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ENVIRONMENT AND COMMUNICATIONS LEGISLATION COMMITTEE
20/04/2011
Australian National Registry of Emissions Units Bill 2011; Carbon Credits (Carbon Farming Initiative) Bill 2011; Carbon Credits (Consequential Amendments) Bill 2011

CHAIR —Welcome. Thank you for helping the committee today. The committee received your submissions as No. 17 and No. 41 respectively. Do you wish to make any amendments or alterations to your submissions?

Mr Stanton —No.

CHAIR —If not, do you wish to make a brief opening statement before we go to questions?

Mr Hansard —We would both like to make a brief opening statement.

CHAIR —Can I put the emphasis on ‘brief’.

Mr Stanton —Thanks very much for the opportunity to appear before you this morning. I should just make you aware that our two organisations are actually in the process of merging at the moment to form a single entity to represent the forestry, wood products and paper industry at the national level. We are in a transitional phase at the moment and, as you are aware, we have made separate submissions.

CHAIR —An amalgamation.

Mr Stanton —However, our submissions are consistent and we are happy to appear together today. From the A3P point of view, though, we consider that commercial plantation forestry has significant potential to contribute to climate change abatement via an increase in the storage of carbon in an expanded Australian plantation estate and in wood products where carbon is permanently stored in use. I should emphasise that I am dealing primarily with the planting and harvesting of trees to produce wood, paper and renewable energy products. I am not expressing a view about carbon-only plantations, which are not intended for harvest. It is our considered view that the Carbon Farming Initiative, as detailed in the legislation, is unlikely to attract the interest of commercial plantation growers and therefore it will not realise a substantial, low-cost carbon storage opportunity.

There are essentially two reasons for our conclusions about the Carbon Farming Initiative. Firstly, the government has not provided a clear link between credits that may be created under the Carbon Farming Initiative and any credible and reliable carbon pricing mechanism. Commercial plantation growers will not incur the substantial risks and costs associated with developing a CFI project and having it approved unless they are confident that they will be able to access a reliable market. The demand and price in the domestic voluntary market is not sufficient and the linkages to international markets are uncertain at best. We would agree with Professor Garnaut’s conclusion in his recent paper on rural land use where he suggested that the government should link the CFI to any emerging mandatory carbon market.

Secondly, it appears that the government has gone to great lengths to make it as difficult as possible for commercial plantation growers to meet the requirements of the Carbon Farming Initiative. Regulatory risk, the additionality test, the permanence provisions and the negative list of excluded offset projects, along with a number of technical issues which are detailed in our submission, will all conspire to make the Carbon Farming Initiative unattractive to commercial plantation growers. In our view, the CFI is a substantial missed opportunity to increase the storage of carbon in commercial timber plantations and in wood products in use.

Mr Hansard —I will keep my comments fairly brief, but what I would like to say is, firstly, that it is a pleasure to be here on behalf of the Australian Forest Products Association. As Richard said, we have just recently merged. Our view at AFPA is perhaps a little broader than Richard outlined. We look right across the whole sector of the forest industry. The forestry and forest products industry can make a significant contribution to climate change mitigation given the right policy framework. However, given the proposed design of the Carbon Farming Initiative, there remain significant impediments for the realistic uptake of the wider forest industry for carbon sequestration, particularly for commercial timber products, as Richard has just said.

Without substantial amendment, the current bill is a missed opportunity for recognising the full potential of the forest industry to provide cost-effective land based abatement which can also provide a broad range of other economic, environmental and social benefits. In fact, we feel this legislation is a backward step from where our key issues were for the 319-page Carbon Pollution Reduction Scheme legislation, and we are very disappointed about that.

The main issues with the current bill include the complex additionality requirements, the lack of recognition of wood products as a significant carbon pool, ambiguity regarding the scope and eligibility of native forest management incorporating periodic timber harvesting, regulatory interference through a proposed negative list of certain project types, and relatively high transaction and compliance costs, particularly for smaller forest growers. Furthermore, it is imperative that the carbon offset projects are recognised under a future carbon price mechanism to promote an efficient market and demand for low-cost abatement options.

AFPA is particularly concerned that the bill fails to adequately recognise the scope for sustainable forest management practices in native forests—that is, the renewable management of these forests for timber and other values on a periodic harvesting and replanting cycle, which has been acknowledged by the international scientific community as providing one of the most effective ways to maximise mitigation from forests. Any unwarranted restrictions on for-harvest native forest projects compared to forest protection projects could lead to large perverse outcomes given their generally higher sequestration potential compared to reserved—that is, unharvested—forests over the longer term. It is therefore disappointing to see little progress on this issue in the bill.

These issues are described in more detail in our submission, and we would be happy to take questions and elaborate on these matters. AFPA remains committed to working constructively with the committee and other stakeholders to provide a valuable contribution to the inquiry, but also to help realise the valuable contribution the forestry and forest products industry can make to climate change mitigation.

CHAIR —Thanks, Mr Hansard. We will go to Senator Colbeck.

Senator COLBECK —It appears, from what you have been saying, that the government has effectively got the cart before the horse in respect of how it might interact with a regulated carbon market, because that does not exist and is still being designed and then it still has to get through the parliamentary process. It almost sounds as though you are saying that the thing is not going to work anyway. From a plantation harvest perspective, there is likely to be not much uptake. That would go across to what you are saying as well. On top of that it sounds like that is also a bit like a backdoor way of trying to lock up any access to native forests by restrictions around that in relation to native forest harvesting. It looks like that is pushing everything backwards rather than actually providing any incentive to do anything.

Mr Stanton —We certainly do not see the Carbon Farming Initiative creating any new additional incentive for people to establish plantations. As for our view, our members have been working for at least 10 years to explore the opportunities that carbon could create, because if we can expand our plantation resource that is carbon that is stored. We face significant challenges getting capital into plant plantations. Carbon could be one additional market that could improve the economics of commercial plantations, but we do not see this mechanism providing access to a meaningful market and therefore we do not expect it to change the economics of investing in timber plantations. It really just will not make a material difference to plantation growers.

Mr Hansard —I think what Richard has just said is right. This is very much a missed opportunity for the government to really place a foot forward in relation to setting good land based policies for climate change. Richard has said that he does not think that the uptake would be great. I would have to endorse that. We cannot see how this can work to facilitate not only the uptake of plantations for wood but that for carbon. It just will not work. Therefore it is a missed opportunity given the potential that the land based sectors have to provide a positive offset to emissions from other sectors in the economy. It is a missed opportunity for not only farmers but the broader community as well. We note that the agriculture sector is the second largest emitting sector in the economy. Here is a real opportunity for the farming sector to help address those emissions, so to still continue to grow food but to offset their emissions through trees. We see that this legislation would not enable them to do that effectively. In relation to your comment about native forests, our concern is that the detail before us here does not make it clear as to what they really intend. We would not like to see this as a threat to our sustainably managed native forests in Australia.

Senator COLBECK —But if it actually inhibits the process of sustainable management and harvesting and recognition of carbon stored in timber products—another point that you raised earlier—then effectively that is what it is, almost a backdoor way of trying to close down the native forest sector.

Mr Hansard —We hope it is not. This is an issue that we have been raising with the department. We have been seeking clarification in relation to how the native forest projects would actually work.

Mr Stephens —The issue is that the bill refers to forest protection projects and there are some design parameters around those, but the bill is silent in terms of the scope for improved forest management outcomes particularly as to private native forest, for example, as it does not recognise wood products and there is uncertainty about whether those kinds of projects would be recognised even if you had an approved methodology. So there is a lot of ambiguity and uncertainty about that. As Allan mentioned earlier, with the CPRS there was already a framework being developed for harvested forests and non-harvested forests which had gone a fair way. But the explanatory memorandum and the bill are silent on this issue. So at this stage we cannot say whether it is going to provide those adequate incentives. It is just too ambiguous.

Senator NASH —Can I ask this, given the very good point that Senator Colbeck has raised about the potential locking up of native forest, if state and territory entities can receive an ACCU for the avoidance, through locking up native forest, in your view wouldn’t they be inclined to do that?

Mr Hansard —That is a missed opportunity if they do, because internationally the scientific community has agreed that the best way to get the best mitigation from managing forests is to sustainably manage them, not lock them up.

Senator NASH —I agree with you. I am just asking for your view. Given the way it is contained in the bill, is that likely to create an incentive for state and territory governments to lock up forests?

Mr Hansard —I think what Mr Stephens is saying is that it is unclear as to what the real intent is in relation to the legislation and it is very difficult for us to therefore comment on what the actual effect would be. This is the difficulty with the legislation as we see it: it is unclear as to what the intent really is in relation to projects as to native forests.

Senator COLBECK —Going back to your comments in relation to establishment costs and the effects in relation to mitigation on farms, I agree that there is enormous capacity for the right trees planted in the right place to make a huge difference and give an opportunity for farmers to offset some of their own emissions and also benefit from a revenue stream for assisting with broader offsets. Can you give us some expansion on how the current process is actually restricting the capacity to access that, as you see the design of the proposal at the moment?

Mr Stanton —There are two aspects to it. First of all, there is the lack of a clear potential market, so anyone sitting down and saying, ‘Okay, I’m going to establish a new plantation and I want to get some carbon credits,’ is then going to have to go through certain processes of documenting a methodology, having that methodology approved by the committee and jumping over the various hurdles. It will cost them money just to do that, money over and above what it would cost them just to go and establish a plantation and harvest it for wood products. So that is an investment, and at the moment our members who have interests in this area do not see a potential to earn a return on that investment because there is a very limited market for any credits even if they could get them. So that is the first point, the lack of a market.

The second thing is this. When they actually say, ‘Well, assuming we think this might get connected to the carbon price in the future, we are prepared to take a risk on that so we’ll go ahead,’ and then, when they come to look at the details of what they would actually have to step through to get it approved, they see the various tests that have been included and the uncertainty around a lot of the decision making—a lot of it is deferred to regulations or to subsequent decisions. Once again, for a grower looking at this the current position is too complicated. It is highly questionable whether we would be able to convince the committee that our project is additional and whether we would be able to convince our investors that they should take on the permanence obligations that are likely to be included in any project—so too much uncertainty and too much risk and they will just not do it. Therefore they will not be able to access this opportunity and they will keep growing trees for wood products only or for whatever other products they intend to produce, not for getting recognition of the carbon that is stored in them, hence a missed opportunity.

Mr Hansard —I would have to support that. At the moment the cost of compliance, going through those things that Richard has outlined, would not make this a profitable venture for farmers, particularly given, as he said, additionality—they have to prove that—and permanence, as they have to align with that. That makes this a very restrictive scheme.

Senator COLBECK —Going to the additionality aspect of it, I am aware of a number of farmers who have set themselves up with, say, a 25-year whole-of-farm management plan that includes rotations on their farms for forestry and other aspects of the farm. So someone who has done the work at the leading edge of managing their property on a sustainable, environmental management system, whole-of-farm management plan would effectively be locked out of that because they could not prove any additionality.

Mr Hansard —The really disturbing thing about additionality is this. Additionality was worked through in the CPRS legislation. We spent months with the department working through how to make the CPRS work in relation to these issues, yet now, some months down the track from the CPRS, we see additionality back in there again. We are now seeing ourselves go through the same process as before, arguing the same arguments in relation to additionality. It is quite disappointing, really, because it took a lot of time for the industry to go through these issues during the CPRS and now it is taking a lot of time for the industry to go through these issues with this legislation. We thought we had it worked out. We were quite happy with the way that it was dealt with in the CPRS legislation, only to see that we have to revisit it again now.

Mr Stephens —Picking up on your example, Senator, the detail here is the additionality test of common industry practice. I think the farming community and, I guess, the forestry community share very similar concerns. What is common practice and what is not is very subjective and very complex because there are a whole range of factors involved in any investment decision. That is where we are saying that the costs of compliance in dealing with that complexity really need to be thought out properly. Don’t get us wrong; we really see that the original intent of this bill is to be broad based and promote sequestration—we are all for that—what we are saying here is: this is not going to deliver that without some major modification.

Senator NASH —Revisiting what we have already covered, in your view—and correct me if I am wrong—a voluntary market is not going to work. There is not going to be the incentive there for people to jump through these hoops, with all the bells and whistles, if it is going to be voluntary. Are you saying that any effective outcome from this legislation or any effective implementation of this legislation is absolutely predicated on having a carbon tax or some kind of mandatory mechanism?

Mr Stanton —We would not necessarily want to comment on how you access the carbon price, but unless, in this instance, a forest grower has access to a reliable carbon price and there is significant depth in that market, we cannot see them being prepared to invest in projects of this nature. The voluntary domestic market does exist and there may be some people who are willing to plant trees for that voluntary market, but we think that is a fairly shallow market and it is not going to attract large-scale plantation growers to be interested in it.

If you look at the situation in New Zealand, plantation growers there have been given access to a market by their government—the government is essentially, I guess, sharing the risk by saying it will issue tradeable international permits to plantation growers in New Zealand who meet certain requirements around their projects. They are going ahead and making decisions about expanding their plantations or managing their plantations in a different way and they are selling their credits on international markets.

Senator NASH —One of the things that is very unclear, I think, in the legislation is the issue of the methodology and existing methodologies that may well be acceptable and this issue of additionality. From your perspective in your industry, in a perfect world what would you like to be able offer up to government that is constrained because of what is in this legislation?

Mr Stanton —As Mr Hansard said, I guess we were more comfortable with where the CPRS was heading with an involuntary opposite in mechanism. So a plantation grower or someone who is considering planting a plantation on land which was cleared in 1990 would meet the requirements of Kyoto. They could measure the amount of carbon stored there. They should be eligible to be given credit for that. They would also take on the risk that if that carbon were emitted at some later date they would have to buy back credit to compensate for that, but that would be their business, whereas the proposal we see here is much more complex in terms of, as you say, methodologies and getting projects approved. It is a much more complex test than what we were envisaging certainly under the CPRS, which would have simply been a matter of Kyoto compliance: was that land cleared; can you now demonstrate that it has more carbon on it than it had previously?

Senator NASH —I should have asked this at the outset—and Senator Colbeck will be well across it. Can you for the record outline the potential carbon sequestration process sequence: how much per year over what period within the forest industry and what you do?

Mr Hansard —What do you mean actually, Senator?

Senator NASH —How many tonnes of carbon will you be able to sequester through your process and what you do, and in which years is it most beneficial? Could you just outline the process for the committee.

Mr Hansard —I can tell you what the situation is now, as we understand it. The plantations that have been established over the last 10 or so years—since 1990; the Kyoto start point, if you like—deliver 20 million tonnes C02 equivalent, which is taken into the national accounts. I think it is also included in the Kyoto account and helps us meet the Kyoto target. That is based on the plantations that have been established since 1990.

Senator NASH —What sort of acreage is that?

Mr Hansard —As to the actual Kyoto compliant plantations I would have to check the number, but off the top of my head, if I remember correctly, it is about 600,000 to 700,000 hectares. The potential here is to continue to expand the plantation resource in the future and to be able to capture the carbon that is associated with growing trees for our future demand of wood.

Senator NASH —On what sort of land were you talking about expanding the plantations?

Mr Hansard —Cleared agricultural land because, as per the Kyoto requirements, it needs to be on cleared agricultural land.

Senator NASH —Within the industry, is there any preference for a type of agricultural land?

Mr Hansard —Yes, there is. Some areas of agricultural land grow trees well and some do not.

Senator NASH —What are the conditions that make the trees grow well on some agricultural land and what are the conditions that make them not grow so well?

Mr Hansard —Forestry is very broad and variable. You do have a lot of tree types that can grow in low rainfall right through to high rainfall. At the moment, the wood plantations—the trees that are grown for wood—are usually grown about the 600 to 800 millimetre rainfall mark. Do you agree with that, Richard?

Mr Stanton —Yes.

Mr Hansard —But there is obviously opportunity to grow trees outside those bands. There is a lot of potential here to put trees in the landscape in such a way that it does not substitute for agricultural food land but actually enhances agricultural productivity if we do it correctly and properly. So the opportunity here is to work with the agricultural sector to get an outcome where we obviously get carbon from the trees but we also get good environmental outcomes as well as good food production outcomes for the economy and the associated communities.

Senator NASH —Finally, you talk about doing that co-jointly and that it enhances agricultural productivity. How can it enhance agricultural productivity?

Mr Hansard —Mr Stephens used to work in this area so I will pass it to him.

Mr Stephens —There are a whole range of levels. If you look at whole farm planning, in terms of the configuration and design of planting there are a whole range of options as to how you might do that: shelter belts, strip planting, riparian areas. The main productivity benefits are through shade and shelter for stock, wind and soil erosion and enhanced soil nutrient cycling. Those kinds of factors can help enhance productivity on-farm and provide broader diversification for an enterprise when you are diversifying your activities at a farm level. There is a whole suite of science and literature around how you may use trees smartly in the landscape and those types of benefits.

Senator NASH —But to get the benefit from this, from carbon sequestration from putting trees on farming land, you are going to need a carbon tax or some sort of mechanism—I am just trying to paraphrase that very quickly—to put to the market.

Mr Hansard —One of the things we should not miss about this legislation, which we have got some problems with, is that we support it because it actually is a mechanism to recognise the carbon from growing trees and other activities. So we support it in that way. This is recognition of land based mitigation activities, and we have to remember that. That is a positive thing about this. It is just about how we make it work correctly so we can get the maximum opportunity out of it. That is what this is about.

CHAIR —Senator Nash, we have to move on. On this issue, I note that Mick Keogh from the Australian Farm Institute is quoted as saying the amount of carbon that can be sequestered is between 0.6 and an upper limit of two tonnes per hectare. Given your calculation, and if we use the Keogh calculation, that would be a maximum of 14 million tonnes available. If you go to the bottom end, which CSIRO are saying, it would be far less. What is your comment on those figures?

Senator COLBECK —He is talking about soil, not trees.

Senator NASH —Yes, he is talking about soil, not trees.

Mr Stanton —He is talking about the storage of carbon in the soil rather than the storage of carbon in, say, forest biomass. If we are talking about converting an area from cleared land to forest, which may have a volume of timber on it of 200 to 300 tonnes—can you convert that to carbon for me?—

Mr Hansard —Five by 100 hundred—

Mr Stanton —It is 500 tonnes of carbon in a standing hectare of forest. He is talking about soil carbon, not soil.

CHAIR —Okay, thanks.

Mr Hansard —The figures I used there in relation to plantation mitigation were actually from the government.

CHAIR —So that is stored in the trees?

Mr Hansard —It is stored in the trees. It is net of harvesting as well, because what the Kyoto rules actually say are that we count the carbon in the trees but when we cut them down it magically disappears. That is not correct and we would like to see that changed, but that is the way the accounting is done.

Senator MILNE —Mr Stephens, I just heard you talk about the benefits of agro forestry on farms and whole-farm plans, and I agree with that. But do you think that the managed investment scheme project led to sensible outcomes in the rural landscape? Mr Stephens, you were the one making the comments about trees and the landscape.

Mr Stephens —Sure. At a landscape scale, there are a whole range of options and I talked about broad based plantings and agro forestry type plantings. What the MISs have done was promote some investment in planting at a relatively large scale. In terms of some issues around the collapse of some of those companies in the industry, the industry is very aware of looking at some due diligence in corporate arrangements around that. But the fact is that those plantings occurred quite fast and in the landscape. At an industry level, we are very keen to look at smarter planting and working more at a community based level with landholders in regions to make sure that the development of those plantations occur for the right reason and balance a range of outcomes both commercial and non-commercial.

Senator MILNE —The issue for us, as you can appreciate, is the conflict that has occurred between food, fibre, energy and carbon. We are trying to avoid another debacle of that kind, which led to a whole lot of perverse outcomes in terms of water, land allocation and so on. I think that is where Senator Nash was coming from in terms of which land you were talking about in relation to this conflict. Mr Hansard, I would like to come to you on the issue of ‘additionality’. What do you understand by the notion of additionality in carbon accounting processes? What should it mean to be ‘additional carbon’ to what would have occurred anyway?

Mr Hansard —If you go to what the CPRS—

Senator MILNE —No, I am not going to the CPRS. I am asking you: what is additionality recognised as being in international carbon accounting?

Mr Hansard —Okay. Then the way I will say it is this: if you have an area of cleared land and you plant a plantation on it, the carbon that is sequestered in that plantation increases the carbon of that hectare of land; therefore, that is additional to what would have been there if you would have left that hectare of land cleared.

Senator MILNE —Yes, I understand that absolutely. But you know exactly where I am coming from, and that is you would plant that plantation anyway if it were a productive and economically viable thing to do. That is what people who use landscapes do; they make decisions about maximising the profit on the land they have got, and that is a decision that a landholder makes. The issue is the plantation forest industry is out there planting plantations for profit, for harvest; that is what they do. Why should you get a windfall gain for something that you intended to do anyway? Surely our objective here is to add to what would have been done anyway in terms of a carbon response.

Mr Hansard —But don’t we have to look at what we are doing anyway and try to also enhance that? The plantations which we have planted over the last 10 years that provide the 20 million tonnes of carbon that allow us to meet our Kyoto target were planted for wood but they also provide a positive climate change and carbon benefit. Yes, we do want to get more carbon into the landscape but shouldn’t we recognise what we are also doing? I will give you the example—

Senator MILNE —The question is: if you were going to do it anyway, why should you be given a windfall gain?

Mr Hansard —Senator, where is the windfall gain here? This is recognising carbon.

CHAIR —This is not a debate. If you cannot answer the question or you do not want to answer the question just say that, but do not—

Mr Hansard —Could I ask for clarification from the senator?

Senator COLBECK —It is clear that it is not the answer that the senator wanted.

Senator MILNE —Additionality is an important issue.

Mr Hansard —Mr Chair, could I ask the senator to clarify what she means by ‘windfall gain’?

Senator MILNE —I mean the plantation sector makes a decision to plant plantations on the economic viability of that decision. If you are going to plant that anyway, aren’t you expecting to get an additional financial benefit by generating Kyoto compliant credits from that activity to sell into an international market and, therefore, benefiting in addition to the financial outcome of the plantation? Isn’t that what you are talking about? That is what you want. You want access to an international market with a price that allows you to sell those credits.

Mr Hansard —What is wrong with that?

Senator MILNE —The point I am making is additionality, and that is the debate. You know it is the debate. We know it is the debate.

Mr Hansard —But isn’t that good for the environment? Isn’t that what we are trying to do here? Aren’t we trying to address the emissions budget here?

Senator MILNE —What we are trying to do is make sure we get additional carbon and use the market to get additional carbon, not to do what you are going to do anyway. Do you think that people who have put a covenant on native forests or have national parks should, in the same manner as you are arguing for plantations, have access to permits for sale in this market?

Mr Hansard —A covenant on?

Senator MILNE —Let us assume I have a property and I have put a covenant on a couple of hundred hectares of native forest, because that is a decision I made. I have already done that, just like the plantation industry is going to make decisions about planting. Should I get an additionality benefit in the same way as you are suggesting for plantations?

Mr Hansard —Were they going to clear it?

Senator MILNE —Were you going to plant the plantation? Anyway, additionality is a key question here but I appreciate the time pressure.

CHAIR —Okay—

Mr Stanton —If I could comment to put a different perspective on that perhaps, whoever the land owner is, whether it is a farmer or a forest grower, they make decisions about what they grow on that land and how they manage that land, whether it be as to trees or an agricultural crop. What we are talking about here is saying that, of all the land use options, different ones have different carbon storage impacts, everything from growing trees to cropping and different cropping methodologies. I think what we want to do, through this mechanism, is recognise those different carbon storage options in each land use decision and factor the price of the carbon decisions into the overall economic decision. It is not necessarily going to change the decision but if I am a land owner and I want to grow wheat and I have the choice of two different cultivation options I want to take the one that has the most positive impact in terms of carbon, so there should be a price signal to encourage me to do that. It might not be sufficient to overcome other signals but it should be factored in. Equally, if I am making a decision—do I grow wheat or do I grow trees?—most of that decision will be based on the value of wheat and the value of trees and how much it costs to establish them. We are just asking that a small proportion also include this: what impact will that have on the relative carbon storage or carbon release in those different land use options? So it is not necessarily a case that you were going to grow trees anyway; instead you were going to use that land for whatever you thought was the best use, and we want carbon factored into that decision.

Senator MILNE —As an indication of size—and let us assume you did get credits for lengthening rotations if it were allowed or whatever you chose to do—to what extent do you think you would increase the size of the plantation industry if you got credits for doing so?

Mr Stanton —It primarily depends on the price.

Mr Stephens —I would make the comment that, yes, it depends on price and there is a range of management options you can do that the Senate has identified. We are working with CSIRO on a number of projects to look at those types of issues. On the additionality question, the issue here is that we have to recognise, although you would not recognise this, that forestry produces in joint production a whole range of products simultaneously, which is one of its advantages. The common practice test of additionality is, as we mentioned, complex but, in terms of looking at if you would have done that anyway, due to the fact that you now have a scheme with permanence and these other requirements you will modifying the way you manage that plantation. So it is really not business as usual if you are going to go down that track.

Another issue we have is this, that we have really had a lack of investment in long-rotation plantation forestry in the last 20 years. You could make a pretty strong case in terms of any new commercial investment and the real barriers to that. Now this mechanism may be one means of really providing some dual outcomes as to wood production and carbon. They are the kinds of opportunities we are really keen to look at, and the additionality question is one of those key issues that are going to be part of that mix. But, given the fact that you are producing joint products and embracing a scheme that is going to be managed for that, they are really additional activities.

CHAIR —You indicated that one of the issues is a price signal. I suppose the best price signal is a price on carbon. Do you agree with that?

Mr Hansard —That is a good price signal. There is no doubt about that. We understand that, through whatever mechanism goes forward, there will be a price put on carbon. What we are actually saying is this: just as polluters should be responsible for their emissions in relation to a market mechanism, you should also recognise the fact that our sector, which actually sequesters carbon, should be recognised for that. It is a flip side of the polluter argument, as we are actually the guys in the industry that can produce carbon products and we should be facilitated to do so just as emitters, on the other side, are discouraged from polluting.

Senator MILNE —Providing there is full carbon accounting.

CHAIR —That is another argument. But I am trying to get clear in my mind where you are coming from, Mr Hansard. The best price signal is from a market process; would you agree with that?

Mr Hansard —If the market works well, yes.

CHAIR —So it is the market process. And that would mean getting a price on carbon would overcome some of the issues that you are raising or would be complementary to bringing about a better price for the work that you would do. Is that correct?

Mr Hansard —It would facilitate it in the way that Mr Stephens said. Basically, what we are looking at is a recognition of another product for our industry and therefore appropriately pricing that product would obviously assist.

Mr Stephens —The market mechanism is important. What we are saying is that it needs to recognise the offsets or these other project credits under that scheme. I think that is the main point. The market mechanism is the overall framework, but if you separate the two it is going to remain a voluntary market and not be very effective.

CHAIR —Do you support an appropriate price being put on carbon?

Mr Stephens —We support an efficient market mechanism. As Mr Hansard said, if it is designed appropriately and effectively we would support it.

CHAIR —Which would be a price on carbon? So in shorthand it is a price on carbon. Is that correct?

Mr Hansard —I think globally we are seeing a recognition of carbon as a form of a product, therefore markets will revolve around that. We are seeing that now. So with that comes a price on carbon in some way, shape or form through the mechanisms that are put in place.

CHAIR —So you support a price on carbon?

Mr Hansard —I think anyone would have to support a price on carbon, recognising that carbon is a product in that way. Now how that price is actually determined is another debate.

CHAIR —Thanks very much for your evidence this morning.

 [9.31 am]