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Carbon sink forests

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

Mr James —Yes; thank you. I thought it might be helpful if I gave some information to the committee in relation to the National Water Initiative and the issue of water use by plantations, including plantations for the purpose of carbon sinks.

The basic approach of the National Water Initiative is that commercial water use should be limited so as to ensure environmental objectives can be met and that the allocation of water for commercial use should be through the market. While much water use is regulated in the form of water access entitlements, the NWI recognises that a number of water-using activities, such as farm dams, bores and plantation forests, have potentially significant water use. If this is not taken into account in the water planning process, there is a risk that the environment will get less water than intended and that the water access entitlement system will be eroded. The NWI commits states and territories to having in place, by no later than 2011, arrangements to ensure that such water intercepting activities are considered in the water planning process and, in cases where such activities are expected to intercept significant volumes of water, that they are managed appropriately. In systems that are overallocated, fully allocated or approaching full allocation, the NWI indicates that proposals above a certain threshold size should be required to obtain a water access entitlement and that a suitable monitoring regime is put in place.

The NWI is not concerned about the impacts of plantation forests as such; rather, it is concerned that whichever commercial use of water is proposed—whether it is irrigation, large-scale commercial plantations or large urban developments—the water use is factored into the water planning process and that, where water is becoming scarce, it is only made available for commercial use through the water access entitlement system, that is, by purchasing an entitlement in the market. In other words, if comprehensive water planning arrangements are in place, any proposals for carbon sink forests or other water-using proposals will be assessed in this context. They may need to obtain a water access entitlement in some areas. The decision to proceed or not proceed then becomes a commercial decision.

From a water management perspective, the question is: to what extent do the states and territories have these comprehensive water management arrangements in place? I can respond to that question in two ways. Firstly, South Australia has made significant inroads into addressing the use of water by plantations; Victoria and Western Australia are actively developing proposals; and in other jurisdictions the position is less clear. Secondly, at COAG in March this year, the Working Group on Climate Change and Water, chaired by Senator Wong, was asked to prepare advice on a forward work program for water reform. One of the issues to be addressed specifically was that of accelerating the National Water Initiative commitments on interception in recognition of the potentially significant impact of growth-intercepting activities. This advice is expected to be put to COAG in October this year. That is my statement.

CHAIR —Thank you very much, Mr James. I am sure there will be questions from Senator Nash.

Senator NASH —Thank you, Chair. There may well be! Mr James, how much were you involved in the actual development of the legislation? I do not mean you personally but your department or the relevant areas of your department. How much were you involved in the development of the legislation?

Mr James —For the carbon sinks?

Senator NASH —Yes.

Mr James —We were consulted. We had input into the briefing for the minister. From our point of view, we have no particular concerns with it. We think it is a good proposal.

Senator NASH —Obviously the issue of interception has come up, and the advice is due to COAG in October. I think that is what you just said.

Mr James —Yes. A report will go to COAG in October.

Senator NASH —Could you give us a bit more detail around the possible impacts from the department’s perspective? If this work has been tasked it must be a concern, or at least acknowledged, that the planting of these sinks may well have some interception capability, if you like. Could you just run us through, as much as you can, what has been discussed and what the potential dangers are of that interception?

Mr James —Regarding concern about intercepting activities broadly, carbon sink forests are only one possible form of those activities. For example, in the Murray-Darling Basin there are estimates that in the next 10 years something like an additional 1,500 gigalitres of water might be taken out of the system by growth in activities like farm dams or plantations. There is nothing specific about carbon sink forests in that estimate. In a sense, that is why COAG has asked us to look at this issue more closely. There is already a commitment in the NWI to ramp up the regulation of these activities by 2011, and COAG has asked us to make that happen even faster.

In relation to carbon sink forests, I am not aware of any huge or particular concern that my department would have. I am not an expert on carbon sink forests, but my understanding is that the arrangement proposed is likely to lead to investment in the lower rainfall areas of catchments, for mallee plantings and that type of thing. In many of those catchments the level of water use is not significant and it would be a surprise to us if there was a big concern about water use of plantations in those drier areas. The most significant potential use of water by expansion in a plantation estate is really in the higher rainfall areas, where you currently find pine or blue gum plantations. Those are probably the areas of more concern from a water management point of view.

Senator NASH —As a hypothetical, in terms of setting up a carbon sink forest, it is then going to be the responsibility of the planter, if they feel they are going to need some kind of irrigation capacity, to go and source a licence or whatever to do that themselves?

Mr James —Under the legislation that is proposed that is correct; although because they will, by definition, be doing that activity in a state or a territory, the state or territory water management arrangements would in a sense kick into place. The proposal that is set out in the National Water Initiative is for these things to be looked at on a catchment by catchment basis. If a state, in looking at the water use in a particular catchment, thinks that plantation development activities beyond a certain threshold need to have a water access entitlement, then the state would make that a legal requirement of developments going ahead.

Senator NASH —Would the department view the water use of, say, a carbon sink forest on a farm differently from irrigating a crop on the farm, or is that water licence to that farmer saying the farmer can do whatever they want—there is going to be no restriction on what that water licence can be used for?

Mr James —That is the principle, yes. In a sense, we do not care if it is—

Senator NASH —If you have got X you can use X.

Mr James —That is right. It is the amount of water that is being used that is at issue. I think the point is that the history of developing water management arrangements in Australia is that the focus has been on the big users, where you are pumping water out of a river or you are making water available through a dam. That is basically around the irrigation sector or large-scale urban developments. The NWI recognises that plantation forests are significant water users and that in some areas there might be an argument for them to also require water access entitlements. In a sense, the system that is being set up allows that decision to be made in the context of a particular catchment and the level of water development in that catchment. It is very hard to have a one size fits all approach to this.

Senator NASH —Absolutely. With the report on the interception that is going to COAG in October, are you expecting anything to come out of that that might retrospectively shed some light on the legislation that is currently being set up around this? I suppose what I am getting at is: is there any information that you are expecting to come out of that which may well have determined a different outcome in some of the legislation that has been drafted?

Mr James —Obviously I cannot comment on what is likely to go—

Senator NASH —Sorry; it is very hypothetical, but—

Mr James —I understand, but—

Senator NASH —You see, I am just wondering if it is putting the cart before the horse a bit in that particular area; that is all.

Mr James —No, we do not believe so. The way the legislation is devised is perfectly compliant with the approach in the National Water Initiative, and that is really all we, in a sense, are trying to implement, but perhaps implement more quickly, through the COAG advice.

Senator NASH —Thanks.

Senator MILNE —Mr James, when the managed investment schemes for forest plantations came in, did your department express any concern about water interception at that time?

Mr James —I am not sure of the answer to that question. When was that? I have only been in the department for 18 months. I think this was prior to that.

Senator MILNE —Yes, it was well before that.

Mr James —Yes. I am not aware of any concerns that were expressed.

Senator MILNE —The point I make is that it was a massive blunder that that was not done at that time. As you have rightly indicated, there is massive interception of water from plantation establishment and they are getting their water free, and now, subsequent to the event, we are trying to fix it up. What we heard this morning and what you have confirmed now is that in some states they are dealing with their catchments and they have a better idea; in other states they have no idea. We heard that 2011 is when we are going to get the National Water Initiative and this issue of water sorted in terms of distribution. This legislation is effective as of now. We heard this morning that an application will be made to the tax office for a deduction, and that will be ticked off after an assessment by the Secretary of the Department of Climate Change. He or she, whoever the secretary is at that particular time, will determine compliance with this set of guidelines, which includes water. Given what you have said, on what possible basis can the Secretary of the Department of Climate Change tick off compliance on issues around water interception today, for Tasmania? Let us be very specific. For Tasmania today, could the secretary make any kind of sensible decision about water interception?

Mr James —It is hard to comment on hypotheticals, but I would have thought that by using existing water management plans in Tasmania—so that would presumably involve some communication with the state government—there would be a basis on which to say whether or not a particular proposal, in the context of where it was occurring and the level of development of water in that particular catchment, was going to cause an issue or not.

Senator MILNE —Are you confident that Tasmania has water management plans for each of its catchments?

Mr James —I am sorry; I do not know enough about the individual state of—

Senator MILNE —Okay. I did not expect you would, but you sat here and said that you had no particular concerns with the way this legislation is coming in—that it will be consistent with the National Water Initiative, and by 2011 we will know. It is now 2008. This is law. We have heard companies say they are marching in right now and organising with farmers to plant out thousands of hectares now. You made another statement a minute ago saying that you are confident this will be in low-rainfall areas and so on. There is nothing in the legislation—

Mr James —I said I understood that is where those plantations would go, and I am not an expert on where they are going to go.

Senator MILNE —Okay. Well, you understand that there is nothing in the legislation, let me tell you, that requires that at all. You can put in a plantation of this kind anywhere you choose. It is going to be a matter of market economics. The issue here becomes—and this is a hypothetical—that today the Secretary of the Department of Climate Change ticks off my company, let us say, that has just decided to plant 10,000 hectares somewhere. They tick it off saying that it meets the water requirements, because there are none, or for whatever reason they decide. In 2011, however, when the Water Initiative have done the assessment, they discover that planting those 10,000 hectares was actually a disaster and now the catchment is overallocated. You then say, ‘Well, you have to buy the water rights,’ so now the whole catchment is penalised on the price of water rights in that catchment because this was allowed to happen now.

Mr James —Sorry, what was the question?

Senator MILNE —The question is: isn’t that the case? Isn’t it the fact that this is being allowed now, before we have an assessment of the allocation of water in catchments, and that in three years time, in 2011, when we know what a reasonable allocation in the catchment is, this could drive up the price of water to every user in the catchment?

Mr James —I guess all I can say to that is that that is a hypothetical and it is at a particular end of the spectrum. It is not as if within the various states there is no information on which previous proposals to use water have been based. The states are at various levels of development of their water management plans and the information base on which those things are made.

Senator MILNE —Yes, but this—

Senator NASH —I am sorry, Senator Milne. The catchment management plans, as you say, are at various levels. Where I live, we do not even have one yet, and it keeps being pushed out. So how can you make a determination where we have regions like the one where I live that does not even have a catchment management plan?

Mr James —The basic approach that states use in developing their priorities for water management planning is, sensibly enough, to start where water use is highest or where there is most risk of overuse of those resources. So, in some areas, presumably they have come to a conclusion that the risk of overuse is relatively low, and they perhaps have not put a lot of resources into planning in those particular areas. Under the National Water Initiative, however, there is a commitment to bring in these sorts of, if you like, more formal water management plans, and the states are rolling out various programs to do that.

Senator MILNE —Wouldn’t it be sensible, therefore, to restrict the tax deduction for a carbon sink plantation to those areas where there is already a water management plan in that catchment?

Senator NASH —And, if I could just add a second bit to that question, if you do that, isn’t that precluding those people who live in the areas where it is not done from having a balanced bite at the apple, if you like?

Mr James —Sorry, I do not—

Senator NASH —Sorry. Answer Senator Milne’s question first, and then I will explain what I mean.

Senator MILNE —My issue is this: at the moment, I know of many catchments in Tasmania where there has been no assessment whatsoever—no assessment on groundwater, no assessment on recharge, no assessment on the catchment or anything. In fact, it has got to the point where they are going to have to cut down some of the plantations in order to restore environmental flows. So, if you have not got the water data on the catchments, why would we want to make the matter worse by going ahead? Wouldn’t it be better to put into this legislation that only those catchments with water management plans can qualify for this carbon sink tax deductibility? That would at least drive some catchments or state governments to get their act together.

Mr James —From the department’s point of view, we would support the development of water management plans everywhere—so one would hope over time that these things are going to be developed by the states. What you are proposing makes sense, but there is also an issue in that your assumption is that, if a management plan is not in place, the water resources in a particular catchment are somehow in peril. That may well not be the case because, as I said, there is a sort of priority placed on the development of those plans. I think it is a bit hard to have a hard and fast rule as you have proposed.

Senator MILNE —But the issue is again the retrospectivity. According to the guidelines which cover the planting of these plantations:

In cases where establishment of carbon sink forests would represent a significant interception activity in a catchment that has been identified as fully allocated, over-allocated or approaching full allocation, water access entitlements must be obtained.

But, if you got that allocation prior to such an assessment being made, wouldn’t you argue that you had no obligation to pay it because you cannot apply legislation retrospectively?

Mr James —Just for clarification—

Senator MILNE —It is the third one, down the bottom. It says that you might have to buy a water right if you have put this in. But say you put it in today and there are no water rights, there is no restriction and you get 100 per cent tax deductibility; later, it turns out you have to buy water rights. You are going to argue that you did not have to at the time; why should you have to now—it is everybody else’s problem.

Mr James —Sure, I understand where you are coming from. The statement here is that, where carbon sink forests are going to, or are likely to, use a significant amount of water and the catchment has been identified as fully overallocated or approaching that—and that sort of approach is very consistent with what is in the National Water Initiative—then water access entitlements must be obtained. In a sense, the question of whether there is a water management plan or not—

Senator MILNE —Yes, but it is not today. That might apply in three years time once it has been identified, but you could say, ‘At the time I planted it there was no identification of that and I was not required to do it, so why should I do it now?’

Mr James —I guess all I can say to that is that the more likely position is that, in catchments that do not have management plans, it would be surprising to us if they are actually overallocated or at risk of becoming overallocated in the short term, because it would imply that there is really no information about the way those catchments have been managed and about the water use of current commercial activities in those catchments. I would be surprised—again, it is a bit hypothetical—if there were many situations around the country where that is the case.

Senator MILNE —I think you should prepare to be surprised. In the Tasmanian context, I can tell you that Launceston City Council might well have to build a new reservoir because of plantation establishment in all its catchment areas. They had no idea of the impact of fast-growing plantations through the conversion of native forest to plantations in their catchments—and that is just one example I can give you. There is also the Prosser River on the east coast; there are any number of them. So I suspect that, all around Australia, your expectation of the level of information about the hydrological cycle in any of those catchments will be far less than you are suggesting is the case. Anyway, you do not object to the notion that it may be better to restrict the plantings to catchments where the evidence on water allocation is already available?

Mr James —I do not have any problem with that proposition, no.

Senator MILNE —Thank you.

CHAIR —There being no further questions, thank you very much, Mr James.

[3.52 pm]