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SELECT COMMITTEE ON FUEL AND ENERGY
02/04/2009
Issues relating to the Fuel and Energy Industry

CHAIR —Welcome. Do you have any comments to make on the capacity in which you appear?

Dr Fisher —I am the Chief Executive Officer of Concept Economics.

CHAIR —I invite you to make a brief opening statement and then the committee will ask you some questions.

Dr Fisher —I have a very short statement, and it is as follows. The problem we are dealing with with respect to climate change is an extremely complex one. Basically, to solve the climate change problem we need to engage every major emitter on the planet. We need to ensure that they put in place effective policy to reduce emissions and that these things are coordinated. As you will obviously have noticed, coordinating anything, including in the G20 meeting on the global financial crisis, is not an easy matter. This particular problem is even more complex than that because we have many, many players, including both developed and developing countries, engaged in negotiations under the United Nations Framework Convention on Climate Change. There are some 192-odd parties there, all with slightly different aims. So this is a complex problem.

I make that point because modelling the effects of putting these schemes in place is therefore extremely difficult. In my judgment, what the government has attempted to achieve in modelling the current proposed scheme is probably ambitious, given the complexity of the scheme, the complexity of the modelling task and the amount of time taken. In all fairness to the group in Treasury who did the modelling, they have been put under enormous pressure with a very short time frame to deliver a result. I think they have done a reasonably credible job given the time that they were allowed, but of course, given the complexity of this, nobody in the time that has been allocated could have come up with answers that do not raise more questions than they effectively address.

In terms of the impacts on Australia as far as the modelling is concerned, the key things that drive the impacts on Australia can effectively be divided into three. The first one is your assumptions about what other countries will do in terms of their own policies. In the Treasury modelling, we have seen some fairly optimistic assumptions about the speed with which other countries will engage in an international scheme, and those assumptions are very important in driving the global carbon price that is estimated by the model and, as a consequence of that, the cascading effect back into Australia.

The second issue is understanding what the marginal abatement cost curve looks like for the Australian economy itself, sector by sector, and that is a complex task. I do not think anybody anywhere fully understands what those curves look like. We have estimates of them, but I think they are fairly rough. So we do not fully understand the costs and the flow-throughs that will result from the implementation of the scheme.

The last thing that is important is the nature of the ‘compensation’ arrangements, if I can use that word, for emissions intensive trade exposed industries. The number of administratively allocated permits that an industry receives and any phase-out that they face will be extremely important in determining how those industries behave and the cost on those industries, in the light of the fact that we do not have a global scheme. So the combination of the design elements with respect to the compensation of emissions intensive trade exposed industries together with assumptions about when our key trading partners will adopt similar policies internationally is crucial in determining the impact of these arrangements on the Australian export sector. I think that is a quick summary and I am at your disposal with respect to questions.

CHAIR —Thank you, Dr Fisher. Just as an opening question—which is the same question I have asked everybody this morning—do you think the scheme if implemented as it is currently designed would have a net beneficial effect in terms of reducing global greenhouse gas emissions?

Dr Fisher —I was interested that you were asking each person that question. I think that is actually a complex question to answer. If I can slip back—

CHAIR —I ask that question because I think that is the public perception of what will happen as a result of the ETS. This is a very complex system, set-up, process or whatever, but I am trying to bring it back to what the public expects will happen as a result of this ETS and in how far it will happen for the price they pay.

Dr Fisher —If I can, I will skate back into a modellers’ world for a moment to give you some insight into the answer to that question. The empirical estimates of carbon leakage—basically that is the extent to which imposing a policy like this in Australia would lead to an increase in emissions elsewhere—are somewhere between six and 70 per cent. Seventy per cent in my view is too high, six per cent is probably too low, so somewhere around 15 to 25 per cent is probably not a bad estimate for the Australian economy. Basically, if you accept that sort of estimate, the answer to your question is: ‘Yes, the scheme would reduce global emissions by a small amount.’ Given the fact that we would have some carbon leakage—

CHAIR —I have been trying to find this out. Are you aware of whether the government has set itself any target in terms of the net beneficial contribution it intends to make in reducing global greenhouse gas emissions as a result of the Australian scheme?

Dr Fisher —No. I am unaware of such a calculation being done.

CHAIR —Do you think that there are better and more affordable ways to reduce global greenhouse gas emissions than what is proposed in the scheme?

Dr Fisher —I think, practically, the answer to that question is probably no. If we were just talking about Australia then it would probably be more economically efficient to impose a carbon tax. But we are not just talking about Australia here. We are talking about a scheme that has evolved out of almost 25 years of international negotiations. That has led us inexorably down the road towards an emissions trading scheme. Whilst you could implement a carbon tax in Australia and still participate in a global trading scheme, it is probably the case that it is simpler to implement the same sort of scheme here in Australia.

CHAIR —Yes, but you talk about ‘an’ emissions trading scheme. I guess what I am trying to get you to comment on is ‘the’ emissions trading scheme as it is currently on the table with the design features as proposed by the government at present. Do you think that is the best possible and most affordable way to reduce global greenhouse gas emissions on the basis of what we do in Australia?

Dr Fisher —That is, again, a fairly complex question because—

CHAIR —Perhaps you could take it on notice.

Dr Fisher —I do not believe we are going to see anything like what we are talking about in Australia implemented in most other countries around the world, for a start. We are proposing a scheme that is, as I understand it, the most ambitious scheme of this type contemplated anywhere. The government is a leader in terms of its ambition with respect to coverage and complexity with the scheme that is being introduced here. This has all sorts of implications in terms of uncertainty about investment in Australia and it is not clear to me at all that we can get the design of the current scheme right in the short period of time that has been allocated.

CHAIR —Do you think that the benefits—and you have described them as small in terms of the global reductions in greenhouse gas emissions—are proportionate to the cost in terms of the economy and lost jobs?

Dr Fisher —I seriously doubt that in the short term. We have not had a proper discussion, in my view, about the problems with respect to transitioning the Australian economy to what is a carbon based—coal based, effectively—energy economy in Australia to a less fossil fuel intensive economy. Basically the modelling that has been done that has been published is not capable of properly costing the transformation cost to the Australian economy. Other than the minor discussion of the apparently leaked Frontier regional work—which I, unfortunately have not been able to see—I do not believe that we have seen a full discussion of the transition costs.

CHAIR —I am going to touch on modelling before I hand over to my colleagues. You have done a peer review of the Treasury modelling and you have identified a number of, I guess, deficiencies. You are not blaming Treasury for it; I see I have qualified in your opening remarks. Treasury officials themselves have said to us that they have used the assumptions, the scenarios, at the direction of government. Clearly they were given a particular framework. Could you quickly run us through the deficiencies in the Treasury modelling as you see them? Is it fair to say that the net result is that the Treasury modelling underestimates the impact of the CPRS on the economy and jobs the way it currently stands?

Dr Fisher —I think the short answer is yes, the Treasury modelling does underestimate the short-term costs to the Australian economy. Basically the framework that they have used is long term in its essence. It does not take full account of the adjustment costs associated with moving the economy from one state to the other. They have assumed, effectively—and you can see this in the results—that you can have instantaneous adjustments in the energy intensity of the electricity industry, for example—

CHAIR —Forgetting that there are people involved along the way.

Dr Fisher —Not only people but capital. You cannot, over the space of one day at the end of one year, go from one set of generators that are coal based, effectively, to something else without having spent capital—without having invested in the transmission sector. I think Pacific Hydro just mentioned the point about the need for massive investment in Australia’s electricity transmission industry if we are to see, say, geothermal or some other renewable baseload power source integrated into the east coast grid. Those are the facts, basically, yet none of that has been taken account of. These models are good in terms of dealing with long-run issues and they are appallingly bad in terms of dealing with adjustment costs.

In addition to that, as you have mentioned before and as I have mentioned in my opening remarks, the key to the long-term Treasury results are these assumptions about the way in which international policy will evolve over time. Basically what they have assumed is that high-income developing countries such as China will effectively engage in a scheme, following Copenhagen, from 2015. They are not saying, obviously, that there will be instant reductions in emissions, but effectively they are assuming that those countries will engage in a scheme and will have a sensible international carbon price; that by 2020 middle-income developing countries will be involved; and then by 2025 that everybody will be involved, including countries like Zimbabwe. Nobody really, honestly, believes that the governance arrangements will be in place for countries, even in middle-income or low-income developing countries, to put in place something like an emissions trading scheme where a tonne of carbon emitted in Africa equals a tonne of carbon in Australia.

CHAIR —Given all of the deficiencies in the assumptions, the result being an underestimate, what is the most realistic estimate in your view of the impact on jobs, on the economy, on investment in energy, security et cetera?

Dr Fisher —I do not have an estimate of that. I do not have a model to—

CHAIR —What would you need to be able to make an estimate?

Dr Fisher —Basically what you need is access to Treasury’s model.

CHAIR —That is the modelling that the Treasury has been trying to keep secret?

Dr Fisher —I do not know whether the Treasury per se is trying to keep it secret, but it is not publicly available.

CHAIR —You would be aware, because we have contracted you as a committee to conduct a peer review of the Treasury modelling, that we have been trying to get hold of all of the unpublished modelling information as a committee over the last four months now, so far without success. We are still persisting. If all that information were released, would the Australian community be able to have a properly informed conversation about the impact of the CPRS as it is proposed on the economy, on jobs, on investment, on energy security?

Dr Fisher —If all of that material were released to the economics community and the economics community had a period of time to do some further analysis then I believe it would be possible to make those sorts of estimates.

CHAIR —Do you think it is in the public interest that such assessments can be made and properly debated?

Dr Fisher —Yes, I do. I think policy transparency is extremely important. What we are talking about here, basically, is a fundamental transformation of the Australian economy. We have established our domestic and our export industries on the basis of coal-fired electricity. To reduce our emissions we need to transform those industries away from fossil fuels towards some of the fuel—or mix of fuels. That means fundamental change in the way we do business in Australia. It means fundamental change in our exports, potentially, and fundamental change in our domestic economy. This cannot be done cheaply. There will be adjustment costs and everybody deserves the right to see what those costs will be and how this is going to be done.

CHAIR —Initially the government said the reason they were not releasing it was because it would do commercial harm to organisations like Monash University. Monash University has told us, ‘We are quite happy for the information to be released.’ They have written to the Treasurer. What other reason can you see why the government would not be releasing that sort of information, which would enable a properly informed debate?

Dr Fisher —Chair, I could not speculate about the government may or may not have in its mind. But as an ex senior public servant I can imagine that I might have been slightly resistant to somebody trying to get their hands on my model.

CHAIR —Why is that?

Dr Fisher —Because it would then put the relevant officials under some interesting pressure with respect to—

CHAIR —What—to explain the impact on the Australian economy and jobs and investment in energy security and these sorts of matters?

Dr Fisher —No, not so much that, but I think there would be some issues that would need to be resolved.

CHAIR —Some problems would need to be addressed, the scheme would need to be improved?

Dr Fisher —That as well, but issues we need to be resolved about the way in which senior public servants interact with the parliament and the executive arm of government.

CHAIR —Let me go back. This is, as you have said, a major structural reform and a major public policy change. As a parliament we are scrutinising the impact of what is being imposed on the community. We do not have the tools before us, because the government is keeping them secret, to conduct a proper assessment. If we did have those tools available—if the government were to release the information—we would be in a better position, would we not, to assess the impact on the economy, on jobs, presumably on greenhouse gas emissions globally, on investment in energy security et cetera.

Dr Fisher —Yes, I believe that is correct.

Senator JOYCE —Thank you very much, Dr Fisher. I want to go through a couple of things. To your knowledge, when was the last time the world changed its view on something because of Australian domestic policy?

Dr Fisher —I do not believe that has ever occurred.

Senator JOYCE —This is an outside chance, but it is something I just have not been able to get a straight answer on from the relevant department during other inquiries. What happens if, due to something that we cannot even ascertain at the moment, global carbon levels in the world actually start reducing? What is the value of a carbon permit then?

Dr Fisher —Let’s imagine that we have mismeasured atmospheric concentrations and they were lower and concentrations were increasing at a slower rate, for example, than we believe that they are. The impact would be that the expectation would be lower for an international permit.

Senator JOYCE —What about the pricing effects on the value of permits in Australia? Say I go into a marketplace and buy permits. The purpose of the permit is to reduce carbon emissions generally throughout the world, even though it does not have a hope of doing that because it is such a small portion of the market. But, if for some unknown reason—ocean degassing or something I cannot comprehend—carbon levels reduce, will that affect the value of my permit or can I rely on the fact that, even though carbon levels are reducing, I still have a stock on hand? We will have billions upon billions of dollars of permits out there that people will be giving a certain value to on their books. What will be the value of that asset on their books?

Dr Fisher —The short answer to that is that, under the current proposal, the Australian carbon price will basically be dominated by what the international carbon price is. According to the Treasury modelling, effectively we are doing a large share of our abatement by import of permits. The proposal is that our scheme be linked to international carbon prices. Because Australia is a small, open economy, the international carbon price will drive the Australian carbon price—there can be no doubt about that, and that is the way the modelling has been done. As to the consequence of that in terms of the book value of your permits, if you were to go out and purchase a bunch of permits and have them on your books for some reason—I cannot imagine why, given the risks involved, somebody would buy, say, five years worth of permits, but let’s imagine they did—then that book valuation will vary quite substantially year to year as the international price varies. To see the extent of those variations you only need to log onto the relevant EU website and you will see that permit prices over the last 12 months dropped from something like €32 down to €8½ per tonne and then rose slightly since that time. So there is potentially enormous variation in those carbon prices in these international markets.

Senator JOYCE —If I am in a market to market process on my books, my credit is determined by the value of the assets, the margin I pay for my credit is determined by the value of the assets and this carbon price falls through the floor, then I might have a small problem.

Dr Fisher —Yes, in the current global market there would be issues around your ability to borrow to buy more permits on the basis of the book value of what you have.

Senator JOYCE —In regard to your analysis, Dr Fisher, I am interested in the assessment process—the ascertaining of a carbon footprint—taking this back down, basically, to the paddock. I know it is not coming in until 2014-15 but, for a farm, did anybody discuss a process of turning up to a farm and counting the number of head of cattle and then issuing a permit on that and expecting the farmer to pay for it?

Dr Fisher —All of that is up for discussion, as I understand the arrangements. But to give you some numbers—and there is enormous uncertainty about these numbers—take the example of a sheep farmer. For each sheep there will be approximately 10 kilograms of emissions per sheep per annum. For a beef farmer, approximately 70 kilograms of methane will be emitted per beast per annum. These numbers are highly variable. The international literature states that the figures depend on diet, breed and other things. But the numbers give you rough orders of magnitude. So you have 70 kilograms of methane which you multiply by the number of cattle you have and you then multiply that by 21, which is the global warming potential under the Kyoto protocol for converting methane to carbon dioxide equivalent. You then have the amount of emissions from your herd.

Senator JOYCE —To check if my maths is correct, if I have a small farm with 5,000 sheep that would be 50 tonnes by 21, which is 1,000-plus tonnes of permits I would have to buy in the market.

Dr Fisher —Yes, and then you multiply the permits by the price.

Senator JOYCE —To be honest, these people are pretty poor. They would then have to go out to the market and buy those permits at $25 or $30 a tonne.

Dr Fisher —Let’s say it is $25 a tonne. The rub is that if you are a small open economy and you are exposed to international competition, which we are, and you cannot influence the international price, which we cannot, then you have no way of passing that cost on to your customers and as a consequence of that the cost is borne by the supplier.

Senator JOYCE —So you have to buy 1,000 tonnes worth of permits at $35 a tonne, which is a $35,000 bill annually that you would have to pick up.

Dr Fisher —I would need to check the maths, but—

Senator JOYCE —I am just saying that if it is 1,000 tonnes—

Dr Fisher —Yes, if it is 1,000 tonnes and it is $35, then it is $35,000. These are not insignificant numbers and this is why the emissions intensive, trade exposed sector is concerned about the scheme and the allocation of permits—the way in which the scheme is designed and the amount of administrative permits that are allocated—because if you do not have the ability to pass on the cost of this scheme, internationally—

Senator JOYCE —And they cannot.

Dr Fisher —And they cannot. This is why it is so important that we understand what the assumptions are about when our trading partners will join this sort of scheme. If everybody was in the scheme then the prices of all of these things would adjust across the world and everybody would be back on a level playing field. Of course, those industries that are more emissions intensive effectively have to adjust away, but at least every one of our competitors is on the same terms. However, under what I believe is a practical view of the world, where it will take a long time indeed to get other countries involved in this process, particularly our Asian trading partners, our world prices will remain basically on what modellers would call the reference case. We will not be able to pass on the cost of these things. That cost will be imposed on Australian exporters and those industries will become smaller as a consequence.

Senator JOYCE —They will not become smaller; they will disappear. One I have specific knowledge about involves people on extremely tight margins. That would be it; that would be ‘Good night, Irene,’ for them. I want to go back to the modelling assumption, which is one of full employment. That means that at the conclusion of the model you have to find everybody a job, because your assumption is that there is full employment. That is correct, isn’t it?

Dr Fisher —Strictly, the models are closed on the basis that employment is maintained at the natural rate, which means that there is some estimate of the—

Senator JOYCE —Two per cent, or whatever.

Dr Fisher —Or 4.6 per cent or something.

Senator JOYCE —Let us say we changed the model around and, instead of making it an assumption, made employment an outcome of the model. Is it possible to do that? Then we could feed empirically into that model exactly where we are right now and where the world is going at the moment. Would we have a different outcome?

Dr Fisher —Yes, we would have a different outcome. But that is a complex modelling issue that would take time. These models would need to be heavily adjusted to do that sort of work. As I said before, they are not built to deal with these adjustment type issues.

Senator HUTCHINS —On the basis of what Senator Joyce is talking about—the per head of sheep or cattle and all that—if we cannot pass that $35,000 in prices on to our competitors overseas but we still have a domestic market does that effectively mean that the price of a kilo of beef or lamb is going to have to go up to compensate for that $35,000?

Dr Fisher —Yes. Except that—

CHAIR —If they are imported—

Dr Fisher —Yes. As I said before, we are a small open economy which is basically subject to world prices. We export something of the order of 60 per cent of our beef, so effectively we are in a situation where the domestic beef prices are influenced by the international beef price. If we attempted to jack up domestic beef prices to recover this from domestic consumers then we would see imports. So, yes, you are some extent protected by quarantine and transport costs. But in the final analysis for most of our products we are seeing international prices reflected in the Australian economy, so we cannot pass these costs on. The only way that we are going to be able to see this thing adjust properly is if every one of our trading prices is subjecting themselves to a similar carbon price. It is my view that that is going to be a long time in coming.

Senator JOYCE —That is not going to happen. What is going to happen to western Queensland and the great grazing areas of our nation? What are we going to do with that asset? Will it just sit there idle? Do we somehow as a nation believe that we can go on as a country the size of Western Europe without the capacity to feed ourselves?

Dr Fisher —I am not sure that that necessarily would happen. But there are, as I said, some pretty serious adjustment issues that need to be dealt with here, because as far as I know the science is not available as we sit here today to reduce methane emissions from livestock. There is a lot of effort going into that process, not necessarily because of climate change but because when a sheep emits methane rather than turning that feed—

Senator JOYCE —Into mutton.

Dr Fisher —into meat or wool, then that is productivity lost to the farmer. So there is a lot of incentive to try and improve the feed conversion efficiency of livestock. But nobody has the answer. Effectively, in the case of agriculture, we have a serious measurement problem. Who is going to wander round in Western Queensland? Who is going to go to Hughendon and measure the methane emissions from a particular sheep on farmer X’s property? That is point 1. Point 2, what technical way do we have to reduce emissions other than to reduce output? At this stage, reducing output is all we have.

Senator JOYCE —That is an interesting question. I have posed that question to the Department of Climate Change, and they are coming in next. They have told us in evidence that they are only going to employ an extra 300 people. I asked who was going to do this assessment. They said ‘accountants’. I have a little bit of inside knowledge about accountants. I can assure you that I am not going to go wandering out to a farm and start counting people’s sheep. I work on the premise of them telling me how many they have got. They will ask, ‘What’s this about?’ When I say, ‘This is so you can get a bill in the mail and go out and buy permits,’ they will say: ‘Oh, that’s right: I’ve got five of them.’ How on earth are we going to do this unless we have little tin gods marauding the countryside asking people to run all their stock through the yard so that a head count can be done? They will be like the tax collectors of Roman times. They will be the most hated people on the face of the planet.

CHAIR —The point is well made, Senator Joyce. I want to look at two final areas.

Senator HUTCHINS —Is that what accountants are like now, is it?

CHAIR —Dr Fisher, the LNG industry puts forward the proposition that under a global scheme—if indeed there was indeed this utopian circumstance where there was a comprehensive global agreement in place—they would do very well as an industry and would prosper in Australia because of the contribution that they could make to reducing global greenhouse gas emissions through exports to China, Japan and other place. Under the domestic scheme that Australia has currently proposed, in the absence of a comprehensive global agreement it will be much harder for them to expand and make that contribution for the world. Would you care to comment on that?

Dr Fisher —Which industry is this?

CHAIR —The LNG industry.

Dr Fisher —That is correct. Basically, if you think about the capital cost associated with building an LNG plant, we are talking about perhaps $10 and often $20 billion. These are not small amounts of money. You need to be able to see a reasonable rate of return before you are going to commit yourself to that sort of investment. The margins on these projects are reasonably fine. So, if you have a situation where there is another cost imposed on you in a particular country that is not imposed elsewhere, then the profitability of that project has to be able to stand that cost. The LNG industry has argued quite accurately that the cost potentially here are quite large and, at the margin, would cause some of these projects to either not be done or to move elsewhere. If they move elsewhere, you still might have reductions in emissions associated with burning LNG rather than coal. But it means that we as Australians lose that industry, lose that employment, lose those construction jobs and so on.

CHAIR —But if we have an industry that can both contribute to our economic strength and provide additional jobs as well as help address the problem of greenhouse gas emissions in the world, don’t we have a responsibility to ensure that the policy settings do everything that they can to ensure that that industry can prosper and develop?

Dr Fisher —To a point, that is correct. But at the same time we need to make sure that we do not distort investment in the Australian economy in a way that reduces the overall welfare of Australians as a consequence. We have to be very careful that we do not—

CHAIR —Where is the right balance? Essentially, from the green paper to the white paper there has been some recognition of this. The government has gone from nothing to 60 per cent free permits. The LNG industry has been arguing before this committee that given that they would do well under a global scheme the Australian scheme should work on the assumption that there is no global scheme and give them 100 per cent permits until such time as there is one. What is your comment on that?

Dr Fisher —My comment is basically if it is good for the goose, it is good for the gander in the sense that if one industry is going to get 100 per cent free permits then every industry should get 100 per cent free permits.

CHAIR —Every trade exposed industry.

Dr Fisher —Exactly. Because, if you are not careful, you basically distort investment in the Australian economy to the detriment of the Australians. So I think we have to be careful.

CHAIR —That is a fair point. So what is your view on the proposition that there should be 100 per cent free permits for energy intensive trade exposed industries?

Dr Fisher —I think basically what you should do is either cap the price at a very low number until we see engagement around the world by our main trading partners or administratively allocate 100 per cent of the permits to those exposed industries.

CHAIR —BlueScope Steel yesterday put to us a proposition that, while the headline figure is 90 per cent free permits, because it does not apply to their whole operation but only to parts of it, in effect, it is only 63 to 64 per cent free permits. Have you come across that argument?

Dr Fisher —Yes, I think that is correct and I think the steel industry will be under severe pressure as a consequence of the implementation of this scheme in its current form.

CHAIR —Because the Treasury modelling assumed that it was 90 per cent across the board, did it not?

Dr Fisher —I believe that is correct. But the steel industry consists of a series of components and, depending on which firm you are talking about, they have different mixes of blast furnaces and electric arc furnaces.

CHAIR —Sure; it is different on a case-by-case basis. But to have an overall, across-the-board assumption that 90 per cent equals 90 per cent across the steel industry is an overly generous assumption to make, is it not?

Dr Fisher —That is correct.

CHAIR —Finally, in relation to the global financial crisis, as it is called, the OECD made a statement a few days ago that the world economy will shrink by 2.75 per cent this year and that, across the 30 industrialised countries it tracks, there will be a slump of 4.3 per cent, which is essentially a turnaround of more than six or seven per cent given that the previous assumption was economic growth of three to four per cent. That is a pretty significant turnaround, is it not, in economic terms?

Dr Fisher —If this comes to pass and if we see the sort of contraction that people are talking about in the global economy in this calendar year, then basically I do not think too many people living have seen a set of circumstances like that. We are in an entirely different world now. This is not like the 1929 Depression. We are globally integrated and this problem is cascading everywhere, effectively.

CHAIR —So it is no longer part of the cyclical economic ups and downs, business-as-usual nature of things, is it?

Dr Fisher —No, you could not call this part of a normal business cycle.

CHAIR —This is like a one-off, unique economic event, is it not?

Dr Fisher —I think that is correct.

CHAIR —Given that, don’t you think the government should be having another look at what it is proposing to do and the impact it is going to have in terms of additional pressure on the economy and jobs?

Dr Fisher —Yes. I think extreme care needs to be taken and that is one of the reasons why I said previously that, if this scheme is going to be introduced on the current government’s timetable, then one option would be to cap the price at, say, $5 a tonne for a significant amount of time. I think there are good arguments for doing something like that. I think that we are going to have, at some point in time, an emissions trading scheme in the in Australian economy.

CHAIR —We want to have the right one.

Dr Fisher —Yes. You do want to have the right one. Inevitably, as I also said before, this is the most complex piece of legislation and set of changes that have been proposed for the Australian economy probably ever, and we are trying to do it within a very short time frame. With the best will in the world, there will be mistakes, but at the same time, if we are going to have one of these things in the future, you should give industry the chance of having what you might call a practice run. Also, the regulators need a practice run. You cannot do much harm—I do not think you can do much harm—

CHAIR —Europe had a practice run, did it not?

Dr Fisher —Yes, it did.

CHAIR —Thank you very much for your contribution to the committee, Dr Fisher. The committee will now suspend for a private meeting.

Proceedings suspended from 12.49 pm to 1.33 pm