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Environment and Communications Legislation Committee
27/02/2017
Estimates
ENVIRONMENT AND ENERGY PORTFOLIO
Climate Change Authority

Climate Change Authority

[11:55]

CHAIR: Welcome. Ms Thompson or Dr Craik, would you like to make an opening statement?

Dr Craik : No, thank you.

CHAIR: We will go straight to questions, then.

Senator CHISHOLM: In your November 2016 report on policy options to address climate change, you recommend an emissions intensity scheme for the electricity sector. Do you stand by this recommendation?

Dr Craik : We put a mix of policy recommendations to the government at that time as part of Special review report three, which was in response to the terms of reference that we had. It is our role to give advice to the government, and it is the government's role to decide what to do about that. The government has rejected an emissions intensity scheme.

Senator CHISHOLM: Why do you think an emissions intensity scheme was an option that should have been considered?

Dr Craik : We did consider it. We considered seven or eight different mechanisms for the electricity sector, as one of the sectors that we looked at in the policy mix that we put to government. The way emissions intensity worked out, once we evaluated the seven or eight different policy mechanisms that we compared, emissions intensity, on a range of metrics, came out as the superior one. It was a bit of a judgement call, but that was the superior one. A market mechanism is generally more flexible, and it was the superior one of the market mechanisms. When we compared it with other ones in terms of the resource costs and the price to consumers, that is where we ended up.

Senator CHISHOLM: In terms of the emission reduction targets, does the government currently have in place policies that will deliver on those targets?

Dr Craik : Well, the 2017 review that the government has commissioned is designed to provide the government with strategies to meet its emissions reduction targets, and our report feeds into that.

Senator CHISHOLM: Do you have confidence that those policies are in place to meet those targets?

Dr Craik : The 2017 review is designed to come up with the policies to meet those targets.

Senator CHISHOLM: In terms of the lack of clear policy direction in supporting a transition to clean energy, do you think that the government needs to do more over the course of this year to outline what that clear policy is?

CHAIR: Is that calling for an opinion? I think you are asking for Dr Craik's personal opinion.

Senator CHISHOLM: I was talking about government policy.

Senator Birmingham: 'Do you think the government needs to do more?'

CHAIR: If you can perhaps rephrase it, Senator Chisholm, because you did actually ask for Dr Craik's opinion.

Senator WHISH-WILSON: What else could the government do?

Senator CHISHOLM: What else could the government do in relation to that area to ensure that the transition to clean energy in the electricity sector and future investment is allowed to occur?

Dr Craik : That is what the 2017 review is designed to do: to provide the government with policies to meet the Paris targets. That is the purpose of the 2017 review.

Ms Thompson : Perhaps I could add to Dr Craik's answer: one of the policies that the authority did recommend in the special review was looking at vehicle efficiency standards to try and help achieve the Paris agreement target. The authority actually did some work on that in 2014 and proposed some approaches to vehicle efficiency standards. It has been good to see the government moving ahead on that by putting out the RISs for vehicle emissions standards and fuel standards, and also noxious pollution. I gather the government is consulting on those at the moment. So that is one of the possible policy measures that could be used to meet Paris. In the special review we also talked about, as Dr Craik said, the toolkit. That included looking at measures that are currently in the National Energy Productivity Plan and seeing if those could be enhanced and built on, and similarly looking at some of the other measures that are already in the policy mix, including the Emissions Reduction Fund and the safeguard mechanism. We took the view that there was no one size that fitted all. You did need a suite of measures, a toolbox, if you like, to achieve the Paris targets and the deeper emissions reductions that the Paris agreement envisages beyond that.

Senator CHISHOLM: Have you identified barriers that impact on investment in clean energy?

Ms Thompson : We did look a little bit at that in our reports. There was the report on policies for electricity generation and there was the special review itself. One of the barriers is uncertainty. One of the reasons the special review recommended building on existing policies was, to a large part, that the existing policies were already in place—investors and others can see what is already there. We took the view that building on those was quite a sensible approach going forward.

Senator CHISHOLM: You mentioned uncertainty. What do you think are the drivers of that uncertainty?

Dr Craik : I think we have had a history of uncertainty in climate change policy over the last decade. It makes investors hesitant about investing when there is no policy certainty for the large investments they are considering.

Senator CHISHOLM: With the level of uncertainty we are seeing in the electricity sector, where do you see that being positioned over the next two years? Do you think that will lead to higher prices in the short term?

Dr Craik : The government has the 2017 review which is designed to come up with policies to meet the Paris target. If past evidence is any guide, electricity prices will continue to increase.

Ms Thompson : There is also the Finkel review, which is looking at policies to reduce emissions in the electricity sector, and also looking at the other elements of what people are calling the 'trilemma', which includes affordability and energy security.

Senator CHISHOLM: Are we also likely to see more emissions from the electricity sector as a result?

Senator Birmingham: As a result of what?

Senator CHISHOLM: The current policy settings we have.

Dr Craik : It is difficult to predict those sorts of things. The government has put out its emissions report, which shows slight increases in electricity sector emissions recently. But what happens in the future—I am not sure we are in a position to answer that.

Senator Birmingham: All evidence continues to show we are on track to meet the 2020 targets—indeed exceed the 2020 targets. Work is now being done to ensure similar success in relation to the 2030 targets.

Senator CHISHOLM: I was not asking about the targets. The International Energy Agency has said that coal plants without carbon capture technology should be phased out in OECD countries like Australia by 2035. Do you think this is a reasonable assessment?

Dr Craik : In the modelling we used for our special review report 3—which had a very strict target of achieving almost zero emissions in the electricity sector by 2050—most of the coal would have shut down by about 2030. That was our modelling. We have not looked at the issue of coal beyond how it was taken into account in that modelling exercise.

Senator CHISHOLM: Do you think Australian coal plants need to be phased out if we are to meet our obligations under the Paris agreement?

Dr Craik : In our comparison of different policies for special review report 3 we did look at regulated closur e of coal-fired power stations. One of the considerations that we took into account was that a market mechanism was preferable because it provides a range of levers that can be used to reduce emissions rather than just one lever, which is closing a plant down. If you have a market mechanism you can increase fuel efficiency, close a plant, open a plant, have demand side reductions in emissions, so we preferred a market approach.

Senator CHISHOLM: Do you think that building new coal plants, in particular ultra-supercritical coal plants, would be consistent with our obligations under the Paris agreement?

Dr Craik : I think that is something that the Finkel review is likely to pick up in its report. We did not deal with it, specifically, in our report but it would always be an option under a market mechanism.

Ms Thompson : It is a matter or 'it depends'. As you have pointed out, if coal is implemented with carbon catchment and storage then you actually get a very low emissions intensity from that sort of coal plant. So it depends on what else is going on in the electricity generation sector. It depends on what abatement you are seeking to get from other parts of your economy. It is an answer that is quite conditional on a range of other things.

Senator Birmingham: Also, given your linkage to the Paris targets, the Paris targets are about emissions levels in the Australian economy. We are designing policies and investigating the policy options to meet those targets. How we meet those targets—what the mix of approaches to meet those targets is—is not, per se, covered by the Paris agreement.

Senator WHISH-WILSON: You have done a great review of the electricity network recently. Could you update the committee on your views on disruptive technologies related to household battery storage and solar generation.

Dr Craik : We did not look specifically at that—

Senator WHISH-WILSON: That is why I am interested.

Dr Craik : We made a number of recommendations in special report 3 about what further research needed to be done. We are following two lines of research, following up things in special report 3, and they are not included in that. I think the Finkel review will be picking up solar and batteries.

Senator WHISH-WILSON: Batteries as well?

Dr Craik : As a storage issue, yes, I imagine they would be picked up by the Finkel review.

Senator WHISH-WILSON: Could you clarify for me: is the Finkel review going to make specific recommendations around the government's role in policy and planning for something like coal exit programs like decommissioning power stations?

Dr Craik : You would have to talk to Dr Finkel about that. I am not on top of the detail.

Senator WHISH-WILSON: Have you done anything on a plan, a holistic approach to this issue?

Dr Craik : No, we have not. All we had in our modelling was a strategy of regulated closure of power plants, but we have not looked at developing a plan, as you put it.

Ms Thompson : That modelling did find that relying on regulated closure as your primary mechanism to reduce emissions from electricity generation is actually a fairly expensive option, because it does not pull on all the policy levers that you would be seeking to use to reduce emissions from that sector.

Dr Craik : And it is liable to be gamed by the generators as they wait for the next offer.

Senator WHISH-WILSON: The committee heard some evidence last week during the coal-fired closure references inquiry around the potential for disruptive technologies being very significant, even within five years, on the electricity network and what that might do to the value of the grid and other assets. I would be very interested in knowing whether you are going to be commissioning any work in that area at all.

Dr Craik : We have not planned to at the moment, but I suppose one of the things we did say in our special report 3 was the importance of continuing our precompetitive R&D to come up with new technologies and for them to be taken into account in developing policies.

Senator WHISH-WILSON: Just to be clear, on putting a price on carbon, which is your overarching recommendation, have there been any discussions with the minister's office in recent time around a policy initiative around a price on carbon?

Dr Craik : We give the report to the government and then the government responds to our report within a couple of months of us putting the report in. Clearly, the government has ruled out an emissions intensity scheme and we are waiting for their response to our report.

Senator WHISH-WILSON: Do you have any idea when that response might be, or should I be asking Senator Birmingham that?

Dr Craik : No. It must be relatively soon, but no.

Senator Birmingham: The government is undertaking a 2017 review which obviously is looking at issues in terms of meeting our targets.

Senator WHISH-WILSON: In relation to some information that I think you put up, Dr Craik, on your website, in the second-last post you have there—unfortunately it does not have a date on it and I have not had time to cross-reference to find out when you might have done that—you said:

I would like to respond to some of the claims that have been made recently in the media about the Authority's work on the Special Review. Firstly, the suggestion that the Authority secretariat staff are inexpert or incompetent is manifestly false.

Then you talk about the depth of knowledge and experience, et cetera, in your organisation. You also refute the suggestion that you have been 'politically influenced or motivated by political considerations'. Could you just remind the committee of when you put that up and which specific media reports you are referring to in that?

Dr Craik : That was in response to the report that Clive Hamilton and David Karoly put out after the board put out special report 3.

Senator WHISH-WILSON: What was the gist of that?

Dr Craik : Basically, they did not agree with the approach that we had taken. They suggested that we had been politically motivated in the nature of our recommendations.

Senator WHISH-WILSON: What was the specific issue they had? Was it that you were not recommending the right suite of policies or that they did not believe they would effectively meet our emissions reduction targets?

Dr Craik : I think their belief was that we were not recommending the right suite of policies. I imagine they felt that the policies were not going to meet the emissions reductions target.

Senator WHISH-WILSON: That your policies would not?

Dr Craik : That our policies would not. Our view is that they definitely would meet the target, building on existing policies, and that they could be ramped up and scaled up in line with Paris reviews to meet the targets.

Senator WHISH-WILSON: This is my last question: was there anything specific that they recommended that you should do that you have not done?

Ms Thompson : I think in some ways the crux of Professors Karoly and Hamilton's report was disappointment that the authority had not revisited its recommendations for Australia's 2030 target. The reason the authority decided not to do that was because, as we had flagged in report 1—the first draft report on targets—this final report would be looking at policies to achieve the targets rather than revisiting the targets themselves. So in the two reports we put out on the target, we recommended targets for Paris. The government had that advice and took the decision it took about the Paris targets, which was the 26 to 28 per cent. So the board as a whole took the view that, given the authority had already said very clearly that the final report was focusing on policies, we would not go back and revisit that. The report did mention the targets we had put out in the earlier report. So that was part of their concern.

The other aspect of their concern, I think, was about whether, as you say, the policy suite could actually meet the 2030 target. What we said in our report was that most of the policies had elements that could be tightened in response to the target, depending on how emissions were going in the Australian economy, and also could be tightened with respect to looking ahead to future emissions reductions the Paris Agreement seems to envisage by its successive cycle of reviews. That was pretty much the nub of the concern.

I should also point out that part of the argument as to why they were concerned the authority did not think was correct because a number of the mechanisms we were proposing were going to be in regulation. So if you took the view that they were not going to work you were really taking the view that any regulated policy to reduce emissions would not work, which did not seem to us to be a sustainable position.

Senator HUME: I have two questions. With the first I just want to clear something up. This is the same Clive Hamilton who ran as a candidate for the Greens in 2009 in the seat of Higgins, isn't it?

Dr Craik : That is correct.

Senator HUME: Thank you. That puts things into a context. Can I please ask about vehicle emissions in particular: what work the Climate Change Authority has done previously on vehicle emissions, the standards that you put in place and how they compare to standards around the world.

Dr Craik : We had a chapter in our report on vehicle emissions and proposed a reduction in vehicle emissions to bring them closer into line with other countries—this was for small passenger vehicles—and we also said that it would be worth looking at larger vehicles and doing a cost-benefit analysis to see whether there was any merit in lowering the emission standards for larger vehicles. You might want to add to that, Shayleen.

Ms Thompson : I will perhaps just give some detail about the work we did in 2014. At that time we found that the benefits of a light vehicle emissions standard would substantially outweigh the costs at both private and national levels. We looked at some of the design features for a bit of an indicative sense of what sorts of emissions reductions you could expect, noting of course that the actual nature of the standard was a design question for government. We examined the idea of a 105 grams per kilometre target. While that could increase the average cost of a new car in 2025 by about $1,500, this would be more than offset by fuel savings of about $830 in the first year and $8½ thousand over the life of the vehicle, which would leave motorists much better off.

We thought that this was quite important. Transport accounts for around 18 per cent of Australia's greenhouse gas emissions, and light vehicles alone, in our research at the time, accounted for about 10 per cent. Under our proposed design, under phase 1 of the standard, from 2018 to 2025, we estimated you could avoid about 59 million tonnes of emissions over the period to 2030. As I said earlier, it has been good to see work on those sorts of standards moving ahead.

Dr Craik : We are actually doing some work now on electric vehicles.

Senator HUME: How does Australia compare internationally?

Dr Craik : With electric vehicles?

Senator HUME: Yes.

Dr Craik : We do not have a great number.

Ms Thompson : The uptake in Australia is very small.

Dr Craik : Yes, very low.

Senator HUME: I also want to ask questions about the Emissions Reduction Fund. I will keep it to one or two, Chair, if that is alright. I want to ask you about some of the benefits of the ERF to particular industry groups. The one I was thinking of, which I read about, was beef cattle.

Dr Craik : The which, sorry?

Senator HUME: The beef cattle—livestock—industry.

Dr Craik : The livestock industry? Well, yes, the ERF can be very valuable, I suppose, to the livestock industry. One of the ways in which firms can participate is manure management; managing the vast volumes of manure that appear from cattle producers—um, not cattle producers.

Senator HUME: I know what you mean.

Dr Craik : There are also methane emissions. Clearly, what you feed cattle determines the levels of methane produced. In terms of cattle producers, the ERF is valuable. In fact, in terms of—

Senator HUME: So it is creating productivity gains in the industry as well?

Dr Craik : Correct. That is right. And certainly, in terms of agriculture generally, things like planting trees, which obviously is one way you can participate in the ERF, usually have productivity benefits anyway if done in the right way.

Senator HUME: Excellent. Thank you.

Proceedings suspended from 12:19 to 13:25