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

CHAIR —Welcome. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about how and when policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for the claim. I invite you to make a brief opening statement, and then the committee will ask you some questions.

Mr Sterland —I thought that, since the main event that has happened in recent times has been the release of the exposure draft, it might be worth giving a bit of an explanation of that.

CHAIR —The committee thought the main event was the refusal of the government to release modelling information. In any event, go for it.

Mr Sterland —I just wanted to outline the legislation, which has been out since 10 March. It sets out in detail what is required of participants in the scheme and the mechanics of the scheme to ensure Australian emissions targets are achieved. The exposure draft reflects the policy positions that the government outlined in the white paper and provides a bit of further detail in some areas of how that policy will be implemented.

The legislation consists of six bills. The Carbon Pollution Reduction Scheme Bill is the main bill and includes all the key provisions. The Carbon Pollution Reduction Scheme (Consequential Amendments) Bill provides for amendments to existing legislation, particularly the National Greenhouse and Energy Reporting Act and taxation legislation, to accommodate the new scheme. The Australian Climate Change Regulatory Authority Bill provides for a new regulatory body to implement the Carbon Pollution Reduction Scheme, the renewable energy target and the National Greenhouse and Energy Reporting System. Three charges bills provide for charges to be imposed for the auction of Australian emission units or for the issue of units at fixed charge in the event that these are considered to be taxes for constitutional purposes. The Commonwealth does not consider these charges to be taxes and has taken an approach of abundant caution in case a court reaches a different view on these questions at some time in the future.

The objects of the main bill are to give effect to Australia’s international climate change obligations, to support the development of an effective global response to climate change and to take action directed towards meeting Australia’s target of reducing emissions to 60 per cent below 2000 levels by 2050 and to between five and 15 per cent below 2000 levels by 2020. Under the bill, for each tonne of greenhouse gases emitted to the atmosphere, liable entities will need to surrender an emissions unit to the authority after the end of each financial year. This puts a price on carbon, which is estimated by Treasury modelling to be around $25 in the initial years of the scheme. The liable entities and emissions for which they are responsible are detailed in part 3 of the bill. Liable entities have a number of responsibilities, including registering under the National Greenhouse and Energy Reporting Act, calculating their liability under the scheme, submitting emissions reports, surrendering eligible emissions units to acquit their responsibilities, keeping records and arranging for audit.

Part 2 sets out the arrangements for national scheme caps and national scheme gateways. Detailed scheme caps will be specified in regulations for at least five years, and the government intends to announce up to 10 years of gateways beyond the minimum five years announced at the commencement of the scheme. Initially there are going to be two types of eligible emissions units—Australian emission units and certain units created under the Kyoto protocol. The use of Kyoto units provides linking with the international carbon market existing under the Kyoto protocol. The nature of emissions units and the rules for their issue are set out in part 4 of the bill.

Part 8 of the bill will establish the emissions intensive trade exposed assistance program to provide an administrative allocation of Australian emissions units to EITE activities. The objective of this assistance is to reduce the likelihood of carbon leakage and provide transitional support to those activities. The operational details of this program will be contained in regulations, consistent with the government policy in the white paper. The government is currently collecting a range of audit information to determine which activities in the economy would be eligible under the program and to determine allocated baselines.

Part 9 of the bill provides for the allocation of a limited amount of assistance, up to 130.7 Australian million emissions units over a five-year period amongst eligible coal-fired-electricity generators. To create an incentive for reforestation, free Australian emissions will be issued for net greenhouse gas removals that occur after the scheme starts in that sector.

A high level of transparency is provided in the bill through the publication of information. This ensures that markets have access to critical information on which to base investment decisions and enhance accountability. Part 25 of the bill provides for periodic independent public reviews by an expert advisory committee to enhance transparency and community input in the implementation of the scheme. Finally, to ensure that the environmental objectives of the scheme are met, the bill provides for a range of enforcement provisions, including inspection and information-gathering powers for the authority and administrative and civil penalties. Some criminal penalties are also applied in cases where a high level of culpability or undesirable conduct such as fraud is involved. I wanted to quickly outline that. The bill essentially puts into legislative detail the policy positions in the white paper. It is out for consultation now and then we will be considering those contributions.

CHAIR —How many pages are in your bill?

Mr Sterland —In the bill itself? There are 374.

CHAIR —And what are all these other books?

Mr Sterland —They are the reports that have been contributing to where we have got to in the current emissions trading—a selection of them, in fact—

Senator JOYCE —A subset.

Mr Sterland —A subset.

CHAIR —That is a subset, a selection. It is a pretty complex piece of work, is it not?

Mr Sterland —It is comprehensive.

CHAIR —Do you think that Australians understand the ins and outs of this?

Mr Sterland —It would not be good for me to speculate on that.

Senator HUTCHINS —I am not sure Mr Sterland can answer that.

CHAIR —Okay. You have now kept me in touch. Back to the opening question: what is the global carbon emissions reduction target from the proposed Australian scheme?

Mr Sterland —Sorry, could you explain?

CHAIR —I will ask the question again: what is the global carbon emissions reduction target from the proposed Australian scheme?

Mr Sterland —You mean the contribution of the scheme to global reductions?

CHAIR —Have you set a target in terms of what it is that—

Mr Sterland —The government has set a target for national emissions.

CHAIR —The government has set a target in terms of domestic emissions, but have you set a target in terms of what this reduction in national emissions should contribute to the reduction in global greenhouse gas emissions?

Mr Sterland —No. That is not set in the paper.

CHAIR —There was an intention to address the challenge of global warming. That is how it all started, is it not?

Mr Sterland —Yes. The policy rationale is that Australia will set a national target and it seeks to contribute to global efforts to reduce emissions through its national commitments.

CHAIR —But we do not actually have a target as to how much, through our contribution, we want to reduce global greenhouse gas emissions?

Mr Sterland —I think the Australian government, consistent with international practice, sets its target in terms of its national emissions reduction.

CHAIR —By how much do you expect global greenhouse gas emissions to reduce? What will be the net beneficial effect of the Australian scheme in terms of reducing global greenhouse gas emissions?

Mr Sterland —The overwhelming majority of what the national target is, I would expect to translate into global emissions reductions.

CHAIR —You would expect to, but you do not have a target against which we can measure the performance of the scheme?

Mr Sterland —We do not have a target, but there is a considerable body of evidence. I will leave it for Ms Quinn to talk about the results of Treasury modelling, but this was addressed in the Shergold report that was prepared under the previous government and various estimates of any potential international offsets or leakage have been presented in the modelling over several years.

CHAIR —But the environmental challenge is not to reduce emissions in Australia as much as to reduce emissions around the world, is it not?

Mr Sterland —Exactly, and the more significant issue is how Australia’s national efforts can contribute to the creation or the development of or be part of a global solution to this. Everyone has always recognised that that is the main game.

CHAIR —And that is politics, but I am asking you about the facts and figures. You are going to tell me that we have to take the leadership around the world and that what we do here is going to influence other countries to do the same and then, because others will do the same as what we do, that is going to have the flow-on effect that the government is seeking. But I am asking you very specifically about the Australian scheme, which purports to try and address the challenge of global warming. What is it going to do—and I am asking for facts and figures—in terms of reducing global greenhouse gas emissions? Has anybody modelled the net effect on global greenhouse gas emissions from the Australian scheme?

Mr Sterland —There has been modelling. I will pass over to Ms Quinn.

Ms Quinn —I just draw your attention to table 6.4 in the Australian government’s report produced by Treasury and other consultants entitled Australia’s low pollution future: the economics of climate change mitigation. In table 6.4 there are some estimates on how much emissions will be reduced within Australia as a result of a different targets and trajectories examined. Depending on what the Australian target or trajectory is, there would be a different level of abatement taking place within Australia and internationally.

CHAIR —Hang on, sorry. You said ‘within Australia’; what is the reduction internationally?

Ms Quinn —Chapter 6 looks at the domestic circumstances and chapter 5 looks at the international circumstances. Through both those chapters you can get a sense for how much abatement would be happening within Australia and around the world. The important thing here is that the analysis has been done in the context of an environmental objective and that in order to have an environmental objective you need to think about the link between emissions and the concentration of emissions in the world and then the consequential possibility of increases in temperature. So in the analysis done for the Garnaut review the Australian government was looking at the environmental objective of stabilising greenhouse gas concentrations between 450 and 550 parts per million.

CHAIR —In Australia?

Ms Quinn —In the world. Australia is part of the world, but the issue is that it is a global question, so you have to think about the environmental objectives of the world.

CHAIR —I do think about the global objectives of the world, but so for I still have not heard anybody say—neither of you to have been able to tell me—what the environmental objective is, in terms of looking at it as a global issue, of the Australian scheme.

Ms Quinn —In the white paper the government set out that the overall environmental objective for Australia is that it would be in Australia’s interests to have global emissions of 450 parts per million or lower. That was the global statement—

CHAIR —Okay—so that is the objectives. How does this scheme contribute to achieving that objective? What is the net effect of this scheme globally in terms of getting close to that 450 parts per million?

Ms Quinn —I do not have the precise number, but I could work it out from the numbers—

CHAIR —You said you could get a sense of it.

Ms Quinn —Yes. You can work it out from the numbers in chapter 5 and chapter 6 in terms of looking at the amount of abatement happening globally, the contribution that Australian abatement—

CHAIR —Please take it on notice because I do not want to waste too much time. What I am very specifically looking for is: without assuming what other countries may or may not do, what will be the net beneficial effect on of the Australian scheme in reducing global greenhouse gas emissions, taking into account assumptions for carbon leakage et cetera? That is what I am looking for.

Ms Quinn —For the CPRS minus five scenario it would be approximately 190 million tonnes of abatement by 2020.

CHAIR —So the net effect of a reduction in global emissions is going to be minus—

Ms Quinn —Around 190 million tonnes.

CHAIR —Thank you. That is what—

Ms Quinn —That is by 2020. That is in table 6.4 of the report.

CHAIR —But you are saying that is a reduction of emissions in Australia.

Ms Quinn —That is right.

CHAIR —That is not the reduction of emissions globally, because you are not including any increases because of jobs being exported into more polluting countries. You are not making any allowance for a whole range of things that are—

Ms Quinn —The modelling that was undertaken by the Australian Treasury found very little evidence of emissions going up in other countries as a result of abatement in Australia.

CHAIR —Of emissions going up overseas?

Ms Quinn —That is right.

CHAIR —That is one of your assumptions, is it?

Ms Quinn —No. That is one of the results of the modelling.

CHAIR —Let us go to the modelling for a moment, because all of the key information that is required for us to be able to assess the credibility of it is of course being kept secret by the government. This committee and the Senate have made significant efforts to get hold of information that we believe is required in the public interest in order to properly scrutinise the impact in terms of emissions, the economy, jobs, energy security and a range of other things. Why is modelling information still being kept secret?

Ms Quinn —I draw your attention to the information that is available from the modelling exercise undertaken by Treasury and other external consultants. My understanding is that it is the most comprehensive documentation available in Australia and comparable exercises. We have published comprehensive background consulting reports on the internet. All the underlying data that is contained in the report is available on the webpage, including all the data underlying all the charts. So there is a comprehensive set of information. It is more comprehensive than other publicly available information on comparable modelling in Australia or overseas. So it is not fair to say that there is not comprehensive information available in the public domain for you to look at.

CHAIR —With all due respect, you are showing us a locked door and you are not giving us the key. That is essentially what is happening. I will just ask you a series of questions.

Senator HUTCHINS —Chair, in all honesty, the officials here are not in a position to answer for the government.

CHAIR —The officials are free to refer any issue to the minister, if that is what they choose to do. Very specifically, what is going to be the impact on jobs on a region-by-region basis under the CPRS’s minus five and minus 15 scenarios?

Ms Quinn —The analysis that was undertaken for the report looked down to the state level but did not do a region-by-region analysis below the state level.

CHAIR —You did not do any region-by-region analysis?

Ms Quinn —No.

CHAIR —Are you aware that Frontier Economics did some region-by-region analysis on behalf of the New South Wales government?

Ms Quinn —I have seen reports of that modelling, yes.

CHAIR —Have you seen the results of that modelling?

Ms Quinn —I have seen the reported results, yes.

Senator JOYCE —Can I ask one question on that? If you did it state by state, can you tell me which state is the worst affected by reason of job loss under the ETS?

Ms Quinn —The distribution across the states depends on the emissions intensity of the different states. On page 161 there is a chart that shows the impact on growth state product by states. Under the CPRS minus five scenario and the Garnaut minus 25 scenario—so both different assumptions and scenarios—Queensland is the most affected state of Australia, with South Australia being the least affected state.

Senator JOYCE —Queensland is the most affected—thank you.

CHAIR —So are you aware of the Frontier Economics report?

Ms Quinn —Yes.

CHAIR —The end result of that modelling, which is based on the same information and models that you have used, using the same people that you have used apparently, is that regional areas are going to be the hardest hit and that regional economies will contract by 20 to 25 per cent compared to the reference scenario.

Ms Quinn —There are some issues about using simplistic reporting measures of regions. The MMRF model that was used by Frontier Economics and has been developed by the centre of policy studies at Monash University does not have a comprehensive analysis at a regional level. It does not allow for abatement opportunities at a regional level. It does not allow for adjustments between capital and labour at a regional level. It does not actually do any modelling at a regional level. It simply reports on the basis of simplistic, historical relationship results for regions. So Treasury did not consider that analysis to be robust enough to actually use in a modelling exercise.

CHAIR —Even if it is not robust enough, it gives a prima facie case that regional areas are going to be pretty hardly hit, does it not? Has the government asked you to conduct any modelling as a result of the issues raised of the impact of the proposed CPRS on regional areas so that you can do a better job of it?

Ms Quinn —Unfortunately, there are no tools available for us to easily model regional implications. There is very little data. There is very little analysis at a regional level in terms of the distribution of technologies. It is true that some parts of the economy—

CHAIR —I invite you to review the evidence this morning that was put to us by Frontier Economics, who explained very clearly how it can be done.

Ms Quinn —And I would restate my previous comment that the Australian Treasury did not consider the regional reporting in the MMRF model to be of a robust nature and, therefore, we did not judge that it would be in the public interest for that information to be provided, that the underlying economic modelling is not done at a regional basis in the MMRF model. It is simply a reporting metric based on very simple assumptions and they are a very, very broad brush. They do not take account of all of the things that we know are important for thinking about the economic costs of mitigation.

CHAIR —But when you say it is not in the public interest, this committee was in Wollongong yesterday and we were told that up to 20,000 jobs in one industry alone, the steel industry, are likely to go as a result of this CPRS being implemented. Don’t you think it is in the public interest to assess the impact on those?

Ms Quinn —My understanding is that the entire workforce of BlueScope and OneSteel is 20,000 employees. If you are saying 20,000 employees, that means that there will be no steel produced in Australia.

CHAIR —That is right, that is exactly what they were saying. They were saying that if this goes ahead, unamended, in its current form, then BlueScope Steel at Port Kembla would close down. That is a real prospect. That is exactly what they said to us yesterday.

Mr Sterland —Did they attribute it that way? I am wondering about the variety of impacts on them, including the global financial crisis.

CHAIR —I will give you that. I am pleased you brought the global financial crisis up, because that was not considered as part of your Treasury modelling either. They absolutely stated that they are already under a lot of pressure given the current economic circumstances and that the additional impost of a Carbon Pollution Reduction Scheme, as proposed in the current economic environment, is what will lead them to potentially having to close their doors and 20,000 people being without a job. So it raises a whole heap of questions: why are you not modelling the impacts on regional communities? Why are you not modelling the impact of the global financial crisis? It would seem to me to be common sense, and very much in the public interest.

Ms Quinn —Can I just restate that I did not say that it would not be in the public interest for analysis to be undertaken on the CPRS. It obviously is in the public interest—

CHAIR —On regional areas?

Ms Quinn —which is why we undertook the most comprehensive exercise, looking at the—

CHAIR —Excluding regional areas?

Ms Quinn —range of tools available in Australia. What I did say is that it was our judgement that it would not be in the public interest to put spurious modelling results in the public domain and that we rigorously assess the available tools available in the Australian context. We examined the models, we examined their deficiencies and we took steps where it was possible to improve the veracity of the models, to improve the underlying data sets, to improve the economic behaviour. We linked the models together from particular global, national and state—a bottom-up analysis—sectors in the most comprehensive exercise undertaken in Australian and international environments. In that space, we made sure that the analysis that we felt was rigorous and robust, was able to be put in the public domain. We do not believe that spurious modelling results that are not backed up by analysis necessarily help the debate at all.

CHAIR —Okay, on that point: you do not think it is in the public interest to put spurious modelling information into the public domain. We have been told that the Treasury modelling assumes full employment, among a range of other assumptions. Don’t you think that is a bit spurious?

Ms Quinn —The Treasury analysis used three economic models for understanding the implications of emission pricing in Australia. Those different models have different assumptions about how they deal with transition issues, including in the labour market. One model is the GTEM, which is the global economic model, which is an equilibrium model that assumes that capital and labour markets adjust quickly at any point in time. In that sense, it is a model of the post-transitional environment for examining emission pricing on an economy. The MMRF model, which is a model based around the Australian industrial sectors, assumes transition adjustments over time. It assumes it takes five years for labour to adjust over time and takes seven years for capital to adjust over time. That model is then calibrated on the basis of the understanding of the transition adjustment methods in Australia in the past. We also made assumptions about transition for investment opportunities and abatement technologies. The G-cubed model, which was used, allows for transitions through capital adjustment costs, time for capital and labour to move between sectors, time for labour to readjust.

It is not true to say that all the models used by the Australian Treasury assumed full employment in the short run. All of the models assumed full employment in the long run. All macroeconomic models typically assume that eventually, over time, in response to an economic shock, that real wages will adjust and employment will then return to the long-run natural rate. That is a commonly held assumption in all macro models, whether it is to examine for emission pricing or anything else. Two of the models we used did allow for adjustments in the short run, the possibility for it to take time for employment to move from one sector to another.

CHAIR —Is it not true to say that the results you have presented to the Australian people on the estimated impact of the minus five and minus 15 scenario is based on an assumption of full employment and is based on an assumption, for example, that the steel industry will benefit from 90 per cent permits across the board? Is it based on an assumption that there is going to be an immediate adjustment, when in practice that is not going to be the case?

Ms Quinn —Can I take one question at a time rather than get 10 and try to remember them all?

CHAIR —Yes.

Ms Quinn —The first question: as I said, there are three models of the aggregate economic implications. All of those models, in the long run, assume that real wages adjust such that employment returns to a natural rate of employment.

CHAIR —When you say ‘adjust’, goes down or stays lower than what it would have been otherwise?

Ms Quinn —The real wages move between sectors—

CHAIR —Move down.

Ms Quinn —and move in an aggregate sense such that employment is adjusted. So in some cases real wages go up in some sectors and go down in other sectors, depending on what is happening in the underlying demand and supply in the different sectors. Two of them do assume that there is transition.

Senator HUTCHINS —Can I just interrupt you there, Ms Quinn, on that difference between the sectors. We have had people tell us about green jobs and that sort of thing. Does your model assume that you would go from highly paid steel industry jobs to less than highly paid green industry jobs, or something like that? Is that in your scenario?

Ms Quinn —It is not an assumption; it is a result of the modelling. What happens is there is a transition between sectors, so putting a price on emissions will shift the demand profile in the Australian economy with demand for low emission goods over high emission goods. And so shifting between sectors means that as demand moves, you would also expect the productive capacity of the economy—which is both investment and jobs, employment—to move from one sector to another over time, so you would see people moving back and forth. Whether they are moving into lower value or higher value wages, it would depend on particular industry structures. There are obviously jobs in the economy that receive much higher income than those in the steel industry, so it would depend exactly on where people moved.

Senator HUTCHINS —I just want to follow up on what the chairman said. We had before us yesterday Mr Cornish, the general manager of BlueScope, and Mr Thomas. They were very clear to us that they employed 4,700 people directly and they believed that something between 12,000 and 16,000 people were indirectly employed from that. If you look at Wollongong, it has a higher than average unemployment rate as it is now, and youth unemployment would be higher than a number of other places. They said unequivocally that by July 2010 they will be the only steel industry on earth that will have this additional tax payment put on them. On the basis of that, they did not give us the indication that those jobs were under the microscope.

Ms Quinn —At the moment, the steel industry in the European Union is paying higher electricity prices as a result of carbon pricing in the European Union. So to the extent that electricity is a significant input into the production of steel, then the European steel industry has been operating under a carbon impost for a number of years now. There are other policy mechanisms that place in other parts—

CHAIR —With the free permits exceeding the number of emissions, actually.

Ms Quinn —The carbon price has ranged, but has been up to €30, and that has resulted in higher electricity prices in the European Union. So all of those industries that use electricity in the European Union, such as the aluminium industry, the steel industry, and other electricity intensive users, have been paying a carbon impost over the last number of years. The International Energy Agency undertook a study about the implications of emissions pricing in Europe to discover whether that carbon impost in industries that are outside the free allocation of permits were significantly affected by the carbon price. The International Energy Agency report suggested that there had been very little impact on leakage concerns or changes in production as a result of the higher electricity prices. That report is available and I am more than happy to send you a copy.

CHAIR —You said that there are going to be transitions from one category of job to another. In your modelling did you assume what the social transition costs will be? Presumably, it will involve people moving out of the Illawarra to other parts of Australia.

Ms Quinn —One of the issues is that you need to think about this in the context of a growing economy.

CHAIR —So you have not.

Ms Quinn —If you let me finish my answer.

CHAIR —We have had evidence that you have not.

Ms Quinn —It is not the case that the same job needs to move from others. We are looking at a reference scenario in which the number of jobs in Australia over time in the reference scenario, without emissions pricing, goes along a particular path. If you put a price on emissions then it goes along a different path. It is not that the jobs of today move from one sector to the other. The jobs of the future, instead of being in an emissions intensive industry, move into a lower emissions intensive industry. So it is not—

CHAIR —If we lose an additional 20,000 jobs in the Illawarra region, where we were yesterday, where are these people going to go? If we are going to lose jobs in Mackay and Gladstone, where are they going to go?

Mr Sterland —That is a hypothetical question.

CHAIR —It is not a hypothetical question. We are getting evidence that this is going to be a consequence of a government policy that we are currently considering. If that is going to be the consequence and people are going to lose their jobs, where are they going to go?

Mr Sterland —To step back, the government receives the same sort of evidence, but when it is developing policy a government also needs to step back and do comprehensive empirical work to work out what the aggregate effect is. Sometimes individual firms have an estimate of their own effect and in our experience, typically, it is due to a range of factors, so it is not simply identifying the scheme itself. The government commissioned the Treasury modelling work to try to get an assessment of the economy-wide impact, and even the industry-wide impact. It found that the major sectors grew over time. So it is the premise of the question that I am—

CHAIR —If you are confident of that why would you not release the information to enable all of us to have a look at it so that we can reassure ourselves of the impact on a region by region basis and on a—

Senator HUTCHINS —Mr Chairman, that is a government decision; it is not something—

Mr Sterland —I just want to point out that some of the issues you raise can be thought of as being regional issues but they are also about the impact on specific industries. There is an enormous amount of detail on the public record on specific industry impacts and it shows that even for some quite emissions intensive industries the assistance package that was modelled in the green paper package, which was then changed in the white paper to provide more transitional assistance to these industries, showed that even quite emissions intensive sectors did not move away sharply from the reference case.

Senator JOYCE —We seem to be coming up against each other with prepared bits, so for the purpose of getting things on Hansard, please excuse the repetition of some questions.

Mr Sterland —And please excuse the repetition of some answers!

Senator JOYCE —When does this scheme start?

Mr Sterland —In 2010.

Senator JOYCE —How much money will you collect in that year?

Mr Sterland —The budget figures are in the white paper. The potential permit revenue, which is a different thing from how much you will actually collect, grows to around $12 billion—it is $11.5 billion in the first year.

Senator JOYCE —You will be collecting $11.5 billion in the first year. How much will you be collecting in the second year?

Mr Sterland —Sorry, when I say ‘collect’, that is the potential amount of permit revenue available. The government actually auctions a portion of those and so would be collecting closer to $6½ billion or $7 billion.

Senator JOYCE —You will be collecting $6½ to $7 billion. How much will you be collecting in the second year?

Mr Sterland —Around $8 billion.

Senator JOYCE —How much will we collect in the third year?

Mr Sterland —That is not on the public record. That will be a matter for the budget processes to update them. This is based on a set of Treasury modelling. The assumed prices were in the original white paper.

Senator JOYCE —And the reason we are not collecting $12 billion is that some of these permits free permits at the start.

Mr Sterland —That is correct.

Senator JOYCE —But when they are not free, will be collecting approximately $12 billion?

Mr Sterland —If they were not free, if we were auctioning 100 per cent—

Senator JOYCE —Yes.

Mr Sterland —It is a hypothetical question, but—

Senator JOYCE —Everything about this is hypothetical. I am trying to make the whole scheme hypothetical. How much to pay out in the first year?

Mr Sterland —In 2010-11—in terms of cash payments?

Senator JOYCE —Yes.

Mr Sterland —The package of assistance to low- and middle-income earners is $3.9 billion in that year. Payout is a bit different. In the fuel tax adjustment, that is obviously reducing another head of taxation.

Senator JOYCE —But how much cash is going out the door—$3.9 billion?

Mr Sterland —There is $3.9 billion for households and $2.4 billion in terms of adjustment to the fuel tax arrangements. Broadly it is budget neutral across those years. In relation to what is being collected, the government made a commitment that every cent would be spent on helping households and businesses to adjust.

Senator JOYCE —But at this point in time it is not in the legislation that they have to pay any of that out, is it?

Mr Sterland —As always, the parliament has to appropriate funds, but in this case almost all of this would be in other pieces of legislation—not this legislation but other pieces of legislation that would be passed alongside it.

Senator JOYCE The —So what they pay out at this point is definitely hypothetical, because there is no legislation determining what they have to pay out?

Mr Sterland —It will not be hypothetical when this is law. Everything except the funding, which is significant over a run of years, for the Climate Change Action Fund—over $2 billion. All the other pieces, as far as I can see, either are free administratively allocated permits set out in this legislation or will be in other pieces of legislation. The other amount will be appropriated consistent with all government spending.

Senator JOYCE —There has been no further modelling taking into account current economic circumstances, has there?

Mr Sterland —I will pass that to Ms Quinn.

Ms Quinn —There is no further modelling in the public domain, no.

Senator JOYCE —‘In the public domain’? How about in the private domain?

CHAIR —Just on a point, we put a question on notice about this at the last hearing. I will just remind you. It was: ‘Have you done any work to assess how the global financial crisis might impact on the enthusiasm of other nations to become part of early adoption’—et cetera, et cetera. You took that on notice. The answer you came back with was:

The department has provided advice to government on the possible impact of the global financial crisis on international climate change policy responses as part of its policy advice to government.

So you have provided advice to government about the impact of the global—

Mr Sterland —That was my Department of Climate Change question?

CHAIR —I suspect that is right, yes. Have you provided advice to government about the impact of the global financial crisis on the emissions trading scheme, as it is proposed?

Mr Sterland —That is a very specific question, which is different.

CHAIR —Have you provide a general advice, just following up on the Senator Joyce’s question?

Mr Sterland —On the general question, that question asked about the willingness of international—

CHAIR —players to become part, given the global financial crisis.

Mr Sterland —As part of our advice to government on global Australia’s global position, we would provide advice on that as a matter of course—on the full range of factors.

CHAIR —So you have provided advice on that? What was that advice?

Mr Sterland —I think you know I cannot answer what the advice was.

CHAIR —I do not know, and I insist on an answer. If you do not want to provide the answer, I ask you to refer it to your minister for an explanation by the minister as to why it is not in the public interest for you to provide that answer. I will refer you to official government guidelines which, as you know—

Mr Sterland —I will take that on notice.

CHAIR —Thank you.

Mr Sterland —In response to that, even looking at that question, it is an evolving thing. If you would have asked me some time ago around what the impact in the US may have been on US thinking, I would have thought that there was quite a negative impact. The thing that has been quite a characteristic of the Obama administration is how central this has been to their whole policy agenda. So it is one of those things—

CHAIR —The rhetoric has been there. Have you seen anything tangible?

Mr Sterland —Inclusion of permit revenue in an administration budget proposal and extremely active consideration of emissions trading and other policies in congress is fairly tangible.

CHAIR —But through a private member’s bill. Senator Joyce.

Mr Sterland —And the stimulus package there obviously included an enormous amount.

Senator JOYCE —From reading the internet as you speak, I dare say that those ideas are quickly fading. It is all fantastic fluff all this stuff. You have the most analysed piece of legislation, of which you are holding a subset on your table, of my political life and probably that of everybody sitting here. If I am a fitter and turner in Mackay and my job is lost, where do I go for a green job?

Mr Sterland —Are you making an assumption that the job lost is attributable to the scheme?

Senator JOYCE —I am making an assumption that fugitive emissions makes the coalmine untenable, that therefore certain mines could close down. I am making an assumption that the electricity price in certain areas will force such things as the aluminium industry to develop overseas rather than in Australia. I am making an assumption that my forward prospects as a contractor reliant on an expanding economy are mitigated, in some instances destroyed. I am now making an assumption that I am out of work, because this whole thing is assumptions. I want to know in your assumptions where I am off to?

Mr Sterland —I do not want to respond to hypothetical cases. All I can say—

CHAIR —Your whole modelling is a hypothetical case.

Mr Sterland —No, all I can say is that the government has introduced a range of policies to assist the transition of current emissions intensive industries. So I would not accept the premise of the question.

Senator JOYCE —I will be more direct: where are the green jobs?

Mr Sterland —In an area like this there are some sectors—and the modelling outlines a lot of industry detail, which Ms Quinn can speak to—that grow quite considerably. There are obvious areas like the production of renewable energy and other things. In the nature of these things, particularly because the government policy institutes a broad and gradual transition of the time, the new jobs, as you say, in orienting that growth towards new jobs, is diffuse across a range of sectors. There are a lot of reactions across the economy. It is sometimes very difficult to point to just an industry. What it means that industries throughout the economy transform in a low-emissions direction. Some grow faster than others.

Senator JOYCE —It is very hypothetical whether there are any green jobs, isn’t it?

Ms Quinn —There certainly are jobs in the electricity generation sector that will be necessary—

CHAIR —Why are you prepared to commit on the things that are supporting your case, even if it is hypothetical, and not prepared to commit on the things that are not beneficial?

Ms Quinn —If you let me finish, I can draw your attention to table 6.12 in the modelling report which shows the employment shares in the reference case versus the different scenarios.

Senator JOYCE —Where are these green jobs?

Ms Quinn —Sectors that increase the share of employment are forestry, other electricity generation, other manufacturing, trade services and other food. They are the industries that go up. There are a series of industries where the employment shares go down.

Senator JOYCE —I am just going to interrupt you there, Ms Quinn, because you are not precisely answering my question. I will tell you where the jobs are going to be lost. I will be specific. They are going to be lost in Wollongong, Gladstone, Mackay, Emerald and Townsville. I want to know where these green jobs are going to be to replace them. Name me an area. Say they are going to be in Cunnamulla.

Ms Quinn —Unfortunately, I cannot say with any certainty that jobs will be lost in any of those regions—

Senator JOYCE —I can.

Ms Quinn —I cannot. I cannot answer that. I do not have verifiable data. As a Treasury official before you I am only able to advise you on the information that I have. I do not have that data.

Senator JOYCE —What I am getting to is that this model, which analyses this piece of legislation and which is said to be all marvellous, is quite porous. In fact, it lacks the capacity to tell us of the effects. It is a model that cannot give you the effects, because it cannot—

Ms Quinn —This is the most comprehensive modelling exercise ever undertaken in the Australian Treasury.

Senator JOYCE —I know. And we are proving right now that it has a complete paucity of detail of the effects.

Mr Sterland —The modelling includes considerable industry level detail. Ms Quinn just has a chart on the table which was to do with the aluminium sector. That would cause me not to take the premise of your previous question as being—

Senator JOYCE —Do you think that the aluminium sector, under the current guidelines, will not be affected under your model?

Mr Sterland —There are effects on the aluminium sector—no doubt about that.

Senator JOYCE —It will be put up the costs of producing aluminium.

Ms Quinn —If you look at box 6.7 on page 170 of the report, it shows aluminium output under the economic modelling undertaken by the Australian Treasury. It shows in the reference case scenario the aluminium industry growing through time. It suggests that—

Senator JOYCE —Growing through time?

Ms Quinn —Yes. That is what the underlying model suggests.

Senator JOYCE —Why? Why on earth would I invest in an aluminium industry in Australia if I can move it to Indonesia and not have to pay for an emissions trading scheme?

Ms Quinn —If you let me continue, this is in the reference scenario over time. It says that in the absence of emission pricing the aluminium industry will grow.

Senator JOYCE —You know why—

Ms Quinn —Then with carbon pricing, but assuming that the allocation of free permits under the emissions intensive trade exposed assistance, there will be some reduction in aluminium production relative to the reference scenario. But aluminium production would be higher in Australia relative to today.

Senator JOYCE —This is all a load of rubbish, because your assumption is one of full employment. We are categorically and without a shadow of a doubt, unless you are living under a rock in Bolivia, now in the middle of a recession where the whole premise—the structure on which your modelling is based—has been blown out the door.

Ms Quinn —That is a separate question about modelling the economic implications of the global financial crisis. What we were asked to look at was the implications of emissions pricing on the Australian economy, which is a separate question. There is no doubt that the current economic conditions mean that the Australian Treasury forecasts are for unemployment to rise. But looking at the marginal impact of the Carbon Pollution Reduction Scheme or emission pricing means asking what the implications of emission pricing are. In that modelling, the best available information that we have suggests that the aluminium industry will be lower than it otherwise would have been but will be higher than it is today.

Senator JOYCE —Okay. Let us go to something else. It is the most analysed piece of legislation out there. How much is this going to affect the farming sector if it is brought in in 2015? What reduction are we going to see in the farming sector? Let us start with grazing.

Mr Sterland —The modelling was developed under that assumption.

Ms Quinn —For the agriculture sector, in 2050 the analysis suggests that the cattle and sheep industry will be 88 per cent higher than it is today under a CPRS minus 5. The other way of thinking about it is that it would be about seven per lower than it otherwise would be in the reference scenario. I also draw your attention to ABARE, the Australian Bureau of Agricultural Resource Economics. They produced a paper for their outlook conference which disaggregated the agriculture sector further than the report produced last October did. They looked at the possible implications and highlighted 2030. They suggested that the total agriculture sector, taking out winners and losers within the agriculture community, that the agriculture output would be about one per cent lower than it otherwise would have been at 2030 if it was brought in in 2015.

Senator JOYCE —Does that modelling take into account international trading?

Ms Quinn —That modelling has a carbon price in it that allows for constraints being placed around the world, yes.

Senator JOYCE —So you are making the assumption that America, China and all these other people are going to be on board?

Ms Quinn —By 2030, the assumption is that other countries will have emission pricing of some form in their economies, yes.

Senator JOYCE —That is a very hypothetical assumption, if I might say, Ms Quinn.

Mr Sterland —Correct me if I am wrong, Ms Quinn, but when agriculture enters in 2015, which is the modelling assumption—remember that the government still has to make a final decision on that in 2013—the policy commitments that were in the green paper were that it would be treated in a broadly equivalent way as the other emissions intensive trade exposed industries. As an element of policy, as long as those international conditions are not broadly comparable, that assistance continues. That is a very important element of the policy.

Senator JOYCE —I am going to try to work this out now. I have listened to the other witnesses. Let us say we have 10 kilograms of carbon being emitted by a ruminant sheep. Let us say we have 5,000, which would be a struggling farm. So you have about 50 tonnes. There is a 21 uplift factor, so you are going to have to buy approximately—give or take a few—permits for about 1,000 tonnes. Let us say that you are paying thirty bucks. There is $30,000. I want to know this: how does that farmer offset that $30,000? Do they just have to wear it?

Mr Sterland —As I said, the government’s commitment would be that an emissions intensive trade exposed industry such as that would be treated equivalently to other emissions intensive trade exposed industries. You would expect that that farmer, if there were direct obligations at the farm level or if it was imposed somewhere else in the system, would be receiving the overwhelming majority of their permits for free. That would be the first answer to that question. That final number would not be the financial impact of the scheme under the international conditions that you outlined.

Senator JOYCE —We have this mechanism that gives a price signal. Whenever the price signal is evidence in a certain area, you are going to send these people a cheque in the mail or give it to them for free so they are not affected by the price signal. The whole thing becomes a complete political paradox.

Mr Sterland —No. Why the government is implementing that is to provide permits based on an industry wide average benchmark. Individuals within that industry have every incentive to reduce the emissions intensity of their production. The incentives are quite sharp for all the emissions intensive trade exposed industries to continue to have incentives to reduce emissions.

Ms Quinn —It is important to note that we are talking about trade exposed emissions intensive industries. The government has been quite clear that in the absence of comprehensive global agreement that emissions intensive industries that are trade exposed need to be assisted in that transition. It is not incompatible with your concerns about trade exposed industries for them to get free permits from the government.

Senator JOYCE —You said that your belief is that no coal miners will lose their jobs, no steel workers will lose their jobs and no abattoir workers will lose their jobs—all these people will stay employed.

Mr Sterland —You are putting words in our mouths.

Senator JOYCE —They are going to lose their jobs.

Mr Sterland —We were saying that all major sectors in the Treasury modelling experience employment growth.

CHAIR —The Australian Coal Association told us this morning that the Treasury modelling made an assessment of the impact on that particular industry based on their best years ever. Since then, they have collapsed down to what is probably one of their worst circumstances ever. Essentially, the outcomes in your modelling are significantly to their detriment and paint a much rosier picture than what is likely to eventuate.

Ms Quinn —I would question that statement. It is true to say that the Australian coal industry has experienced incredibly good fortune in recent years in having record high coal prices for their goods.

CHAIR —In the years that you have used as a basis to assess the impact on them.

Ms Quinn —In the most recent period. But in the economic modelling undertaken by the Australian Treasury, we assumed that coal prices, oil prices and gas prices—and other trade commodity prices—would fall through time, reflecting economic circumstances and returning to more normal conditions. So on page 240—

CHAIR —Did you assume the collapse to the extent that it has eventuated?

Ms Quinn —The assumption for the terms of trade that we used in the modellings—the chart on page 240—shows that we expected the terms of trade to fall quite sharply over the next few years. That has not been entirely inconsistent with the current economic analysis available for Australia.

CHAIR —So in your Treasury modelling, you predicted the global financial crisis, even though you did not assess it?

Ms Quinn —We predicted a fall off in the commodity prices.

CHAIR —Nobody else knew that the economy around the world was going to contract by six to seven per cent compared to what it was otherwise going to be?

Ms Quinn —We expected commodity prices to fall from their record high based on adjustments in the international—

CHAIR —Can you provide us on notice with exactly what it is that you assumed in terms of the coal industry.

Ms Quinn —Yes. It is available on the public record as well. Chart B.6 on page 241, with the underlying data available on the internet, has the coal price assumptions.

Senator JOYCE —Whilst you are doing that, can you tell me what the value of permits will be if the international carbon market collapses or if, for some unforeseen reason that we cannot premise yet—but it should be in the model because there is always a chance of it; it is a hypothetical model which should cover contingencies—carbon levels in the world reduce?

Ms Quinn —You would have to be more precise about the question.

Senator JOYCE —If carbon levels reduce globally, is there are any value for the mining industry? They will have on hand $5 billion worth of carbon permits.

Mr Sterland —I think that is a policy question in some ways. In a sense, you are suggesting that governments loosen their targets as a result of this.

Senator JOYCE —I just want to know, in your modelling—

Mr Sterland —The caps are imposed by governments—and the targets.

Senator JOYCE —Okay. It is all based on the premise of bringing carbon levels down. I am suggesting that if empirical evidence arrives they will say, ‘Lo and behold! We never thought of that—just like we never thought of global warming.’ But all of a sudden everybody will be out there with billions of dollars worth of permits sitting on their books that they have borrowed heaps of money to purchase, and then they will say, ‘Well, global carbon levels have actually reduced; therefore, your carbon permit is now worth nothing.’

Mr Sterland —There are a lot of policy questions in that that I do not feel I want to go into. The broad structure of the scheme is that it sets a cap for five years and, up to 10 years following that, it sets a range within which the cap can fall. The specific reason it set that range is to take account of uncertainty in both the economics of the impact of the scheme on the economy and international negotiations. So, to the extent that your hypothetical scenario fed into that, it would be open to the government, as it is setting its cap forward in time, to take that into account. Having said that, as you know from our previous engagement, the government’s firm policy position is that the climate is changing and carbon emissions are rising.

Senator JOYCE —They believe that strongly, don’t they?

Mr Sterland —It is part of the government’s policy, yes.

Senator JOYCE —Absolutely. They categorically believe it, without a shadow of a doubt. If that is the case, why won’t they say, ‘Because we categorically believe this is true, we give you a warrant that, if that event occurs, we will buy the permits back from you at the price we sold them to you at.’

Mr Sterland —Senator, that is a policy question that I cannot answer.

Senator JOYCE —I will tell you why they will not do it. I have read the disclaimer at the front of the white paper. It says that if this event occurs we will not buy them back.

Mr Sterland —I am not sure what you are referencing.

Senator JOYCE —It says that there will be no liability held for any recommendation or insinuation or inference given with regard to the financial implications of purchasing or dealing in permits, blah, blah, blah, blah, blah. It basically says that the whole thing is a load of rubbish and they will not buy them back from you; they will just keep the money. Is this permit to be deemed as a tax or not?

Mr Sterland —Not.

Senator JOYCE —It is not deemed as a tax?

CHAIR —It is a tax by another name.

Senator JOYCE —Therefore, is it a capital item on the books or an income item on the books?

Mr Sterland —Do you mean the permits themselves?

Senator JOYCE —Yes.

Mr Sterland —I think we are starting to get too technical—

Senator JOYCE —It is the most analysed document. I am really interested. When I buy a permit am I buying a capital asset or am I buying a tax deduction?

Mr Sterland —The latter, I think, is the answer from the white paper.

Senator JOYCE —So it is an upfront tax deduction. That is handy. I might buy a few.

Mr Sterland —No. There is a very specific treatment outlined in that chapter.

Senator JOYCE —I just think it would be a handy thing to own if there is an upfront tax deduction.

CHAIR —Maybe I can take a few questions and we can come back to you, Senator Joyce.

Senator JOYCE —This is my final one. Can you tell me, from your most analysed document of all time, what area of Queensland—my state—would be the most affected in regard to carbon emissions? We know that my state is the one that is going to get hit between the eyes. I want to know what part of my state is going to get hit between the eyes.

Ms Quinn —I guess I would start by just referring you again to the fact that, while Queensland is the most emissions intensive state and it is expected to be most affected relative to the reference scenario, the Queensland economy in absolute terms under the CPRS minus five scenario by 2050 is expected in the modelling to have the strongest growth over that period of any state. It depends what your reference point is, but the modelling is that Queensland will still experience the highest economic growth over the next 40 years even though it is the most affected state as a result of the CPRS minus five scenario. I then draw your attention to my earlier answer that we did not do a substate level analysis. As a general proposition, those areas that have an emission intensive production base would be more affected than those that have a low-emission production base. There will obviously be advantages to some of the service sectors. Some parts of the economy will be better and other parts will be worse. Anyone in the forestry sector will do well and some industries in the heavy emissions intensive industries will be worse off.

Senator JOYCE —Make me an environmental supermodel!

Senator HUTCHINS —I do not know if I could handle that! We had before us yesterday a company called Envirogen who are involved in the removal of methane from mines. I gather they have not been able to have waste coal gas mentioned in the RET. I gather they have tried through the green paper, the white paper and the draft legislation. As they explained to us yesterday, if they are not operating then this gas will just be flared, as they called it. Is there any reason why they might not be eligible for the renewable energy target?

Mr Sterland —This is a policy question for the Department of Climate Change, but they are not a renewable energy source.

Senator HUTCHINS —But they are a source that does take methane gas out of the atmosphere.

Mr Sterland —They use methane that comes from a coal mine, just like a power generating—

Senator HUTCHINS —Which would be burnt if they did not recycle it.

Mr Sterland —Power generation takes coal out of a coal mine.

CHAIR —You keep mentioning overseas schemes. Are you aware that in Germany this particular gas is included as a renewable energy part of the equivalent legislation?

Mr Sterland —It is not within my responsibilities, but I have heard that. But the Australian—

CHAIR —Erneuerbare-Energien-Gesetz is the legislation that it is included in. Read it on the record and you might—

Mr Sterland —I could, but the government took a renewable energy target; it regarded that as a key election commitment. ‘Renewable’ has a very clear meaning.

CHAIR —But you have also excluded the abatement effects of waste coal mine gas from the CPRS, have you not? Why is that?

Mr Sterland —That is not fair. Certainly any burning of methane that comes from a waste coal mine gas will reduce the liabilities of the entity in question. There is no doubt about that. That would mean an entity that was doing that, a coalmine, would have a substantially lower liability than it would have if it did not do that. That is fully included in the scheme.

Senator HUTCHINS —I have to declare an interest—not a personal one. An old friend of mine is the chairman of the company. David Hamill used to be a Labor Treasurer and cabinet minister in Queensland. He gave evidence yesterday and said that if they are not included they are looking at a loss of investment and jobs.

Mr Sterland —Yes. There was a previous scheme run by the New South Wales government that operated differently. It is a type of emissions trading that the Australian government would be hoping, in negotiation with the New South Wales and ACT governments, would be wound up as this scheme were introduced because they both traverse the same territory. We are in discussions with the New South Wales government on that matter. The white paper outlines policy about that. There are a number of entities that we are aware of and that we highlight in the white paper, including the ones you mention. Most entities that were doing things under the New South Wales scheme will be rewarded for those things under the CPRS. There were a subset of entities, including this one, where we recognised there were specific transitional issues because of the way the two schemes operate. The government outlined in here that it was particularly interested in assisting those industries, and those discussions are ongoing.

CHAIR —So it is not a closed case yet.

Mr Sterland —It has been fully recognised that this was a transitional issue. The New South Wales government did say that its scheme would be wound up no later than 2012 if there were a national emissions trading scheme. So participants in that industry were always open to the fact that there could be quite a big change under certain circumstances. We now have a national emissions trading scheme on the table. The issue is: what is a reasonable transition for those industries that are affected? This is fully recognised as part of the white paper. There is a measure outlined to assist in resolution of those issues.

CHAIR —I have a series of questions in relation to the Treasury modelling information that I would like to get through before going to other matters. Can I ask you to keep your answers as succinct as possible so that we can get through as much as possible. Is Treasury aware and does Treasury accept that the provision of information to a parliamentary committee is protected by parliamentary privilege and that one effect of this is that a party cannot be in breach of its contractual arrangements by providing information to a committee?

Ms Quinn —Yes.

CHAIR —Is the Treasury aware of the terms of the Senate’s order of 11 March 2009 for the provision of information to this committee?

Ms Quinn —Yes.

CHAIR —I am not asking you for a judgment; I am just asking for an explanation: please explain how any commercial harm can arise from the provision of the required information to the committee in accordance with the Senate’s order of 11 March 2009?

Ms Quinn —This was set out in the government’s response in the Senate, in response to the order. The underlying information that is dealt with in that order asks for the provision of databases that have proprietary ownership. If the government were to provide these databases for free they would be undermining the commercial interests of the people who own this information.

CHAIR —Given that Monash University has explicitly stated in correspondence to the Treasurer that the university waives any claim of confidentiality and believes that there is no issue of commercial harm that would arise from compliance with the Senate’s order of 11 March 2009 and given that commercial harm to consultants was the reason given by the government for not producing the required information, does Treasury still maintain that some commercial harm could arise from the provision of the relevant information from Monash to the committee, in accordance with the Senate’s order?

Ms Quinn —I am unaware of the first statement you made about the correspondence from Monash University.

CHAIR —You are unaware?

Ms Quinn —I am unaware of the statement that you read out. I have seen a letter—the Monash University sent a letter to the government setting out that they have no concerns about confidentiality. I have not seen correspondence from the Monash University saying they do not believe that it will cause commercial harm. The issues around commercial financing or payment or necessary payment for fees or payment for access to the model, as far as I am aware, is not canvassed in that correspondence between the committee.

CHAIR —You are being a bit cute here, aren’t you? Are you suggesting that Monash University is not happy for the committee to have access to that information?

Ms Quinn —I am not aware of correspondence from the Monash University saying that they are happy for the Australian government to hand over for free proprietary information that they usually sell.

CHAIR —Monash University have written a letter to the Treasurer, and sent a copy to this committee, saying that they are very happy, under the terms of the Senate order, with the protections of confidentiality that are included—

Ms Quinn —To waive their confidentiality concerns. That correspondence does not mention commercial harm.

CHAIR —I think that you are being very, very cute.

Ms Quinn —It does not mention anything about—

CHAIR —It is in the worst tradition of Sir Humphrey. I find that just an incredible response, quite frankly.

Ms Quinn —The difference between confidentiality and commercial harm is—

CHAIR —You are splitting hairs, with all due respect.

Ms Quinn —It is not—

CHAIR —We have had two letters now from Monash University. Monash University are bending over backwards to assist this committee. They have written to us to say that they want to do everything possible to assist the committee while protecting against commercial harm. The Senate committee has bent over backwards to do everything it can to ensure that the legitimate concerns that were raised by the government are being addressed. I cannot believe the answers that you have just given, Ms Quinn, quite frankly.

Ms Quinn —Can I please respond to that. My statement is a statement of fact that the correspondence that I have seen from Monash University to the Treasurer does not state that the university does not believe there is commercial harm. It says that it is happy on a confidentiality basis for information to be shared. The university is at liberty to form a contractual arrangement directly with the committee. There is nothing preventing that arrangement.

CHAIR —We have asked for Treasury to release all of the unpublished information.

Ms Quinn —You have asked the Treasurer to release it.

CHAIR —We asked Treasury to start with and then we put the request to the Treasurer. We have met in this sort of forum before and put the question then about the information. That is how the whole process started—through the discussion in this forum. We then wrote to the Treasurer.

Ms Quinn —It is a matter for the government. It is a government report.

CHAIR —It is a matter for the government, indeed, but, to be honest, I am just stunned by what you have just said because, very clearly, Monash University, which was used as an excuse for not providing information, it is quite happy not to be used as an excuse. Does Treasury accept that there is a public interest in this committee being able to obtain the information required to perform the task given to it by the Senate, that public interest would outweigh any residual difficulty and that there appears to be no such difficulty in providing the relevant information to this committee?

Ms Quinn —The position that the government has made clear in the Senate is that it believes there is the potential for commercial harm for aspects of the information to be provided. It is a matter for the government.

CHAIR —Monash University does not think that there is commercial harm under the terms that the Senate has asked for the information, but it is a matter for the government.

Ms Quinn —Just to repeat: I have not seen correspondence to that effect.

CHAIR —Given that the government has to persuade the majority of the Senate to pass its legislation, does the Treasury consider that there is a strong public interest in providing the Senate with the information necessary to make a judgment on that legislation?

Ms Quinn —I am here today to talk about the analysis that we have performed and answer questions on information that the government has made available in the public domain. I am more than happy to answer questions about those matters.

CHAIR —In terms of the global financial crisis, a few days ago the OECD put out a statement that it expects the economy to shrink by 2.75 per cent this year and for 30 industrialised countries that it tracks to shrink by 4.3 per cent. Compared to the 3.4 per cent expected growth, a 2.75 per cent contraction is a turnaround of six to seven per cent. That is more than just a cyclical, business as usual, economic ups and downs sort of adjustment, isn’t it?

Ms Quinn —It certainly is substantial negative growth that the OECD is forecasting.

CHAIR —And the government is telling us that this is the worst economic crisis since the Great Depression. Since we last met, have you been asked by the government to do some further modelling on the impact of the CPRS on the economy and jobs?

Ms Quinn —We do economic analysis on an ongoing basis for the government on a variety of things to do with climate change.

CHAIR —Is that a yes?

Ms Quinn —We provide lots of information at different times.

CHAIR —I am asking very specifically—

Ms Quinn —Have we been asked to do a comprehensive re-analysis of the quantity of information provided in the report? No.

CHAIR —You have provided advice but you have not done any more modelling?

Ms Quinn —We get asked questions on a regular basis about a whole range of issues and we do provide government with advice on economic matters and quantitative analysis of climate change.

CHAIR —Have you been asked by the government to provide advice on the implications of the impact of the current economic downturn on the CPRS in terms of the economy and jobs?

Ms Quinn —In the context of the Climate Change Modelling Division, no, we have not been asked for that.

CHAIR —So you have not been asked to provide advice on how the current economic circumstances impact on the implementation of the CPRS?

Mr Sterland —That is a policy question?

CHAIR —No, it is not a policy question. I am asking a question about whether advice has been sought. If you listened carefully to the opening statement, you would know that that is something that we are entitled to ask you for. I am not even asking—

Ms Quinn —It is a very broad question. We have been asked lots of things at different times. Some of that has been around economic analysis of various bits and pieces.

CHAIR —But I am asking you a high-level question.

Ms Quinn —But it is hard to answer a high-level question when—the bottom line is, yes, we have provided information about economic conditions and different bits and pieces. The high-level point is that, if emissions are lower in the near term and higher in the medium term, then those two things will wash out in the way that the trading scheme under the Kyoto protocol and under the CPRS will work. So, with banking of permits, if emissions are lower in the near term and higher in the long term, then financial marks will look through that. So cyclical variations around a trend are unlikely to have significant implications for the carbon price.

CHAIR —We have already moved on from the cyclical variation, because this is a unique event. The government describes it as the worst economic crisis since the Great Depression. I will ask this question again and it is a very specific question even though it is a high-level question.

Ms Quinn —And there are those who are expecting the economy to grow.

CHAIR —Sorry, I am just finishing my question. It is very specific even though it is a high-level question. Has the government asked you for advice, modelling or any sort of briefing on how the current economic downturn is impacting on the implementation of a Carbon Pollution Reduction Scheme and the impact that that is going to have on the economy and jobs given the current economic circumstances?

Ms Quinn —I think the best thing would be for me to take that on notice because you are asking two people from different departments and there has been various analyses.

CHAIR —Take it on notice, but then the answer is going to come back: ‘We have provided advice to government.’ If you have provided advice to government, we want a copy of that advice. If your answer is: ‘We can’t give you advice to government,’ this committee will want a justification from the minister as to why it is not in the public interest for that advice to be shared with the fuel and energy committee.

Ms Quinn —I am happy to take that on notice.

Mr Sterland —We will both take that on notice.

CHAIR —Moving on from all of that, the Acting Prime Minister and the Treasurer have both foreshadowed an increase in predicted unemployment, up from seven per cent, in the most recent official forecasts. What were the unemployment rates estimated to be in the data underlying your modelling?

Ms Quinn —That information is not contained in the public record.

CHAIR —So? I have got to say Treasury has tried this, as we were discussing, with the alcopops tax. Senate committees are not only there to ask for information about things that are on the public record. We are actually here to ask questions about things that are not on the public record. I am asking you very specifically. What were the unemployment rates estimated to be in the data underlying your modelling?

Ms Quinn —And I cannot tell you that information currently. It is not on the public record, so I cannot look in the book to find it.

CHAIR —Can you take it on notice?

Ms Quinn —I can take it on notice.

CHAIR —I would like you to provide that information to the committee. If unemployment were to reach nine or 10 per cent, what impact would that have on the modelling results? You might have to take that on notice as well. Unemployment in the OECD is expected to top 25 million over the next year. Again, that is dramatic. Was this sort of dramatic increase considered as part of the CPRS modelling?

Ms Quinn —As you are aware, the CPRS modelling contained in the report Australia’s low pollution future assumes a trend growth rate through time for Australia and the OECD and other countries in the world. In that context, it did not have the cyclical variations that are evident in the real world.

CHAIR —You call it ‘cyclical variations’. That sounds very benign compared to ‘worst economic crisis since the Great Depression’, which is the language used by the government.

Ms Quinn —It is undoubtedly—the numbers you previously referred to do suggest a substantial cyclical downturn.

CHAIR —The Acting Prime Minister also said yesterday:

Since our latest forecast was published we have seen the global recession worsen and dramatic downgrades in global growth. Those global forces impact on our economy and make a period of negative growth inevitable in Australia.

What is the Australian growth rate expected to be over the next few years?

Ms Quinn —I refer you to—this is not my area of expertise—the latest—

CHAIR —So you can take it on notice?

Ms Quinn —I can refer you to the latest government-published results in the Updated Economic and Fiscal Outlook, the UEFO, that was released earlier in the year. That information is on the public record.

CHAIR —So we are going to have little growth or negative growth in the next year or two. What will be the effect of that on our total emissions? That is your area of expertise, isn’t it?

Ms Quinn —That is right. The last time we had negative growth in the Australian economy, emissions from the non-land use and forestry sector went up.

CHAIR —Say that again?

Ms Quinn —1991 was the last time that GDP in Australia’s economy was negative. In that year, taking out emissions from land use and forestry, which are not influenced by cyclical factors—they are influenced by policies or regulations—emissions in the other sectors of the economy went up in total, even though economic growth, measured by GDP, was negative.

CHAIR —That is not the experience in Europe and other parts that is normally relied on, is it? Emissions there have gone down as economic activity has gone down.

Ms Quinn —Emissions in total? I am not aware.

Mr Sterland —It is hard to have a general rule, because emissions trends are not purely a function of GDP, which I think is Ms Quinn’s comment. Emissions growth is a function of the structure of demand for electricity—the sorts of appliances that people are demanding—and they can move at different rates to GDP growth. Updated projections will be released at some point. The department generally releases them annually, and that will incorporate all factors, including changes in economic activity.

CHAIR —The Treasury in my home state of Western Australia is still very dissatisfied with the amount of information they have received regarding the CPRS related modelling. Have you done anything to correct this since they appeared before our committee in February?

Ms Quinn —It is a matter for the government.

CHAIR —That is no?

Ms Quinn —It is a matter for the government. I am not aware that the government has provided any additional information.

CHAIR —Can you remind me—when this Garnaut review process started, who started it?

Ms Quinn —The Garnaut review of climate change? It was commissioned by the state governments of the time and—

CHAIR —And the then Leader of the Opposition.

Ms Quinn —the federal opposition, yes.

CHAIR —Who funded it?

Ms Quinn —Initially, my understanding is that it was funded by the state governments, and it is my understanding, although it is based on—

Mr Sterland —We will take that on notice. It was funded—

CHAIR —Take it on notice. My understanding is that it was funded by the state and territory governments, who in those days were all Labor administrations.

Mr Sterland —But in recent times it was funded substantially by the Commonwealth government.

CHAIR —In recent times, okay. Let us just stay—

Mr Sterland —And for the period under which the modelling was undertaken—

CHAIR —You are answering questions that I have not even asked. I have asked a question as to who funded the start.

Mr Sterland —Were you saying ‘the start’? I did not hear that.

CHAIR —Yes, I did say, ‘Who funded the start?’ So the start was funded by the states and territories. When the new government came in after the November 2007 election, what happened to all of that information—the modelling, the preparatory work and all the work that has been done through the Garnaut review process? Did you get access to all of that?

Ms Quinn —No.

CHAIR —That is contrary to some other evidence we have received.

Ms Quinn —My understanding is that there was an arrangement where the Garnaut review continued to look at the impacts of climate change and then the Australian Treasury looked at the mitigation costs of climate change—there was a separation of responsibilities in the economic modelling—and that the analysis that was undertaken by the Queensland Treasury as part of the review was performed by the Queensland Treasury.

CHAIR —In the modelling that you conducted, did you rely on any information that came out of that initial process that was funded by the states and territories? Did you have access to any of the information that came out of that process to inform your modelling?

Ms Quinn —It is difficult for me to be definitive about that. We certainly had access—

CHAIR —Take it on notice.

Ms Quinn —I do not even think if I took it on notice I would be able to answer. We certainly had conversations with the people who had been employed by the—

CHAIR —It is a very simple question, so I do want you to take it on notice. Have you had access to any information that came out of the process—

Ms Quinn —Yes is the answer.

CHAIR —Yes is the answer?

Ms Quinn —Any information? Yes.

CHAIR —Yes is the answer. Can you give us, on notice, a list of the information that you have been able to rely on out of that process that was funded by the states and territories?

Ms Quinn —We could certainly have a go.

CHAIR —Thank you very much. That is great. We have already gone through the regional impacts. You are not proposing to do any more work to assess the impact on jobs in regional communities across Australia?

Ms Quinn —In terms of economic modelling, we do not think that there is a robust basis on which to look at that.

CHAIR —The LNG industry has put the proposition to us—and there has been some change between the green paper and the white paper, where there are now 60 per cent of free permits—that if there were a global scheme they would be able to make a substantial contribution to reducing greenhouse gas emissions around the world, but the Australian scheme is actually going to impose additional burdens on them that will make it harder for them to contribute to global greenhouse gas emission reductions. Have you assessed that argument and what is your response?

Ms Quinn —One of the economic scenarios that we looked at concerned a world in which everybody took action, which was the Garnaut scenario. In a world where everybody takes action the gas and mining industries as a whole in Australia end up with a lower production than in a world without an emissions price. But that is the gas industry as a whole rather than just the LNG industry. We do not have it broken down for that particular industry. The proposition that—

CHAIR —The LNG industry is very specific. You cannot put the LNG industry into the same basket, can you? The key argument here is that an increase in emissions domestically, which may be counterintuitive, can actually have a beneficial effect by reducing global greenhouse gas emissions, which would be a good thing given the stated policy objective of the government. So we could grow our economy and have additional jobs. Yes, we would have additional emissions domestically but we would be reducing emissions globally. But the scheme as it is currently designed is actually going to make that harder. That would seem to be counterintuitive. I am trying to get a response to that.

Ms Quinn —The response that I can give you from the economic modelling undertaken by the Australian Treasury is that—

CHAIR —Is that you have not looked at it.

Ms Quinn —It is that we did not look specifically at the LNG industry because it is not available as a specific industry in any of the economic models available to us for this report.

CHAIR —That is okay. BlueScope Steel told us yesterday that, while the headline figure for free permits is 90 per cent, as far as their business is concerned it in effect translates to only 64 per cent of free permits because there are parts of their business that are included and parts that are not. The assumption of your modelling is that it will be 90 per cent free permits across the board. Is that right?

Mr Sterland —I was not there, and I have not seen the Hansard for yesterday, but what was the basis of the 64 per cent?

CHAIR —The basis for that was that there are parts of their business that you—

Mr Sterland —Was it only their business or inputs to their industry?

CHAIR —No, this was not an industry-wide figure and I quite readily concede that. I would also concede that there are variations from business to business. For BlueScope—

Mr Sterland —I was asking a separate question. Was it about their argument about the emissions inherent in some of the inputs that they buy?

CHAIR —No, not all aspects of their production process are recognised under your definitions for free permits.

Mr Sterland —In terms of that, the department is in ongoing discussion with the industry about the appropriate activity definitions.

CHAIR —Is it intended that a business like BlueScope will be able to benefit from 90 per cent free permits across all of their production?

Mr Sterland —The intention was that activities that meet certain eligibility thresholds would receive a benchmark of 90 per cent permits on the industry average.

CHAIR —What you have described means that, in practice, a business like BlueScope Steel will only have 64 per cent free permits and their costs are going to—

Mr Sterland —I would need to see the details of that. I am not sure whether they are referring to some of the emissions in the coal for their process, because that is quite a separate issue.

CHAIR —I have to conclude this now, but we are going to send you a copy of the Hansard as soon as it becomes available and I would like to ask you for your comment on the issue that he has raised.

Mr Sterland —That is fine. We are having an ongoing discussion with them about the appropriate activity definition that implements the white paper intent and the government has a process to apply that across industries in an equitable way and in a rigorous and consistent way. That process is underway and, as far as I understand it, it has not been concluded. We will take that on notice.

CHAIR —Can you keep us in the loop on that. Can the Treasury or the Department of Climate Change say with any degree of certainty in the current economic environment what the impact of the government’s CPRS will be on emissions, growth, the economy generally or jobs?

Mr Sterland —The emissions for the sectors covered by the scheme will be set by the cap.

CHAIR —That is all you can tell us with any certainty?

Mr Sterland —I am just answering your first question. You said ‘emissions’.

CHAIR —You are talking domestic emissions; I would like to know about global emissions.

Mr Sterland —As I said, according to the Treasury work, the overwhelming majority of that would be equivalent to what happens globally as well.

CHAIR —Let me be more specific: can the Treasury or the Department of Climate Change say with any degree of certainty in the current economic environment what the impact of the government’s CPRS will be on jobs?

Ms Quinn —We are happy to take that on notice.

CHAIR —Thank you for that. Thank you for your contribution to the committee today.

Committee adjourned at 3.06 pm