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Economics Legislation Committee
01/06/2017
Estimates
INDUSTRY, INNOVATION AND SCIENCE PORTFOLIO
Department of Industry, Innovation and Science

Department of Industry, Innovation and Science

[12:10]

CHAIR: Good morning. I welcome the Office of the Chief Scientist. Thank you very much for joining us.

Senator Sinodinos: Good afternoon.

CHAIR: It is good afternoon, my apologies. How the time flies when you are having fun. I am wondering if you have opening statement for us.

Dr Finkel : No, I do not. I am ready to take questions.

CHAIR: Thank you very much. We will start the questions with Senator Carr.

Senator KIM CARR: Chief Scientist, I wonder if you could give us some advice on the electricity sector review. What progress has been made?

Dr Finkel : Substantial progress has been made. As you would be aware, I was invited to chair the panel that is conducting the review by COAG. We presented our preliminary report to COAG on 9 December last year. Since then, we have been very busy actively and extensively consulting internationally and domestically. Panel members and myself travelled to European countries and jurisdictions in America to see how they are operating their systems. We had a series of public consultations in Australia during February and early March in Melbourne, Hobart, Adelaide, Sydney and Brisbane. Then we invited submissions. We received a large number of submissions—about 390 submissions—some of which were so thorough and long that they were like minireviews in their own right. We have taken that on board. We have been working hard modelling various scenarios for the operation of the electricity system out for the next three decades, and we are hoping to report to COAG next month.

Senator KIM CARR: COAG?

Senator Sinodinos: It is a report to COAG. It is not a report to just the federal government.

Senator KIM CARR: I see.

Dr Finkel : It is actually to COAG, not the COAG Energy Council.

Senator KIM CARR: Will all the submissions be published?

Dr Finkel : They have been published.

Senator KIM CARR: There is no—

Dr Finkel : With minor exceptions. People making the submissions were entitled to say they did not want—and I think about 10, perhaps, out of 390 said no, but the vast majority are on the website at the Department of Environment and Energy.

Senator KIM CARR: Can I turn to the question of electricity first. Throughout your consultations there has been a view expressed, or certainly as I read the public comment, around these matters. Whether it be trade union groups or industry or employer groups, Ai Group, Energy Council, BCA, and the ACTU all expressed the view that there was a lack of clear policy, which has led to disincentives, which have led to stifling of investment. Would you agree with that proposition?

Dr Finkel : I would. I am certainly agreeing with the statement that the submissions are indicating that, and there is a lot of reason to agree with the sentiment there. What we are hearing, loud and clear, is that the lack of clarity in the future policies around the electricity sector is giving great concern to investors, and that discourages them from making the necessary investment that will bring on the new generation for low emissions and reliability that we require. That is a key consideration in our minds as we are formulating our recommendations.

Senator KIM CARR: There has been widespread concern expressed, especially amongst manufacturers, but it is not confined to manufacturers, about the steep rise in prices and the availability of reliable supplies of energy—whether it be electricity or gas. Do you share that concern?

Dr Finkel : Without doubt. Prices have already gone up and the forward contracts for electricity prices are quite a bit higher than they have a historically been. As part of our consultations we have met with many different individual companies and representative groups. Certainly, when we have met with the large industrial users of energy and the medium-sized industrial users of energy, some of them have historically had energy costs that could be 10 to 15 per cent of their expenditures. If that doubles it is a very significant problem.

Senator KIM CARR: But 100 per cent plus is a common number I am being told. Would you agree with that assessment?

Dr Finkel : How much?

Senator KIM CARR: A 100 per cent increase.

Dr Finkel : Many of them are facing 100 per cent increases. That is correct.

Senator KIM CARR: Many of them are finding that crippling in terms of their business operations. Would you agree with that?

Dr Finkel : That is consistent with what I just said. If you have already got a large percentage of your expenditure—five per cent, 10 per cent or even more—being spent on energy and that is going to double, either you have to find efficiency measures to reduce the energy in your system or you are going to wear that extra cost and it will come off the bottom line. It is a concern.

Senator KIM CARR: I do not expect you to go to specifics. Your report is due next Friday, isn't it?

Dr Finkel : I will be presenting to COAG on Friday week.

Senator Sinodinos: On 9 June.

Senator KIM CARR: Not tomorrow; 9 June. Without going to the specifics of the project, do you believe your report will canvass policy options that are available to fill that policy vacuum?

Dr Finkel : That is absolutely our intention. We have been asked to produce what is likely to be the first whole-of-system review of the National Electricity Market since it was formed. That is often referred to by myself and others as a once-in-a-generation opportunity. So we are looking at all aspects of a future market that addresses security, reliability, costs and emissions reduction.

Senator KIM CARR: So the issue of an effective national energy policy is one of the key considerations you will have to canvass?

Dr Finkel : Our review is for the National Electricity Market. I am not sure exactly what you have in mind when you say, 'energy policy'.

Senator KIM CARR: Will it go just to electricity?

Dr Finkel : Yes. We are certainly going to recommend a blueprint which is a framework for securely, reliably and affordably running a low-emissions electricity system into the future.

Senator KIM CARR: However, gas is used for the generation of electricity, so will it deal with gas insofar as it deals with electricity generation?

Dr Finkel : We absolutely cannot avoid commenting on availability and cost of gas, but since it is not in our primary terms of reference to deal with the gas system we will be treading a fine path between commenting on gas policy and confining ourselves to the electricity system. As you say, gas is very significant. You could argue that a lot of the price rise that we have seen in electricity in the last year is caused because of the increased price of gas. Gas is effectively the price setter in the wholesale market.

Senator KIM CARR: In terms of that policy approach, does your report consider the questions in terms of our national responsibilities under the Paris accords?

Dr Finkel : We do.

Senator KIM CARR: In fact, you are obliged to consider that matter?

Dr Finkel : I think the nation is obliged to consider that, and so of course we consider that in our report.

Senator KIM CARR: Will you need to also give some consideration to questions of carbon intensity of generators?

Dr Finkel : Not necessarily. We will be making recommendations around policies that all of the states and territories and the government would ideally agree to around changes to the operation of the system that will increase security and reliability to take some of the surprises out of the system and mechanisms to encourage new low emissions reliable energy in the market.

Senator KIM CARR: That includes base load power?

Dr Finkel : I prefer to use the word 'reliable', but not because there is something intrinsically wrong with 'base load'. The challenge is not the kind of power it is but can it be delivered when it is needed and securely?

Senator KIM CARR: That is right.

Dr Finkel : The combination of reliable and secure means that you can operate the system for large industrial consumers and for everybody—

Senator KIM CARR: Will the aluminium industry look to your report with confidence in terms of security of supply?

Dr Finkel : Yes.

Senator KIM CARR: Will your policy approach deal with the question of price impacts for consumers?

Dr Finkel : We will be looking within the remit at aspects of the electricity system that impact on price for all consumers—residential, small and vulnerable SMEs, commercial and industrial. We do not have the powers of an ACCC, for example, to go—

Senator KIM CARR: No—

Senator Sinodinos: But the ACCC are doing an inquiry—

Dr Finkel : The ACCC are running a review at the moment into the retail side of things. So I think the combination of a predictable, well-designed electricity system for the future will intrinsically lead to price impacts that are lower than they would otherwise be. It is very hard to say exactly what prices will be.

Senator KIM CARR: And will you deal with the question of long-term investment signals? Will that be another aspect of the report?

Dr Finkel : Correct. One of the strongest messages coming to us from all of the submissions is that investors do not have any sense of predictability in the market. You cannot ever give an investor certainty, but you can give them some sense of them being able to use their expertise to come out with a predictable investment decision.

Senator KIM CARR: And will you deal with the question of the so-called 'externalities' of carbon pollution—particularly around the issue of the price on carbon?

Dr Finkel : Going back to your earlier question, we will. We are very cognisant of the commitment that the nation has made through the Paris accords.

Senator KIM CARR: Explicitly, given that commitment, do you feel that your report to COAG must also deal with the issue of a price on carbon?

Dr Finkel : We absolutely need to deal with the issue of ensuring that the electricity sector can do its fair share in helping the nation to meet its obligations under the Paris accord—the COP21 accord. That necessarily means that average emission intensities have to come down. But emission intensities are not the endgame; they are not the outcome that has to be pursued. What has to be pursued is emissions in total. The commitment that we have made is for a 26 to 28 per cent reduction by 2030 of emissions on our 2005 baseline. We can get to that by having shifted into the controls a certain level of renewable generation. We can get to that by having a system that controls the emissions intensity, if we know what the demand will be. We will address the means by which that outcome can be achieved—

Senator KIM CARR: Can I just finish my question? The other issue that concerns me goes to the issue of plant closures.

Senator Sinodinos: Plant closures?

Senator KIM CARR: Does your report include plant closures? People sometimes describe them as 'ageing' plants. I specifically refer to what happened at Hazelwood, which, frankly, I think was a disgrace. There was three months' notice to close the plant which was producing 25 per cent of the state's electricity—three months notice! Clearly, this was a device by which the owners could secure a better price: control of the supply, jack the prices up—gouge the pricing. Does your report deal with the question of the way in which large generators are able to manipulate price by controlling supply through plant closures?

Dr Finkel : Obviously, I cannot directly answer the question because my report is to COAG and it is not a public document yet. I have to respect that process. But I can say that a number of the submissions to us have recommended that there should be some restrictions on rapid closures. If we look at the last 10 closures of coal plants, they have all been at less than a year and the vast majority of them have been at three, two, one or zero months' notice. That is devastating for communities, because these are large installations, and it has a high impact on the operation of the system. Other submissions have recommend that there should be effectively information available to the investor community going out for a couple of decades about when closures might occur, but not an obligation—just information about the intentions. So these are considerations that we are taking into account as we are formulating our recommendations.

Senator KIM CARR: And it goes further than that. In the case of Hazelwood, they ripped up the boilers to destroy the capacity for anyone else to rejuvenate those facilities and put those plants or even partially put those plant back into commission. Is that the type of issue that you are concerned about in terms of control of supply to extract maximum price?

Dr Finkel : Given that I cannot tell you what we are recommending, I can say that we would not be wanting to encourage that kind of behaviour, Senator.

CHAIR: I am conscious of time. Four minutes is probably not enough to get a decent line of questioning, so we might break for lunch now and return with the Office of the Chief Scientist at 1.30. I am sorry to have made you wait so long, Dr Finkel, but there are a lot of people here who want to ask you can some questions.

Dr Finkel : No problem.

Proceedings suspended from 12 : 26 to 13 : 31

CHAIR: Welcome back to this hearing of the Senate economics committee, and I welcome back Minister Sinodinos and Dr Alan Finkel from the Office of the Chief Scientist. We will continue questions with Senator Bushby.

Senator BUSHBY: Thank you, Chair. I have only got one issue that I would like to ask about at this point, and that is to do with the activity that you and your office are undertaking with respect to the national STEM partnership. I was wondering if you could give us an update.

Dr Finkel : Thank you. So the STEM industry partnership forum is an initiative of COAG Education Council. COAG Education Council, I think throughout most of 2015, worked on developing a national STEM strategy, which they published in draft at the end of the year and, formally, early last year. They had five major actions around teaching and other activities. One of them, as a critical national strategy in STEM, was to set up a STEM industry partnership forum to look at ways that industry can do what it is already intending to do and is doing, more effectively—which means that schools, industry, the government, the VET sector and the universities need to work together, effectively—to make sure that the programs that are being offered into schools are efficient; that the companies investing effort know what the other companies are doing; and that everybody learns from each other. I have been invited to take, and have clearly accepted, the role of chairing that STEM education partnership forum.

We had our first meeting just about a month ago. It was very much a large getting-to-know-you meeting. We have got five external senior industry members. It was interesting—I contacted CEOs and vice presidents of some of Australia's largest companies and got enthusiastic acceptances to join the forum. I will not go through them all, but I will mention that Maureen Dougherty, the CEO of Boeing Australasia—

Senator Sinodinos: A good person

Dr Finkel : is a member and also accepted the role of deputy chair. That is the level of interest that there is in industry for this kind of activity.

Our main first task was to agree on what our objectives were. Of course, we have got terms of reference but, within the scope of those terms of reference, what do we want to focus on? It is very clear that industry cares about the future and wants to make sure that there is strong workforce capability coming through the system, even if they are investing with a 10-year horizon because, when you are investing in year 8, 9 and 10 kids who then go to university and do a masters before they join the workforce, it is about a 10-year horizon. It is very gratifying to see that they want to take that long-term interest in building the workforce capability. That is the main goal.

The secondary goal is to achieve that by investing in science, technology engineering and mathematics education for young kids, whether they are in primary school or secondary school. We went through the objectives. We had a lot of presentations on what kind of activities—macro type activities—where companies have come together with schools underway. We mapped them out, and we looked at three forward work programs, where we are going to try to develop significant outcomes. One is on how you measure the success of these programs. Everybody from industry recognises the importance of getting beyond busyness and measuring actual outcomes—in other words, instead of looking at inputs, outputs and the number of people doing the program, looking at what impact is it having on the future workforce capability. Part of that work stream would also be to look at a longitudinal analysis of graduate outcomes. The main survey at the moment looks at graduate outcomes only four months out, but we want to look 20 years out and really see how the whole education process is serving the needs of people.

Senator BUSHBY: When you are looking at graduate outcomes are you looking at lifting the number or the percentage of people who graduate in these disciplines? What is it that you are actually looking at when you are saying you are looking at the graduate outcomes?

Dr Finkel : It is a very fair question. We do not actually know, because how you measure success is complicated. A lot of people would say, 'Out of a hundred young people who do a STEM degree at university only 45 ended up five years later working in some sort of engineering, technology or science jobs.' If the other 55 are in management positions or Public Service positions, they have done very well too. So it has to be a fairly sophisticated mapping of where they have ended up.

Another work stream will be on careers: what are the career opportunities and how do you motivate young people for those?

Senator BUSHBY: That was the next question I was going to ask. You talked about investing in STEM in primary and secondary levels and so on. Is the investment needed to increase the interest of students so that they self-select to go down that pathway or is the investment needed for the actual way that those disciplines are taught? Are they related? What is it that we are looking at doing here to engage students and bring them through?

Dr Finkel : You have done a multiple-choice question and the answer is: all of the above. You have to pique the students' interests. Everybody around the table at the forum realises that one of the most important things that industry can do is show young people the real world exciting opportunities, not just career opportunities but what technology and science are doing in their world. If you do that through an extracurricular activity and then the kids go back into a classroom where they have a teacher who is not motivated—perhaps because they are teaching out of field or it has been decades since they learnt that field—you have got a problem. You build them up and then that interest is not sustained.

So the third work stream that we identified is to work with the Department of Education to look at ways to provide rewards through industry providing some prizes, fellowships or other things to encourage teachers to take on professional development training that is discipline specific and taught by an accredited provider so that they then have the confidence and the capability to carry on from where those industry led extracurricular activities have handed over back to the classroom.

Senator BUSHBY: Thank you very much, Dr Finkel. I look forward to hearing how that goes. Obviously you had your first meeting only last month and there is a way to go on this. I look forward to following the journey.

Dr Finkel : Thanks.

Senator KIM CARR: It was your predecessor who belled the cat on this back in 2012-13.

Senator Sinodinos: Who—Chubby?

Senator KIM CARR: Yes. What progress do you think the country has made on STEM education since that time?

Dr Finkel : As a country on STEM education, if one uses as a measure the international metrics PISA and TIMSS, we are not doing as well as we would like to be doing.

Senator KIM CARR: What do you hope will be the outcomes in terms of the forum? How will you measure progress there?

Dr Finkel : The first work stream that I mentioned will probably, within the next four months, try to come up with the answers to that. The simplest answer would be to say that we look at the PISA and TIMSS international scores. I think that is a good thing to do. The challenge there will be if they go up to know what was the contributor or the multiple contributors to them going up. That does not stop you from looking at them as your most important outcome.

Other, more domestic related measures such as what percentage of students choose STEM careers or choose to do science subjects even if they do not go into graduate education in science and technology—at least they have done some year 11 and year 12 training—are good measures of outputs, but they are not the real outcome that we are looking for, which is actual capacity measured through some kind of international metric. PISA and TIMSS do that very well.

Senator KIM CARR: How do you see the broader role of the Chief Scientist in the science communications function?

Dr Finkel : I see the multiple roles of the Chief Scientist in that area. One is to talk about the success stories in Australia. I do worry that we do not recognise our own successes. There are some fantastic companies, large and small, in Australia who are world class who are build on a science or a technology underpinning, and you would not know it from what you read in the papers and from what you often hear said publicly. I try to talk up success stories. We on our website every couple of weeks publish a 'science superhero'. We go out and we find absolutely interesting, accessible kinds of scientists—accessible in the sense that a young person reading about them would be able to relate to them. We have got a little format and we put the story up. I try in speeches and op-eds to talk about the opportunities that a science education gives you in terms of careers not just in the science that you study but from the opportunity to pivot into other successes going down the line. I also talk about some of the issues that I think are impediments that need to be rectified such as the lack of prerequisites for mathematics in undergraduate courses that need mathematics. So there are some things that clearly need to be done, including discipline-based professional development, which we took on board through the Commonwealth Science Council at its meeting last September and upon which I hope to be following up. So there is a broad spectrum.

Senator KIM CARR: One area in which you have been quite active is the issue of public investment in R&D. You speak specifically about success stories. You co-authored the review of the R&D tax incentive. How do you think our R&D scheme compares with international experience?

Dr Finkel : I think it compares well as a scheme. You have to look at the total investment by governments into business-related R&D—the feasibility studies, the commercialisation of research that is being done. We are at one end of the spectrum. It is not necessarily bad, and the number seems to be a little bit fluid, because new programs are coming along, but probably about 80 per cent of our investment through government into industry R&D comes through the R&D tax scheme.

Senator KIM CARR: It is the single most important instrument, is it not?

Dr Finkel : Yes, because only about 20 per cent goes through direct schemes such as grants. Other countries are more even in that. But, if you compare the scheme as a scheme to others like the French and American schemes, ours is a good, solid scheme. We feel that it could be a little bit better, but that does not mean that it is bad. It is actually a good scheme with the opportunity to be a bit better.

Senator KIM CARR: If I remember right, you identified in your report that most OECD countries have publicly funded schemes to encourage business investment in R&D. Is that correct?

Dr Finkel : Yes, but not all.

Senator KIM CARR: But just about all of them.

Dr Finkel : Yes.

Senator KIM CARR: Your review found that the role of the R&D incentive was to encourage spillovers, was it not?

Dr Finkel : No, we said that that is a desirable additional role.

Senator KIM CARR: But did it achieve that outcome?

Dr Finkel : Spillovers are very hard to measure. We have had some work done for us at the time by an economics company that did a survey, and there is some measurable spillover. I cannot at this stage remember the numbers, but it is not at the level that you would run the scheme for spillover.

Senator KIM CARR: No, it is not the only reason to do it, but it is one of the effects of the scheme.

Dr Finkel : Correct.

Senator KIM CARR: I am just trying to remember. You said that in fact there could be some improvements. I think that would be a fair description of your findings or conclusions.

Dr Finkel : It is not one of our recommendations.

Senator KIM CARR: No, it is not a recommendation, but the summary of your analysis of the scheme suggested there could be some improvements.

Dr Finkel : Correct.

Senator KIM CARR: And then your recommendations went to that issue.

Dr Finkel : Let me speak to that. It is not one of our identified recommendations, but it is the desired outcome that would be associated with one of our recommendations.

Senator KIM CARR: It is a consequence.

Dr Finkel : One of our recommendations was to provide a premium R&D tax incentive for companies that spend money in collaborative research with universities and for employing PhD researchers.

Senator KIM CARR: Yes, and research agencies, I might add.

Dr Finkel : There you are getting spillover effects, because you are increasing capability in the community.

Senator KIM CARR: That is right, but it was not just universities; it was public sector research agencies more generally.

Dr Finkel : Correct.

Senator KIM CARR: In fact, that may be the key recommendation, may it not?

Dr Finkel : It is one that I think is important.

Senator KIM CARR: Did you see all the recommendations as of equal value?

Dr Finkel : I can speak for my co-chairs and myself in saying that we see that the six recommendations—which is not a lot—that we have put forward should be considered as a package. I am not suggesting that they have to be taken exactly as written in terms of the parameters. Absolutely, based on government policy, decisions, and feedback from community, if some of the numeric parameters in the recommendations need to be adjusted up or down then that is fine. But the package of six is intended to make the scheme operate with better integrity, efficiency and additionality.

Senator KIM CARR: Were there any findings that suggested that the R&D scheme acted as a disincentive to business investment in R&D?

Dr Finkel : It is certainly not in our recommendations, and I cannot offhand think of one. You might have one in mind.

Senator KIM CARR: No, on the contrary. You will see where I am going with this in a moment, I can assure you.

Dr Finkel : Okay.

Senator KIM CARR: From my reading of the report, as I have said to you both publicly and privately, I thought it was a good report.

Dr Finkel : Thank you.

Senator KIM CARR: I disagree with some aspects of your recommendations, and it is clearly a matter we will discuss at length when the government actually gets to making a decision on this matter. I think the intensity measure is going to have serious consequences for manufacturers, for instance. I understand the political parameters in which you are working. I think you have made that very clear. I think the premium rate is a particularly good proposal, but I think the intensity measure is a serious impediment. I think the caps issue is also a seriously difficult measure, particularly for the biotech sector and a number of other areas. But I cannot recall anything in your report that went to the issue of a disincentive for business R&D. Did it act in any way as a disincentive?

Dr Finkel : I would agree with that.

Senator KIM CARR: That is why I am interested in the research paper that was released by the Office of the Chief Economist from this department, The role of spillovers in research and development expenditure in Australian industries, released in April. Have you had a chance to look at that?

Dr Finkel : I have not.

Senator KIM CARR: Perhaps you could have a look at it.

Dr Finkel : I will take that on board.

Senator KIM CARR: The paper asserts that government expenditure at both state and federal levels has negative effects on firm-level R&D. It crowds out private R&D. Certainly that is the measure that has been given some publicity. I am wondering if you could take on notice—

Senator Sinodinos: Sorry, what was the beginning of that sentence?

Senator KIM CARR: The paper asserts that government expenditure at both state and federal levels has negative effects on firm-level R&D.

Senator Sinodinos: So this is not the operation of the R&D tax incentive. You are talking there about—

Senator KIM CARR: And other measures.

Senator Sinodinos: Outlays measures?

Senator KIM CARR: Yes, and others.

Senator Sinodinos: You must be talking there about outlays measures. Is that right?

Senator KIM CARR: Yes, and other measures. But it goes to the issue of the current programs that are operated in this country, because it is said to crowd out private R&D. What I would ask of you—after you have had a chance to read it; take it on notice—is: do you agree with that assertion? Given your experience as a reviewer of the scheme, does that accord with your direct experience through that review process?

Dr Finkel : As I said, I have not read it. I would be happy to take that on notice and get back to you to further discuss it in whichever is the most appropriate and timely fashion.

Senator KIM CARR: And I would ask you to consider, given the role you play more broadly on the innovation scheme, what is your view with regard to the utility of industry focused grants programs run by the department and other departments, like CRC's program, the ARC, the ARC's Linkage Program and the Industrial Transformation Research Program? Do you think there is a question about the usefulness or the efficiency of such programs in terms of encouraging private sector R&D?

Dr Finkel : That I can answer. If I may, I will answer it in the context of a recent innovation delegation that I led to Europe. Last month, I took around 10 to a dozen people with me from the industry growth centres from the CRC, from university sectors, from the CSIRO and we went to a number of European countries—Germany, Switzerland and France—and met up with the departments that are doing the strategic planning in those countries and some of their equivalents Fraunhofer is an equivalent for the CSIRO; their clusters are a bit of an equivalent—not exact—of a growth centre.

There are clear differences. There is more long-term commitment in those countries to their strategies, but, at the end of the day, I feel that our strategies here are not a poor second best. We have got stuff that we can learn from them, but we are doing some things well. In particular, the CRC program is credible and stands up with the best of them. I think the growth centres have a lot of potential, which is beginning to materialise. And there are some other programs that are beginning. The CSIRO, I think, is, on a per capita basis, a fine representative of world-class research in Australia that has a lot of commercialisation potential in the same way that the Fraunhofer research institute does. In many respects we are doing well, but we are not the leaders of the pack. We have got a long way to go and we can learn, and I will be writing a report from that innovation delegation trip.

Senator KIM CARR: I would like to follow through with the other review that you have been associated with, and that is the National research infrastructure roadmap. I will not go to all of the details—time is very short; I will put a number of those questions on notice—but I am specifically interested in the question that Professor Chubb, your predecessor, and Marcus Clark recommended that the government should look at establishing some form of national research infrastructure fund in the Research infrastructure review that was undertaken in 2014. Do you see any merit in that proposal?

Dr Finkel : As Chief Scientist and somebody who is closely associated with the community, it would be fantastic to have a lot of predictable funding associated with that. I was on the Clark review as a panel member, and I totally stand behind all of the recommendations there. The natural follow-up is the roadmap exercise that I led last year, which was a mapping of the areas of need. The next follow-up is now up to government. We have submitted that to government. We have recommended areas that actually represent opportunity for Australia to either do what it does do better or find new areas to excel in that we know we have got some starting positions in.

Another key recommendation was a project planning committee, if you like; some process for doing project planning. The report is with government. The government is actively looking into planning some of the early possibilities. I know the Department of Education and Training is working closely with the Department of Industry, Innovation and Science, and I am hopeful that by the end of the year there will be some specific projects that come up for consideration. And with the support of the Minister for Industry, Innovation and Science, I would hope that there would be some funds that flow for some substantial projects.

Senator KIM CARR: I apologise; I do not mean to be rude in that regard, Dr Finkel—it was Chubb, Clark and yourself—but it is just that you released the roadmap without any funding commitment, without any funding source. I am wondering whether or not you repudiated the previous recommendation that you had made on the report from 2014. Is that the case?

Dr Finkel : I do not think it repudiated it at all. It did not benefit from that specific recommendation, but you go forward with what you have got. We saw, on request, the opportunity to do a really thorough mapping, and I think we have delivered, of where the options are. And now it is sitting with government. I am hopeful—

Senator KIM CARR: I understand how hopeful you are, but I am just interested in how, as Chief Scientist, you could deliver a roadmap report without a funding source. As the Chief Scientist—you are not a government minister. You are not part of the government; you are an advisor to government. Why wouldn't you recommend a funding source as part of a research roadmap?

Dr Finkel : What we recommended was that there should be a long-term funding stream. It really does not matter to me whether it comes from some existing fund, newly appropriated money, money that is shifted from some other source: as Chief Scientist, I do not mind how the government finds that monetary stream.

Senator KIM CARR: I am sure that is the case, but in 2014 you recommended a funding proposal but you did not recommend it in this second report.

Dr Finkel : But the purpose was different. The Clark report was not for specific projects. It focused on governance and funding. The report that I did was, in a sense, the third element, which is the project mapping or the focus areas into which projects can fit. And now the very final thing that needs to be done is for specific projects to go through a business case study facilitated process and then, ideally, necessarily funds will have to be made available to support that. But, as I said, I do not have the control of the purse strings and I actually do not mind where the money comes from, as long as it is good money.

Senator Sinodinos: Good debt, not bad debt.

Dr Finkel : Good debt!

Senator ROBERTS: Thank you for coming, Dr Finkel; good to see you again.

Dr Finkel : Senator.

Senator ROBERTS: I have already acknowledged the minister's cooperation and support in furthering our discussions, and I look forward to the next discussion when we actually get down to the science of it. I await that discussion very keenly.

Senator Sinodinos: I love a budding bromance.

Dr Finkel : With a matchmaker.

Senator ROBERTS: As you know, Senate estimates is about accountability and transparency, and that includes cost as well as security and risk. This comment is not meant to embarrass you. I am just stating a fact, and it is actually admiration for what you said when we met briefly on the 27th. You said, 'You're not an expert on climate science.' I respect anyone who says that, so thank you very much for saying that. What is the first duty though of a scientist?

Dr Finkel : You can answer that in many ways; I am not sure that there is a single first. But it is pursuit of knowledge, truth, evidence to inform the development of theories, and an open, honest—to use your words—debate about the theories and the evidence that is being presented. Good scientists are very willing to walk away from their theories if there is counterfactual evidence. Science is a complex profession.

Senator ROBERTS: And if a scientist learns of or is told of something that comes to a conclusion or a hypothesis, isn't the scientist's first duty to be sceptical?

Dr Finkel : I think all the scientists I know have a healthy degree of scepticism. But healthy is an important word there. You have to have an open mind, but not so open that your brain leaks out. One needs to think credibly about what is there.

Senator ROBERTS: Yes, and base it on the empirical evidence.

Dr Finkel : To the extent that empirical evidence is available. I am going to be cautious deliberately, because you have introduced this as a discussion about climate science. Climate science is a complex science, with mathematical modelling and theory, and each scientist's particular contribution is being challenged all the time. I do not think there are very simple answers in climate science.

Senator ROBERTS: The empirical evidence will decide that. We will have that discussion about empirical evidence. My first responsibility to constituents is to ask questions and I have the impression from some of my colleagues in the various parties that those questions have not been asked very well on the science in this parliament. Are you aware of my letters late last year and early this year to Gavin Schmidt, who was the head of NASA's Goddard Institute for Space Studies.

Dr Finkel : No, I am not.

Senator ROBERTS: They are public, but I would not expect you to follow everything I do—I certainly do not expect that. I asked him about some adjustments to temperature data. Until recently NASA and NOAA have spread the notion that there are four different independent temperature datasets. What Gavin Schmidt acknowledged is that they rely on the same data that NOAA relies upon. In fact we know that there are not four independent datasets—there is only one basic dataset from the Global Historical Climatology Network. I would like to know who you seek alternative opinions from or on whose advice do you make your conclusions about climate science.

Dr Finkel : I am only responding to this based on the light knowledge I have from talking to people, not because I am pursuing the question but because it does come up—fundamentally a thermometer is a thermometer and an anemometer is an anemometer, and there is a vast array of those around the world. Yes, all the raw data comes from those measurement systems. The four different datasets are different in the way they regionalise—so they are averaging a set of measurements to get one point in a large region or are they taking them all individually and clustering them differently. Basically, my reading or understanding is that it does not matter how you skin the cat or it does not matter how you take those measurements and put them together, you get more or less the same temperature curve.

Senator ROBERTS: That is where we would probably have to differ in our opinion. The thing is that there have been revelations in the United States about the adjustments of some of that data. NASA's data now shows for the period from the 1930s to the 1970s is radically different to results for that same period from just 17 years ago. That is a discussion—

Dr Finkel : You alluded to that in a letter you wrote to me last year. Again not having put a lot of time into speaking to some colleagues and looking for data to support that, I could not find the data to support those errors or adjustments that would be questionable.

Senator ROBERTS: I will be happy to show you that later. There is a marked difference between the satellite data and the ground-based temperature data, especially since the satellite data has been taken. It is not consistent with the ground-based data.

Dr Finkel : If you start with the physical means of thermometers to measure temperature on the ground and in the atmosphere above the ground surface and then you start measuring from orbit, of course, there are calibration issues that have to be attended to to get them to give you the same reading on the same known day. But when you do those calibrations, it is a continuous set of measurements.

Senator ROBERTS: As I understand it, NASA's satellite temperature data measuring the troposphere showed no warming from 1998, and arguably some say from 1995, and no unusual trend since the start of satellite temperature data.

Dr Finkel : I am not sure why that would be a problem.

Senator ROBERTS: The ground-based temperature data had been massaged to show an increase, but the satellite data shows no increase.

Dr Finkel : You were talking about—

Senator Sinodinos: Before you go on, the ground-based data has been massaged by whom? Just wait, Chief Scientist. By whom?

Senator ROBERTS: By NASA's Goddard Institute for Space Studies.

Senator Sinodinos: By NASA. The reason they are doing this is?

Senator ROBERTS: Perhaps we should ask them.

Senator Sinodinos: Have you asked them, given that you are alleging that they have massaged.?

Senator ROBERTS: Yes, I have.

Senator Sinodinos: That is a very serious allegation against a group of people who helped to propel us to the moon, who are held in very high regard across the world and with whom Australia has a very strong relationship. We cooperate with each other in space communications; it is a very serious relationship for Australia. You are alleging that we are dealing with a group of people who massage data and who are essentially dishonest fraudsters. Is that right?

Senator ROBERTS: Yes. I need to be very very clear that NASA's Goddard Institute for Space Studies is a small group within NASA. I am not talking about the whole of NASA; I am talking about a small—

Senator Sinodinos: So NASA has lost control of the institute?

Senator ROBERTS: Hang on, you asked me a question. NASA's Goddard Institute for Space Studies has within it a small group responsible for climate, and those people have been shown to have manipulated the data unscientifically. I will be happy to go through that discussion with you.

Senator Sinodinos: Have you raised this issue with the US administration, with the FBI or with any group within the American administration that can take action against these fraudsters?

Senator ROBERTS: I have raised it with people who are close to the Trump administration, and I have sent copies to senators and to one another administration person—yes, I have. You might notice that NASA's Goddard Institute for Space Studies has been taken out of climate studies now by the Trump administration and sent back to space, where it belongs.

Senator Sinodinos: It is one thing to debate the science, but I want to get behind your motives in this regard. You are alleging that there is some global conspiracy of like-minded scientists who are essentially perverting instruments like the UN, the US administration, the Australian government? For what purpose?

Senator IAN MACDONALD: Point of order. With respect to the minister, estimates are an opportunity for senators to ask ministers and public servants questions, not for ministers to be querying the motives or operations of individual senators.

Senator Sinodinos: Senator Macdonald, my problem is this: there is a whole series of questions we can go through, but I want to find out exactly what is behind it.

Senator IAN MACDONALD: I am not sure that this is the place for that, Minister, with respect.

Senator Sinodinos: I have set up a dialog with—

Senator IAN MACDONALD: This is for senators to ask you and bureaucrats. It is not for ministers to question the motives or—

Senator Sinodinos: I am not questioning the motives. I want to find out what is behind it.

CHAIR: Thank you for the point of order. I suggest, Senator Roberts, that you think about how you phrase that particular question.

Senator ROBERTS: I will just answer Senator Sinodinos's question. I do not believe there is a global conspiracy. I have never said there has been. In fact, I have deliberately steered clear of using the C word. I am happy to discuss in our conversations what I think are some of the things driving this, which is what the chair was pointing out. So we will take that up with Dr Finkel. When we have our discussion with the scientists—

Dr Finkel : I will try to answer the previous question and pass on observation. I am just trying to understand your concern. You were talking about the fact that surface atmospheric temperatures—

Senator ROBERTS: Ground-based measurements.

Dr Finkel : Ground-based measurements of atmospheric temperatures are rising but the upper atmosphere temperatures are not.

Senator ROBERTS: The troposphere as a whole is not.

Dr Finkel : My response was: is that a concern and would you like me to address it?

Senator ROBERTS: I am happy to discuss it.

Dr Finkel : That is consistent with what the modelling would show. According to my understanding—as I said, I am not a climate scientist—if you have a greenhouse gas increase in the lower atmosphere that is actually blocking the re-radiation to space of the infrared heat emitted from the land. That means that the lower atmosphere is a more effective insulator and therefore you would expect the upper atmosphere to be cooler. If I could think of an analogy, it is very much like if you had a home—

Senator ROBERTS: But the IPCC says the upper troposphere should be warmer—above the troposphere.

Dr Finkel : If you had a home that was for poorly insulated and you were heating it, say, to a comfortable 25 degrees, and outside it is cold—really cold: minus 15—and your house was poorly insulated with thin glass windows, somebody on the outside in the cold who put their hand on the glass window would feel all the warmth just leaking out of your house. On the other hand, if you had a very well-insulated home—triple glazed—you have a barmy, warm 25 degrees inside and if someone outside in the cold takes off their glove and puts their hand on your triple glazed window it will feel cold. That person outside, in my analogy, in my mind, is more like the upper atmosphere. It makes sense if the lower atmosphere is providing heat capturing and installation. But, as you said, we can discuss it further.

Senator ROBERTS: I will just make this observation. You have heard of air-cooled motors. If it moves it cools, and the atmosphere is a vibrant, dynamic moving phenomenon and it cools the earth's surface.

CHAIR: Senator Roberts, you had better ask a question.

Senator ROBERTS: Yes, I was just answering that question. The peer review process, which has been relied upon by a lot of people, in lieu of empirical evidence, has been seen to be an echo chamber. I would like to know who you take advice from—which specific agencies you take advice from—CSIRO?

Dr Finkel : In respect of what?

Senator ROBERTS: Well, you are not an expert on climate science, so who do you base your conclusions on?

Dr Finkel : I often speak to respected scientists at the CSIRO, and there are many. I occasionally speak to scientists from the Bureau of Meteorology, and there are many there who are respected experts in their field.

Senator ROBERTS: Any other agencies?

Dr Finkel : No, because I do not spend a lot of time engaging on this.

Senator ROBERTS: Have you asked for competing opinions, given that we have now been discussing climate as a society and as a species for well over 10 years? That issue is still alive. There is a lot of doubt.

Dr Finkel : I do not go out actively looking for competing opinions. I am by nature an inquisitive, modestly sceptical person. It does not matter what the topic is: if I am interested in it, I ask questions and I browse the internet and look at things. Certainly, from my perspective—and my perspective is not as a climate scientist—I do not see any credible competing opinions to the core suppositions of climate science.

Senator ROBERTS: You do not?

Dr Finkel : I do not, and I am fortunate I have not come across them.

Senator ROBERTS: Are you aware of Richard Feynman and his quote, 'A beautiful theory is shot down by an ugly fact'?

Dr Finkel : I am, and I have heard of wonderful things, like from Michael Faraday that, 'I hold my most valued theory at the tips of my fingers so that the most gentle breeze can blow it away'. It is core to science that if a contradictory fact appears, you have to question it, and, if necessary, throw out the theory. But that is not easy to apply as a principle to complex models—not for climate science, not for human health, not for dietary aspects of our lives. When you are looking at multivariate problems where there are thousands of variables, you cannot just look at one fact and say, 'Did that toss the whole thing away?' because that one fact is surrounded by other facts. It is complex.

Senator ROBERTS: Why do you assume that I am looking at just one fact? I am looking at dozens—in fact, thousands—of datasets.

Dr Finkel : You quoted Feynman, and he was talking about one at the time. In that kind of core physics, often a single fact will destroy a theory.

Senator ROBERTS: I look forward to continuing this discussion. Are you aware of this statement—

CHAIR: Senator Roberts, I am just giving you a heads up: you have had well over the allocated time. We have a lot of things to discuss today.

Senator Sinodinos: And we have all these sessions outside of here where we deal with this.

Senator ROBERTS: Let's continue that as soon as we can, Senator Sinodinos.

CHAIR: Are there questions you can perhaps put on notice as well?

Senator ROBERTS: No, I am fine. Thank you.

Senator IAN MACDONALD: Dr Finkel, you say you are not a climate scientist, and, clearly, neither am I! But I think another senator was asking you about the Paris Agreement and the impact if, as is being widely reported, the Americans withdraw further from it. Where does that leave the Paris Agreement and the international approach to that?

Dr Finkel : Senator, are you asking me to speculate? I am happy to! My guess is as good as yours.

Senator IAN MACDONALD: Well, perhaps I should ask the minister—

Dr Finkel : My reading is that the international community is firmly behind the agreement from COP 21 in Paris. If, as is likely—and I do not know what has happened in the last few hours; it may have actually happened—

Senator Sinodinos: Five o'clock tomorrow morning, apparently.

Dr Finkel : If, as is likely, America, under President Trump, decides not to confirm its commitment to the Paris accord, that is one country out of nearly 200—one very important country out of 200—

Senator IAN MACDONALD: One of the biggest emitters of carbon.

Dr Finkel : As I said, one very important country. That is a blow to the accord, but it is not fatal. The other countries have indicated that they are absolutely committed because of the evidence-based logic of the accord. All people who I have spoken to are not mixing with the presidents of European countries and other developed countries—well, of any countries—other than ours as a leader. Most of them say: 'It is one president for one or two terms. Things will change.'

Senator IAN MACDONALD: If carbon emissions are the cause of climate change, and I do not enter into that debate because I have no expertise, then the fact that—America is the biggest emitter, isn't it?

Dr Finkel : No, I think China is the biggest emitter.

Senator IAN MACDONALD: Followed by America?

Senator Sinodinos: No; India.

Dr Finkel : It could be India by now. It has been very rapidly changing.

Senator Sinodinos: They are a very big emitter.

Senator IAN MACDONALD: China—with all due respect to the Chinese, I love them—talk a lot about climate change but they do very little. They open a new coal-fired power station each week. Is India a signatory to Paris?

Dr Finkel : They are. I am not sure about India, but China in particular has a different set of commitments to what the OECD countries and Australia have made.

Senator IAN MACDONALD: The concern I always have is that you have China, India and the United States, all, in my terminology, luke-warm towards cutting emissions. How does that impact on the changing climate of the world if, as people say, carbon emissions are the cause of the changing climate?

Dr Finkel : It is a critically important potential impact. If China and India, as the two biggest emitters, do not do their fair share towards cutting their emissions, then globally we will not make anything like the progress that it is accepted that we need to make. With China, and it is the same with India, you have to be careful what you look at. It is absolutely true that they are continuing to open a lot of coal stations, but the rate at which they are opening them is now far below what they were projecting five or 10 years ago would be the rate of opening of coal stations.

Senator IAN MACDONALD: What they were projecting or what they were doing?

Dr Finkel : Both. They were really busily opening coal stations. Their absolute rate of opening the wind and solar is huge, but it is not nearly enough to meet their needs, because they are society with growing demand.

Senator IAN MACDONALD: But they keep increasing their emissions.

Dr Finkel : Correct. They are committed to reducing their emissions, but not until about 2030.

Senator IAN MACDONALD: Exactly. In Australia, we emit less than 1.3 per cent of the world's carbon emissions.

Dr Finkel : About that.

Senator IAN MACDONALD: If we were to reduce the world's emissions of carbon by 1.3 per cent, what impact would that make on the changing climate of the world?

Dr Finkel : I will give you two answers to that. One will be a little facetious—I apologise in advance. The more serious one we are a well-respected country and we have to show leadership—

Senator IAN MACDONALD: That is really not answering my question.

Dr Finkel : alongside the other countries in the OECD, the other developed countries. If we walk away and resile from our commitment, it is a bad signal that could be like America walking away from its commitment.

Senator IAN MACDONALD: That is not my question.

Dr Finkel : In terms of the need for us to worry about our tiny contribution—I apologise—it is a little bit like voting. Does your vote count in an election? Does my vote count in an election? No, it does not, but if everyone took the attitude that their vote does not count and no-one voted, we would not have a democracy.

Senator IAN MACDONALD: You are entering into an argument which I am not having. I did not put those propositions to you. I simply asked a question: if we reduce the world's carbon emissions by 1.3 per cent, what impact would that have on the changing climate of the world?

Dr Finkel : Virtually nothing.

Senator IAN MACDONALD: If Australia reduces its emissions, its 1.3 per cent, by 50 per cent, what impact would that have the world? You have just answered on that—nothing. What impact does it have on Australia's economy, our manufacturing and other activities, vis-a-vis our biggest trading competitors, that is the United States India and China? What does it do to our economy? I know your science is not just pure science, but the economy is part of the scientific mix. What impact does that then have on Australia's competitiveness against the United States, India and China?

Dr Finkel : It is a very important question, and the answer depends on how we get there. If we get there, as there is some risk, through policy uncertainty that leads to, as I was discussing with Senator Carr earlier, lack of investor confidence and generation capability and new low-cost generation capabilities coming into the market, we will have problems, because we will achieve the reduction for all the wrong reasons. Demand destruction will achieve the reduction because the industries that are using the energy will not be able to afford the energy. If we can do it through a deliberate policy-driven process, we can take advantage of the constantly reducing prices in new energy generation, we can integrate them into the system and we can take advantage of the continued low-cost generation of our existing generation as we make that transition. My answer to your question is that it depends on whether we do it in an atmosphere of policy uncertainty or with some conscious decision to follow a trajectory into the future, taking advantage of the innovations, the low-cost generation technologies, that are increasingly becoming available.

Senator IAN MACDONALD: I come from the Townsville area of North Queensland, as you may be aware—an area that is experiencing unprecedented critically high unemployment, on the basis, to a degree, of hugely inflated electricity prices. The two biggest employers in the region are the copper refinery and the Korean-owned Sun Metals zinc refinery—both big consumers of electricity. Both of them set up and created jobs in Townsville because we had one advantage over everywhere else in the world—we had cheap, coal-fired power. We no longer have that, and we face the prospect of those employment sources in Townsville failing. I hear your comments about cheaper renewables, and one day there may well be, but what I am trying to get from you or people who can help me on this is the immediate to medium term impact on our nation's lifestyle, compared to China, India and the United States.

Senator Sinodinos: I understand where you are going. You are positing a best-case scenario where, if we were to drop out of Paris and all the rest of it, with no obligations, we would go back to nirvana, which was a low energy past. That is not what we are going to have in the future. Part of the reason we have high energy prices today is continuing uncertainty about the direction of policy. You can argue the toss about the elements of that. If the US moves out of Paris, the problem is that around the world there will therefore be uncertainty about the path of energy policy in a global sense. Uncertainty increases the risk premium on all sorts of investment, whether it is conventional investment, like coal-fired power stations, or alternative energy. People will be uncertain, and the people who look at this are bankers, who are looking to finance power plants, and insurance people, who look at what are the implications of ongoing climate change, because they are looking at things like what will happen down the track with sea level rise if we do not meet the two degrees limit and everything else. There are people out there who have to bank their money 10, 20 or 30 years down the track on what the world is going to look like. If they think the world is uncertain about where things are going, they are going to be confused about where to invest. This uncertainty increases the risks to the global economy. That is something that maybe does not factor in your mind at the moment but part of the reason we have these global agreements is to get everybody in, with equitable sharing of the burden of dealing with these problems, and importantly give some certainty to investors. That is very important.

The other point I make is that we make a lot of agreements and we make them as a small country because it is in our interest. We make a lot of trade agreements, and we want other countries to keep those agreements because they are in our interest. It is in our interest to get stability around climate issues and to minimise the cost of adjusting to the world as it might be in 40 or 50 years time. We have to be seen to be meeting our agreements. The other thing that could happen is that other countries might decide to take sanctions against us on environmental grounds because they will say they do not particularly think that Australia should be able to get off scot free when they are making an effort to deal with the global challenge. As a government, we have to think about all of that. At the moment—we do not quite know where Trump will go; we think the money is on him withdrawing—we believe we should stand by our agreements. We have other policies in place; I am happy to take you through them personally in terms of where we are going with the Finkel review and where we want to end up. But we cannot end up in a situation where we look as if we are throwing the baby out with the bathwater when it comes to this energy adaptation.

Senator ROBERTS: The US is doing this to protect jobs and to give certainty to its industries.

CHAIR: Order! Senator Roberts, I think that maybe we are just getting into a debate across the table.

Senator IAN MACDONALD: I do not want to get into a debate, and I will take the minster's talk as a response to the question I asked, except, Minister, you say, 'If we include everybody,' but I have just demonstrated to you that the three biggest emitters are not included.

Senator Sinodinos: The Chinese are putting a lot of bets on the table when it comes to energy policy. They face very heavy pollution, and they know, on the ground in China, that they have to take strong measures for their sake and related reasons.

Senator ROBERTS: Carbon dioxide has never been classified as a pollutant.

CHAIR: Order! Last question, Senator Macdonald.

Senator IAN MACDONALD: I accept that it is your view and the government's view, but, I am sorry, the facts are otherwise. The Chinese might be talking about that, but the facts are different. The Indians might—

Senator Sinodinos: We can debate offline.

Senator IAN MACDONALD: be talking about it, but the facts are different. I am concerned about the Australian way of life—our privileged way of life.

Senator Sinodinos: There are whole suite of things we are doing for that reason.

Dr Finkel : Senator Macdonald, it is not obvious to any of us who have been looking at this that there is a simple way to go back to the really cheap electricity of the past. I am not recommending here, individually, that anybody should be trying to shut down the coal-fired electricity in Gladstone, but it has a limited lifetime. Sometime, it will have to be replaced. On today's cost of building new coal in Australia, it is a lot more expensive—not a bit; it is starting to get a lot more expensive—than doing that with alternative energy.

Senator IAN MACDONALD: That is not your decision.

Dr Finkel : I am not trying to make the decision; I am just pointing out that there is no cheap way forward. There is 'lowest cost', but not 'cheap'.

Senator IAN MACDONALD: Investors will make their decision. I am not going to put money into a coal-fired power station, but I understand there are a lot of moneyed people around the world who would be very keen to establish a coal-fired power station in North Queensland.

CHAIR: Senators, I do not think we are getting anywhere.

Senator ROBERTS: The cost of producing power in other countries that are using our coal is cheaper than here, because of the taxes and the burdens and the imposts.

Dr Finkel : I am not trying to analyse why it is, but the actual cost of bringing on new coal in this country per megawatt hour is projected to be substantially more expensive than the cost of bringing on wind or solar. I do not care who makes the investment choice—good luck to them.

CHAIR: I am absolutely certain, Dr Finkel, that when your review comes out all will be revealed. In the meantime, there probably is not much point in continuing a debate across the table. We are very short of time. There being no further questions that I want to go into, we should let you go. Thank you very much to the Office of the Chief Scientist for being here today.