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Joint Select Committee on Australia's Clean Energy Future Legislation
Clean Energy Bill 2011 and related bills

CHAPMAN, Professor Bruce, President, Economic Society of Australia; and Director, Policy Impact, Crawford School of Economics and Government, Australian National University

DENNISS, Dr Richard, Executive Director, Australia Institute

HEWSON, Dr John Robert, Private capacity

JOTZO, Dr Frank, Director, Centre for Climate Economics and Policy, Crawford School of Economics and Government, Australian National University


CHAIR: Welcome. Although the committee does not require you to give evidence under oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings as the respective houses. Do you have any comments to make on the capacity in which you appear?

Prof. Chapman : I have done research on the job consequences of carbon price changes.

Dr Hewson : I am here as an economist.

CHAIR: Does anyone seek to make a short statement before we begin?

Dr Denniss : Yes. Firstly, I think the economic evidence is quite clear that a price on pollution is the most efficient and equitable way to act, but there were two issues that I wanted to raise today in terms of the detail of the legislation. One is the apparent contradiction, or perhaps oversight, in the draft agreement released in June on the treatment of voluntary action. The joint agreement in June stated that the government would take voluntary action into account when setting pollution caps and that voluntary action will be treated as additional when accounting for Australia's post-2012 targets. The draft legislation does not deliver on that commitment. In particular, I am concerned that the ACT's 40 per cent emission reduction target will not be additional to the national cap; it will simply substitute for action in the states.

The second thing is that there does not seem to be much awareness of the fact that some polluters are likely to receive free permits for more than 100 per cent of their entitlements. In particular, this is related to the fertiliser industry, where it is possible that some firms will be able to reduce their pollution by more than 80 per cent with the introduction of technology used overseas, but the free permits they will receive will be based on their current levels of pollution. While that might be the will of the parliament, I think it is important that people understand that there might actually be a flow of pollution on to Australian shores, at taxpayers' expense, due to the very significant potential to reduce emissions of nitrous oxide in the production of fertiliser. We have talked a lot about carbon leakage; this would actually be carbon in-flow, subsidised by the taxpayer.

Prof. Chapman : I have recently done quite a lot of work on the alleged job losses and job gains from relative price changes and I would welcome questions about the extent of job change over the next 10 years. In the data that is coming out, it seems to be represented popularly in stock figures. I think they are extremely poor representations of what actually happens in the labour market. I have done quite a lot of empirical work on the extent of job flows, as opposed to the stocks, and how important they are and what this might mean for both the mining sector and the so-called green jobs sector.

Dr Jotzo : I would like to say that the package is clearly not perfect, but it can provide the basis for a solid long-term climate change mitigation policy. One aspect that I would like to draw the committee's attention to is how we will achieve a reduction target a decade down the track. It is likely that investment in mitigation in other countries, or trading of emission reductions, will play a significant role in achieving an overall Australian mitigation commitment. There are important issues to consider over the years to come in terms of the quality of that abatement that we will be financing overseas and in working with developing countries in the region to achieve a sensible outcome on this.

Senator MILNE: I would be keen to hear about the Minerals Council's allegations about their 24,000 jobs over 10 years and, more recently, the Australian Industry Greenhouse Network's 950,000 jobs. I hope that I can get some comment on that in a moment, but I wanted to ask a question of Dr Hewson. As you have said in a recent article, the question before Australia is really how best to put a price on carbon since everybody is committed to reducing greenhouse gas emissions and everybody has a pricing scheme. One is an emissions trading scheme as part of the clean energy package. Another is a direct action program capped at $10.5 billion to 2020 in a regime of no new taxes, therefore coming out of other government services. So I wanted to ask you: is the emissions trading scheme in the clean energy package that has been developed and which you are now looking at likely to be cheaper, to cut emissions more and to have less impact on taxation and the community given the compensation package than the direct action package on the table?

Dr Hewson : I am prepared to answer the question as an economist, not to make any political comment at all. Just by way of background, I have been a market economist for nearly 40 years and have worked on price setting mechanisms for many markets, particularly financial markets as an example. When I come to the issue of how best to put a price on carbon I think the emissions trading types of structures are the best in terms of being the most cost effective. But, in saying that, I would want to see that market process be as broad as possible, as inclusive as possible and as independent as possible of the political process. And, having said that, I think it will not necessarily be a total solution to the problem.

There are opportunities for direct action as well. For example, there are processes of mandating certain behaviour. The whole process is to try to use the price mechanism to change behaviour, but it is possible to accelerate the process of changing behaviour by mandating certain things. For example, there was a ban put on incandescent light bulbs a few years ago. A number of countries have worked on a percentage of biofuels and increasing that percentage over time. Soil carbon is another significant opportunity. You would call all of those direct action methods in terms of the current debate, and they do have a role over and above what you would achieve by an emissions trading system setting that market price.

Having said that, I think we should be cognisant of the fact that any direct action has an implicit price on carbon, so we should be prepared to calculate that implicit price on carbon and set it against the prices that will be determined. There are guesstimates being made as to what the price will be. It will start as a fixed number and then it will go to a market based price. In my experience of arguing for a market determined exchange rate, for example, most people got the predictions wrong as to exactly what would happen when the market took control of the process. Having said that, I do think it is as important to estimate the implicit price of direct action as it is to talk about the price that is set as a fixed number in the short term and then to estimate what it will be when you move to an emissions trading scheme.

Senator MILNE: Have you done any numbers on the implicit price, given that the number on the table is $10.5 billion to 2020 without a cap?

Dr Hewson : No, I have not done any; those calculations are done better by others. I have no doubt that the implicit price will probably be significantly higher in those cases than $23 a tonne.

Senator MILNE: Thank you. Professor Chapman, would you like to comment on the Minerals Council and the Australian Industry Greenhouse Network figures on job losses? The Minerals Council's claim was 24,000 in the mining industry over 10 years, and the other claim that was made recently was 950,000 in the manufacturing sector.

Prof. Chapman : I will make two background points about the nature of the characterisation that is typical about the labour market and employment. The first is that concepts or terms like 'job loss' are usually associated with the sense that somebody is sacked, and that that means they are in trouble. They might be regionally immobile or immobile in a skill sense, but they are in trouble of potentially turning into long-term unemployed and disadvantaged people. Unemployment is not like that. Most people who experience unemployment have not been sacked. Most people who experience unemployment, which is being jobless and actively searching, are people who are re-entering the labour market or are between jobs or have just left school, university or TAFE. That is the first point. The second point is that it is very serious for governments to consider the plight of people who are actually sacked and to take the appropriate action for that kind of disadvantage.

In the context of the figures that you have raised, there is the distinction between a change at the margin and a change of the total. I want to focus on the data for the changes at the margin. The Minerals Council of Australia put out some work with respect to the emissions trading system which I think was technically very good work. That was in 2008-09. They have agreed essentially, publicly, with those projections in the most recent debate and have used a figure of 23,510 job losses from the mining sector over that 10-year period after which the ETS was going to operate. The Climate Change Institute on the other hand, and unsurprisingly, has put forward projections in the other direction of about 34,000 additional jobs. I think the 950,000 you were talking about is the total economy, so let us just talk about what happens in the sectors. They are both estimated over 10 years. If you subtract the mining job loss from the green job gain, the net effect is close to nothing.

I want to say something which I think is much more important than that. Every month when the Australian Bureau of Statistics reports its unemployment data, I get annoyed—and I should not get so annoyed about this because it has been going on for so long and will keep on going on—when the reporting on the ABC and other stations is that 4,000 people this month got a new job. This is silly. The actual facts about labour market flows are completely different. In a typical month something like 370,000 people will go from not having a job to having a job and something like 365,000 people will go in the other direction. All you hear in the reporting is the net figure, but the gross flows are extraordinary.

In a typical working day you would have something like 8,000 people go from being jobless to having employment and about 7,900 people go in the other direction. Labour economists know this very well. In fact, when I wrote a paper about the claims and the counterclaims being made by the Climate Change Institute and the Minerals Council of Australia, all of my colleagues in the labour economics area said it was a really uninteresting paper. It was so dull.

As Dr Hewson just said, the point about having a change in relative prices is to change behaviour. There is no point in having a carbon price if things do not change. We would not have this debate unless there were going to be switches from one form of production to another form of production. That is why most of my colleagues and now former friends—those who said my paper was so dull—say that. Everybody knows that the flows are enormous. In the five minutes I have been talking about 600 people have changed their labour market state. When you look at the numbers—and I am not picking on the Minerals Council of Australia in particular—the 23,000 reduction compared to the climate change green jobs increase, we are talking about a day and a half of activity in the labour market in terms of flows.

My essential point—because I am not an expert on climate change policy but I know a bit about labour markets—is that, if you want to have a debate about carbon pricing, do not think about the jobs. The jobs issue is trivial in aggregate. That does not mean that some people will not be disadvantaged and there should be concerns about that.

I have two other quick points. With the Minerals Council of Australia's projections the counterfactual is: what would happen with a change in the relative price of carbon based production compared to not? In both scenarios the increase in mining jobs was very large. We have an extraordinary mining boom, so the 23,000 is not a loss. It is misreported—perhaps intentionally; I have no idea—as job losses. When it is actually the fewer jobs that would happen compared to the actual. The characterisation of people being unemployed, put in the unemployment pool and in poverty is quite inaccurate.

I have one final thing to share with you. We have a wonderful data set in Australia called HILDA, the Household, Income and Labour Dynamics of Australia Survey. Its wonderfulness for labour economists is that it takes information from the same people over time. There is a sample of about 19,000 people that started in 2001. We can construct the number of people in the sample who had mining employment in 2001 and see what happened to them. From 2001 to 2008 was a very healthy period for mining generally. We found that, at the end of the eight-year period, if we extrapolated the data and the econometric forms, basically something like 96 per cent of people in a growing sector will have left that sector within a 20-year period.

Also, because we had the individual data of the mining people, we could ask: where did they go? The vast majority who left in any one year went to employment the next year, another job. Some did not go into the labour force. We found one or two observations out of the 105 who experienced any unemployment at all. We also could replicate the flows data from HILDA in the mining sector. Something like 40 per cent of the people employed in mining in year 1 were not employed in mining in year 0 and something like 38 per cent went the other way. So the mining sector looks a bit like the aggregate economy in job flows—that is, there is a huge amount of movement. The focus on the 23,000 on the one hand or the 34,000 on the other I think just misses the big point that the labour market story is not of interest for this debate.

Mr CHRISTENSEN: Professor Chapman, do you accept that the impact on regional areas as a result of this legislation is going to be greater than it is anywhere else in Australia?

Prof. Chapman : It is very important you understand that the kind of data I am talking about are aggregate data. There will be regions which will be more affected than others, some positively, some negatively. When the debate is being run on an aggregate level then the kind of information and data I am talking about are pertinent. I would be less sanguine or optimistic in the context of the Murray-Darling Basin Plan because that area is not an area where employment growth is very healthy. In the mining area, employment growth is extremely healthy. I would say for the regional issues you need to think about what the nature of the jobs is. Absolutely critical is mobility of labour from one area to another. In the context of a relative change in the price of carbon, I think what I am saying has a pretty sound basis.

Take a household: that is the region. Someone will lose a job from a household. Should we be worried about that? Yes, you should be worried about that because unemployment is so important. But to have the focus on the regions when the debate is a national debate kind of obscures the importance or the lack of importance of job change in aggregate.

Mr CHRISTENSEN: I could refer to the modelling that has been done by the Queensland Treasury which shows that Mackay in Central Queensland would be the hardest hit in Australia in economic activity being decreased. You made the statement here that you believe that mining jobs would grow and that there would just be fewer jobs than what would normally be the case. I am trying to square that up with the whole purpose behind this legislation, which is to reduce carbon emissions. But if the mining industry, as you say, is going to grow in jobs then that means it is going to grow in size and export as well, so we will be offshoring carbon emissions. How does that square up with the intent behind this legislation?

Prof. Chapman : That is a very fine question for my colleague Dr Jotzo, who is an expert—and I am not—on climate change policy per se.

Dr Jotzo : To answer your question about emission reductions in Australia and overseas, the intent of any kind of policy to reduce Australia's carbon footprint is ultimately to change technology and to change practices. No-one wants to decrease aggregate economic activity and welfare in society. What we do want to do is take the carbon emissions out of the economic activity.

Mr CHRISTENSEN: I am specifically talking about mining exports increasing and that being basically an offshoring of carbon emissions from Australia.

Dr Jotzo : That is right and I am coming to the specific point. In mining, to the extent that you are putting a charge on carbon emissions that occur through the use of machinery as well as through fugitive emissions, particularly of methane, what you will see there is a shift to the kinds mining activities and mining technologies and practices that incur a lesser amount of carbon emissions in extracting those commodities from the soil and shipping them.

Mr CHRISTENSEN: Professor Chapman, back to you. On the quote that you had there about fewer jobs than what would happen, would you accept that for regional areas that rely on mining as their source of growth it is obviously going to mean less growth, less investment and fewer services than would normally be the case?

Prof. Chapman : I presume that the effect of a relative change in the price of carbon based production will change behaviour. It must mean that some regions will have different growth experiences than others. I am not interested in the politics of this, but you might note that there will be other areas in which the opposite will occur because the less carbon based fossil fuel activity there is, the more there will be substitutes into other areas. There will be other regions that will grow differently than they otherwise would have. That is what I said at the beginning, and John Hewson said it as well: it is to change behaviour, so there will be regional effects.

Dr Denniss : It also important to understand that the regional job losses are to some extent just an artefact of the modelling—that is, the business-as-usual case is massive expansion in the mining industry and the counterfactual, introducing the policy, is a slightly lower massive increase in the amount of mining. So while it is described as a cost to these mining regions and described as the mining regions like central Queensland bearing the greatest cost, if you just measured the absolute number of people getting jobs, the opposite is true. Those same regions will disproportionately gain the most jobs in the next 20 years. It is just that they would have gained slightly more in the absence of the policy. So to suggest that the central Queensland mining communities will bear the brunt of this is to miss the main point. The central Queensland mining communities are the beneficiaries of a global trend and they will miss out on a slight bit of that massive expansion as a result of the introduction of a carbon price.

Mr CHRISTENSEN: Professor Chapman, you said before that some people will be disadvantaged by this and that we should be very worried about that. I am wondering what sorts of people are going to be disadvantaged in your opinion?

Prof. Chapman : I am sorry if I was unclear. I did not mean to say some people will necessarily be disadvantaged by this. I was trying to characterise the way the general population and the media imply what unemployment means. The characterisation in just about everyone's head that I know, including mine often, is that unemployment or job loss means displacement or someone being sacked. If they have got job specific skills or they are regionally immobile, that is a problem. I said that by way of background. If there were major unemployment issues of a job-loss or job-sacking type then that is an important point for government. A lot of my work over the years has been about long-term unemployment. That is a critical area of discourse, but it is not for this debate. While you have interpreted me as saying some people will be disadvantaged, I did not mean that with respect to this particular policy. It is just the way that people characterise the nature of unemployment.

CHAIR: Sorry, George, I am going to be rude in the interests of time. Senator Pratt has got some questions.

Senator PRATT: Dr Hewson, you used to be chair of the National Business Leaders Forum on Sustainable Development. I wondered if you might start and then we will go to other panel members. What is the significance of certainty for business in the current policy debate and what is the economic cost of the uncertainties that have been attached to this debate, particularly on energy markets?

CHAIR: Sorry, did I cut you off, Dr Hewson? Did you want to add something to the previous answer?

Dr Hewson : I just wanted to make a couple of general qualifications about the jobs debate if I could. They may be seen as eccentric views, but when I was a professor I used to teach my students that you can produce any conclusion you want to out of a model: you give me the conclusion and I will build the model to prove it. So it does not surprise me that I get a whole lot of different views about what is going to happen in the jobs market when I listen to a state government or a mining industry representative or whatever. They start from different assumptions and are going to come up with different conclusions, and I think that is an important point.

The second point is that I think the major failing of most models in this area is that they find it almost impossible to capture the dynamics of the development of new industries, of the new technologies that will generate new jobs and how fast they will do that and how significant they will be. You mentioned the question about the business leaders' roundtable on sustainable development. This was a group of us about 10 or 12 years ago who felt that the business opportunities that would flow from a proper response to climate change would be very significant. We tried to educate 'this is community' by various conferences and so on as to how that might be the case. We met amongst ourselves for a number years. We then finally brought Al Gore to Australia about seven years ago, and he was dispensed with as a failed politician and an entertainer.

Since then, of course, there has been a rapid increase in the significance and understanding of the issue. But our point was to try and demonstrate that there are enormous opportunities. I personally in that capacity got quite frustrated so I got involved with or started a whole range of businesses that would demonstrate that you could create a viable business opportunity out of a sensible response to climate change. For example, in recycling household garbage you could extract the methane gas, use that to turn it into electricity, use that to run the plant and sell the rest of the grid—an income stream job-creating activity. We built the largest biodiesel plant in the world in Singapore and another company produced energy efficient light bulbs.

The point is that there are a whole lot of job spin-offs and economic activity spin-offs that are not easily foreseen when you sit down in front of an economic model and try and adjust the parameters to allow for the development at the margin. I think that what tends to get underestimated in these debates is the potential of that technological revolution and how significant it will be in the generation of new industries, many of which we cannot see and cannot imagine today because we do not know where the technology will go. When we came up with a household garbage recycling plant in 2000 we were the sole technology in Australia and about the only one of significance around the world. There would be nine or 10 alternative technologies already and we have not yet got a price on carbon.

On your point about certainty for business, it is very important that business equally will exaggerate just how important that is. You can tell them to the nth degree in an attempt to give them certainty, only to find that that is still not enough certainty. On the other side of it, it is uncertainty that they thrive on as well. They create opportunities in that climate of uncertainty. So I think, while it is important for governments to be fairly clear and precise in where they want to take a particular policy and what it will mean, equally business will thrive on the opportunities that that creates and they will be uncertain opportunities that they will have to think about and develop.

On energy, I spoke at an energy conference a few years ago. I think it was sponsored by GE but most of the major players of that conference were from all elements of the industry, whether from the coal industry, the power generation industry or whatever. I asked a simple question at the start: is there anyone here who has not strategised at management level or at board level on the possibility of a price on carbon? There was nobody in the room, which held a very large number of people, who in their companies and their activities had not anticipated that there would at some stage be a price on carbon and made some level of preparation, either at board level or at management level, to deal with that. So when I hear statements today about creating uncertainty, they have been planning for this and thinking about it in its detail for quite some time.

Senator PRATT: I would be interested in the views of other members of the panel on that question.

Dr Jotzo : You can argue that we have had carbon pricing uncertainty for well over a decade, because it is well over a decade ago that the then Howard government first started producing blueprints for emissions trading. What does it do and what has it done? One example is the hold-up of investment in the electricity supply sector. If you do not know whether or not there will be carbon pricing, then you tend to hedge your bets and go for the type of investment that carries the lowest upfront cost and hence the smallest risk. If you lose your investment and make it an unprofitable investment ex post, then you would lose a smaller amount of money than you would if you had a higher upfront investment cost. That has given us relatively higher investments in low-efficiency gas plants when really the efficient thing under a carbon price would be a high efficiency gas plant that carries high investment cost. Or, if there was never, ever to be a carbon price and fossil fuel prices remained as they were, the cost-effective thing might have been to invest in a coal plant. That is what we have been seeing. Once that investment uncertainty is resolved, you would expect to see more cost-effective investments in the electricity sector.

What matters is the medium-term expectation of the carbon price. It is not next year's carbon price that matters; it is the expectation that businesses form over that decade—or, depending on what kind of investment is made, maybe a couple of decades—of what the carbon price might be going forward. There is a lot of uncertainty over that carbon price. We do not really know what the abatement responses in Australia will be. Experience tells you that normally you get more abatement for a lower price than the modelling analyses told you in advance, but of course for a specific case we cannot be sure and we do not know what the international market situation will be.

Just by way of comment on one of the features of the legislation before the parliament, the price floor provision in the legislation, on my analysis, fulfils a useful function there in providing reassurance to investors in low-carbon assets at this point, providing the reassurance that that carbon price will not go below that floor level, at least for a number of years.

Dr Denniss : I agree. I have a couple of points of clarification. In terms of what John was saying about modelling, if you were going to model structural change in the economy in 1960, we would all be defined as unemployed farmers because, once upon a time, 30 per cent of the workforce was in agriculture. So change is inevitable and no model in 1990 had anyone, for example, working in the internet industry. There is always uncertainty, certainly in terms of where we will work. But I think it is important to distinguish between policy uncertainty and price uncertainty. There is no certainty about interest rates, exchange rates or China's GDP. It is the job of capitalism to cope with uncertainty. But providing policy certainty, broad policy parameters such as Frank referred to—if we can put in a carbon price whereby, while the actual price may be uncertain in three years time, the market are all responding to the same pressures, they will build better gas plants at lower cost. So it is policy uncertainty that I think we should be worried about. But the debate has focused on price uncertainty. There will always be carbon price uncertainty. I think the idea of introducing a carbon price finally—as John said, the market has been waiting for it for a long time—the worst thing that could happen is if we introduce it, then we remove it and then we reintroduce it in around 2020. That is the kind of policy uncertainty that I think will really affect investment.

Dr Hewson : I would strongly endorse that sentiment. A principal focus of this legislation should be to set a framework that pretty much is set in cement going forward so that people have a very clear idea how that policy will evolve over time. As to price uncertainty, two months ago people were predicting the dollar would go to $1.20. Last week it went to 96c. People live with that sort of thing day in, day out. Prices do fluctuate a lot, but it is the framework within which those prices are set that is important. People are naturally sceptical when a government says the price will be at $23, then it will go up in stages and so on. They say, 'Probably it will never change.' It is a bit like the GST—it was to be a flexible instrument of policy. It has just been there and, ever since, nobody has ever thought of possibly changing it up or down for the politics of that. In terms of this framework, if there is a clear view that, for the next five, 10 or 15 years, this is the framework that will work and that it will only be approved over time, and I think most people look for it to be more inclusive over time in terms of the emissions trading system, ultimately bringing in petrol, agriculture or whatever, then I think that will be enough to satisfy the business community going forward.

CHAIR: My apologies but, in the interests of the time, I am going to cut you off and go to Mr Windsor, then Senator Birmingham and, if we have time, Mr Cheeseman.

Mr WINDSOR: Maybe this is on notice too to meet some time constraints. Dr Denniss, you mentioned the potential importation of nitrous oxide. Could we have some information on that. I think Dr Hewson made a very important point about opportunities that we do not really realise exist yet. Has your institute done any work on the potential, given that some plants do fix nitrogen now, for cereal plants to, in a long-term sense, fix nitrogen and thus alleviate nitrous oxide issues—the global warming issues that are there?

Dr Denniss : In answer to the first question—just quickly—I am not a chemist, but basically in making ammonium nitrate you require the production of nitric acid, which produces a lot of nitrous oxide, which is 310 times more potent than CO2. I am happy to provide you with some information, but there is publicly available data that suggests that it is possible to produce nitric acid and reduce nitrous oxide emissions by 80 per cent with technologies currently being used overseas and proposed to be used here in Australia. If you can reduce your nitrous oxide emissions by 80 per cent but the baseline for calculating your entitlement for free permits is the technology you are using today, there is a potential for huge windfalls in the form of free permits. As I said in my introduction, while people are anticipating carbon leakage—people moving offshore to avoid a carbon price—it is actually conceivable that people who are generating these emissions here in Australia now might bring their offshore production here to Australia because, if they expand their production here, they get free permits based on their previous level of pollution, not their current level. The solution there is to cap pollution permits at 100 per cent—which sounds ridiculous, but there is nothing in the legislation to stop someone getting more than 100 per cent of the permits they require. I can provide the committee with that information. As for fixing nitrogen in the soil, no, we have not looked at that in any detail.

Senator BIRMINGHAM: Thanks, Dr Denniss. I was going to go down that path of Mr Windsor's. Perhaps I will direct a more general question on this to the table of economists, particularly Dr Jotzo. Obviously that issue highlights the fact that, by pursuing a pricing mechanism when trade competitors and others do not have a fully comparable pricing mechanism in place, we open up this need to then ensure that Australian industry is not disadvantaged and that we do not have situations of carbon leakage. In doing so, of course, it creates a whole lot of, as I am sure the economists at the table would refer to it, rent-seeking behaviour from industry. How great do you see that problem as being in the construct of this pricing mechanism, particularly given the status of our competing countries?

Dr Jotzo : There are really two issues there, I guess. One is what you do about the potential or fear of industrial relocation, and the other one is about the rent-seeking behaviour. I will take the first one first. What you would ideally want to do in setting policy around trade-exposed emissions-intensive industries is to position the domestic Australian industries for a future where carbon constraints apply very broadly around the planet. You want to have policy settings that encourage industries that are carbon-efficient to remain here in Australia, and you do not want to encourage more investment in the types of industries that are more carbon-efficient elsewhere in the world, because they will turn out to be sunk investments over time. What it means is that, in order to achieve a given emission target for the nation as a whole, if you have a lot of heavy industries that are producing a given commodity, whatever it may be—aluminium, steel, cement or something else—with a very, very high carbon output compared to somewhere else in the world, the rest of the economy needs to subsidise that and do more. In terms of the political economy, over the last few years there has been a big fight on, which I guess always happens when you have a lot of money on the table that can potentially be distributed. I am on record as one of the people saying that, in my analysis, the amount of money given to industry is probably larger than what it needs to be under that ideal system that is characterised. At the same time, it is important to acknowledge that the rate of auctioning under this scheme—or the rate of revenue retained by government and then used in other ways in this scheme; it is supposed to be used for assisting households in particular with the transition—is higher than it was at the start of most other emission trading systems, including the EU scheme.

Dr Denniss : Can I just add to that. I agree with what Frank said, but in terms of the political economy the Chairman of BlueScope Steel in March this year said:

Two years ago at 70-80 cents to the dollar, we were very competitive, in the top quartile of world steel cost efficiency.

Today with the Australian dollar at around parity with the US dollar, Australian steelmaking competitiveness has deteriorated on the cost curve - making it a very tough business environment.

That is what BlueScope said in March this year—that two years ago everything was fine. Two years ago BlueScope, on the cost of the CPRS, said to the parliamentary inquiry on fuel and energy:

Costs of this magnitude would be difficult to bear in good economic times. In the current downturn, they would be disastrous.

There is some pretty clear cherry-picking going on here. If anything, we are excessively worried about compensation and carbon leakage. The exchange-rate effect dominates the carbon price very strongly.

Senator BIRMINGHAM: Thank you, Dr Denniss. I have one follow-up question. Dr Jotzo, you talked about some of the more carbon intensive production industries—aluminium, steel et cetera—and suggested that Australia should not be seeking continued investment in such industries if they have a more emissions efficient platform elsewhere in the world. Are you aware if any of these industries have a more emissions efficient platform—or less emissions intensive—elsewhere in the world? The flipside to that is: is there a risk if Australia places a price on emissions for these industries that they will set up operations in countries that do not have a comparable price but, in doing so, are less emissions efficient or more emissions intensive?

Dr Jotzo : You may be able to get much more information about these issues in your panels that are coming up later in the day. But, to comment on this, the aluminium industry, to my mind, is a perfect example of what we expect to happen over time. Electricity is the key input here; it then depends on what technology is used to produce that electricity. In Australia at this point in time it is predominantly coal—so it is high emissions intensive. The alternatives around the world are coal in some countries, gas in some others—principally in the Middle East—and hydro-electricity in many tropical and developing countries. In a carbon constrained world, with a significant carbon price or equivalent regulations in place, you would be producing aluminium predominantly in locations where you have abundant, renewable electricity generation capacity at low cost. That is not to say that there would not be aluminium production in Australia. Down the track, in the middle of the century or thereabouts, you could imagine a future where Australia is the home of very cost-effective—

Senator BIRMINGHAM: Without wanting to cut you off, what about a product like cement where the manufacturing process is quite emissions intensive? It is not just electricity.

Dr Jotzo : That is right. You are picking a product where there is a lot of process emissions that do not differ a lot between countries. That is a perfect example of a product where, in the transition to a more uniform international system of mitigation, you would be putting in place safeguards to avoid unnecessary or counter-productive relocation of industries.

CHAIR: I do not mean to be rude but I am thinking about your colleague, who wants to get on to the next group. I am going to finish with Mr Cheeseman.

Mr CHEESEMAN: Thank you, Madam Chair. The panel asserted a little earlier that the world's desire for our minerals and coal will not be impacted upon by putting a price on carbon.

Mr Hitchens : Let me start with AIGN's point of view. We have put in a submission to the committee and it has two parts to it: the first part is a submission in relation to the major policy issues that come up with the bill, and we have very significant concerns about the way in which the bills deal with those policy issues; in the second part of the submission, we identify 16 important changes we think the bills ought to make in order to avoid the unintended consequences we think that are in there in the current drafting. If members of the committee and parliament they need any further clarification about those 16 amendments, we are available to talk about them in detail.

Mr Petersen : For those of you on the committee who do not know who Sustainable Business Australia is, SBA is a non-partisan business association and think tank that promotes commercial solutions to the sustainability agenda. We represent, we think, progressive businesses and the Australian low-carbon and environmental goods and services sector and we do this through educating, incubating and advocating the business relevance in the emerging green economy.

The reality is for SBA members that polluting externalities and the emerging nature of innovative technologies along with the investment capacity and appetite to support them means that the low-carbon economy is led by and, we believe, dependent upon policy at this stage of this type of nature. It is for this reason that SBA believes that Australia is actually ready to demonstrate to the rest of the world what an economically and environmentally efficient equitable and robust carbon pricing mechanism could actually do to deliver resource efficiency and resilient economic growth. I will just rely on the submission of 22 August and am happy to take any questions.

Mr St Clair : Just quickly, the trucking industry has embraced new technologies for heavy vehicles since 1995. We support the ADR process in Australia, which has delivered substantial reductions in emissions for heavy vehicles and continues do so. We supported the ultra-low diesel submissions and excise that created a further 2c a litre onto that back in the middle 2000s. We find that the industry will continue to embrace new fleet.

It is interesting to note for the committee that, of the road freight industry, the four major carriers in this industry carry less than 25 per cent of the freight. The balance of the road freight in Australia, that other 75 per cent, is carried by a whole host of small businesses of which about 85 per cent employ less than five employees right across Australia, so there is a substantial operation of small businesses across this nation.

The industry has already undertaken significant processes to reduce its fuel consumption, energy consumption, knowing that the cleaner engines has made us burn more fuel. What we are doing now is ecodriving, so there is quite substantial changes both in a technological and educational sense for drivers to conserve fuel.

Mrs GASH: Thank you very much. I will direct this to somebody who would like to take it; it does not matter who. In item 3, the ATA's position on carbon pricing you state the Australian government has stated that carbon pricing will only affect around 500 polluters but the planned changes to the fuel tax system will impose an effective carbon price on every one of Australia's 47,000 trucking businesses.

85 per cent of trucking businesses are small businesses with fewer than five employees. These businesses are entirely comparable to the other small businesses that are exempt from the carbon price, except they happen to operate trucks weighing more than 4.5 tonnes.

Having a number of these small businesses in my area, how difficult will this be in your view for these small businesses to pass on this carbon tax?

Mr St Clair : Exceptionally difficult, and it has been proven over the last few years as fuel prices have fluctuated. We have certainly seen them come down over the last five years, but prior to that most operators where possible were able to put in place fuel levies for their customers. We have found it is increasingly difficult, in the advice given to us by operators across Australia, being able to pass those costs on now. That is making it very difficult for those who operate not only in the cities but also in regional, rural and remote Australia to be able to claw back those costs.

Mrs GASH: Is it not just the carbon tax, are you also talking about administration costs?

Mr St Clair : It will be a whole gamut of costs. At the end of the day we are a service industry. We sell our products which are servicing a nation that likes to shift a lot of freight over long distances as efficiently and effectively as they can. When you consider that 80 per cent of the freight happens around the metropolitan areas of the cities and less than a third of the freight is interstate—the balance is intrastate—you have got an enormous amount of small business operators that are subcontracting for the larger logistics companies in Australia.

Mrs GASH: We do not actually know the 500 businesses that are going to be affected. Are you aware if a trucking company is one of those businesses?

Mr St Clair : We are not aware of any trucking company that will fall into that 500 bracket. To our knowledge, no. There have been some rumours put around the place that some do, but none that we know of will be affected.

Mrs GASH: You have not been notified by the government to this extent?

Mr St Clair : No.

Mrs GASH: Thank you.

Senator BIRMINGHAM: In terms of post-2014, how many trucking businesses or entities do you think will be affected?

Mr McKinley : About 47,000.

Senator BIRMINGHAM: A lot more than 500.

ACTING CHAIR ( Senator Milne ): If I can intervene since the chair is not here, we are dealing with the bills that are ahead of us now. That is a Labor government policy post the next election, and that is a speculative view about who might be in government or what they might do. I would like you to focus on the bills ahead of us and, as is clear in the bills, there is an exemption for heavy vehicles—

Senator CORMANN: Which the Greens no doubt support!

Senator BIRMINGHAM: I did not hear too many questions about the bills to Professor Chubb, Senator Milne.

Mr TONY SMITH: I think it is fair to say, Deputy Chair, that this morning's hearings have allowed questioning, that we have happily agreed to, from other members on a whole range of aspects that have not related specifically to the bills. We have happily allowed that in the interests of a harmonious committee. I think if we are going to swap and change rules depending on who the witnesses are, there will be a problem with our proceedings.

ACTING CHAIR: Yes, but there needs to be clarity about what is in the bills and what is not in the bills, and heavy transport is exempted.

Senator CORMANN: Which is part of the government's package, though.

CHAIR: It is part of the submission and I am going to allow an answer, but it must be in the context that heavy vehicles, as your submission actually points out, is not in the current legislation. And if I do not pounce on you, my friend Mr Windsor will, who is very adamant about what is and is not in this legislation. So to be fair, but it has to be in the context of what is actually happening now, within the context of your submission would be fine.

Mr CHRISTENSEN: Mr St Clair, on the proposed changes to diesel fuel for trucks, that stated policy by the government, in your opinion is that intrinsically linked to the legislative package that is before us, given statements by members of the government?

Mr St Clair : It is important from our point of view in making this submission that we have focused on the bills, what amendments should be made to those bills as far as administrative type things are concerned. It is also our view that it is important that members of parliament understand what has already been achieved by this industry quite substantially in the embracing of the Australian design rules that have taken us now right through to ADR 80/03, or Euro 5, which we are starting to talk about. Our concerns have been that we are now starting to consume more energy to produce a cleaner result, so we are looking at ways to ensure that the industry use less energy. That is through a whole range of ways, including the use of high-productivity vehicles—in other words, longer, safer vehicles.

Mr CHRISTENSEN: Given that, and this morning we have heard from a number of different people in support of the legislation before us who have said that this is all about changing behaviours, if the trucking industry were faced with an effective carbon tax, or price on carbon, how much more in terms of the behaviour of the industry can be changed?

Mr St Clair : The industry has a pretty clear view on what it consumes, whether it is diesel or biodiesel or LPG or CNG or LNG, or whatever it is. There are three basic criteria: is it available, and that means is it available at the pump wherever they want to fuel up; is it competitive in price; and will it void our engines? If it covers those three types of things, this industry has embraced a whole range of different fuels, and continues to do so, to produce what they like to see as a competitive result. It is such a competitive industry. Some of the larger operators are using the new technology that is coming out, particularly in smaller vehicles. We have seen TNT and a number of other large companies using diesel electric trucks for city work, and we see that that will just continue to develop. But in a general sense we do not mind what we put in our trucks, providing it will not void the engine, providing it is available and providing it is competitive in price.

CHAIR: Tony, did you want to follow up something?

Mr WINDSOR: I have a couple of questions, Stuart, to you, if I could. I think most members of parliament have received emails about these bills from a range of people, suggesting that Nolan's Interstate Transport is going to be paying some form of carbon tax. Could you allay those fears?

Mr St Clair : Certainly. It is not accurate. It was not generated by Nolan's. Nolan's in fact have had to put a disclaimer about that on their website. We have also talked to people. There is nobody at this point involved in a carbon tax and there will not be until the proposed date of 2014.

Mr WINDSOR: Could the transport industry place on the record the fact that these bills currently before the parliament do not include heavy vehicle road transport being charged a carbon tax or a shadow price.

Mr St Clair : We, like everybody, have a communications issue—and Bill does that, on our behalf, exceptionally well. But there are a lot of people who like to make things up. We have stressed very clearly to our industry that there is no provision at this point in time for a carbon tax on heavy vehicles other than a proposal that may happen in 2014. We have articulated that. Obviously, there is still concern because people need to be prepared if that sort of thing is going to be introduced.

Senator BIRMINGHAM: Mr St Clair, the Treasury modelling that was released just last week updated the government's policy scenarios, and stated:

The Government policy scenario includes an effective carbon price on fuel used by heavy on-road transport from 2014-15 …

Accordingly, it is the industry's expectation that government policy is emphatically to proceed down that path, isn't it?

Mr St Clair : It is. Any submission we have made following our policy development, as far as our council is concerned, is that we think we should be exempt. And we think we should be exempt from any future tax because we are embracing the new technologies, the new, cleaner engines and cleaner fuels as they become available, providing they cover those three criteria.

Senator BIRMINGHAM: I am sure there are good intentions for the environment in there, but in the end, if you boil it down, there is already a significant cost pressure for industry to be extremely efficient, isn't there?

Mr St Clair : There is, as the price of fuel goes up.

CHAIR: Senator Milne.

Senator MILNE: Mr Hitchens, as far as the Australian Industry Greenhouse Network is concerned, you have said that you would like the scheme to be more broadly based at the beginning than it currently is. Does that mean you would want the inclusion of transport upfront; which other sectors would you like to see included upfront under a carbon pricing regime?

Mr Hitchens : The AIGN has advocated for a long time that the way in which to achieve a least-cost outcome, if that is the way the policy is to go, is for the broadest coverage possible, and that would include agriculture, transport, industry and households. It is very clear from all of the literature, including Treasury's own analysis, that the only way that you do get a least-cost outcome is with very, very broad coverage.

Senator MILNE: Thank you. I note that in a recent media report you indicated that you support internationally linked market based mechanisms; that, if any mechanism in Australia were not internationally linked, it would double the price; and that, in fact, that is the situation where you have competition between a government based program such as direct action or an emissions trading scheme.

Mr Hitchens : Again, for the same reasons that I just answered the former question with, the least-cost outcome requires a broad global price and broad global coverage. Unless we have both those things, we do not achieve a least-cost outcome. How is that done? We do not necessarily have to link with every other scheme in the world. Indeed, as a likely net buyer of international permits, we need to link with those countries that are the sellers. We do not know who those countries are at the moment, other than through the CDM, and we are extremely concerned that in these bills there is a suggestion of a policy, if you like, that the regulations that will allow the purchase of international permits are going to be restricted in terms of their eligibility. That is going to be another area where these bills are going to cost far more than they should.

The second area is one of the specific amendments that we have asked be made—it is No.7 in our list of 16. A regulation could be made in a year that disallows a certain class of international permits. People will have invested in very good faith. Indeed, part of the government's policy is to ensure that Australian companies do invest overseas in low-emission technologies. Part of the Cancun Agreements require probably in the order of $2 billion a year of Australian investment to meet those commitments, yet we have a provision in there at the moment that could, dare I say will, restrict the amount of investment that Australians might make overseas for these sorts of international permits.

In relation to your last point about the report the other day, I did not actually make a comment about coalition policy, direct action or anything of the sort. What we deal with and have always dealt with is the policy that is in front of us today. The policy in front of us today is in the clean energy bills and we have a problem with them in that respect.

Mr WINDSOR: I will just follow up with Mr Hitchens. You said at the start of those comments that you preferred a broader based arrangement where transport and agriculture are in. Given that the whole purpose of these bills is to create some sort of behavioural change, could you explain how ratcheting up the price of long-distance road haulage in regional Australia will lead to some sort of behavioural change? If you broaden the base, what outcome does it deliver other than a higher price of freight?

Mr Hitchens : I am not an expert in transport. I am sure that Stuart—

Mr WINDSOR: You are arguing that the base be broadened.

Mr Hitchens : I was just saying that in a specific sense I am not an expert in transport, but generally the proposition holds. As we heard from the four economists prior to us coming to the table, this is about creating behavioural change and it is about creating behavioural change over a very long term. We are talking about a policy here that is designed to change the Australian economy over a period of 30 or 40 years. I do not guess what any industry, whether it is electricity, transport, agriculture or whatever, might look like in 20 or 30 years time. What is important to us is that the institutional arrangements that are put forward here in the parliament are long enough, stable enough, consistent enough and predictable enough to allow people to make investments that are going to last 20 or 30 years and not be faced with what we find in this legislation—that is, a great deal of uncertainty about how these things might change. I cannot answer your question specifically, but I would expect that in 20 or 30 years time, with the sort of price forecast that Treasury makes, quite big changes would happen to transport. I would leave Stuart to answer it in detail.

Senator MILNE: Mr St Clair, did you want to say something?

Mr St Clair : Mr Windsor said it, I think. As we look to alternatives for fuel, we will still have a need to move freight from A to B. It will simply add to the cost of moving that freight. Even if we change the types of fuel, if engines become more efficient, if there are fuel economies and all sorts of things, it will still simply add to the cost of fuel.

Senator MILNE: Mr Hitchens, I wanted to follow up on what you said about wanting the overseas permits provision changed. Don't you agree, though, that the current package basically says there will be a quantitative limit but there will also be qualitative provisions that say upfront 'no nuclear' and 'no large-scale hydro' that has not been approved by the International Commission on Large Dams, and very strict regulation around that so that there is a very clear indication to Australian industry that they need to make sure that they are buying within those qualitative restrictions? Also, the option of disallowance in the future is surely a provision to make sure that there is not fraudulent behaviour or something in an international market that would require disallowance in the future, so there is certainty and conservatism upfront for people buying in the international market. Wouldn't you agree that is the case?

Mr Hitchens : There are two parts to the question. The first thing is that I do not see any reason at all why Australia should make regulations that restrict the class of eligibility of international permits. If they are genuine international permits approved by the UNFCCC, they are legal and ought to be available here in Australia, whether they come from nuclear or whatever. I do not particularly care. If they are internationally acceptable, they should be acceptable here. On the second question, the problem we have with clause 123 is that, if it is about fraud, then by all means make it about fraud—but it is a very broad section. Clause 123 says that in any year the minister may make a regulation that disallows a class of international permits. That is a very broad power about which we cannot make predictions, and that is the problem: we cannot predict it. If it is about fraud, let us make it about fraud and leave it at that. I think you are right: that would then provide that sort of certainty, but it does not say that. If it had a provision in there that said it was not retrospective, that would be very helpful as well, because you then could not cut a project off in the middle for somebody who has spent $2 billion on what was eligible but then became ineligible.

Senator URQUHART: Mr Peterson, in your submission you stated that overall you are supportive of the Jobs and Competitiveness Program.

Mr Peterson : That is correct.

Senator URQUHART: What are the key elements of that program that you are happy with?

Mr Peterson : The program is attempting to and, we believe, does go towards identifying where those businesses are going to be impacted upon by the transition of the legislation, and that it is responsive to the individual assessments that have been made by a number of industries in relation to the concerns they have about that transition. It is also appropriate in terms of direct assistance but also indirect assistance. A number of the companies that I happen to represent are supportive of the packages, in technology particularly, because of the enlivenment or the opportunities to be created by that investment, as distinct from assistance necessarily for the transition cost. It is a balanced program, we believe, in that it balances the cost of the transition but also the opportunity attached to it.

Senator URQUHART: As a business and industry body what is your broader attitude to the Clean Energy Future package as a whole?

Mr Peterson : As a whole, we are, again, supportive. A number of our members, for example, are very intimately involved with the Carbon Farming Initiative. Two of our members, Michael and Louisa Kiely, through Carbon Farmers of Australia, are inextricably involved in the opportunities that will be created by that particular legislative package. As representatives of industry that is looking for the opportunities attached to the pricing of carbon in our economy, we are supportive of the overall package. In terms of other members, we are a broad church. We have members such as AGL, the National Australia Bank, Object Consulting and Fujitsu. We are an industry or a community of purpose rather than necessarily one industry or sector. For each of them this package, on balance, represents, on one view, an opportunity to arrest carbon leakage. What we mean by that is the carbon leakage of both product, technology and services that could actually lead this country if there is no opportunity attached to invest in new technology and, in some cases, new jobs that have been created not only at the larger end of the industry, particularly in energy, but also in smaller and medium enterprises that we are starting to see as identifying the best in class of those workers and those services that in a post-carbon economy will actually measure carbon and find relevant as something to measure, report and manage. We see that as a great opportunity attached to this package of legislation.

Senator URQUHART: Can you, quickly, give me an example of what you see those smaller industries being?

Mr Petersen : I can give you two very clear examples: Strategic Partners and Carbon Trading International. Strategic Partners is a very small consultancy that is actually providing carbon management services to the Hong Kong Transit Authority in relation to managing their carbon footprint over the next 10 to 25 years. Carbon Trading International did not exist five years ago. Three years ago it was set up by two enterprising individuals who have now grown it into a 24-member company. That particular enterprise undertakes carbon training, awareness and education programs not just in Australia but as recently as three months ago opened up an office in California. The odd notion of selling coals to Newcastle has now become selling carbon reduction to California. To us, that is a great success story of what innovation not only in technology but, more importantly, in the enterprise and intellect this country can actually deliver as a result of pricing carbon.

Senator CORMANN: I want to go back to the issue that was raised by Senator Birmingham. Just focusing on the fiscal impact of the carbon pricing package, you would be aware that the government is actually counting $500 million worth of revenue over the forward estimates, which is based on its assumption that it would raise an effective carbon tax on the transport industry from 2014-15 onwards. Is that right?

Mr St Clair : That is right.

Senator CORMANN: How credible is it, then, for us to essentially be asked to ignore that? What sort of position does that put the trucking industry across Australia in in terms of their medium to long-term planning? They cannot just ignore that fact, can they?

Mr St Clair : I think I heard the economists say before—you seemed to get four in a room who agreed—that people who are not preparing for some sort of an introduction of a tax in their business are not thinking about what their future is. We as an industry think out that far and further as to what the costs are. We have worked with government over the last few years prior to this current legislation to talk about the fact that if there is a carbon tax how will we as an industry deal with it? We want to see it acquitted upstream, so it comes through as so many cents per litre so that, at least, it comes on a docket ,so there is actual proof to take to customers to show them what cost has been added to the cost of their fuel. At present, it is half a billion dollars in increased costs to the industry. In registration and fuel tax we are now paying around $2.4 billion a year. This will simply add a third to that cost.

Senator CORMANN: So would all of the arguments that have been advanced by various members of parliament and others, and, for that matter, by the Prime Minister, against putting a price on carbon on the heavy vehicle transport industry now disappear come 2014-15? Do you think that all of the arguments against putting a price on carbon, on transport fuel, from 2012-13, will no longer be valid come 2014-15?

Mr St Clair : I suppose it depends on who is in government at the particular time and what legislation would be introduced.

Senator CORMANN: So your position depends on who is government?

Mr St Clair : Our position says quite clearly that we do not believe that we should be included in a potential future carbon tax because we are already embracing the technology—

Senator CORMANN: Ever?

CHAIR: We will now move on. I think you have got the answer you wanted.

Mrs GASH: At item 2.3 of your submission under 'Other concerns' you have said that you are 'concerned that the economic implications of the CE bills cannot be fully assessed at this time for two key reasons,' and you have given the reasons. You also noted that the draft regulation for the generators was released on 22 September—the day before the submission was due to the select committee. Do you want to tell us a little bit more? You have listed your concerns quite succinctly, but I want to draw them out a bit more.

Mr Hitchens : One of the things about any sort of legislation like this is the detail. That is what the companies look at. One of the most important parts of how the bills will affect business is to do with the regulations. I think it was Wednesday evening that the draft regulations for the electricity generators and the Job Competitiveness Program were released for consultation. We have not had a chance in the last few days to have a look at those in detail. So I cannot really respond in detail, I am sorry.

But there is still a great deal of regulation yet to be made related to the regulator itself, the Climate Change Authority and how it will work and how the actual nuts and bolts will be put together before 1 July next year. The problem that many companies have with that is to get their teams back in place to be able to deal with those detailed regulations and be in a position from 1 July to be compliant, if you like. Those teams were in place over a year ago but have been disbanded. I think this time industry is going to wait until there is legislation in place before they put those teams back together.

Mrs GASH: So, once you have read the legislation, you would not be making any suggestions to the parliament with regard to what you think should happen?

Mr Hitchens : As I have said in our submission we have identified 16 areas. I would expect that should these bills become legislation it will be very much like the Tax Act, in that we will see amendments to these bills probably every sitting session to iron out the detail over the next five years.

Senator MILNE: Mr Hitchens, I want to take you back to your assertion that uncertainty would be created because of ministerial discretion regarding the qualitative restriction on permits where a minister may change it. The legislation makes clear, though, that what has been historically bought to that point stands. So it does not mean that anyone who has already purchased those permits loses by that. It refers to future permits. So, on that basis, it does not create uncertainty because, if you have already purchased them, they stand. If you have not purchased them at that date, it is very clear to you that they will not be eligible into the future. I just want to make that clear, and I was not clear in my own mind that you understood that.

Mr Hitchens : I do agree with that. That is as I see the legislation as well. That will be fine if the deals that are entered into in these projects mean that all of the CDMs, or whatever they are, in the future are paid upfront—that is, that the permits that come out of these projects are upfront. But we envisage that that indeed might not be the case, particularly in the case of the REDD scheme, for example, and that for a particular project not all these things will be made upfront; they may be over a 15- or 20-year period. I think REDD is a very good example. You would not necessarily be saying for a particular REDD project, 'Here are 100 million permits related to that project for the next 20 years.' You will need monitoring all the way along. So the permits may not be released immediately; they would be released over a period of time—15 or 20 years, or whatever the investment period is. That is where the problem comes. You are in the middle of that period and you have spent the money upfront. That is clear. It might create a problem down the track.

Senator MILNE: The issue is, though, with respect, the REDD rules are not yet finalised and they are unlikely to be in the short term. But, secondly, it is what you have paid upfront that you are concerned about rather than what you may speculatively spend in the future. I just want to make that point.

CHAIR: Again, I apologise for having to cut everyone off. Thank you for your attendance yesterday. If you have been asked to provide additional material, would you please forward it to the secretariat. Thank you very much for your assistance. It is greatly appreciated.