03-June-2009
Speeches, Emissions Trading Scheme
Significantly reducing the global level of CO2 in the atmosphere is an issue of great consequence.
What we do, the consequences, who is with us, how well thought through any scheme may be and what we need to do to get it right is all important.
Sadly, the development of an emissions trading scheme has been very badly mishandled by the Rudd Government, just as Mr Rudd has mishandled the nation’s finances and saddled Australians with massive debt.
As with the Government’s response to the global financial crisis, the Rudd Government has had too much of an eye on the politics of their emissions trading scheme and not enough of an eye on what’s best for Australia, what is workable, what will protect jobs while reducing emissions.
Selfish political considerations are overshadowing sensible policy imperatives.
In its panic to get to an early election before the community sees the depth and extent of their financial ineptitude, the Government is stampeding this flawed Bill through the Parliament.
Before the last election Mr Rudd promised deep cuts in emissions without disadvantaging our export and import competing industries.
Yet the Government’s scheme fails on all counts – it will cost tens of thousands of jobs, kill major investments and do little or nothing to reduce emissions. The Scheme is deeply flawed.
Mr Rudd’s scheme is testament to the fact that his promise cannot be delivered if our major competitors are not also taxing their emissions.
Mr Rudd’s response is to stick with a proposal so ill-considered, so awful that it cannot be supported by anyone – neither the Greens, the crossbenches or the Coalition.
Mr Rudd wants to go to an early election claiming he tried on climate change, but blaming his inaction and incompetence on everyone else.
This is all about politics, not the environment.
At least the Rudd Government was mugged by reality and forced to delay the start date by twelve months.
The Government should use this delay to see what President Obama does during this year in finalising his legislation, to see what the world decides at Copenhagen and to do the work necessary to correct the many flaws in Australia’s scheme.
Commonsense dictates that the vote on this legislation should wait until the New Year. It is why the Coalition is moving to amend this Bill to ensure that is deferred until then.
Now that the Coalition has provided the Government with a truly Australian position on targets to be taken to, and negotiated at, Copenhagen in December there is absolutely no reason to seek to ram this flawed scheme through this Parliament.
This was confirmed last week when the Executive Secretary of the UN organising Committee for Copenhagen Yvo de Boer revealed that the UN does not expect countries to have legislation in place before Copenhagen.
The Government’s emissions trading scheme has been designed for a world where every country has such a scheme, where every country has a price on carbon, a level playing field.
If the world was moving as one the contentious issues surrounding the Government’s scheme would largely disappear.
If our competitors were also imposing a price on carbon our own industries would remain strong, competitive and innovative.
In this regard, everyone acknowledges that with Australia producing just over one percent of the world’s emissions, there is no unilateral Australian solution, only a global solution.
Misleading the Public
It is why the Government’s claim that for a $1 a day their scheme will save the Great Barrier Reef is so wrong and disingenuous. This is the totally false impression given to the community by the Government’s very misleading presentation of the Treasury modelling.
If this was the real cost why wouldn’t you put up your hand in support?
The public hasn’t the foggiest idea what an emissions trading scheme is and hasn’t really engaged because they have been told that there is no personal cost to them. They have been duped.
For most Australian families the annual tax the Government will impose on electricity and other energy intensive companies will result in a 30 to 40 per cent increase in power bills, and indirectly in increases in the price of most services and items purchased.
It will be equivalent to increasing the GST from 10 per cent to 12 ½ per cent.
Yet, without the rest of the world engaging in some form of carbon reduction scheme Australia’s actions will have absolutely no impact on the Great Barrier Reef, or on the environment generally.
In fact, global emissions could actually increase as investments and jobs, especially from major regional centres, leave Australia and go to developing countries where less efficient factories pump out much more CO2 than in Australia.
And, without our major competitors engaging in some form of scheme the cost to Australians will be much greater.
This cost will be measured in the premature closure of many coal mines, cement works, coal powered generators and fuel refineries and the loss of major investment in new smelters, metal refineries, LNG gas projects, cement works, exploration and much more.
There will be a significant added direct and indirect tax on agricultural and manufacturing businesses competing against foreign products where no such tax applies. For example, the average diary farmer will face a $9000 tax, with no capacity to offset this cost.
The scheme will see tens of thousands of jobs at risk, the permanent and serious shrinkage of major regional centres and the loss of major investments, yet little or no impact on CO2 emissions.
One $4 billion investment to extend an aluminium smelter in the Hunter Valley will be shelved. This project alone will see the loss of 15,000 construction jobs and 3000 permanent jobs.
It is why Australia must not find itself effectively going alone.
Showing Leadership
We can and we should influence and assist the world to respond, but we can’t get too far ahead of our major competitors.
Australia is one of only five countries in the world that will meet its 2012 Kyoto target for emissions reductions. This result and leadership was delivered by the former Howard Government, along with setting up AP6 and the global forest initiative.
The Critical Transition
But putting a multi-billion dollar new tax on our businesses many years before our competitors do likewise would get us too far ahead of the world.
It is why the critical debate we are having is all about how we transition to a lower carbon world, not whether we transition.
It is about how we calibrate that transition to be broadly in step with the willingness of our major competitors to do something similar in terms of putting a tax on carbon.
It is how we deal with the next 10, 15, 20 years or more of transition that is critical.
If the transition is mishandled, if we go it alone, if we get too far ahead of the world, we will see the great strength of our economy wantonly undermined and damaged for no good environmental outcome.
Global Action or Inaction
Yet, the design of the Rudd Government scheme assumes that our major competitors will put in place a major new tax on carbon in the early years.
What if China, India, Indonesia, the Middle Eastern countries, the South American countries and many other competing developing countries don’t apply a tax on carbon for 15, 20 or more years.
On a Wing and a Prayer
Why wasn’t the Treasury required to test such scenarios? It has been seven months since the Treasury modelling was released, and still no such analysis. Not a whiff of it.
All they had to do was change some assumptions and run the model again. They have refused.
A major independent analysis conducted by the Centre for International Economics concluded that we know nothing of the 20 to 30 year transition period because:
· There is no analysis of different scenarios concerning delayed start dates by major competing countries during that 20 to 30 year transition period;
· There is no analysis of the impact of the global financial crisis; and
· There is no empirical analysis of alternative approaches to achieving a reduction in CO2 emissions.
If passed in its current form, the biggest deliberate structural change in our history would be more a product of blind faith and pig-headedness than rigorous analysis.
Is the design of this scheme robust enough to deal with scenarios which haven’t been modelled, where our competitors take 10, 15, 20 years or more to adopt a price of carbon?
It is why we are moving an amendment requesting that the Productivity Commission be required over the next 6 months to do the missing analysis identified by the Centre for International Economics.
This call has been supported by ACCI, The Cement Industry Federation, the Minerals Council of Australia, the Master Builders Association, the Chamber of Commerce and Industry WA and Woodside.
The deliberate failure of the Government to require such analysis has meant that individual companies and organisations have been forced to commission such research.
In so many cases this research has shown that many years of going it alone will severely weaken key industry sectors in our economy.
In the end it all translates into jobs. Over recent months company after company have publicly indicated the cost of this proposed scheme in terms of lost jobs: The Minerals Council, Rio Tinto, Xstrata, Alcoa, Exxon, Bluescope and OneSteel, Hydro Alumina Kurri Kurri, ZeroGen and Envirogen, Ford, Woodside, Chevron and many others.
And research commissioned by the NSW Government into the regional impacts of the Government’s scheme found that regional centres across Australia, such as Gippsland, Geelong, central-west Queensland, the Hunter Valley, central Western Australia, the Kimberley region and Whyalla / Port Pirie, would shrink by over 20 per cent under the Government’s scheme.
How stupid would we look if in 10 or 15 or 20 years time our major competitors still have no scheme in place or have protected their trade exposed industries, and we have been imposing these costs, and more (because of the built-in annual reduction of free permits).
Such stupidity is already being exposed as the details of a future Obama emissions trading scheme takes shape in the United States.
Specifically the draft Bill now provides for 100% protection for all US export and import energy intensive industries until 2025, and continuing levels of such assistance if competitors still have no scheme in place.
As well, for the US electricity generators, the Obama draft bill provides for assistance through until 2030, compared to far less assistance for the Australian electricity sector phasing out by 2016.
It emphatically confirms that the Rudd scheme will see Australia effectively “going it alone”.
It is all about design; design features which give you the robustness and the capacity to manoeuvrer to play a part in all this but not get too far ahead of the rest of the world, not go it alone.
In addition to our concern about undermining our competitive position, the Bill contains other major deficiencies.
It is my observation that existing large emitters are the companies best placed to lead Australia, and their industries, to a low CO2 environment, as long as their balance sheets remain strong enough to fund the billions of dollars to finance the necessary technology and innovation to lead that transition.
Yet, the balance sheets of some companies will see half or more of their average profitability over the last eight years taken up with the effective tax they are going to face, or see a loss of uncompensated asset value of billions of dollars.
The other balance sheet issue is the existence of large numbers of free permits on a balance sheet.
When investors are approached to fund a 40 year energy or resource project and they see a balance sheet with a large number of free permits that are reviewable in 5 years, and are there solely at the whim of the government of the day, they become concerned about sovereign risk.
Projects are already facing this financing dilemma, including a new gas fired power generation plant.
This relates to the third issue, the problem of churn or recycling of billions of dollars of taxpayer monies through the system at the Government’s discretion.
Each year the sale of permits will see the Federal Government reap a huge new tax revenue - $13 billion in year two, growing rapidly to $20 billion a year by 2020, or thereabouts.
The Government intends to recycle some billions of these dollars to compensate low income earners for the 30 to 40 per cent increase in electricity costs.
This will see millions of cheques continue to be mailed to Australian households each year. This Government is addicted to mailing out cheques. It’s not hard to see why.
A huge administration will be set up to churn billions of dollars back through the economy, with the Government picking winners as to who gets compensation and who doesn’t.
No new energy or resource project will get off the ground without companies coming on ‘bended knee’ to get a quota of free permits from the Government to make their investment competitive.
Finally, in our view the Government has not looked at significant low cost opportunities or complementary measures that are available. Too much is being expected of an emissions trading scheme in the absence of global action.
Complementary measures directed at capturing carbon in soil, reducing energy usage, especially in commercial buildings, other bio-sequestration and recognising the efforts of individuals and families in reducing emissions have the potential to quickly deliver very significant cuts in net emissions without putting at risk tens of thousands of jobs and the fabric of many major regional centres.
All these possibilities have largely been ignored in the Government’s scheme, ignored in the Government’s rush to be seen to be “punishing” the big emitters.
All these complementary possibilities, in concert with a major focus on promoting renewables, provide an opportunity to minimise the risk of putting too much onus on an emissions trading scheme while the intended action or inaction of the rest of the world is still not clear.
It is why the Coalition has proposed the establishment of a Government –authorised voluntary carbon market from 1 January, 2010 based on the Chicago Climate Exchange.
This would enable the immediate involvement of individuals and communities, agriculture and bio-sequestration, the commercial building sector, energy efficiencies by business, and other complementary measures in creating bankable offsets.
These voluntary measures will enable immediate action on achieving Australia’s 2020 targets and will create an opportunity for individuals, communities and firms to help Australia deliver larger abatement than the Government targets once a full scheme is in place.
As to the Government’s argument that this scheme must be passed now to provide certainty, the comments of the CEO of Anglo Coal reflect the view put to me by so many other companies, namely “we don’t want the certainty of a bullet”.
Conclusion
The Government’s rushed scheme, as designed, puts major industries, and the jobs that go with them, at great risk for little or no environmental gain. Commercial realities have been ignored. President Obama’s plans have been ignored. The scheme is deeply flawed.
We have to better understand the prospect and implications of effectively going it alone in Australia with this scheme before we make any decisions about finalising a scheme.
And, all at a time when we will need the energy and resources sector, and other businesses, to play a big part in getting on top of the mountain of debt accumulated so rapidly by the Rudd Government.
It is a time for prudence, careful policy making and commonsense. It is not the time to gamble with people’s livelihoods and their futures in the cause of political expediency.
The Government’s scheme is in no shape to be passed, and the vote must be deferred until after Copenhagen and when the Obama scheme is clearer. There is no Plan B if the rest of the world doesn’t follow suit.
This is the biggest deliberate structural change to our economy ever. We must get it right.