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Energy Efficient Homes Package

CHAIR —Welcome. Do you need to change your submission to us?

Mr D’Arcy —No, we do not wish to change our position.

CHAIR —Then we would welcome a brief opening statement, thank you.

Mr D’Arcy —By way of introduction, ICANZ represents the two major and oldest insulation manufacturers—Bradford Insulation and Fletchers Insulation. These two companies both have assets in excess of $500 million and are owned by publicly listed companies, CSR Ltd and Fletcher Building. With that, come the commensurate corporate and social responsibilities of the Australian Stock Exchange and ASIC and other regulatory, shareholder and public requirements. CSR has been producing insulation for over 75 years and Fletcher for over 50 years. I estimate, from information given to me by my members, that they directly employ over 1,000 people involved in insulation.

I am the CEO of the association and not a direct employee of either company. My members manufacture glass wool, rock-wool, and reflective foil insulation products and market a range of other insulation products. To give you some perspective on the size of that, the capacity in glass wool is about 90,000 to 100,000 tonnes and the current sales of foil insulation are somewhere around 60 million square metres, with the capacity to produce 100 million square metres. In glass wool insulation, Fletcher make Pink Batts and Fat Batts and Bradford make Gold Batts, and between them they have supplied the majority of ceiling insulation in the ceiling insulation program. We estimate that to be about 68 per cent of the total program. This is not a ‘pink batt’ program, for those of you who like to call it that. It involves the whole insulation industry, not just batts but a lot of other products.

We believe that in the total insulation industry we supply around 70 per cent of all insulation. That is not only existing homes; that is new homes, commercial buildings, acoustic insulation, fire insulation, power stations, petrochemical plants, motor vehicles, horticulture, air-conditioning duct work and so on. To correct an earlier figure, we would say that foil represents about 11 or 12 per cent of the total market. The remaining 30 per cent of the industry is made up, we believe, of about 30 main manufacturers of various other insulation products. Prior to the HI Program, we estimate that insulation into ceilings of existing homes represented about 10 per cent of the total market. We believe that, with the introduction of the HI Program, that is now about 50 per cent.

The industry is highly competitive, as I am sure you have gathered by the submissions so far today. Unfortunately, in Australia we do not have an independent body such as the BBA in Britain or the CSTB in France or BRANZ in New Zealand to investigate and rule on product claims in the building industry, so the industry is constantly embattled with misleading claims, legal action and scientific challenge. The development of Australian standards for insulation took about 10 years and had wide representation, with representation from scientific groups, the Housing Industry Association and various other bodies. That standard came into place in 2002 and was amended in 2007 with appendix K, which was referred to earlier.

ICANZ disagree with many of the claims being submitted to the honourable senators today by our competitors. We do agree, however, that a proper, independent, building research facility is needed in future to investigate claims independently and to give some direction on where we go. Given this background of our industry, I hope you can understand, and we believe, that the government, and the departments in particular, have done a remarkably good job in setting up the process and guidelines and that, without doubt, the guidelines now are the strongest the industry has ever seen—and this is not just since these deaths have occurred. In our submission, we expressed our belief that the Energy Efficient Homes program has been extremely successful in terms of the benefits not only to the householders but to the economy, and we referred in our submission to an earlier study we did using a macroeconomic model used by the government that explains benefits that far outweigh even the savings to the householders. So, in terms of value back to the householder, this has been outstanding.

CHAIR —Mr D’Arcy, I note that you are reading from a prepared statement. Do you wish to summarise the balance of it and table the document?

Mr D’Arcy —Yes. I could say that we unfortunately believe that many of the issues that have been raised are small and have been extrapolated out and that the media has taken hold of that and given a totally false picture, in our view, of what, in perspective, is going on in this program. We would like to address that later. We note that in the government submission there were only 0.62 per cent of complaints, meaning that less than 7,000 people have complained, which means that well over a million people have not complained. We believe that there are many happy, contented people who are more comfortable and have got value out of this program, but nobody has bothered to get their view on whether this program is worth while.

I would summarise by saying the householders have not taken up the responsibility that they should have under this program where they are getting a free $1,600 or $1,200, and I think that some of the inspection and care needs to be put back to where the product was signed off. This whole program is multilevel—supply, installation and signing off. It is impossible for any government department to be at every point at every time. I think the mechanisms they have got in place through the desktop auditing, through site inspections and through registration are where you are going to get your statistics as to how well this program is or is not going, because they have the best database, not through observations of a pack of batts here and a pack of batts there.

I would also say that any early reduction in this program would have massive effects on the industry. Right from day one when Kevin Rudd said, ‘Here we go; we want industry to operate in good faith,’ industry has gone through an enormous amount of redevelopment and investment, not only in capital but in working capital, people and training, and we are now geared to finish the balance of this program. This program is a stimulus package. It was meant to basically preserve jobs that were leaving the industry as the building industry turned down and to create opportunities for many new jobs. If this program came to a sudden end, we know that not only would the manufacturers feel pain but those employed in the industry would no longer have employment. That is quite apart from the benefits that over a million people who have not complained are thoroughly enjoying, and another million should be doing the same thing if this program is taken through to its completion.

CHAIR —Thank you, Mr D’Arcy.

Senator McEWEN —Thank you, Mr D’Arcy and gentlemen, for your submission. I will follow on from what you just said then about talk of the early closure of the program and the devastating impact, as you called it, that would have on the industry. Can you just elaborate on that? In particular, you also said that the program was intended to sustain existing jobs and to create new jobs. If the program were to close ahead of time, can you elaborate on what effect that would have on employment in the sector?

Mr D'Arcy —Certainly. Do you mind if I defer to Mr Tannous, who is actually in manufacturing. He will be able to give a more accurate answer.

Senator McEWEN —Of course.

Mr Tannous —We have estimated as an industry that over 8,000 new jobs have been created to fulfil the requirements of the package. If the program were to come to an end, a lot of those people who have set up will definitely be out of business because their sole business was to fulfil the requirements. So you will find people who have invested in warehousing and trucks will not have a job at all. In terms of manufacturing, the program did allow us to retain a lot of shifts and a lot of people in jobs. We will definitely, as manufacturers, have to scale back because the demand will be down. To be honest, I think that the 8,000 jobs we have estimated is quite conservative. If you had a look at the register at the moment, you would probably say there are 8,000 registered installers. If you have one or two associated with each of those registered installers, that is 16,000 to 20,000 people that I would say are probably employed in the industry, not the 8,000 that we conservatively quote. A lot of people would be out of jobs.

Senator McEWEN —Mr D’Arcy, you said there would be potential for another million homes to have insulation installed under the current program. Mr Tannous, do you know whether those million homes would mean an increase in employment in the sector or would it be steady as we go?

Mr Tannous —It will be steady as we go.

Senator McEWEN —Okay, so that is 8,000 jobs at least that are supported by the program. Mr D’Arcy, you also mentioned that a number of the issues raised during the course of the inquiry today are small and extrapolated. To paraphrase what you said, the media has given a false view of the program. Can you elaborate on that? What issues are you talking about?

Mr D’Arcy —I will, if only to say that we have been reading the media over lunch, so I am talking of the here and now. Again, I will defer to Ray, who has made a short summary of those things.

Mr Thompson —I would just like to address a claim that was made earlier which we have noticed has been taken up by the press, a claim of 30 to 40 per cent of houses and product being noncompliant. We estimate that we supply 68 per cent of the Home Insulation Program. We know all our products are compliant. That statement means that every other product that is going into this program is noncompliant. That is clearly nonsense.

Senator BIRMINGHAM —Not about it being installed properly.

Mr Thompson —It is noncompliant in terms of product testing, which is what the claim was about. What I am addressing is the product testing compliance, which is what was being discussed about the product not achieving its R-value. The issue was surrounding the Chinese imported product. We estimate that around seven per cent of the total home insulation product is Chinese product. We are not awash with Chinese insulation. Our estimate is seven per cent.

Senator BIRMINGHAM —What about the US?

Mr Thompson —There would be a larger percentage from the US. The vast bulk of the US product is imported by us.

Senator BARNETT —What per cent?

Mr Thompson —I do not know what the percentage is. I would have to defer to Mr Tannous.

Mr Tannous —At one stage we probably got up to about 25 per cent of what we supplied in the market being imported.

Senator McEWEN —Are you confident that the material you imported from the US complied with Australian standards?

Mr Thompson —Before we did that—and we had to do that because the demand for the program was unbelievable, way beyond our expectations; this is a hugely popular program—Mr Tannous and our operations manager flew to America and inspected the plants. These plants are our partner. They are our technology supplier. They are the largest insulation manufacturer in the world, Isover Saint-Gobain, from France. They are actually the best plants in the world. We got their samples, we flew them over and we tested them in our own NATA certified laboratory. We are one of the few laboratories in the world to be certified to test the Australian standard AS/NZS4859 part 1. We tested the product rigorously before we even placed an order. We are 100 per cent sure that the product from America is compliant. The American product is world class.

In terms of the Chinese product, we have tested a number of the Chinese products. We go out to the market and test product. To comply with the standard, you cannot test product by sampling it from a roof. That is noncompliant testing. You also cannot test product by not having the packaging, because the labelling is part of the standard. The only way that you can test compliance to the Australian standard is to have a pack. We bought packs randomly from the marketplace and tested Chinese product. Of that Chinese product, around 30 per cent failed to achieve the R-value. On my calculations, that means that the percentage of potential noncompliant product in the HIP, Chinese product—based on some random testing—is two per cent, not 30 or 40 per cent. Two per cent is too much—commercially we do not want any Chinese product here—but the reality of our trade is that that is allowed. The issue is that they need to meet standards.

Obviously, whenever we get test results we submit them to the government, the government takes actions and follows up with the relevant parties. There are noncompliance issues regarding traceability on labelling, and a higher percentage do not have the compliant traceability requirements, which means you must name the actual manufacturer and that must be on the packaging. That is part of our standard. A lot of them have not got that, but they are addressing—

Senator BARNETT —What percentage?

Mr Thompson —It is a bit hard to say. Maybe another 20 or 30 per cent of the product is needing to tidy up their labelling requirements for traceability. In terms of delivering the R-value, in terms of energy saving, obviously that is not an issue. It is an issue in terms of compliance and it is an issue in terms of, if that product was also not achieving its thermal performance, then there needs to be traceability to go back to the manufacturer. We have had representations from the Chinese insulation manufacturers association. They have flown people up from Australia to try and get their standards in order. So there is a good intent from the Chinese side to try to make sure that they comply with the standard, but that is the result so far. I would just like to reiterate that, from our estimate, the figure of 30 to 40 per cent of noncompliant product in the marketplace is complete nonsense.

Senator McEWEN —Have your members always imported some product?

Mr Thompson —We have imported products occasionally. In fact, a few years ago the reverse happened and we supplied a lot of product to America because the Americans were short. We supplied our partner in America with product and we employed people in Australia because of it.

Senator McEWEN —You also said, Mr D’Arcy, that you disagree with many of the claims of competitors. Are there any other competitors’ claims that you would like to address while you have the opportunity? Perhaps you could also the address the issue of formaldehyde.

Mr D’Arcy —I will certainly address the issue of formaldehyde. Most of the issues that were raised are of a very technical nature. Personally, I do not think you want, nor are we prepared, to go through the differentiated equations of why we might have a different view. But I want to put on the record that we do not agree with some of those assertions. Some of them are technical; some of them are against our association. There are conspiratorial criticisms, as well as technical criticisms, of our association.

Senator McEWEN —It is a competitive industry.

Mr D’Arcy —It is a very competitive industry. In terms of locally manufactured products there is no issue with formaldehyde. The levels of formaldehyde are trace levels. If they are not undetectable they are at least 10 to 20 times below any threshold level recommended by Safe Work Australia. It is not an issue; they are not toxic. They are perfectly safe to handle. With regard to the headline in the newspaper ‘Toxic batts’ I have not seen any tests of imported products that have taken levels so high that they would be classed as any risk to health. The claim is made, but where is the evidence? I have not seen it, and I would be very surprised if that were the case.

Mr Thompson —I would just like to add to that. There are actually trace elements of formaldehyde in all types of products. It is in your clothing right now at about the same level.

Mr D’Arcy —Everybody who has sat in front of you today has a trace element of formaldehyde in their clothing.

Senator McEWEN —It is also in foil and cellulose et cetera?

Mr D’Arcy —By the way, it is harmless.

Senator McEWEN —I figured that if I had survived this long—

Mr D’Arcy —As we have measured it, it is harmless.

Mr Thompson —With all insulation products it is insignificant.

Senator McEWEN —You said that there is no formaldehyde in Australian products, except for—

Mr D’Arcy —There is a trace. Of course, there are minuscule levels, but you need very sophisticated equipment to find it. We get it tested independently and there are other reports published by laboratories where they do their own testing, which agrees with our tests.

Senator McEWEN —Finally, you said that most householders—one million of them—are happy with the program. What is your take on what installers and manufacturers and others in the supply line think about the program, because we have heard evidence today that it is a catastrophe. In your view, what is the general take?

Mr D’Arcy —With regard to the changes that have been made to the program I do not think sufficient notice has been given for people to adjust to that. As the program developed it became a work-in-progress and it was always meant to be that way. The administrators started with a clean sheet in an industry that had no regulation and no standards. On advice from the industry they introduced basic standards and training procedures which, over the last 10 months, as issues have been raised have become more comprehensive. There are possibly consumers who are concerned about insulation and about who is knocking on their door, because most of the media reports have reported unsavoury practices of doorknocking, seeking sales, and instances of people not doing their job in compliance with the standard that is mandatory. It was set from day one. The accidents and fires and other things that have tragically occurred, again, can be backtracked to those basic standards not being followed.

Senator McEWEN —What role do other areas of government have in ensuring that those sorts of standards are controlled? What role do the states have?

Mr D’Arcy —The federal government has limitations, as I understand, in its power to take action. For instance, if somebody believed they were overcharged or the product was not installed they pretty much have to go back to the fair trading legislation in their state. If there has been fraud on the federal government in terms of claiming, I guess they have the Federal Police to track that back, and I assume they are doing that at the moment for cases. In terms of health and safety, there have always been health and safety regulations between employer and employee that are state based responsibilities and covered by WorkCover in those states. In those sorts of areas as well it is difficult to know where the territory stops. That would probably have to go back to state authorities and state police versus federal police, depending on the issue. It is a complex program to administer not only going into it—from the product that goes into it through to the installation through to the signing off—but also coming out the other side. If there are complaints, it becomes complicated in terms of how to handle that as well. Does that answer your question?

Senator McEWEN —Yes. Thank you.

Senator BIRMINGHAM —Gentlemen, thanks for your time and evidence today. Everybody, as you have highlighted, comes to these inquiries with their own vested interests and positions and puts their own positions from the perspective of their own industry. You have highlighted the evidence of those who have gone before you in that context. It is safe to say from the data you have given, though, that the two businesses you represent would be the two largest single beneficiaries of this program to date, wouldn’t they?

Mr D’Arcy —Yes.

Senator BIRMINGHAM —In 2007 you conducted a Deloitte study into potential rebates. You modelled, you say in your submission, a $500 rebate to be operated over three years. Did you model any other figures?

Mr D’Arcy —We did.

Senator BIRMINGHAM —Did you model higher figures?

Mr D’Arcy —We modelled a total insulation program of the 2.7 million homes. We had this scenario: if the government regulated to have all homes insulated over a seven-year period, what would be the impact on the Australian economy? We have provided those figures to government. That scenario is very similar to this scheme. It is run over seven years, but the same number of homes are insulated; therefore, the same benefits would accrue over that time, adjusting for the timescale.

Senator BIRMINGHAM —That was based on a regulatory, mandatory approach?

Mr D’Arcy —That is correct.

Senator BIRMINGHAM —Did you model higher rebate approaches than the $500 rebate?

Mr D’Arcy —No, we did not.

Senator BIRMINGHAM —Why $500 as the max?

Mr D’Arcy —At that time the state rebate programs that had been running for some time were running at anywhere between $200 and $350—around about that—and they were getting very minimal uptake. We knew that the reason was the incentive was not high enough. When we modelled the $500, we assumed that you would get only a 28 per cent uptake; that is all that level would attract.

Senator BIRMINGHAM —You assumed, or was that what the modelling indicated?

Mr D’Arcy —That was the assumption we put in. Twenty years of past rebates, right back to the 1970s, had shown us that, as you move up, going up another couple of dollars does not make much difference to the uptake. So that was the assumption we put into the model. That is our assumption: that it would have to be at least $500 to get a 28 per cent uptake.

Senator BIRMINGHAM —At that time the average cost of retrofitting home insulation, you say, was between $1,200 and $1,500?

Mr D’Arcy —Correct.

Senator BIRMINGHAM —Did you recommend to government or did government discuss with you the $1,600 rebate figure before it was announced?

Mr D’Arcy —The government had our study as a reference point. It was provided to the Howard government when they were in federal government. That then was available to anybody, really, who had an interest in this area. The current Labor government had our figures, had our study and had our recommendations. By the way, that was based on glass wool insulation products installed into homes and it was based on 2006-07 prices.

Senator BIRMINGHAM —So the government had your study that modelled a rebate of $500 but did not model any higher rebates than that. It looked at regulatory approaches and other approaches but did not look at higher rebate modelling than the $500 figure.

Mr D’Arcy —We did not do one.

Senator BIRMINGHAM —No, you did not do one. Did the government talk to you directly about putting in place a $1,600 rebate amount prior to this program being announced?

Mr D’Arcy —No.

Senator BIRMINGHAM —So there was no direct communication then. You say the current rate of completions is 5,000 a day?

Mr D’Arcy —Roughly 4,500 since the rebate became formal.

Senator BIRMINGHAM —In your submission you have said 5,000. At 4,500 does the same statement apply, that in fact you will insulate that available housing stock before the scheduled end of the program?

Mr D’Arcy —If you have a look, from February to July—five months—74,000, if I am correct, were insulated. From 1 July to pretty much the end of January about a million homes were insulated in seven months, if you look at the numbers.

Senator BIRMINGHAM —So it would be 2.8 million if you get a million per six months?

Mr D’Arcy —Actually, the number now is 1.9 million to be insulated. That is the target of the program. We are looking at less than 900,000 homes to be insulated over the next two years. If you have insulated a million homes in seven months, I do not think it is unreasonable to suggest that you could do less than 900,000 homes in the next 12 months, which would be a year short of when the program was to finish.

Senator BIRMINGHAM —What will happen to the industry and to those 8,000 jobs that you spoke of before when you get to the end of that period of time?

Mr Tannous —What you will start to find is that a lot of those jobs will become difficult to find and people will start to find themselves other employment, as we are starting to see now in some of the areas. In terms of manufacturing, there is the introduction of six-star insulation and hopefully we are starting to see the market pick back up again and that will take care of the manufacturing. Hopefully on the manufacturing side, with the jobs the manufacturers have put on, we will not be disadvantaged. In saying that, we would really want the program. I do not see the market picking up at the moment. I am not an economist; I just look at the housing stats and I think ‘Oh, they look pretty ordinary.’ So we would want the stimulus package to last at least another 12 months so that we see the market pick up again.

Senator BIRMINGHAM —All of those insulation businesses that are out there at present are basically the result of a big sugar hit to the sector and to the economy. It is certainly providing some benefits in a lot of homes. Nobody is disputing there are a lot of benefits to insulation but those businesses will all fade off over a period of a couple of years because this work is being undertaken so rapidly.

Mr Tannous —They will go back to the kind of employment they had, which was in the housing industry. A lot of them are carpenters and bricklayers. So instead of being unemployed because there were no houses being built we believe they will get back into that industry.

Mr D’Arcy —There is a second element to that, too. There is certainly a commitment to have mandatory disclosure of energy performance, both in commercial buildings—that comes in this year—and in residential buildings, next year. This program only covered areas that had no insulation or what was classed as negligible insulation, which is less than 25 millimetres—in other words, there was no insulation. If the mandatory disclosure program is successful and you want to have your home rated from two star or 1½ star to four star and compete on the market—bearing in mind that the new homes standard now is six—the first thing you would do would be to insulate your ceiling. For those homes that had insulation but much lower levels of insulation, if they wished to upgrade that would be the easiest and most cost effective renovation they could do. So there will be added work coming through if in 2011 all homes that are sold have to have an energy performance rating. I do not know off the top of my head how many homes are sold every year, but if the housing stock turns over every seven years there have got be a million. Hopefully that will give some hope to the Green Loans assessors that are looking for more work at the moment, as well as the insulation installers that are employed at the moment.

Senator BIRMINGHAM —It will be interesting to see how it is received by households, but that is a different matter. I want to touch quickly on the safety issues. You have placed a lot of emphasis on the standards, regulations and audits that have been put in place over a period of time throughout this program. Do you sit on the working group that was established by the department for the implementation of this program?

Mr D’Arcy —I sit on the insulation roundtable and I sat on the training workshop group.

Senator BIRMINGHAM —And you were appointed from day one to those bodies?

Mr D’Arcy —Yes.

Senator BIRMINGHAM —And the first meetings of them occurred when?

Mr D’Arcy —Our first meetings occurred with the department on the day of the announcement.

Senator BIRMINGHAM —Your first meetings were on the day of the announcement so that was the first meeting of what became the working group or what was at that stage the working group?

Mr D’Arcy —It was a meeting of the department with industry representatives who were invited to attend the announcement.

Senator BIRMINGHAM —You have attended all or most of those meetings?

Mr D’Arcy —Most of them.

Senator BIRMINGHAM —During the course of those meetings, we understand issues were raised about safety standards and the qualifications of those involved in the installation of home insulation. Is that your recollection of the meetings that you attended?

Mr D’Arcy —Yes.

Senator BIRMINGHAM —When do you recall those issues first being raised?

Mr D’Arcy —The first set of standards that went into the draft on day one were that we recommended to the government that in the existing homes market they were starting with a fresh sheet. There were no standards; there was no training. We recommended that two basic standards be introduced: that was for installation of product, which was AS3999; and for the product quality—that is ASNZS4859.1. Along with that, because we had been working with state governments, and particularly Victoria, we had helped the Victorians to develop a training program for their particular rebate for insulation, so to take part in the supply and fix in Victoria you have to have accreditation and training. ICANZ has been trying to get other state governments to adopt the same model because we could see in that area where they were giving out taxpayers’ money that at least there should be some compliance with the standards and some training. So it started out as a very basic one-day training package—which was one day more than they had had—and it covered the standards and proper training.

From that, of course as programs started to develop, other issues came up. Rather than adopt that model, the government consulted with other government departments and said, ‘We really need national accreditation.’ The program running in Victoria would have been difficult to get national accreditation for because it was not thorough enough. The first thing they added in was the occupational health and safety training that was required so that added another day onto the program. Then as issues arose, the training was amended. This was always meant to be an evolutionary program. The government said, ‘If you raise the issues and they are relevant, we’ll address them and we’ll put those amendments, where necessary, into the program.’ So today you have a far more robust program—it is the most robust program of any we have ever seen in the insulation industry—and for that I think the government has done a good job.

Senator BIRMINGHAM —When did you make your recommendations about the two standards and the need for a training program?

Mr D’Arcy —Day one.

Senator BIRMINGHAM —February 3, 2009.

Mr D’Arcy —That is it. My training program was a one-day program. It was really transplanting what was already in existence in Victoria, and the standards were the standards that would apply to new buildings in terms of product and installation that did not exist in the existing homes market at that time.

Senator BIRMINGHAM —Yet it was a long time before we had a mandatory training program and registration in place. Do you believe the government acted fast enough to implement that?

Mr D’Arcy —Once the government got other industries involved—they bought in a wide consulting group from the HIA, the MBA, training bodies and those sorts of things—managed to sort out what was and was not needed and what could be effectively but into place, I think they worked relatively quickly over that period of time to get all the sign-offs, tick-offs and drafts through.

Senator BIRMINGHAM —The need for a training program that you recommended was on the basis that you understood that there were risks that could happen and it could damage the reputation, of course, of the industry if this program was not implemented appropriately. Is that a fair summary of your motivation for recommending a training program?

Mr D’Arcy —Yes.

Senator BIRMINGHAM —Okay. You then saw an enormous surge over a period of time, but particularly from 1 July, in sales and in installers. Did you have concerns during that time that installers who were coming into the industry lacked the skills and the capacity to do the job properly?

Mr D’Arcy —Of course. That is why we recommended a training program.

Senator BIRMINGHAM —You had those concerns from day one?

Mr D’Arcy —That is right.

Senator BIRMINGHAM —Then as time went on you saw those concerns materialise. You saw the reality of those concerns. Installers did come into the industry and start the job of installing the products of companies you represent into homes in a manner that concerned you.

Mr D’Arcy —Our particular members also had their own training programs through which they trained their own supply-and-fix contractors, and those programs were running in parallel with that.

Senator BIRMINGHAM —They are not mandatory though, I assume, for people who purchase the products.

Mr Tannous —For brand distributors, yes. We have what we refer to as core distributors and we make it mandatory for them to go through a training program and—

Senator BIRMINGHAM —Are they the only people who sell or install your products?

Mr Tannous —No. They are the only ones that we recommend to install our products, but there would be other people.

Senator BIRMINGHAM —But others do install your products as well?

Mr Tannous —Yes.

Senator BIRMINGHAM —I will make this my last question. Did you, in subsequent meetings of the working group after 3 February, ever express to the government or to members of the working group an opinion that the number of installers who were ill-equipped to do the job was becoming a concern, that there was a need to hasten the implementation of a training program and to make it mandatory?

Mr Tannous —No. I attended most of them and I would say no. I do not recall that. A lot of the roundtable discussions were around whether it should be one quote or two quotes. Safety was only raised at the first few—correct me if I am wrong—

Mr Thompson —It was straightforward.

Mr Tannous —It was straightforward. The training was put in place. It was not raised at the other meetings that I attended.

Mr Thompson —There was a mandatory training program which was better than what we have ever had from 1 July, so a lot of the ramp-up happened really after that.

Senator BIRMINGHAM —So what you are saying is that, ‘There was a big ramp-up but, no, we weren’t that concerned because the training program was in place.’

Mr D’Arcy —It was all satisfactory at that stage.

Mr Thompson —Yes. We thought that was a reasonable training program. It was what we had been proposing. That was for our products. We cannot speak on behalf of other products.

CHAIR —My question is probably a view. From your comment earlier on taking issue with the allegation that 34 per cent of product is noncompliant, I gather from what you are saying that faulty installation cannot affect the R-value of a product. Going back to what you said about having to test this in a package, that the R-value is the R-value when it is in a package and you cannot test the R-value in any other way, does that mean therefore faulty installation cannot take away from an R-value? Is that your evidence?

Mr Thompson —The latter part of your question is not right.

CHAIR —Okay, can you deal with both aspects?

Mr Thompson —You are correct: you cannot test the R-value in situ. The bulk insulation is subject to what is called a material R-value requirement. That is a laboratory test. It is set up that way so that we can ensure consistency of performance of product. In terms of system R-value, that is based under the standard on a calculation. There is no in situ testing. It is a very, very difficult thing to do.

CHAIR —So, call me silly—I am a lay person—

Mr Thompson —If your question is: can faulty installation affect the R-value?


Mr Thompson —Absolutely! But it is not a product compliance. It is not subject to a standard. 4859 does not cover installation.

CHAIR —So you disagree with the claim that 30 to 40 per cent of product is noncompliant but, if the claim were that 30 to 40 per cent of product once installed is not compliant, you would not be taking issue with that?

Mr Thompson —Oh, absolutely.

CHAIR —How would you take issue with that?

Mr Thompson —As far as I am concerned, the vast majority of our product has been installed by people who are trained. I cannot speak on behalf of the other products but I am sure they would also say that the vast majority of their product is being installed by people who are trained and who do the right thing and that the product is compliant to the standards. There is a percentage, sure, which is going to be noncompliant. We do not know what that figure is because we do not go to people’s homes and you cannot test products. We do not know the answer to that. My experience in the industry would say that there is no way in the world that 30 to 40 per cent would be installed in a noncompliant way given that the vast amount of the product going in has been installed by experienced Australian installers.

CHAIR —Nonetheless, you are conceding that bad installation could affect the R-value of the product.

Mr Thompson —The thermal performance, definitely.

CHAIR —But you are not prepared to substantiate or otherwise the 30 to 40 per cent because you say we do not know what we do not know.

Mr Thompson —Based on my experience in the industry, which is 30 years, I am saying that would not be a figure that I would support as being hypothetically likely.

CHAIR —Okay, but noting that nonetheless there could be faulty installation that affects the R-value.

Mr D’Arcy —I would like to add to that. I would suggest that if you go back to the thousands of audits that have been done by the government, that would give you a real figure not based on one or two sightings. I do not know what those results are but if you could get details of what those auditors have found, that should be able to tell you whether—

CHAIR —Some sort of blueprint.

Mr D’Arcy —Well, it would be a far more accurate figure than what has been bandied around here today.

CHAIR —Mr D’Arcy, you said in your opening statement, and I am paraphrasing here, that the householder has not taken the responsibility they should have and that we should put some of the responsibility back. Can you expand on what you were talking about?

Mr D’Arcy —I think for $1,600 or $1,200 there is very good value for the householder.

CHAIR —Very.

Mr D’Arcy —For instance, if you had a problem with whether or not the products are compliant—just the products before they are installed—the householder has to sign off that they are. You now have an approved product list up on the website. I do not think it is unreasonable to ask the householder not only to have on the quote the brand name of the product they are putting in and the stated R-value, but also to have to reference the website to see whether that product has been run through the administrators and they have ticked it off as having all the right documentation and all the right testing, and also at the same time to check whether the installer is actually on the registered list.

CHAIR —So at the moment the householder pays an application fee, they apply and then after that—

Mr Thompson —No, that is not correct.

CHAIR —No? What happens?

Mr Thompson —The householder rings up—

CHAIR —So it is not even that?

Mr Thompson —or is contacted, or is doorknocked.

Senator BIRMINGHAM —So the householder unlocks the front door and shows them where the manhole cover is.

Mr Thompson —On the form that they sign—

Mr D’Arcy —On the form it is just a quote for batts. I think that should be more explicit about what batts, so that that can be checked. Then, when the work is done, I think that the householder should actually look on the work order form which says that product, with its brand name and R-value, and should make sure that all the packs—because they are there when the job is done—have got the similar branding, similar R, that are listed on the government website, because that is what it has been established for. And, by the way, they should check out that the installer is still registered because some of the media have said, ‘Here is a person that has been deregistered and they are still doing work.’

CHAIR —Are you saying that at the moment householders have all care, because it is their home, but no responsibility?

Mr D’Arcy —They do have to sign off the order, which means that they in theory are responsible that that job is done properly and the right products are installed. But I am saying that now that there is an approved product list, there is a published registration list of those people that are still in it, I think the householder should take more responsibility to help this program be successful.

CHAIR —What if you flicked it around and had the householder paying the installer? Mums and dads will not like that you have the householder paying the installer and your industry, and then the householder seeks the rebate.

Mr Thompson —That was the case from 3 February to 1 July.

Senator WORTLEY —Do you have the figures on how many households were having insulation put in on an annual basis prior to the commencement of the program?

Mr D’Arcy —It is difficult to know, but our guesstimates are somewhere between 60,000 and 70,000 per annum.

Senator WORTLEY —Is that in Australia?

Mr D’Arcy —Yes. If you took the 70,000, that is about 192 jobs a day.

Senator McEWEN —Is that retrofitting?

Mr D’Arcy —We are talking retrofitting—apples for apples.

Senator WORTLEY —So 70,000 homes in Australia per year—prior to the commencement of the program—were having insulation put into their homes and there were no mandatory regulations or safety requirements for that installation. It is only since this program has been put in place that the issue has been addressed in relation to safety, training and installation.

Mr D’Arcy —Correct. The reason for that is that the value of the product being put in was considered a minor renovation. To start getting serious about regulations, I think you need to be around $10,000 or $50,000 in value to then have to go through proper channels and paperwork and standards. Having insulation put in your home could often be done for under $1,000, so it flew under the radar completely.

Senator WORTLEY —Can you tell us about the cost-effectiveness of energy savings from insulation?

Mr D’Arcy —In 2007, when we put that together, we said an all-in average—bearing in mind different size houses, different climate zones—on the basis that is clearly set out in our analysis, was $220 per house. Since energy prices have gone up 15 per cent at least in that time, we are looking more like $250 saving per annum, as an all-in rule of thumb per house.

Senator WORTLEY —I notice in your submission that you talk about fires involving downlights and insulation having been an issue of concern for the industry for some time. You say that it had not been addressed prior to the implementation of this program and, further, that ceiling fires and electrocution occurred prior to the EEHP being put in place.

Mr D’Arcy —Did I say electrocution had occurred? I did. I was probably referring to New Zealand. There were cases two years ago in New Zealand for retrofitting floor insulation, a similar proposal, but that was a situation that was addressed under the New Zealand scheme.

Senator WORTLEY —I have some information here that for insulation to be installed, a letter or an email was sent around to all installers stating that they had to put in place the labelling or packaging of the particular product that they put in the home and they also needed to leave that with the homeowner—which was verification of the fact that this was what they had put in their ceiling—and they signed off on that and left that. And that has been happening since December 2009?

Mr D’Arcy —I believe so.

Mr Thompson —It was reasonably common in the industry before this Home Insulation Program.

Senator WORTLEY —There was reference earlier to insulation being in a warehouse somewhere and not having any labelling on it. Could that insulation be for some other purpose?

Mr Thompson —It is possible.

Senator WORTLEY —Because if you need to have a label and a sample left in the home, then it would need to be on the insulation packaging to begin with.

Mr Thompson —For a start, the answer is yes. But also, to be compliant with the standard, you have to have a label on the packaging.

Senator WORTLEY —Right, so that could be for some other purpose.

Senator BARNETT —In terms of the meetings you have had with the round table and with the minister specifically, did you receive any minutes from those meetings?

Mr D'Arcy —All but one. When the key leader of the administrative team changed, there was a changeover in personnel.

Senator BARNETT —Who was that?

Mr D'Arcy —I think Malcolm Forbes changed and Catherine Pennington—

Senator BARNETT —You can take it on notice.

Mr D'Arcy —Sure. Effectively Aaron Hughes now runs the program.

Senator BARNETT —How many meetings would you have had last year?

Mr D'Arcy —I think one every couple of months. I do not have the numbers.

Senator BARNETT —So you received minutes of the meetings. Could you please forward a copy of those meetings on notice to this committee.

Mr Thompson —Sure.

Senator BARNETT —You referred in your earlier remarks in response to Senator Birmingham to the cost of the subsidy. You just said there were about 60,000 to 70,000 per year prior to this program kicking in. So based on the current statistics of the last 12 months, would you say that you have now got about 14 to 15 years or more in the one year in terms of jobs per day?

Mr Thompson —Sure. That is part of the submission. I have put a little graph in there to show that under business as usual I estimated it to be close to 2050 when a similar amount of homes would have been insulated and we would have covered off those uninsulated houses.

Senator BARNETT —Understood. Your submission also says on page 17 that when the program comes to a conclusion:

This will put at risk future manufacturing jobs and the justification for further investment in manufacturing capacity.

I think Mr Tannous said that earlier. In terms of the subsidy, you have done your research and you have got some accounting experts to help you on the $500 subsidy to work out what impact that would have on the industry, but of course the government has started with a $1,600 subsidy and then cut that back, as we know, to $1,200. So what is your assessment of the $1,600? What impact did it have and do you think it was too high and should have been $1,200 initially?

Mr D'Arcy —For a program that was put into place as a short-term stimulus measure over 34 months, I think it required a very large stimulus. We did not think $1,600 to get people interested was unreasonable at the time. Now that the program has advanced more rapidly than any of us envisaged it would, cutting it back to $1,200 is perfectly reasonable. You are looking here at theoretically getting 100 per cent uptake of uninsulated homes. If you were aiming to get 30 per cent of uninsulated homes, you would offer a different financial amount. No-one else in the world that I know of, apart from the UK, has ever attempted anything as ambitious as this. If you want to achieve that in 34 months, I think that was the reason for the high level. Plus there is the fact that it was up to $1,600. It was not $1,600; it was up to $1,600. I think the government actually budgeted on a $1,200 average installation. You would have to ask the department about those figures, but I understand that the average was meant to be around about $1,200 but they put up it to $1,600 because there are particularly difficult jobs and they wanted to try and get them all in the one net.

Senator BARNETT —Is it fair to say that most consumers paid nothing? Was it free essentially for most households?

Mr D'Arcy —I would say the majority of people under the $1,600 rebate would have paid nothing.

Senator BARNETT —I just want to go to the issue of imports from overseas. You indicated at one stage that an estimated 25 per cent of the product was being imported from overseas. Can I just take you back prior to the program. What percentage, if any, was imported from overseas? I assume we were relying on Australian manufacturers and therefore none, but can you clarify that to start with?

Mr Tannous —There probably would have been about five per cent of imports in Australia.

Senator BARNETT —Prior to the program?

Mr Tannous —Prior to the program.

Senator BARNETT —Where did they come from?

Mr Tannous —The bulk of them would have come from Thailand.

Mr D’Arcy —No, Malaysia.

Senator BARNETT —So Thailand and Malaysia, prior to the program commencing?

Mr Thompson —And China.

Senator BARNETT —Right. So, once the program commenced, you had the $1,600 rebate, a very big influx like 16 years in one, kicking in. Obviously the Australian manufacturers could not cope with the demand and they imported. I just want you to clarify for the record that, based on your advice and evidence, there was some 25 per cent of—

Mr Tannous —Of what we supplied at a point in time.

Senator BARNETT —Which point in time was that?

Mr Tannous —It peaked for us around October or November.

Senator BARNETT —What would it be now, for example?

Mr Tannous —Zero. We stopped importing. We still have some stock coming in and some in the warehouses, but zero. We stopped importing back in November.

Senator BARNETT —But you are still getting some in from overseas?

Mr Tannous —No, we have stopped doing that. We stopped doing that in November. We got—

Mr Thompson —It takes six to eight weeks.

Mr Tannous —Yes, we have got six to eight weeks, so we have got—

Senator BARNETT —You have orders—

Mr Tannous —Correct. It is a long supply chain.

Senator BARNETT —What I am interested to know is: how much would be expended? Can you figure it out for a 12-month period—and I am happy for you to take it on notice—for imports under this program?

Mr Tannous —Is that ICANZ members or—

Senator BARNETT —Yes, your members, based on your evidence and your experience.

Mr Tannous —I will just take that on notice, if you do not mind.

Senator BARNETT —Yes, please, if you could.

Mr D’Arcy —I am sure you are aware that the import statistics are not helpful. The import statistics are veiled. They used to show you the port of origin, the port of departure, the value and the tonnage. They are now masked and they are mixed up generally with other glass wool and textile products. We cannot get the department to unmask that to get a real figure, so it is really a guess as to how much is coming in.

Senator BARNETT —I want you to use your best estimates, based on your years of experience and understanding of this industry, to provide that figure for us. I also want you to give us an assessment as to where the product came from and then your view of the product, because we have had evidence to say that a lot of it was noncompliant. You have indicated that some of the product from China was noncompliant and then there were some of the issues regarding labelling—up to 30 per cent of that product was inappropriate or noncompliant. Could you answer that on notice?

Mr Tannous —Certainly.

Senator BARNETT —Thank you.

CHAIR —I call on Senator McEwen to bring the questioning to a very quick close.

Senator McEWEN —Earlier we heard evidence that the kind of insulation material that your members provide is not suitable for tropical areas. I just wondered whether you could address that issue completely.

Mr Thompson —We disagree with that. Bulk insulation is suitable for all climate zones. That has been the case always and is accepted worldwide. We actually manufacture the vast bulk of the foil products made in Australia. Foil is a good additive in combination. Yes, it helps with additional radiation, but the bulk of the work in foil is actually achieved by the airtight non-ventilated airspace that the foil creates, and that itself is subject to high temperature variations. It is quite a complex bit of science to work that out, and everyone has their different views. As we said before, it is a pity in Australia. We would really like to encourage a BRANZ equivalent in Australia.

Senator McEWEN —Could I just have one last question, just out of curiosity?

CHAIR —The senator is behaving badly!

Senator McEWEN —What is fibreglass made of? Is it made of recycled products?

Mr Tannous —It is up to 80 per cent recycled glass.

CHAIR —Mr D’Arcy, on one final thing?

Mr D’Arcy —Yes, I have one question. Will the follow-ups for this be minuted and sent to us? Or are you asking us to write them down here?

CHAIR —The committee will inform you of the questions that you have agreed to answer on notice, and we are in the process of agreeing a time by which we hope you will provide those answers to us. I think it is some 14 days hence. Thank you very much. It is important that we hear from sectors such as yours and arguably a majority that might not have had their views so well ventilated up until now, but that is part of what this process is about, so thank you for helping us.

Mr D’Arcy —Thank you for inviting us.

CHAIR —Thank you.

[3.09 pm]