03-August-2009
Speeches, The Economy, Emissions Trading Scheme
The emissions trading scheme proposed to be voted on next week is the biggest deliberate structural change ever to be considered in our economy.
While there has been endless publicity about global warming and a welter of government and business reports, any real debate about how best to design a scheme to tackle it has effectively been stifled.
We have had the Garnaut volumes, a Green Paper, a White Paper, exposure draft legislation, several Senate Committees of Inquiry and a final Bill, yet no alternative views on scheme design have really been entertained or empirically assessed.
It has been an exercise in ‘take it or leave it’ by the Rudd Government. No dissent has been tolerated.
We have had a number of distinguished and highly experienced contributors here today who have well reasoned, alternative views on how to tackle CO2 abatement.
At best they have been humored by this Government. In the main they have been dismissed in less than a page out of thousands of pages of reports.
More broadly, other points of view, especially those from the Opposition, have been instantly labeled as the views of deniers or skeptics in a McCarthyist style campaign which avoids any mature discussion.
It is an undemocratic and highly dangerous way to govern.
It is why there has been essentially no change of any consequence in the eight months since the release of the White Paper, except for the politically inspired delay of the start date.
Yet outside of the Government, the legislation is friendless. The Greens, business, prominent researchers and policy advisors see major flaws in the legislation.
It is why we have had to commission our own analysis, at our own expense, to test the merit of alternative scheme designs.
It is why we have had to travel to Washington and Beijing to find out the truth about the substantial differences emerging in the way the big global emitters are tackling this issue, differences that would put Australia at a substantial competitive disadvantage for absolutely no environmental gain.
It is why the Opposition will vote against this legislation next week if the Government doesn’t accept our very sensible request to delay the vote to allow Australia to be better informed about the shape of the United States scheme, to be informed about the outcome of Copenhagen and to allow some empirical assessment of alternatives, or modifications, to the design of the Government’s scheme.
The Coalition doesn’t seek to stall or block Government legislation lightly, but we’ve got to get it right. That’s why we have asked the Government to defer the vote until the first Parliamentary sitting next year.
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, and what protects 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.
We saw it again here today with a thirty minute political rant against the Coalition by Minister Penny Wong.
Again the Minister made no attempt to explain the Government’s Scheme. Most Australians would not have the foggiest idea how it works or what impact it might have on them.
Today was an opportunity for Minister Wong to at least address the concerns of the Greens, business, State Government’s and the community. It was an opportunity lost.
The Minister used the time to create nine straw men around the nine proposals or principles we put to the Government for discussion, and then unsurprisingly proceeded to dismiss each and every one of them out of hand.
These nine proposals reflect months of representations and concerns expressed by industry and other groups about the failings of the legislation.
The nine proposals or principles warrant serious discussion. To propose that an Australian emissions trading scheme should offer no less protection for jobs, small business and industry than an American emissions trading scheme is a totally valid proposition when the Government itself has repeatedly said that there is no Australian solution, there must be a global solution, and when you consider that Australia, a highly exposed economy, produces around one per cent of the world’s emissions and the US produces over 20 per cent.
Yet the Minister duly misrepresented the proposition and then dismissed it out of hand, along with the other eight propositions.
This confirms the Rudd Government’s response is all about politics, not the environment.
Even the delay to the start date to put it beyond the next election was about politics; it was prompted by the screams of Labor Mayors in key regional marginal seats about the loss of tens of thousands of jobs in regional countries.
The Government should use this delay to the start date 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.
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 Australia 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.
The Government was at it again yesterday scaremongering that unless their Bill is finalized in eleven days time, the Opera House and many other Heritage sites will be in jeopardy.
This is the totally false impression given to the community by the Government’s very misleading presentation of the Treasury modeling.
If this was the real cost why wouldn’t you put up your hand in support?
The public 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, as foreshadowed by NSW Treasurer, Eric Roozendaal.
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 dairy 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 aluminum 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 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’s 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.
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 took no issue with the 2050 forecasts when you might assume there is a world price of carbon in place, but 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; 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? Are there alternative scheme designs?
It is why we moved 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.
The Government rejection of that amendment has led us, with Senator Nick Xenophon, to commission our own analysis. We will receive the final report shortly. The results will be telling.
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 while delivering little or no significant reductions in global CO2 abatement.
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.
Notwithstanding the dissembling this morning, the draft US 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 three times 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 maneuver 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 have the greatest incentive and capacity 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.
For Australia, global leadership should be about technologies. If we can’t retro fit the coal fired power stations, being built in China at the rate of one finished every nine days, then the world will see very little CO2 reductions for generations.
Australian industry has the capacity to lead the development and export such technology if the balance sheet of the major generators and other manufacturers are not crippled.
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.
This major increase in electricity prices in Australia is much greater than proposed with the design of the US scheme, and will result in tens of thousands of businesses facing indirect costs which many, in the short term, will be able to do nothing about. It then just becomes a tax on industry and growth.
As well, 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.
Furthermore, 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 – this will foster a mendicant, Nanny State.
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 12 month delay in the starting date provides a breathing space to see the intentions of the rest of the world at Copenhagen.
It also allows the time to undertake an empirical assessment of the loss of jobs and investment, the impact on global emissions if our competitors don’t put a tax on their CO2 emissions for 10, 15, 20 years or more.
It provides an opportunity to look with an open mind, and empirically, at alternative design approaches.
This is the biggest deliberate structural change to our economy ever. We must get it right.
Media Contact: Nick Xerakias, 0410 417 173