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Thursday, 25 June 2009
Page: 7275

Mr IAN MACFARLANE (10:16 AM) —I rise today to speak on the Offshore Petroleum and Greenhouse Gas Storage Legislation Amendment Bill 2009 and the Offshore Petroleum and Greenhouse Gas Storage (Safety Levies) Amendment Bill 2009. The Offshore Petroleum and Greenhouse Gas Storage Legislation Amendment Bill seeks to correct omissions in the act, which came into effect in November 2008, and also is intended to make a number of technical corrections, including to references to the act in other legislation. By way of background, the Offshore Petroleum and Greenhouse Gas Storage Legislation Amendment Bill 2009 provides for the injection and geological storage of greenhouse gas substances in Australia’s offshore areas—that is, those covered by the Commonwealth. The bill will provide for access and property rights for greenhouse gas injection and storage.

Despite the constant assertions by the Prime Minister and the current government that the Howard government did nothing on greenhouse gas emissions, the fact of the matter is quite the contrary, and I was pleased that the Prime Minister finally acknowledged that in the House yesterday. I am surprised the Prime Minister had trouble saying ‘$3 billion’, because the ‘billions of dollars’ figures tend to roll off their tongues these days like they were just lolly money. But in the main chamber yesterday the Prime Minister did admit that the Howard government had allocated $3 billion to lowering greenhouse gas emissions in Australia.

The work that has been done to date on lowering greenhouse gas emissions in Australia was done by the previous government. That is a fact. The money that has been put into solar energy, the money that has been put into carbon capture and storage, the money that has been put into better efficiencies in coal fired power stations, the money that has been put into looking at ways in which we can improve the combustion of coal—the money that has gone into all those projects came from the previous government.

It has taken the government 18 months to allocate money for new projects. As yet, no major sums of money have been spent building anything. There has been a great deal of talk—and I know that many would not be surprised by that fact—about what the government are doing about greenhouse gas emissions. But the reality is that they sign things, they initiate reports, they establish a new institute that duplicates the previous institute and they do round-the-world trips talking about what they are going to do. They say they are going to do a lot, but they have not done anything.

The reality is, as is the case with this legislation which began development in 2005 under the previous government, that it is one of the real initiatives that will make a difference. I do commend the government for the work it is doing to ensure this bill operates correctly, but it highlights that bills of this nature—and this one is relatively simple—will continue to need amendment to ensure that they work. I will come back to that point a bit later.

The provisions of this bill will authorise the injection and storage of greenhouse gas substances, as I say, in offshore waters. This means in essence the capture of carbon dioxide together with any substances incidentally derived from the capture or injection and storage process with the permitted and required addition of chemical detention agents to assist in the tracing of the injected greenhouse gas. What that means in layman’s terms is that, when you bury this gas and sequester it in the ground in these subterranean reservoirs or storage spaces, there will be a gas agent that will be put in there that can be traced so that we will know if that storage is leaking.

I cannot emphasise how important this legislation is in regard to where we go in Australia, in particular in regard to the use of zero-emission coal fired power stations. Again, this government has said a lot about that but has not yet put any money into building one. I see it is allocated and I thank the Minister for Resources and Energy for providing me with a briefing yesterday, but what it says is that still this government is not providing enough money to build a series of zero-emission coal fired power stations. We have heard figures bounced around by the Prime Minister of somewhere between two, four and eight of these power stations being built by 2020.

Let me apprise the House of what one of these power stations will cost. It will cost around $3 billion—about as much as a nuclear power station. They are an extremely expensive piece of kit. They are arguably almost double what it would cost to build the same size power station conventionally, as we call it, even using the latest super- and ultra-critical boilers. These power stations are not efficient by nature—30 per cent of the energy they produce goes into capturing and storing the CO2. That CO2, as I mentioned, will be stored in these subterranean reservoirs.

What we all need to understand about carbon capture and storage in relation to zero-emission coal is that it is extraordinarily expensive to build these power stations and extraordinarily expensive to run them. What the government is not telling the people of Australia is that the price of electricity ex the power station will treble. It will go up threefold under their greenhouse gas emission program. Between the carbon price and the actual physical cost of building and running one of these power stations, people in Australia need to be aware that the price of electricity at the power station will treble. No-one is arguing with that figure. The figure is generally accepted to be in excess of $120 a megawatt hour, it is $40 currently and it is possible and accepted that the figure could in fact be as high as $150 a megawatt hour.

That will bring into focus some of the folly of what this government is trying to do with the pittance that it has put into this technology in the 18 months that it has been in power. I say pittance as a relative term, but we need to understand that under the program which the government boasts about of somewhere between two and eight power stations having this technology by 2020 that, in fact, each of those power stations have a commercial shortfall or an economic gap, as they call it, of around $1 billion. And there is nothing that the government has announced to date that will cover that gap. Having covered that construction cost, they then need to be honest with the Australian people about what their electricity bills are going to be.

Industry have got it worked out. They know that, between the CPRS, the rent and the actual cost of building these power stations, their power bills are going to go up significantly, and one of the great natural advantages that Australia has had as a country will be lost forever. Before any of our competitors move to this sort of regime, before we even know what any of our trade competitors are doing, Australia will be locked in through this ridiculous, poorly thought out CPRS to committing Australian consumers, in the case of industry, to an uneconomical price of electricity for those high-level consumers.

We need at some stage to see the government be honest about the challenge that lies in front of them. Can I start by suggesting that they look at this publication, Powering Australia: the business of electricity supply. It has a wonderful photo on the front of a wind energy power station. I know there are some—not me, because I have an engineering eye, being an ex-farmer and someone with that sort of bent—who would say, ‘You have polluted the landscape with wind farms.’ I am not of that ilk. I believe wind farms, along with other forms of renewable energy, have an important role to play, but we need to understand that, given the remoteness of that power station, there are going to be added costs in transmission and energy lost, along with the fact that wind energy costs twice as much as coal energy now. We need to understand that, in terms of cost reduction, that technology is not going to see that figure alter dramatically.

Ms Jackson —That is one of the reasons why we want to put a price on carbon.

Mr IAN MACFARLANE —Well, that is exactly the point I have been making. Obviously you were not listening to what I was saying, but I will come back to your point—

Ms Jackson interjecting

Mr Bradbury —Which camp are you in?

Ms Jackson interjecting

The DEPUTY SPEAKER (Mr KJ Thomson)—The member for Groom has the call.

Mr IAN MACFARLANE —I have done more on lowering greenhouse gas emissions than you have. If you want me to run through it, I am happy to give you a briefing on what I actually did in six years and what the environment ministers that I worked with for six years actually did, and then you can sit down with me with your environment minister and your other minister and you can compare notes. I tell you what: you are a couple of billion dollars behind—a lot of talk ahead, but a couple of billion dollars behind. We have actually put things on the ground, which you are yet to do.

Coming back to the issue, whilst wind, solar, geothermal, wave and perhaps tidal have a role to play, Australia, as defined in this report, needs to build a thousand megawatts of electricity power stations every year from now until 2020. We need to know from the government how many of those power stations they actually think—not the ones they put in their speeches, not the ones they give in their media spin—will be coal fired power stations, how many of them will actually use this legislation, which is so critical to their survival, and then on what basis they will then tell the people what the price of electricity will be. What is all this going to cost the average person and the average household?

While they are doing that and they are putting together their legislation, they should also address a couple of other issues in relation to the Carbon Pollution Reduction Scheme and coal-fired power stations. They should acknowledge some of the points made by the Energy Supply Association of Australia, who actually know what is going on in energy supply. They should take very careful note of these four points, which the Energy Supply Association were talking to members of parliament about over the last couple of weeks.

The first point is that there needs to be something done by this government to protect the balance sheets of stranded coal-fired generators through the allocation of additional permits. The way power stations are being currently treated by the CPRS, they will close, and the members opposite need to explain to their constituents what happens when the first coal-fired power station in Victoria closes in 2015. What is actually going to replace that baseload power? That is only six years away. That does not give enough time for a power station to be built that can use the legislation that we are discussing. What is actually going to replace that power station?

We need to know how the government is going to protect the balance sheets of these coal-fired power stations. We need to know if the government is going to deliver 10 years of firm emission caps to these power stations followed by a 10-year emission target range. Is it going to ensure that these power stations can convince the people who finance them, who lend them the billions of dollars to keep these power stations running, of what projections, costs and income these power stations have got?

I need to emphasise that these power stations are not financed once in their lifetime; they regularly roll over their finance and refinance at various times. As anyone who knows anything about the power industry will know, these power stations are currently going through a round of refinancing. Some of the larger power stations will again be borrowing billions of dollars, at a time—as we are constantly reminded—of very, very tight lending. This money is borrowed both domestically and overseas. That borrowing capacity, which is already hindered significantly by the global financial crisis, will be made significantly more difficult by the CPRS.

We need to ensure that the CPRS provides future settled contracts at permit auctions to enable liable entities to manage cash flows. There is going to be an enormous amount of money being paid by these power stations in advance. That is a cash-flow issue in the millions and millions of dollars. Power stations, in some cases, will need to secure up to $10 billion worth of permits to continue to operate—that is $10 billion over and above the money they are drawing out of their normal refinancing regimes. Ten billion dollars—that is a lot of money. Even in the Prime Minister’s language that is a lot of money. We need to give these power generators the certainty they need or they will simply not continue to operate.

We need the government to provide some assurance to coal-fired power stations that they will have a place in the future. This legislation is a very important part of that. It is a very important part of that because it not only provides the ability for carbon sequestration from land-based power stations, but it also provides the framework, in terms of what the state governments do. In that regard I am less optimistic, because the state governments, encumbered by huge debts, are looking with an eye of complete confusion on this issue. Looking at states like Queensland and New South Wales and Victoria, who rely so heavily on coal-fired power stations, I can only express disappointment in the way they are handling this issue.

That disappointment, of course, does not stop there. We see a ridiculous situation where, despite the grand claims of this government, the Prime Minister’s own legislation does not take into account those first attempts at carbon capture and storage by power stations. We are seeing proponents like ZeroGen refused further assistance by both the state Queensland government—and I will not start on that or I’ll be here all day—and the federal government. We are still not sure if, under their new proposal, that project will get any money.

What we do know for sure is that, despite this legislation, these new leading-edge projects will not get off the ground. This is because of the simple fact that this government, under its CPRS which has not got a practical line in the whole legislation, will simply tax these projects out of business through a carbon emission price. And when I say tax I mean that, when you do not have the technology to lower your greenhouse gas emissions any further, your emissions are still priced and you have to pay that price—and that is a tax. You have no way of avoiding it. It is as certain as birth and death.

We have seen a ridiculous situation where ZeroGen—whose project aims at using this legislation to reduce greenhouse gas emissions by 60 per cent from power stations and sequester carbon—still have to pay for the carbon for their pilot plant. Is this government fair dinkum about progressing zero-emission coal in Australia? Or is it, like a lot of what it does, just hot air? We have seen continual reference by this government to how important zero-emission coal is, but we have not seen any real action—a lot of talk; not much action. The government is very good at setting up another institute, particularly if the Prime Minister is about to go overseas, but at no time have we seen what it will actually do to get these power stations built. There is a number between two and eight that floats around, depending on who the audience is.

We need to understand that there are none of these power stations operating in the world on a commercial basis now—zero. Nil. Zero. In the six years I was the Minister for Industry, Tourism and Resources, a great deal of money—real money, taxpayers’ money, hundreds of millions of dollars—was spent by the then government to progress this issue. We are still no closer now than we were five years ago, so we need to see this government get fair dinkum about it.

Along with that, as a result of the CPRS, as this legislation comes into practice, as the cost of storing carbon gets added to the price of electricity and as the price of the carbon that is emitted is charged at the carbon price, we need to see what this government is actually going to do to keep jobs in Australia. There is a lot of talk about jobs by this government. The reality is that unemployment is going to rise significantly and perhaps double over the next 18 months. Those are not my figures; they are economists’ figures. The member who spoke previously, who was here with me, showed me the latest economic predictions. They were being made by the same people who, 12 months ago, were predicting a bright future for Australia. What the economic picture seems to be, though—and there is no certainty of this—is that things will get tougher and jobs in Australia will be lost. At that point in time, you would think that a government that is fair dinkum about jobs—as it seems to be fair dinkum about carbon storage—would be making sure that this legislation, when put into practice, did not cost jobs in Australia through increased costs to business.

There is no evidence to support that. There is no evidence to support the idea that the government has any understanding of the fact that trade-exposed energy-intensive industry will simply move overseas—that industries like aluminium, for instance, will simply not expand in Australia and that they will run down their physical assets to the point where they are no longer economical to run, in a cash-flow sense, and they will close. Who knows how long that will take? Maybe it will be 20 or 30 years, or 40 years, if we are lucky. In the meantime, we will see no more of those industries come to Australia. We will see no more pipelines for the Tomago aluminium smelter at Newcastle and no jobs for the people that will be thrown out of work in the resources industry or the coal industry as it is shut down by this government.

It gets worse than that, because this week we have seen the release by the Australian Chamber of Commerce and Industry of the effect that the CPRS will have on small business. It is sobering reading:

As a consequence—

of the CPRS and its effect on the small business sector—

trade-exposed SMEs have limited opportunities to pass the costs on …

We on this side of the House understand that explicitly. We know business because we are in it. We have done it. We are very good at businesses. We on this side of the House understand business. We know how to make money; those on the other side of the House know how to spend money. But as this report goes on, these businesses ‘have no way to pass on costs to their customers’:

… but are not eligible for assistance under the proposed CPRS transition package.

Increases in energy and transport costs will impact directly on SME employment and profitability.

Employment—does that word ring a bell? It rings a bell over here. It goes on:

The study finds that the CPRS in its current form will generate additional costs that would erode firm profitability by between 4 to 7 per cent …

This is at a time when many economists are still predicting Australia will go into recession. We may have dodged the bullet last time. There is some suggestion that we may escape, but there is more suggestion that we still have a recession in front of us. The report continues:

… the study shows that firms would likely need to reduce labour costs—

labour costs—does that ring a bell over the other side? It sounds like jobs going to me. Labour costs would need to reduce:

… by between:

  • 4.4 per cent … and 8.1 per cent … on average for food processing SMEs;
  • 7.4 per cent … and 12.9 per cent … on average for plastic manufacturing SMEs …

I still do not have an answer from the minister for industry about how he expects Australian car manufacturers to compete. Plastic is a big component of Australian cars, along with electronics and steel. Steel and plastics will be subjected to the CPRS, and plastics with no compensation, and the manufacturers will be competing against the Americans, not to mention the Japanese, the Chinese, the Thais and the Europeans—although the European cars, while they are very good, always lose a slight competitive edge because of the location. But Australian manufacturers will still have to compete, particularly with the Koreans, the Chinese, the Japanese, the Americans and the Thais. Car manufacturers in Australia will be paying this price on plastics, trying to compete with manufacturers in other countries. Again we hear this government say they are fair dinkum about a car industry, but they are quite happy to put it out of business with the CPRS.

I will finish with these last few numbers. The chemicals manufacturing industry will have to reduce labour costs by between 1.8 and 3.2 per cent, and in the machinery and equipment manufacturing sector, which would include the car industry, we are going to have to see a 1.8 to three per cent cut in labour costs. Despite this legislation, despite the work that our government did when we were in office, the CPRS is going to destroy industry in Australia—not just the aluminium industry, not just the cement industry, not just the smelting industry but industries right down in the electorates of the people who sit over there.

What we need is some honesty from this government. We need to see a situation where they will actually ensure that this legislation works—and, as I said, I commend the minister for his efforts on this. He is ensuring that, from his perspective, the legislation to sequester carbon is as good as it can be. There may be further work that needs to be done on it, and therein lies the salient point. As this opposition cooperates with the Minister for Resources and Energy to ensure that this small, simple piece of legislation which constantly needs amendments is amended to make sure it works, we draw the comparison to what it will be like trying to amend a CPRS that is basically flawed. This legislation is basically right. When it was introduced in 2005, it was basically right, but it needs a bit of tinkering. Here we are, four years later, doing that in good faith with the minister. What is it going to be like when we, the people responsible for the economic and social future of Australia, have to try and do the same for the CPRS? It will be full of politics, full of false promises, full of potential to destroy Australia’s economic future.

We will do our best. We were a government with a record of reducing greenhouse gas emissions. We reduced greenhouse gas emissions per megawatt hour of electricity produced. We did that. It will never be acknowledged over there. We gave the renewable energy sector a start. We were the ones who introduced the MRET, and it was working.

What we are seeing from this government is a lot of talk, a lot of rush and a lot of politics about the CPRS. Using this legislation as a comparison, we should be very, very afraid of what the CPRS is going to do. It will be flawed from the day it is introduced. It will require constant amendment. We probably will not find out what the Americans are doing until after Copenhagen. The Waxman-Markey bill has to get through firstly the Democrats, then the Republicans and then the congress. The senate runs a parallel process. When it does get through, we will have some idea of what we are up against there. We may then also have some idea of what we are up against with our trade competitors in Europe and Japan. We will still have absolutely no idea with regard to China, Korea, Thailand, India or a list of other countries which will give us competition in the industry sector which we will not be able to deal with and which will cost jobs here in Australia.