This carbon cost is not much higher than the

carbon price Australian coal already pays in India.

I am not claiming that coal mines do not face any issues or pressures from the

introduction of a carbon price, some do. The Government recognises that

there are some emission intensive mines which may be strongly affected by

the carbon price and the Government is working closely with the coal industry

to explore how industry assistance will be designed and applied to their unique

circumstances.

The carbon price will also bring opportunities that the sector can take

advantage of. The Government believes that low emissions coal technologies,

including carbon capture and storage, are an essential component of the

transition to a carbon-constrained economy.

Carbon Capture and Storage offers a significant opportunity to assist in

meeting the challenges posed by climate change in an economically and

environmentally responsible manner.

Professor Ross Garnaut highlighted in his recent update report however that a

carbon price alone will not be sufficient to support early mover CCS projects

The Government’s $5 billion Clean Energy Initiative has two key measures

which support all stages of the research, development and deployment

process for CCS technologies. The measures are the National Low Emissions

Coal Initiative and CCS Flagships programs.

The Carbon Capture and Storage Flagships (CCS Flagships) program aims to

demonstrate commercial scale CCS projects in Australia. The Government

expects to announce the outcomes of the program in the near future.

The National Low Emissions Coal Initiative has been set up by the Australian

Government to accelerate the development and deployment of technologies

that will reduce emissions from coal use.

The consequences of not having a carbon price

I am not pretending that there will not be challenges as industries adjust to a

carbon price.

But I promise you this - this is a Labor Government that will provide the best

support possible for this adjustment.

Nevertheless, we have no choice but to begin this transformation.

It is quite conceivable that if we have do not have an appropriate carbon price

present in the economy, we could face other nations imposing border tax

adjustments on our exports.

These adjustments would effectively be tariffs that would penalise Australian

exporters for not producing in an economic system with a carbon price in

place.

Countries are already making moves towards making this a reality.

As companies in some of our most export orientated industries you

understand better than most the economic damage that would inflict on

Australia.

Opportunities for the Hunter Valley

Discussion of a carbon price in Australia is often presented as a threat to

Australia’s industries and regions. Our research tells us, however, that

adopting a clean energy future will lead to the creation of new clean energy

jobs and industries.

Every cent of revenue from a carbon price will be used to assist families with

household bills, help businesses adjust to a clean energy economy, and to

tackle climate change.

This region will have a bright future when a carbon price is established. It will

build upon the resources the Government is already investing in the region.

This commitment to the economic future of the Hunter region has meant that

total investment in the region since 2007 exceeds $3 billion.

Under the Nation Building - Economic Stimulus Plan - funding to the Hunter

region consisted of:

 $425 million for education; (over $100 million in my own electorate of

Charlton)

 $13.5 million for road and rail; and

 $254 million for housing.

In addition, the Government has invested:

 $1.45 billion for the Hunter Expressway;

 $840 million for the Northern Sydney Freight Corridor between Sydney

and Newcastle;

 $8.85 million for the Lower Hunter Water Recycling project;

 $30 million towards establishing the Newcastle Institute for Energy and

Resources;

 $150 million to the Australian Solar Institute, which is based in

Newcastle;

 $100 million to the Smart Grid, Smart City Program which will be

implemented predominantly across the Hunter region; and

 $48.5 million towards the construction of a world-class research hub for

the Hunter Medical Research Institute.

The Hunter was also a part recipient in the $1.3 billion funding to upgrade the

Mainline Interstate Rail Track and Hunter Valley tracks.

As part of the 2011-12 Budget:

 $94-million has been allocated to start work on the rail freight upgrade

between Newcastle and Sydney.

 A $1700 trade apprentice income bonus will be taken up by around

3,200 apprentices in my own electorate of Charlton.

 $2.1 million will be provided to Newcastle and Lake Macquarie City

Councils ($1.2 million to Lake Macquarie, $849,000 to Newcastle) to

assist them maintain and upgrade their local roads under the Roads to

Recovery program.

 $1.8 million has been allocated to planning works for a railway overpass

on the New England Highway, at Scone under the Regional

Infrastructure Fund (RIF).

As well as benefiting from these investments, the Hunter will also benefit from

the new opportunities that will open up as we move to a clean energy future.

Developing our abundant renewable energy resources and investing in clean

energy technology and innovation will present new growth opportunities for

Australian clean energy businesses, with associated economic and

employment benefits.

Internationally, research from the Pew Charitable Trusts indicates that clean

energy investment in the G-20 countries rose by 230 per cent between 2005

and 2009. Under strong clean energy policies, $2.3 trillion could be invested

globally in clean power assets over the next decade, offering companies and

countries enormous potential to compete for investments, jobs and export

markets.

A carbon price will help ensure Australia is positioned to take advantage of this

investment opportunity and create the low pollution jobs for the future.

The Hunter region is already taking advantage of these emerging opportunities

and the future for the region can continue to be strong. Following the closure

of the BHP steelworks in 1999, Newcastle has diversified and strengthened its

economy. In the decade since the steelworks closed, 88,000 jobs have been

created in the Hunter, and skilled and white-collar jobs now make up 70 per

cent of the workforce.

While it is important to protect trade-exposed industries such as steel,

Newcastle bounced back from the closure of the BHP steelworks in 1999

despite forecasts to the contrary.

Rather than fall into decline, Newcastle embraced clean energy and is home to

the Australian Solar Institute, a $150 million commitment by the Australian

Government as part of the $5 billion Clean Energy Initiative, to support solar

thermal and solar photovoltaic research and development.

This commitment will foster greater collaboration between solar researchers in

universities, research institutions and industry and help forge strong links with

peak overseas solar research organisations and place the Hunter region at the

centre of this effort.

The ASI is co-located with the CSIRO’s Energy Centre in Newcastle. The Energy

Centre provides a focal point in Australia for energy research in the fields of

sustainable energy; environmental impacts of energy; and cost-competitive

and environmentally-acceptable fossil fuel research and development.

The Energy Centre features a unique combination of energy-efficient building

design and small-scale generation units capable of delivering most of its power

needs. Research conducted at the Energy Centre includes distributed energy

generation, solar-fossil hybrid technology, carbon sequestration and low

emissions energy generation.

The government has committed $30 million towards establishing the

Newcastle Institute for Energy and Resources. This institute will be developed

at the University of Newcastle. It will bring together up to 400 researchers in

the Hunter to advance research in clean energy production, energy efficiency

and the minimisation of carbon pollution.

The Australian Government’s $100 million Smart Grid, Smart City project is

testing new technologies along supply networks and is based here in the

Newcastle region. It is more evidence of our commitment to supporting a long

term future for the electricity industry and evidence of the importance of the

Hunter to that long term future.

Under a consortium led by Energy Australia, 50,000 households in Newcastle,

the Upper Hunter and parts of Sydney will have the opportunity to participate

in the trial and learn much more about how to reduce their energy usage and,

therefore, their electricity bills.

The three-year project runs across five sites in Sydney and the Hunter Valley

(Newcastle, Scone, Sydney CBD, Ku-ring-gai and Newington). It will represent

Australia’s first commercial-scale smart grid. It also is one of the largest and

most integrated smart grid projects anywhere in the world.

The technology will allow residents to see real-time analysis of electricity usage

for their households and even for individual appliances, to help them make

better decisions about energy efficiency in their homes and minimise their

environmental impact.

Each of the projects I have just described will play a vital role in delivering a

clean energy future for Australia, with the additional benefit of creating many

more job opportunities for Australians.

Without a price on carbon, our ability to turn these opportunities into long

term clean-energy industries and jobs will be compromised because only a

carbon price will give the appropriate economic incentive for firms to innovate

and find low carbon ways of production.

A carbon price is the only policy being promoted in Australia that will

incentivise businesses and individuals to drive a low pollution future and the

creation of new industries and jobs. This, together with the Government’s

support for renewables and energy efficiency, will ensure a prosperous future

for the Hunter region and its industries.

Conclusion

Thank you again for giving me the chance to continue this important

conversation today.

Pricing carbon is a fundamental economic reform that is in the interests of all

Australians.

It will establish a clean energy future for Australia. A future that the Hunter is

well placed to prosper in.

I would be happy to take any questions you may have.