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Environment and Communications Legislation Committee
24/02/2014
Estimates
ENVIRONMENT PORTFOLIO
Climate Change Authority

Climate Change Authority

[21:57]

CHAIR: Welcome. Ms Harris, would you like to make opening statement?

Ms Harris : No, Chair.

CHAIR: Senator Pratt, you have the call.

Senator PRATT: The emissions reduction target review, which you are conducting, is due very shortly. Are you able to update the committee on any progress since the draft report?

Ms Harris : Certainly. Since we last appeared, we have been working on our final report. Our final report is actually going to be released on Thursday. The legislation requires it to be completed by 28 February. It will be released on Thursday. Since the draft report, we have been undergoing further consultations and we have been conducting further analysis. We received 138 individual submissions, plus over 12½ thousand submissions through a GetUp! campaign. That and a number of other research pieces were taken into account to arrive at our final recommendations.

Senator PRATT: Terrific. What is the Climate Change Authority's understanding, in terms of the assessments it has done, of how successful Direct Action will be in achieving our emissions reduction target?

Ms Harris : The draft report certainly made it very clear that the authority was not speculating on the design of the Direct Action arrangements. Certainly, for the final report, we have not done any further quantitative analysis about the Direct Action policy. There is still quite a lot of development work on that policy going on and we certainly have not tried to pre-empt that by presuming what its final form might take.

Senator PRATT: So you are essentially saying that there is not enough policy detail available to do that work.

Ms Harris : Certainly we would be speculating a good deal if we were to say in any kind of definitive sense that baselines will definitely be set in this way for either crediting or the safeguard mechanism.

Senator PRATT: So you are required to do your emissions reduction target review, but of course you are doing that in a bit of a policy-free zone at the moment.

Ms Harris : We have certainly taken the view that, regardless of what policies are in place, Australia needs to have targets that those policies would be striving to achieve. There are a number of factors that we wanted to take into account in making those recommendations, so we have certainly taken that broad set of arrangements into account when making those recommendations. We have certainly tried to identify, as we had done in the draft report, where there may be opportunities to reduce Australia's greenhouse gas emissions, and we hope that that information might be useful to the government in forming its final design of the Direct Action Plan.

Senator PRATT: Terrific. Let us hope the government does look at that useful work done by the Climate Change Authority. Can you describe any elements of the Carbon Farming Initiative that you are looking to recommend or adjust?

Ms Harris : No, we have not formally commenced a review of the Carbon Farming Initiative at this stage. We have commenced a research program, but I would not want that to be characterised in any way, shape or form as what the legislative requirements are for a legislative review of the Carbon Farming Initiative. So that work has not commenced. What we have been doing is trying to have a look—it is in the nature of a research project, not a report that is going to have recommendations—at experience under the Carbon Farming Initiative as well as a number of arrangements in other countries and what kinds of lessons we have learnt from schemes like this that might be useful going forward for the Direct Action Plan.

Senator PRATT: Thank you. That is useful. In relation to the government's announcement that a review of the RET would not be undertaken by the Climate Change Authority, can you explain how that is possible given that you are mandated legislatively to conduct such a review.

Senator Cormann: Sorry. You are asking for an opinion in relation to a decision that was made by the government, which the government has announced and for which the government takes responsibility. I do not think that you can ask Ms Harris to express an opinion.

Senator PRATT: The Climate Change Authority is an independent organisation, and I am sure they will answer—

Senator Cormann: You are asking for an opinion here in relation to a decision that the government has made deliberately and consciously, for which we take full responsibility and which we went through before.

Senator PRATT: I was simply asking the Climate Change Authority about their own legislative—

Senator Cormann: No, you were asking about how the government could make a certain decision.

Senator PRATT: I was asking about the relationship between the Climate Change Authority's legislative responsibility to conduct that review and the other reviews going on.

Senator Cormann: If you want to rephrase your question and direct it—

Senator PRATT: I have rephrased the question.

Senator Cormann: I do not think you have rephrased it quite enough. The Climate Change Authority cannot answer questions in relation to the motivations of the government. They can answer questions in relation to, obviously, their activities and their responsibilities under the act.

Ms Harris : What I can say is that we do have legislative responsibilities at present to conduct a review. That review is not due until 31 December. What I can say is that the Climate Change Authority has not commenced that review.

Senator PRATT: So you have not commenced—

Ms Harris : We have not commenced a formal review of the renewable energy target. What we have commenced, in the form of releasing a request for tender, is some work which could be described as coming under our broad legislative ability to conduct research on matters relating to climate change and some work in relation to the electricity sector. But I would not want this to be described—as it has unfortunately been described in some newspaper articles—as our own review of the renewable energy target. It is not that. We are commencing some research work, which is not the same as a review of the RET under the act.

Senator PRATT: So what, currently, are your statutory obligations under the act to review the RET?

Ms Harris : The act requires that we undertake a review of the legislation and the regulations by 31 December this year and every two years.

Senator PRATT: I know it is government policy that the CCA be abolished. However, you have not yet been abolished, so are you preparing for a review of the RET as mandated?

Ms Harris : We are not starting that review at this current time. You would appreciate that it is a difficult time to be planning how to make a useful contribution given the inherent uncertainties about the longevity of the Climate Change Authority. The authority members are very keen to make sure that the Climate Change Authority makes a constructive contribution to the public debate in the area of climate change policy. The work we have commenced doing is meant to do two things. It is a research program that we hope will be useful and a constructive contribution in the current environment. Also, if we were not abolished, it would be preparatory work that would be helpful in making sure we could deliver on our statutory review requirements by 31 December.

Senator PRATT: If you were not abolished—

Senator Cormann: 'If you were not abolished'—that is a hypothetical question.

Senator PRATT: It is not a hypothetical.

Senator Cormann: 'If'.

Senator PRATT: If the laws continue to exist—which is a real possibility, Senator Cormann—how will you meet your statutory obligations, Ms Harris?

Ms Harris : We would conduct a review. The review requirements in the legislation do not include, it is fair to say, detailed terms of reference. They do require us to look at the act and the regulations. They do require us to consult. We would of course make sure that those requirements are met. We do not have detailed timing for an issues paper, a draft paper and all of those sorts of arrangements at this stage.

Senator Cormann: What I would suggest, Senator Pratt, is that if the hypothetical—

Senator PRATT: It is not a hypothetical. These are the current laws—

Senator Cormann: It is a hypothetical. If—

CHAIR: Order! Senator Pratt, the minister has the call.

Senator Cormann: If you are interested in pursuing this hypothetical line of questioning—

Senator PRATT: It is not a hypothetical line of questioning.

Senator Cormann: If you would just let me finish.

Senator PRATT: It is a statutory obligation of this organisation to undertake a review.

Senator Cormann: You are talking about a time in the future when something you are suggesting may or may not happen. The right time to ask these sorts of questions is at the estimates in the second half of 2014 when we actually have some facts in front of us—what the actual situation is. At the moment, you are inviting officers of the Climate Change Authority to speculate about what or what might not happen in certain circumstances which you are suggesting may or may not happen.

Senator PRATT: As the officers at the table have rightly highlighted, they have had to work through the best way they can acquit their responsibilities under the act should they continue to exist. It is not a hypothetical.

CHAIR: Do you have a question?

Senator PRATT: How successful has the RET been, in the Climate Change Authority's view, in driving renewable energy generation in Australia and cutting carbon pollution?

Ms Harris : To date, all of the targets that have been set under the renewable energy target have been met. So the quantities of renewable energy that have been required have all been delivered. The renewable energy target has also made a significant contribution in reducing greenhouse gas emissions. The review the Climate Change Authority published in December 2012 highlighted projected continuing reductions in greenhouse gas emissions that we estimated would be contributed by the renewable energy target.

Senator PRATT: Are you able to explain the effect of the RET on wholesale electricity prices in Australia?

Ms Harris : Yes. The renewable energy target adds renewable energy to the system. That renewable energy tends to have very low marginal cost. That means that when generators are bidding for marginal production they can generally bid in at very low prices. That tends to have the effect, if any, of supressing wholesale prices compared with what they might otherwise have been. The extent of the effect of wholesale price suppression is a matter of estimation. You can never say precisely what it was after the event. You can never observe the counterfactual. So what we did in the RET review when we were estimating what costs, for example, to households might be because of the RET was put our estimates at two extremes: one with the full price suppression impact going on and one with none. That was not because we thought there would be no wholesale price suppression—wholesale price suppression is a very likely outcome—but so that there were two bookends of that spectrum. So, at worst, if there were no wholesale price suppression when you are looking at the impacts on final retail prices, that could be taken into account.

Senator PRATT: Have you been asked to provide advice to the government on the progress of the RET, and, if so, what is that advice?

Ms Harris : No, we have not been asked to provide that advice.

Senator PRATT: Have you provided advice to government departments on the RET in the last five months?

Ms Harris : No, we have not been asked to provide advice on the RET.

Senator PRATT: Have you put forward the information that you have about the impact of the RET on wholesale electricity prices to the other review that is going on?

Ms Harris : We do not have any new information as yet, besides what was prepared for our 2012 review. That is all certainly in the public domain. The modelling reports, the assumptions and the spreadsheets with the results are all in the public domain and on our website.

Senator PRATT: So you would not know if the other review of the RET that is going on would take account of that information or not?

Ms Harris : That would be a question for them.

Senator PRATT: Thank you.

Senator RUSTON: I refer you to an article that was in the Financial Review on 20 February, so last week. It suggested that your authority had commenced a review into the electricity market. Can you explain what that review is about?

Ms Harris : Certainly. This is the work that I was discussing previously. It is a research study into potential options for what abatement policy might look like in the electricity market. As I said, this is not a review of the RET. We are not undertaking a separate RET review at this time somehow in competition with the government's own review of the RET. It is a research piece responding to the fact that when the Emissions reduction fund green paper came out it said that the treatment of the electricity sector was not yet decided and that that would be something that would be decided later and something to be thought about in conjunction with the review of the renewable energy target. Of course, those things do need to be thought of together. That is all one sector, and you cannot think about the treatment of the renewable energy target without thinking about what other abatement policies might be going on.

Senator RUSTON: So it is not something that has been driven by the legislative requirement for the RET review, it is something separate?

Ms Harris : It is something separate. It is actually related to two things. It would be useful preparatory work in the event that the authority needed to fulfil its legislative requirement to conduct a review of the renewable energy target by 31 December. Also, the authority has its own statutory ability to conduct self-initiated research into matters relating to climate change. So this work really falls under both of those headings. It is preparatory work for a potential statutory review and work in its own right permitted under the authority's own ability to conduct its own research.

Senator RUSTON: When was it decided to undertake this review?

Ms Harris : This was something that the authority discussed at its last board meeting in February.

Senator RUSTON: So it is a very recent decision?

Ms Harris : Yes.

Senator RUSTON: You say February, and it is February, so it was just a few weeks ago?

Ms Harris : Yes. It is something that we had been thinking about for a number of reasons. Again, there is a question mark—I cannot think of a single study that is in the public domain that says, 'Well, in the electricity sector you could think about option A, option B, option C—

Senator RUSTON: I get all that. I just wondered when you had actually decided to do it. Can I assume from your response to that that it was a self-commissioned review?

Ms Harris : Yes.

Senator RUSTON: The Climate Change Authority undertook at its board meeting in February, despite the fact that it had been very clear that the intention was for the Climate Change Authority to not continue, to self-commission a study into the electricity market. Is that fair?

Ms Harris : The authority has not yet been abolished; we still exist.

Senator RUSTON: I understand that. So you self-commissioned this; there was no outside directive, there was no government request. You just decided at your board meeting that you would undertake this review?

Ms Harris : Yes.

Senator RUSTON: Do we have an idea of the kind of cost this review is likely to—

Ms Harris : This is currently a request for tender in the public domain, so we have not received bids at this stage and we have not assessed those bids so, no, I cannot give you a final costing. It would of course be made public when it is.

Senator RUSTON: So is this contained within your existing budget?

Ms Harris : Yes.

Senator RUSTON: When you say you are tendering for bids for it, you would be seeking for outside organisations to actually undertake this review on your behalf?

Ms Harris : Just the modelling components. What we are seeking to do is to have some modelling to help feed into this piece of research work; that is something that we are tendering for at the moment. But not to conduct the entire piece of research for it.

Senator RUSTON: Not that I expect you to reveal the details of your board minutes, but obviously your board has made the decision to undertake a review that is going to require expenditure on outside consultants, despite the fact that I think there is no question that the intention was to abolish the Climate Change Authority.

Ms Harris : Yes, we still have statutory responsibilities, and we still have a budget available to us, and—

Senator RUSTON: So you think you should just spend it because you have it available? So you are obliged by law to undertake this by December, when I would say it has been quite clear that the authority is likely to be abolished in July, because these guys are obviously hell-bent on it not being abolished before that. I suppose the question is what was the motivation about undertaking a completely new scope of work? I just do not understand what the motivation would have been to have undertaken this when it was quite clear that we were trying to wind down the operations of your authority. I just do not understand the motivation, I am sorry.

Ms Harris : I can say that the motivation was entirely to make a constructive contribution to the current policy debates. Currently there is a question mark about the treatment of electricity. There is no public discussion; as I said, there is no single study that you could point to that says, 'Here is option A, here is option B, here is option C, here is what they look like, here is what they cost, here is the effect on patterns of investment and dispatch', and that allows the public—as well as the government—to be debating those on some kind of equal terms. As I said, we are fully cognisant of the government's policy, and we have taken that into account by not commencing a statutory review at this time of either the renewable energy target or the carbon farming initiative.

Senator RUSTON: You will excuse me if I beg to differ that you have taken their policy into account; so thank you very much.

CHAIR: Ms Harris, was any figure thrown around at your boardroom about what this would cost? Surely it would not be $500 million, and you would not think it would be $500. Was there any figure suggested of what this might cost?

Ms Harris : We certainly had the example of the previous modelling that was undertaken for our previous renewable energy target.

CHAIR: What did that cost?

Ms Harris : I will get the exact number for you—I have $138,000 in my head, but I will come back with the exact figure. I would say that we are out for a request for tender at this stage, so my concern would be that if we reveal it—

CHAIR: Fair enough.

Senator MILNE: Firstly, I just want to check that you are an independent statutory authority.

Ms Harris : Yes, that is right.

Senator MILNE: So can you explain to me why the government is entitled to a briefing before the release of the targets this Friday and no-one else from the parliament is?

Ms Harris : Our report was actually going to be released on Thursday. A short period before the report release, we will be providing a briefing to our minister. Our legislation requires that we provide a report to the minister and then, as soon as practicable thereafter, release that report publicly. In relation to the mode of the operation and the nature of briefings, as a new body when we were first established we did check with what we felt were the 'old hands' in operating in an environment like this and that was the Productivity Commission. That was because in a lot of ways what the Climate Change Authority does is really equivalent to what they do and we asked what their protocols were. As it turned out, they were long-established protocols. So we are really trying to model ourselves on the protocols that they have undertaken and our understanding is that they are longstanding.

Senator MILNE: I guess I have a different understanding of the role of an independent statutory authority. But, anyway, let us come to the matter at hand. I understand that, according to legislation, your function and role includes to conduct reviews into the operation of the Renewable Energy Target scheme, as per section 162 of the Renewable Energy (Electricity) Act 2000. Is that correct?

Ms Harris : Yes.

Senator MILNE: That is right. So it is a legal obligation that you do that and I understand the legal obligation is that review must be conducted and completed by the end of December this year. Is that correct?

Senator Cormann: We have previously gone through this.

Senator MILNE: Yes, I understand that. I just want to go back to it, though. How long, from start to finish, did it take you last time, in 2012, to do your review?

Ms Harris : We came into being on 1 July, which was a Sunday and which I remember very well because every day counted in trying to prepare that report, and we completed that report, which was released on 19 December. So we started on 2 July and completed our work on 19 December.

Senator MILNE: So it did take you the full six months and, presumably, you were doing overtime to do it in that particular time frame?

Ms Harris : That was actually at the time when we were trying to recruit staff, set up the office and do everything. It was a very difficult time to be conducting reviews, so I am not sure that that was or would be necessarily representative of what another review done very quickly after that would necessarily take with an established staff.

Senator MILNE: So, basically, given that you have to do one by 31 December, it is not unreasonable to think that you would start the economic modelling, or at least secure the economic modelling, by 3 March this year. Is that correct?

Senator Cormann: I am just trying to understand your logic here because I want to assist you, too. A new organisation, which came into being on 1 July, started the process on 2 July, at the same time as they were recruiting staff and finalising a report by 19 December. Your suggestion is that an established organisation with all of its staff in place is not able to start it after 1 July to get it finalised by 31 December? Is that what your proposition is?

Senator MILNE: I am suggesting that it is not unreasonable to start commissioning the economic modelling, which might give you the basis of the review that you will conduct and the report that you will provide by the end of the year.

Senator Cormann: The deadline is 31 December. Ms Harris has previously given evidence that the authority has decided not to commence this work just yet. The legal obligation is to finalise the work by 31 December. Given that a new organisation which was in the process of recruiting staff was able to do it in less than six months, I cannot see, in the event that what you seem to be suggesting does happen, where your logical leap—that it should start in March—comes from.

Senator MILNE: I will ask you then, Minister. When is your review going to start its economic modelling for the review of the RET?

Senator Cormann: We announced the review the other week. Minister Hunt and Minister Macfarlane were involved in the announcement. The secretariat for this review is in the Department of Prime Minister and Cabinet and we have publicly indicated that we expect that the work will be completed by the middle of the year. Can I assist you any further with this?

Senator MILNE: Yes, you can. Are you going to do economic modelling or not—or is there already a predetermined outcome?

Senator Cormann: We have the pre-eminent economic modeller in this area on the review. Dr Brian Fisher is an outstanding contributor in this particular field. I am sure that he will be able to assist the committee with whatever economic modelling will be required. I am willing to see, given that I am just the representative minister, whether either Minister Hunt or Minister Macfarlane can assist you further.

Senator MILNE: You may want to check what the Ombudsman had to say about Brian Fisher's economic modelling before you go bragging too much about it. I want to come back to the Climate Change Authority and the engagement it may or may not have with the government's RET review. Have you received any requests or anything in writing from the government with regard to cooperation with the review that they have established? Has the government sought any of your documentation, analysis, methodology et cetera from the 2012 review to assist them with their review?

Senator Cormann: We have gone through this and the answer to all of these questions was no.

Senator MILNE: I thought I was addressing an independent statutory authority. So I would like to ask Ms Harris to answer the question.

Ms Harris : No, we have not received any request for assistance.

Senator Cormann: Sorry, with all due respect, you were asking what the government had done and, on behalf of the government, I am making very clear what was made clear in evidence before this committee earlier: the government has not sought the information that you just listed from the Climate Change Authority. We have appointed a committee. We are conducting a review which will report by the middle of the year. The secretariat is located in the Department of Prime Minister and Cabinet, which would therefore be the agency to whom more detailed questions should be addressed.

Senator MILNE: I am going to ask Ms Harris now: have you had any requests or contact from any of the people who have been appointed to the RET review—any discussion with them about your previous review?

Ms Harris : We have had no requests from the people appointed to the panel. I note, however, that the previous analysis is all in the public domain, all of the modelling is in the public domain, all of its assumptions are in the public domain and all of its results are in the public domain. Of course the authority stands ready to answer any questions or explain anything about our prior work, but we have not had requests about that.

Senator MILNE: With the tender you have put out, can you explain to me the broader plan that it would be fitting into and what you would hope to learn from this commissioned work?

Ms Harris : It struck us, and it was acknowledged in the government's green paper on the Emissions Reduction Fund, that you do need to think about the treatment of the electricity sector more broadly in relation to emissions reduction policies and the renewable energy target. You need to think about those together. You do not know what the incremental effect and impact of the RET will be unless you know or make some sort of assumptions about what, if anything, the arrangements are for the sector under the Emissions Reduction Fund. Because that was left until a later point, it is difficult to try to think of the RET in isolation. What we are hoping to do is elucidate some options. We are trying to do this to help inform a public debate about what some of those options might be for not just the treatment of the RET but broader treatment of the electricity sector, including different treatments of the RET, simply because it is difficult to think of the RET in isolation in any sensible way.

CHAIR: That concludes the examination of the environment portfolio. I thank the minister and officers for their attendance.

Committee adjourned at 22:30