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Wednesday, 28 October 2009
Page: 11222

Mr DEBUS (12:57 PM) —I rise to support the Carbon Pollution Reduction Scheme Bill 2009 [No. 2] and related bills. At this time in history, we are dealing with some astoundingly hard issues. The world, and particularly the Australian government, has dealt well with the most acute economic crisis for the last 75 years. But the crisis of our environment, exacerbated by climate change, is much more difficult and will take much longer to deal with. We have known nothing like it. The Commonwealth Science and Industrial Research Organisation has estimated that global warming could result in rainfall in the southern Murray-Darling Basin declining by 10 per cent in the next 25 years, but the really frightening figure is that that will lead to a fall in run-off of 40 per cent, with appalling implications for irrigation, farming and biodiversity. In the recent Steffen report, our best natural scientists, I am afraid to say, quite contradict the member for Hume. They say:

Over the next 100 years Australia could well experience changes in ecosystem type and distribution at least as great as those associated with the transition from the Last Glacial Maximum to the present, a period of at least 5000 years. The rate of climate change—a similar transition in only 100 years—is almost surely unprecedented for the last several million years—

and in fact may not have occurred for 40 million years, at which time there were rainforests in Antarctica.

The CPRS may not be sufficient for our response to this problem, but it is essential. Though I make no presumption at all about the benefit of free-market policy prescriptions, I am certainly persuaded of the critical benefit of carefully thought out, evidence based market instrument schemes for the control and reduction of pollution.

In New South Wales, where I was Minister for the Environment from 1999 to 2007, market based approaches, including emissions trading schemes, were first proposed over 15 years ago to address problems like nutrient pollution in the Hawkesbury-Nepean River, saline discharge in the Hunter River and controlling air and water emissions from heavy industry across the state. In the first half of the 1990s, community reaction was often negative. A lot of people argued that trading schemes were a licence to pollute or a sell-out of the environment. The argument went that, since pollution is bad, it should simply be banned like theft or vandalism. That was of course unrealistic for economic and social purposes and quite ineffective environmentally. Nevertheless, this is again the position that many in the Greens party are taking. The CPRS is just a licence to pollute, they say. At the other end of the spectrum, conservative Liberal Party and Nationals members in this parliament are saying that the CPRS is just a tax with no environmental benefit. I hold, on the basis of real and relevant experience, that both of these groups are quite wrong.

Looking back over the last 10 years, the track record of environmental achievement from the application of emissions trading in New South Wales and the complete turnaround in the community’s attitude to it is remarkable. In the Hunter in the early 1990s, discharge of excess saline water from mining and power stations was causing such a significant impact that the river was becoming too salty for agriculture. In turn, this inspired community outrage and very strong opposition to further industrial growth. It had the potential to prevent hundreds of highly paid jobs being created in regional New South Wales. Under the Hunter River Salinity Trading Scheme, developed by the New South Wales government in partnership with industry, farming groups and environmentalists, this has been completely turned around. Discharges now never cause the river to be more salty than 900 microsiemens per centimetre, which is actually fresher than bottled mineral water. At the same time, the scale of industry has more than doubled.

There are three important stories from the implementation of this scheme that are highly relevant for the consideration of the CPRS. The scheme imposed a total cap on allowable emissions. No discharges were permitted unless the discharger surrendered a sufficient number of the scheme’s 1,000 discharge permits. Companies needing permits are able to purchase them from periodic government auctions or from other companies who do not need them from time to time. That is the same as in the CPRS.

My first story concerns how the establishment of the scheme created the incentives and the framework for industrial enterprises to work together to reduce emissions. In one case there were two mines separated by a hill. One mine had a chronic surplus of salty water; the other a shortage of water. The wet mine was regularly seeking to discharge salty water into the river. The dry mine typically purchased considerable river water to use for dust control. Both were causing undesirable environmental impacts which, in turn, led to problems with the regulatory authorities and the community. Once the scheme came into place, the two mines realised that, if they ran a pipe over the hill to connect with each other, the wet mine could stop discharging and the dry mine could stop extracting river water and both could sell their excess discharge permits to other parties. So, by capping total emissions and putting a price on discharge, the scheme stimulated great improvements in industry efficiency, cost savings and environmental improvement. That is what the CPRS will also deliver for Australia.

Before the scheme I am speaking of in the Hunter began, the only solutions seemed to be very expensive pipelines to the sea, inland desalination plants or shutting down industry. Once the emissions trading scheme was put in place, completely unexpected and lower cost solutions were brought forward voluntarily. This is something that also happened with the sulphur dioxide scheme in the United States, which fixed acid rain at one-tenth of the cost that fear-mongering industry had lobbied for. In that case, the solution was to rail in low-sulphur coal, whereas industry had been arguing that only very expensive flue gas desulfurisation would do the job. So the lesson for the CPRS is that it will create the incentives that will make carbon pollution reduction much cheaper than would otherwise be possible, and that means more jobs and greater emission cuts than would otherwise be possible.

The second story concerns the way that emissions trading schemes changed the overall attitude of industry to joint action on environmental protection. In this case, one mine chose not to invest in appropriate saline water storages to acquire sufficient tradeable discharge permits. With its storages nearly full, the mine operators contacted the state EPA and asked for special dispensation for an unauthorised discharge. The EPA was told that, if approval was not forthcoming, several hundred miners would be stood down—a typical blackmail. This clearly placed intolerable pressure on the EPA and before the scheme began the rest of the industry would have had very little interest in this poorly prepared mine’s success or failure in dealing with the EPA. On this occasion, where discharge could lawfully take place only if the discharger purchased sufficient permits, the situation was completely different. Other mines who were holding excess discharge permits for sale heard of the one mine’s lobbying. They interpreted that action as simply using lobbying as a cheaper alternative to entering the market and buying the necessary permits. Thereafter, the EPA was not on its own. Large numbers of other mines actively lobbied to make sure that the one mine complied with the rules.

The public policy importance of this dynamic is obvious for the CPRS. By capping total emissions and issuing fixed numbers of permits, the CPRS will create a powerful constituency that will be arguing against any relaxation in controls on emissions or compliance. Indeed, there will be a whole class of businesses that will benefit from higher permit prices every time total allowable emissions are reduced. So instead of lobbying against a cap, as we see otherwise responsible corporate citizens shamelessly doing now, we will see powerful businesses on the same side as the environment and the community arguing for emission reduction.

A third observation relates to the initial allocation of permits. With the Hunter River Salinity Trading Scheme coming up to its 10th successful year, we can see that the initial allocation of permits is not nearly as important as getting the cap, and the ability to ramp it down over time, right. In the Hunter, permits were initially allocated for free to incumbent dischargers. Some argued that was too generous to industry. However, the approach was a key to the successful change of practice. Under that scheme, every two years one-fifth of the permits expire and are replaced with new 10-year bundles of permits. These new permits are sold at auction. Now, after 10 years, there are almost no grandfathered permits left and almost every permit has been purchased on the open market. So the New South Wales government used a gentle transition to bring industry along to the fully commercial world that matches the expectations of the community. Hence, the CPRS is not ‘compromised’ because it seeks to avoid bludgeoning old polluting industries and the people they employ into an early grave.

The third lesson that has been clearly demonstrated is that a well planned transition, where requirements are expressed using commercial disciplines, but where change happens gradually and with thoughtful assistance, can achieve all the environmental goals we aspire to at a reasonable cost.

On another matter, who can seriously doubt that Australia’s credibility in negotiations at Copenhagen will be enhanced if we have a CPRS passed through this parliament and in place? I have heard people say that our position does not matter at Copenhagen because we are only responsible for 1.5 per cent of the world’s greenhouse emissions. Well, that still leaves us as the 14th country on the list. Anyway, Ross Garnaut has shown that President George Bush found it very useful when John Howard, alone in the world, refused to sign up to the Kyoto Protocol. More than that, we in Australia have the second highest per capita output of greenhouse gas in the world after only Malaysia, which has been so heavily clearing tropical rainforest. If that does not create some sort of ethical obligation, the fact remains that Australia is one of the worst affected countries in the world and it would be simply crazy for us not to take the highest possible profile at Copenhagen.

The opposition frequently claim that the commitments made by other countries at Copenhagen will impact on Australia’s scheme design, but that is completely wrong. The CPRS bill itself does not set a cap on emissions; that will be determined in regulations which will be made after Copenhagen. In the first half of 2010, the government will announce scheme caps for the years 2012-13, 2013-14 and 2014-15. Minister Wong has pointed out that this will provide ample time to take into account progress actually made at Copenhagen. I do know that there are negotiations underway with Minister Wong and the opposition at the moment but I certainly hope that the Liberal Party stops confecting reasons to delay action on legislation that has been on the table since March. In any event, Australian businesses need certainty for investment, which is why both the Business Council of Australia and Australian Industry Group have called for a CPRS to be established this year.

I want finally to say something also about agriculture, because I am so deeply concerned about the apparent refusal of the National Party to take the issue of climate change in any way seriously. Of course, the government has made it entirely clear that no decision will be taken about the inclusion of the agricultural sector in the CPRS one way or another before 2015. The government will continue to negotiate in good faith with the opposition in this area and will of course also talk to interested industries. But I am reminded that climate change does not at its heart present us with an economic problem. We can afford to deal with it. There are a number of Treasury projections to show us that our country is likely to become vastly richer over the next several generations as it has over the last several generations. The real problems are political and institutional.

However, like the Leader of the Opposition, I draw the attention of the House to the recent report of the Wentworth Group of Concerned Scientists, which demonstrates the extraordinary possibilities of improving carbon sequestration in the soil to provide a new source of income for farmers and other land managers to look after our landscapes in a sustainable way while at the same time helping Australia to adapt to climate change. The report argues that investment for storing carbon in the soil can be targeted to produce multiple environmental and economic benefits: improving soil carbon in agricultural landscapes, which helps address both climate change and improve the conditions of agricultural soils that have been in slow decline over the past two centuries; we can restore native vegetation along the nation’s rivers, wetlands and estuaries, which would produce two landscape benefits—improved water quality and reconnection of native vegetation across our vast fragmented landscapes. Thirdly, it could be targeted to expand the habitat to create viable populations of threatened species, which is a foundation stone for their long-term survival. We are talking here about policies that will assist farming and food security and also restore our degraded natural landscape.

The government has an extensive research program underway to ensure that farmers can be rewarded for land management practices that decrease emissions and increase carbon levels in the landscape. I should, though, also point out that the government seeks in the meantime to negotiate new international rules which will ensure that farmers cannot be liable for emissions over which they have no control, like bushfires and drought. We will also have to be sure that sequestration measures are implemented in this context within management guidelines that guard against adverse consequences of an unintended nature on the environment.

This is an example of the great hope that we can hold for the future if we get our policies right. I commend this bill to the House as an important and urgent step along way to doing so.