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Australian National Registry of Emissions Units Bill 2011; Carbon Credits (Carbon Farming Initiative) Bill 2011; Carbon Credits (Consequential Amendments) Bill 2011

CHAIR —I welcome representatives from the Green Institute and from Greenpeace. Thank you for coming along today. The committee has received your submissions and has numbered them 7, 20 and 46 respectively. Do you wish to make any amendments or alterations to your submissions?

Mr Winn —No.

CHAIR —Do you wish to make a brief opening statement, with the operative term being ‘brief’, as we have three people here.

Ms Blakers —Yes.

Mr Winn —Yes.

CHAIR —We will go with Ms Blakers first, and then we will come to you, Mr Winn.

Ms Blakers —It is clear from a climate perspective that the landscape as a whole is really crucial for dealing with climate change. It accounts for over 20 per cent of Australia’s net emissions. That is an important point: it is net emissions. So, within that 20 per cent, regrowth is offset against emissions from, say, logging and clearing of native forests. So the actual quantity of abatement that is available in the landscape is much larger than you might think from that net figure. The CFI is a mechanism that the government is putting forward for trying to harness some of this abatement. It is not a market mechanism in the sense that there is no penalty for emissions. It is actually more of an incentive mechanism whereby there is a certain amount of money available to spend in the landscape for the purpose of abating climate change.

If we are looking at incentive schemes we really have two choices about how we set those up. One is in the way that the Carbon Farming Initiative is set up, which is to pay by the tonne of carbon. Using that generically, you pay by so many tonnes of carbon sequestered or you are paid for avoiding emissions. The alternative way to provide incentives is through a fund whereby you pay people or you provide incentives for doing activities which are good for the climate, in the broadest sense, both on natural ecosystems and on agricultural land. The key difference is that, if you pay by the tonne of carbon, the priorities will be determined by the quantity of carbon and by the commercial agility of the proponents.

In my view, the CFI has considerable potential for perverse outcomes, and quite a number of the submissions have put forward ways of dealing with these perceived risks from the Carbon Farming Initiative. I want to briefly highlight two. The first was partly referred to in the previous evidence about the chilling effect of people putting their land under covenant because they do not know whether they might be able to get funding from some sort of climate mechanism if they hold off. More than that, I think another major threat in that arena is that there will be pressure to wind back existing clearing controls, because one of the other unfairnesses in this is that, if you are legislatively prevented from clearing, you have no access to this scheme. If you have a legal right to clear, you do. So I would suspect that, in some states, there might be quite considerable pressure to wind back clearing controls.

The second thing is a kind of reverse possible impact, which is that, as far as I can see, the legislation at least has no provision that prevents the linking of MIS schemes with the CFI, so you can basically financially engineer products that will take advantage of the tax provisions under the MIS schemes, be eligible for carbon credits and, possibly, also link into the renewable energy credit scheme. So you may have financial engineering that enables you to take advantage of all three and, in the process, unleash another wave of tree planting across the country.

So, in my view, I think it is critical to put money into the landscape sector, but it would be far preferable to do it through a fund and to fund that through a portion of the income from the tax trading scheme. Thank you.

CHAIR —Mr Winn, you may make your opening statement.

Mr Winn —I would like to support Margaret’s views; we agree with them generally. Let me begin by saying that Greenpeace believes that the agriculture, forest and land use sector must accept its responsibility for its greenhouse gas pollution. Polluters should be made to pay for the environmental impacts. Nevertheless, the CFI is an opportunity to reduce our land-sector emissions as well as to improve unsustainable agriculture and forestry practices. We also see this as an opportunity to build climate resilience into our natural ecosystems and agricultural landscapes. However, how you do that is the important question.

CHAIR —Mr Winn, I am sorry to interrupt. Can I ask you to slow down a bit. We are having some problems understanding you, because of the line; your words sound as if they are running together. You will have to make a deliberate choice to go a bit slower.

Mr Winn —Okay; thank you. So generating offsets in one sector to allow emissions to continue in another risks forestalling the economic transition in the energy sector that we require to meet climate protection objectives. Indeed, attempting to reduce emissions from the land sector to offset fossil fuel and industrial emissions actually risks increasing our total greenhouse pollution due to measurement uncertainty in permanence, leakage and climate impact predictions.

Australia’s fossil fuel emissions continue to grow, and a substantial price on that pollution and complementary measures are required to meet our international obligations. Greenpeace therefore believes that the CFI should be financed by a percentage of revenue derived from a price on greenhouse pollution or the sale of emission permits under an ETS. However, should our recommendations be ignored, the risks inherent in land-sector offsets need to be minimised. I will just run through a couple of those.

Firstly, the massive uncertainty surrounding measurements of greenhouse gases entering and being removed from the atmosphere by the land-sector activities means that offsets need to be discounted, we think, by at least 50 per cent compared to fossil fuel and industrial abatement, which is much more easy and more certain to calculate. Secondly, due to the lack of permanence of the land-sector emission reduction and sequestration and the increased climate risk that is posed in the land sector, we believe that all offsets generated should be guaranteed for at least 100 years, which is the approximate time needed for the bulk of atmospheric greenhouse gas to be cycled through natural processes. Thirdly, we think CFI’s offsets should only be allowed for emission reductions and sequestration that can be measured across a state or territory boundary. This is to minimise the risk that emissions will be displaced or will leak into other areas. So we are opposed to project based offsets and we do not think they should be contemplated. Fourthly, we believe that biodiversity co-benefits need to be maximised by only allowing offsets from rehabilitation of natural ecosystems rather than commercial plantation establishment. Finally, we think that the total CFI offsets captured should be around 10 per cent of the total number of permits of an eventual ETS.

Greenpeace believes that the best way of minimising these risks is, as Marg just suggested, to provide incentives for land-sector mitigation through a fund which should be financed through a price on carbon or the sale of emission permits. Thank you.

CHAIR —Thank you. We will now go to questions.

Senator MILNE —I would just like to cut to the chase. From where we have been in the submissions this morning, it is very clear that those sectors that have measurement accreditation already are the ones that will benefit first, and in this case we are talking reafforestation, manure management and savannah burning. The latter two are relatively small, so we are talking about, as it currently stands, reafforestation. We are told that the legislation will not include plantations established for harvesting, and yet you are suggesting that there is some potential to link up managed investment scheme forests with renewable energy certificates and with the Carbon Farming Initiative. Can you just explain, because this is a perverse outcome that everyone is worried about: the extent to which covering the landscape with trees under the CFI will be to the detriment of food production, water management, biodiversity outcomes et cetera. Would you like to address that?

Ms Blakers —As far as I understand it, what the legislation says about the relationship between managed investment schemes and eligibility for carbon credits is that you cannot convert an existing MIS into a permanent carbon sink and then get the credits for that. But, in my reading of it, there is nothing that prevents you from establishing a new MIS, and that has all the tax advantages that go with that. Added to that are the carbon credits that you would create by, on a given plantation estate, in effect taking your carbon density from whatever it is under a pasture to whatever it is under the average age of the trees that you are going to plant.

The requirement for an MIS is that you plant trees for felling, or words to that effect. So you would be looking at a plantation estate that would supposedly be felled on whatever the rotation is—20 or 30 years—and you would be looking at the carbon credits that would accrue from going from zero to the average carbon held on that estate at the average rotation length.

The reason I am also thinking that it might link into the renewable energy credits is that you can grow and attract renewable credits for energy crops. So it does not seem to me inconsistent to have an MIS that is for the purpose of felling to create an energy crop to get renewable energy credits and some carbon credits on the way through as well.

Senator MILNE —We had the A3P and the forestry industry people here this morning saying that plantations established for harvest cannot be included so they will be excluded. That is my understanding from what they had to say, so I think that needs some clarification from this committee when we get the department here.

Another issue is the one of perverse outcome being a disincentive that was raised by the representatives of the Indigenous community. In their submission they say that all of their protected areas will not qualify and that is a significant matter for them. As well, a number of their savanna burning initiatives are already paid for under various other schemes and therefore there is no additionality in that. We have just heard from the land trust that people who have covenanted land will not benefit. Can you explain to me, under what you are proposing here with the fund, how you would differentiate between paying people—let us assume you protect an area of forest—for the volume of carbon in that forest and what you are suggesting in terms of paying them for stewardship of that forest? What would be your ground rules?

Ms Blakers —I think that under the CFI there are a number of aspects that are unfair, some of which you have alluded to. It is the fact that if you have an existing protected area, whether it is a covenant, an Indigenous protected area or an existing national park or similar type of reserve, you would not qualify for any funding. The other big area where you would not qualify is where you have existing native vegetation and you simply want to look after it. It is not going to increase the carbon, but by looking after it you are going to increase its resilience in the face of climate change and therefore its ongoing capacity to store carbon. So again that does not get a guernsey under this scheme.

So what I am suggesting is that, instead of looking at how many tonnes of carbon and paying for increases and  for avoiding decreases, we should be looking at a far more broadbased landscape scheme which looks both at natural ecosystems and agricultural ecosystems—and, by the way, at marine vegetated ecosystems which are completely out of this picture. You look at what the priorities are on each of those land types and you allocate funding according to the management needs of those different land types. Or if you want to provide incentives to change agricultural practices, for example towards types of management that will increase carbon density or increase the resilience of the landscape, that they also could be paid for from a fund. Furthermore, the whole education-research-training dimension is completely absent from the CFI, and that is crucial because a lot of these changes in landscape management will come about through improved knowledge and applying that knowledge.

Senator MILNE —So if it was linked to a carbon price mechanism, and we are assuming that from this conversation, how would Australia benefit in terms of meeting its international obligations if you are just dishing out money to do good things but there is no measurement or accreditation against the target?

Ms Blakers —I think there are two different kinds of measurement that we are talking about. There is the project level measurement that you are looking at under the CFI, which is a very intensive kind of requirement. Then there is the sort of continental scale measurement which Australia currently does in order to report to the UNFCCC. So I think there are two different levels of accountability requirement.

If you go for a whole-of-landscape approach then you avoid having to go project by project, hectare by hectare measuring in a great level of detail. You will get carbon benefits as distinct from climate benefits by doing the things that are causing the biggest emissions, and that is logging native forests and clearing native vegetation. They are the two biggest sources of emissions, leaving aside animal husbandry. So, on a broad scale, with a combination of regulation and incentives, you can get very big abatement across the landscape as a whole. You do not take on all the details of hectare by hectare measurement requirements and, with the fund, you also have the capacity to increase the resilience and therefore reduce the risk of carbon loss on the large scale across the landscape.

Senator MILNE —A final question: in terms of levels of abatement there is quite a difference of opinion, it would seem, about what is potentially there. The government seems to be implying that under the Carbon Farming Initiative, even if it is linked to a carbon price, there will be relatively small levels of abatement. Yet I just heard you say that on a landscape scale across Australia you could potentially have a huge level of abatement and this will go to the question of an appropriate target in the longer term and the potential difference that article 3.4 could make. Do you want to comment on that?

Ms Blakers —Yes. There are two levels of uncertainty that relate to how the CFI might function. The first is whether and how it is linked to a carbon price in Australia. The second is what the international accounting rules are and whether Australia opts in to some activities that it currently does not report on—and the biggest one there is native forest logging, forest management. I have lost the thread of the question now.

Senator MILNE —Basically, the government is saying that it thinks it will be small; you are saying that you think it will be large. I am asking you how that relates to article 3.4 and how that might impact on the Carbon Farming Initiative and if it will link to a carbon price.

Ms Blakers —The Carbon Farming Initiative, certainly if it is a voluntary mechanism, will be small. If it is a compliance mechanism, if there is no cap on its relationship with the tax or trading scheme, then the Kyoto compliant components—that is, particularly tree planting—then it is hard to say. I have no modelling or any way of putting a number on it, but it is potentially quite large. I suspect that ‘devoided deforestation’—that is, clearing—will be quite small because the transaction costs are just too big. Also, I would think the commitment for 100 years is quite a big disincentive when the amounts of money are likely to be relatively small. Technically, there are quite large levels of abatement in the landscape. The CFI is not an efficient mechanism for getting those made real and, in particular, if Australia signs up to Kyoto 3.4—that is, the forest management component—that will bring in native forest logging. If native forest logging comes in—it is the biggest single source of market ready abatement in the landscape and it is managed effectively by a handful of state forestry agencies—you will have a small number of players; you will have a large amount of abatement. If that becomes a Kyoto compliant mechanism, it will simply flood whatever market there may be.

CHAIR —Can I just come back to this issue of commercial plantations. We have had evidence this morning from A3P and the Australian Forest Products Association that is completely at odds with what you are putting now. I would like to get some clarity or analysis from your perspective. The Forest Products Association basically argue that the additionality clause means that there will be very little investment from the forestry industry to try and get a carbon farming initiative process in place. They say both the explanatory memorandum and the additionality test on 41 make it really difficult for them. Have you read their submissions?

Ms Blakers —No, I have not read their submissions. Ultimately, it is going to depend on what is in the regulations, how the methodologies are put together, what is in the positive list and what is in the negative list. That is all a blank sheet. We do not know what is going to be in there. But, on the face of it, the legislation to my mind does not prevent the scenario that I painted of linking up MISs with the carbon credits.

CHAIR —How about the additionality test—41(3)(a), 41(3)(b)?

Ms Blakers —Yes, exactly. The history of MISs in the last 15 or 20 years is that they have been largely driven by the tax. They are essentially a tax farming mechanism, not a tree growing mechanism. The tree growing is a means to access the tax concessions. They have all virtually fallen over in the last couple of years. On the face of it, that says it is not common practice to be able to carry out that activity in a commercially viable way.

CHAIR —Really?

Ms Blakers —If the MISs have all collapsed because they are unable to find—

Senator COLBECK —That is not true.

CHAIR —I will come to you shortly, Senator Colbeck.

Ms Blakers —They have virtually all collapsed in the last two or three years.

CHAIR —But wouldn’t the argument be that the common practice is growing trees?

Ms Blakers —No, it is not.

Senator COLBECK —Of course it is.

Ms Blakers —The common practice, if it were driven by the market for wood, would not be to grow more trees. We have plantations enough in Australia to provide for Australia’s wood needs.

Senator COLBECK —That is not true either.

Ms Blakers —I am sorry, it is.

Senator COLBECK —In volume terms I will agree with you, but in species terms it is complete rubbish.

CHAIR —Senator Colbeck, I will come to you. Can I just—

Senator COLBECK —I get frustrated with this stuff being put on the public record all the time without it being challenged. It is simply not true.

CHAIR —I am sure you are going to challenge it. The industry itself goes on to say that there are so many issues they would not be accessing this. There is regulatory interference, the uncertain price in the market, the ambiguity of Kyoto, sovereign risk, the additionality test, compliance problems, higher costs with seeking project approval, unresolved issues and intellectual property. It did not seem to me that the submissions that we got from the industry were saying, ‘Just clear the way for us to get involved in this.’ They are saying: ‘This is really a problem for us. Under this legislation we won’t be there.’

Senator NASH —How are they going to do that?

Ms Blakers —If that is the case, that is good news from my view point. But I think the history of these schemes is that you do get some unintended consequences. I certainly have not the capacity to do the kind of financial modelling and so on that I have no doubt many companies are currently doing to see how they can put these schemes together.

CHAIR —Sure. I am not interested in the financial modelling at the moment. I am interested in the legislation to see whether the legislation does as you say, or does as the forestry groups are saying. You are saying that it is a problem because they will get access to it, they will manipulate it and there will be issues. They are saying that it is just all too hard for them. That is my understanding of the submissions we have received.

Senator NASH —Can I just clarify in the first instance the Green Institute. You are like the think tank for the Greens in the same way that the Menzies is for us.

Ms Blakers —Yes, correct.

Senator NASH —How are you funded?

Ms Blakers —From the funding that comes through that program, the Grant in Aid, and through donations.

Senator NASH —We have had a lot of discussion around the CFI and whether or not it would operate standalone under a voluntary market or if there needed to be some sort of mechanism. Are you supportive of a carbon tax straight up?

Ms Blakers —In the landscape sector?

Senator NASH —No, the carbon tax is being discussed more broadly at the moment by government and everybody else. Do you support a carbon tax?

Ms Blakers —I do not think anyone is proposing a carbon tax on, say, land clearing or—

Senator NASH —No, no. Just back a step: I am asking you whether or not the Green Institute supports a carbon tax.

Ms Blakers —We support a price on effectively fossil carbon, which is more or less what is under discussion.

Senator NASH —Do you think that the CFI can actually deliver any benefit in a voluntary scenario or does there need to be some form of market mechanism in place?

Ms Blakers —As I understand it, the price in the voluntary market at the moment is quite low—$2 or $3 dollars or something. That will help at the margin but it is not going to make any significant inroads on the emissions or the abatement that is available in the landscape sector.

Senator NASH —So to access that available abatement, you would need some kind of mandatory mechanism carbon tax or an ETS of some sort.

Ms Blakers —No, I think there is a range of mechanisms that would enable that abatement to be accessed of which a price mechanism is one but not one that I favour For example, with native forest logging, the simplest thing to do, as public native forests are managed by government agencies, is for those agencies to be directed as to what they can do.

Senator NASH —So that comes back to rather than have, say, a carbon tax you would rather see the fund that you talk about in your submission.

Ms Blakers —In the landscape sector, yes.

Senator NASH —Just on that: I think you say in your submission that it could be achieved:

by setting aside a minimum of 20% of the revenue from the carbon price scheme currently under negotiation and allocating the money through a fund (or funds) with defined objectives and priorities.

Given that you are the think tank for the Greens and yesterday Senator Milne was discussing the issue of 50 per cent of that revenue from the carbon tax going obviously to compensation and her concerns around that only leaving 50 per cent for industry, and research and development, you are now talking—obviously, with the support of the Greens—of another 20 per cent coming out of that total to go to a fund. Doesn’t that only then leave 30 per cent for the industry, and research and development? Senator Milne was concerned about it only being 50. Isn’t it going to reduce it by another 20 per cent?

Ms Blakers —Who I am speaking for is the Green Institute, not the Greens. I am putting forward an argument as to what the landscape requires. How that all washes up with the other sectors is a matter for the negotiations, so I am not making a comment on how much should go to the solar industry, R&D—because they are also looking for a fund—or any of the issues; I have not looked at those.

Senator NASH —But I am looking at it in a very simplistic way and I take that it is just the institute. But if 50 per cent is going to the compensation—or just over 50 per cent—which the government has said, you are talking about 20 per cent of the revenue from the carbon price scheme should go to this fund. Doesn’t that only leave in your view 30 per cent for any industry compensation or any R&D that needs to be done under this?

Ms Blakers —I am not making any comment on how much goes where apart from saying that I think if we are serious about the landscape then we need a fund that is of that order: 20 per cent of $11 billion or so, I think, is the estimate. If the carbon price is relatively low, it would mean about $2 billion or so for the landscape sector. Whether that comes entirely out of a tax or trading scheme or other sources, I think that quantity of money is the kind of input that should go into this sector. That is the point I am making; I am not making any comment on how much should go in the wash-up of any negotiation. That will all be debated out. That is not what I am giving evidence about.

Senator NASH —So that 20 per cent—what sort of actual quantum funding is that in your expectation? You must have some idea of how much money a fund would need to work in the way you see?

Ms Blakers —As I just said, at the low end of the prices that are being talked about, that would be around $2 billion. I think that is the minimum that should be going to the landscape sector. I think the investment in looking after the land, both natural ecosystems and agricultural land, is well underdone in this country. I would actually say that there needs to be a re-evaluation of land management across the board in Australia.

Senator NASH —So when you say 20 per cent, you said that that is at the low end. What sort of figure are you saying when you say ‘low end’?

Ms Blakers —The estimates that I have heard for a carbon price of around $20 to $25 a tonne—CO2, that is—would be that the total income would be around $11 billion, and 20 per cent of that is roughly $2 billion.

Senator NASH —Okay, so you are working around that 20 per cent to 25 per cent area. I was just trying to get a sense of what you actually thought. So in a situation where, say, we end up with an ETS model and the carbon price, for the sake of picking a price, goes to $75, are you still maintaining that it should be 20 per cent of that overall that goes to this fund?

Ms Blakers —What would that be? Seven times that—$15 billion per annum? We could do a lot with $15 billion per annum.

Senator NASH —That is what I am saying—there would be 20 per cent, and that total figure could be floating an awfully long way, so—

Ms Blakers —All I want to say is that there is absolutely a capacity to spend in the order of several billions of dollars per annum in the landscape and that that kind of funding would have climate benefits both in terms of abatement and in terms of increasing the resilience in the landscape to climate change.

Senator NASH —Okay. Have you had any discussions with others about this 20 per cent fund idea? I know that Senator Milne referred to a fund before, but I do not think you mentioned, Senator Milne, any kind of figure; it was just the principle, wasn’t it? Have you had discussions with others about this particular proposal? Have you had any discussion with government about this?

Ms Blakers —No—

Senator COLBECK —Mr Winn in Papua New Guinea has that in his submission—the possibility of a fund. That is, if I read his submission right.

Ms Blakers —Maybe Mr Winn would like to comment.

Mr Winn —Sorry, could you ask again?

Senator COLBECK —We were just talking about the possibility of a fund rather than the mechanism that is being considered as part of the CFI. Your submission talks about a fund for the purpose of securing abatement emissions from land use purposes. I just thought you might like the opportunity to expand on that. We just did not want to forget that you are out there in Papua New Guinea and concentrate on Ms Blakers all the time.

Senator NASH —Senator Colbeck is very kind.

Mr Winn —Our belief is that a fund would be a safer option to provide incentive to reduce emissions from land sector, and that is what it is based on—we believe that the land sector offsets are a great risk when trying to mitigate greenhouse gas emissions, and a fund would alleviate a lot of those risks. We have not settled on a figure, a number or even a mechanism for it to be implemented, but funds have worked in other areas where incentives are required, and they require much less scrutiny and much fewer accounting issues that are inherent with land sector offsets.

Senator NASH —Thanks, Mr Winn. Ms Blakers, in your opening statement you were talking about the legislation and—correct me if I am wrong—I am fairly sure you said that there were no regulations, no methodology, no positive list and no negative list as yet that we can access. In the light of all that, isn’t it incredibly difficult to pass a piece of legislation were our knowledge of how this is going to work is so very limited, with there being no regulations on how it is going to work, no idea yet about the methodology and how it is going to work and, as you say, no positive list and no negative list? Surely it is very difficult to say whether or not this piece of legislation should be passed with this incredible lack of detail.

Ms Blakers —On the one hand, there is that lack of detail and, on the other hand, there are the risks that I think are evident and the unfairness in the sense of who would be able to access funding through this mechanism and who would be locked out of it. So I think there are a number of reasons for re-looking at this approach to tackling climate change in the landscape sector.

Senator NASH —I know you talk about the alternatives, but are you saying that we should not be passing the legislation?

Ms Blakers —I think the legislation would provide a framework for the voluntary sector. Personally, I think it should be limited to the voluntary sector until we have sorted out some of the other consequences, have some more clarity about what it might do and have looked at some of the alternatives, a fund of being the obvious one.

Senator NASH —Also in your submission you talked about the incentive for large-scale tree planting, which you have covered, similar to the MISs. I note there that it is not just MISs; we also have legislation that relates to the tax breaks for carbon sinks, which is separate—

Ms Blakers —But that is running out—

Senator NASH —It is not running out; it is just the upfront changes to the longer term tax break. You state:

… state and local land management authorities will be ill-equipped to deal with the impacts.

Can you explain what you mean by that?

Ms Blakers —For decades actually plantation establishment has been a really controversial practice. If this drives more of it, it will be controversial again for a whole variety of reasons—the social impacts of taking over whole valleys and areas to put under plantation—

Senator NASH —I understand that. I particularly was interested in that you put in that the state and local land management authorities will be ill-equipped to deal with it.

Ms Blakers —In terms of putting the planning mechanisms in place to prevent any unintended consequences. Carbon does not exist in itself; carbon is embodied in something—it is embodied in soil and vegetation. A price on carbon, if it is going to effectively promote putting more carbon into the landscape, will be driven by the carbon quantity—so the more carbon, the more money; it is quite easy. How that manifests itself on the ground will have to be controlled by planning schemes, state government and local government zoning and other mechanisms.

Senator NASH —You wonder how much power the Commonwealth will have to override that in the case of this legislation. That is another good question.

CHAIR —Can I bring you back to the objects in the bill that we are dealing with. The first object is to:

… implement certain obligations that Australia has under:

(a) the Climate Change Convention; and

(b) the Kyoto Protocol.

The second object is to:

… create incentives for people to carry on certain offsets projects.

And the third object is to:

… increase carbon abatement in a manner that:

(a) is consistent with the protection of Australia’s natural environment; and

(b) improves resilience to the effects of climate change.

Isn’t there any linkage in the incentives to a carbon price and a future carbon price that is legislated? If there is a carbon price introduced then the incentive will be greater.

Ms Blakers —It will depend how it is linked to the Carbon Farming Initiative. First of all, in whatever that price arrangement is, are companies going to be allowed to buy credits or offset their emissions directly by going to a tree-planting company, for example, and making an arrangement between themselves? If that is permitted, to what extent will it be permitted? The linkages will determine how much money goes into the CFI and what activities are preferred under the CFI. That in turn relates to the linkage with the international arrangements because, if it is under the existing Kyoto arrangements, effectively, apart from the bit of savanna burning and methane flaring, it is tree planting or avoided clearing. Tree planting is likely to have fewer barriers in its way than avoided clearing, where people are going to have to make decisions that they will have to live with for the next 100 years.

Senator COLBECK —Mr Winn, you said that a fund would be cheaper and simpler to manage. We have had some discussion today with a number of organisations who have said that there is a lot of difficulty around establishing a lot of the processes that would be required for this current legislation. In terms of actually achieving some abatement objectives you say it would be much easier to go to a fund that effectively purchases the abatement as part of its objectives.

Mr Winn —I do not think I said it would be cheaper and it may not be easier. The issue is it would carry less risk, and that is our main concern. Having a fund that provides incentives to reduce emissions in the land sector alleviates some of the risk of the accounting uncertainties. You do not have to ensure that the emissions are exactly the same as the fossil fuel emissions that you are offsetting. There are fewer issues with impermanence because the incentives can be rolled out in a more creative way. Taking up some of the other submissions, money can be provided as stewardship payments in some circumstances to encourage farmers not to clear their land, whereas under an offset mechanism that activity could not be contemplated. So it carries with it much less risk and more ability to be creative in the way incentives are provided.

Senator COLBECK —You have mentioned in your submission and again today permanence leakage and the discount that should be applied. You are suggesting 50 per cent. I think we are talking about five per cent in the legislation. Are you aware of various ranges for different programs that might exist in different jurisdictions?

Mr Winn —If you are looking at land sector abatement, you need to know that it is an inherently impermanent activity.

Senator COLBECK —Yes, I know. I accept that.

Mr Winn —What I am saying is the reason we arrived at a 50 per cent discount was that it provides for a much better buffer than just the five per cent. As to other areas with other discounts, under article 3.4, for example, on forest management, as it is currently termed the discount is 85 per cent. There are some differences in the way that they have approached that because it is a gross-net accounting process, but discount arrangements of that order have been implemented elsewhere. The 50 per cent discount factor, we believe, would add some certainty that the abatement would be real and some of those permanence and uncertainty issues would be overcome.

Senator COLBECK —Ms Blakers, do you have any comment in respect of that?

Ms Blakers —About the management reliability?

Senator COLBECK —The discount factors.

Ms Blakers —I think it is a huge problem. In some ways I think it is akin to low-doc loans: you are mixing up highly uncertain credits with credits that are far more reliable. I find it really difficult to see how one can equate the measurement reliability of avoided emissions from a coal fired power station with avoided emissions from cows or avoided emissions in the landscape. You have temporal and spatial variability in the landscape which means that your measurement is inherently much less reliable, and that is a quite separate issue from the permanence or otherwise of the carbon in the environment.

Senator COLBECK —I think it was the Carbon Farming and Trading Association this morning who told us that the permanence of 100 years was effectively a deal breaker for people investing in it—not so much for their purpose but for getting investment to come on board. We heard similar things from the forest sector. I think the New South Wales Farmers Association indicated that it was an issue too. How do we balance this sort of stuff? I would be interested in your comment on this too, Mr Winn, when Ms Blakers is finished.

Ms Blakers —Fundamentally, I think if you are after permanent carbon storage in the landscape you go for native vegetation. You put aside the land and the vegetation for good, because that is what the climate needs. That is what the environment needs. Investment in anything which has a high ecological risk, in other words, that does not have the diversity and the resilience of natural ecosystems—is to a large degree a wasted investment. If we are really serious about permanence, let us go for native vegetation. Let us protect first of all what we have got by stopping logging native forests and by ending broad scale clearing. Then let us restore natural ecosystems to the extent that is compatible with maintaining agricultural land for food production.

Mr Winn —I think the permanence issue needs to be addressed if we are looking at an offset mechanism—and we do not support an offset mechanism. The best way to do that is to look at how long greenhouse gases or particularly carbon remains in the atmosphere. That is what an offset is meant to do. If you are going to offset fossil fuel emissions that lead to carbon that stays in the atmosphere for 100 years, you have to make sure that the carbon that is sequestered or the reduction in emissions in the land sector do the same thing, and reduce for 100 years. If that is not able to be ensured, then the length of time that is shorter than 100 years needs to go to a further discount. If an activity could only guarantee emission reductions or sequestration for 20 years, then it would need to be an 80 per cent discount.

Senator COLBECK —You mention the 100 years lifecycle of carbon. That has appeared in your submission. Other submissions talk about a 55-year cycle.

Mr Winn —This is an average, obviously. There are many factors that go into how long a molecule of carbon dioxide lasts in the atmosphere. Indeed, there is a small proportion that remains in the atmosphere for several thousand years. That is the proportion that enters the deep oceans. We are looking at an average, but certainly the bulk of carbon dioxide takes approximately 100 years to cycle through the natural processes.

Senator COLBECK —The information in the submissions that I was reading was quite definitive about the 55. But that is something we can go back and do some further work on. Let us go to our chestnut, and that is native forests. I accept that you have a perspective on this, and a rationale behind it, which I do not agree with—just for the record—for a number of reasons. The accounting systems that apply to native forests at this point in time do not include all of the sequestration that is taken up in solid timber. Let us take solid timber for a start. Under the current accounting processes the assumption is that as soon as a tree is harvested it emits all its carbon—and that is all its carbon. That is the accounting process that exists at the moment.

There is a debate currently going on through Kyoto about the recognition of carbon stored in solid timber products, including paper and furniture and things of that nature. There is a debate going on about that, and an attempt to get that recognised as part of that process. With that recognised as a sequestration of carbon, which it genuinely is, the issues sit, I think, largely around lifecycle. My discussions with the European Union are largely around sovereign risk. They are concerned, particularly in some of the countries where governance is not as strong as it might be, about managing the sovereign risk around carbon stored in solid timber products. That is the conversation that I have had at that level. With that recognised, though, there is a capacity that—and the science is very clear on this—over a cycle with long cycle management in native forests, you will in fact store more carbon with recognition of carbon stored in solid timber products.

That also, in my view, provides an opportunity to meet our timber needs for products that best come from the species and also provides an opportunity for our landscape to take up carbon. I accept that at the initial harvest there is a loss. That is fine, but—and you would have seen the information as well as I have—the science is very clear that you store more carbon over time by having an active management regime in your native forest. I am not saying go gangbusters in all of it, because we have already made some investments in relation to that. But, responsibly, if you are talking about plantations versus native forest I know what I would prefer to see in the landscape, and that is that there would be a management rotation in native forests that provides for the storage of carbon, the protection of biodiversity, water quality and landscape values. All of those things are much better provided by a long-term rotation management regime in native forests than they are in plantations.

Ms Blakers —Can I comment?

Senator COLBECK —Absolutely.

Ms Blakers —Let us be clear: we are talking carbon stocks. We are not talking rates of uptake or rates of emission; we are talking stocks.

Senator COLBECK —Actually we are not. We are talking about, as part of this process, carbon storage and carbon uptake. That is what this is about. This is about carbon uptake. That is what this is all about.

Ms Blakers —It is about net emissions, which is emissions minus removals. So it is net, and that is a major problem in the way that the accounts are put together. There are a number of issues in what you have said. Let us start with the big picture accounting framework. It is based on net emissions. It does not separate emissions from removals, which means that you lose the picture of what is actually going on behind the scenes—that is, what are the emissions from logging native forests and what is the uptake from the regrowing forest, because they are offset against each other. If you actually stopped logging native forests the net difference, the difference you would get in the apparent emissions, would be some tens of millions of tonnes of carbon dioxide. It is quite a big quantity in the scheme of things.

As to the issue of storage in wood products, in the accounting framework as it stands there is an amount that is allocated for the increase in the carbon stock which takes into account all the pools, whether it is solid wood products or paper or whatever—the short lived pools. About four or five million tonnes per annum increase in the carbon stock in the Australian counts goes into wood products each year. That is against, as I said, some tens of millions of tonnes of emissions from logging native forests. In fact, if you then come back and look at native forests specifically—not wood products and wood production as a whole—the vast majority, 80 to 90 per cent of native forest wood, ends up in short lived products. It mostly goes as woodchips offshore.

Senator COLBECK —But that is like saying that you get 100 per cent of scotch fillet out of a cow. This is an old argument. You have recovery levels that come out of those sorts of things. It also goes into overall economics and management of forestry.

CHAIR —Senator Colbeck, if you have a question, could you be quick. We have just about finished.

Senator COLBECK —We probably are not going to get through this, so we might have to call it quits at some point. We have a difference of view. I am interested in what you have to say, but—

Ms Blakers —Can I just make two quick points. First of all, I think we need to look at the stocks and the stock changes. That is actually what we need to be looking at here over a period of time. That is one point, and I can go through it with you at some other time if need be. The other point relates to that graph that purports to show that when you add in storage and wood products you end up with more carbon stored than in a native forest simply left to grow. If you actually measure the intervals on that graph what you will find is that wood products never disappear. The carbon goes into a wood product. Somewhere there are mountains of tables and chairs growing ever higher each year and there is never any loss of carbon from that source. It is clearly nonsense.

Senator COLBECK —It is not that graph; it is those graphs, because they come from a number of institutions.

Ms Blakers —It is the Forest and Wood Product R&D Corporation graph, is it not?

Senator COLBECK —It is actually not. They come from the University of Queensland, an institute from the United States and also the CSIRO.

Ms Blakers —No—

Senator COLBECK —I have actually spoken to them, but let us not have an argument about it now. I will call it quits there.

CHAIR —Thanks very much, Ms Blakers, Mr Tager and Mr Winn.

Proceedings suspended from 2.35 pm to 2.50 pm