Practical actions to reduce emissions
without increasing electricity prices
*** Check against delivery ***
Thank you for the introduction and good morning.
I would very much like to thank Peter Castellas for the invitation to speak today. But more than that, I would like to acknowledge the very substantial contribution he has made in developing our emissions reduction policy and assisting in the legislation’s passage – and now the first successful auction.
Peter, along with a number of others, has focused on outcomes. He stands as a clear example of someone who puts the environment first, rather than participating in the increasingly pointless game of climate change politics – a game that is negative and counterproductive, given the science is settled and when our goal should be about doing the best for the planet.
A year ago I was standing here before many of you after just announcing the final design for the Government’s Emissions Reduction Fund (ERF). Much has occurred over the intervening year.
First, we had the repeal of the carbon tax last July. Something that a number of commentators, including some here, said would not occur.
These same critics also said that electricity prices would not fall but they did – by the single largest amount on record.
Second, we achieved the passage of the Emissions Reduction Fund legislation in October. Again, something a number of commentators said was unlikely.
And third, only two weeks ago, we had the results of the first auction of the Emissions Reduction Fund.
And yet again, a number of commentators were adamant the Fund would not work. Yet the facts could not point more clearly to a stunning first auction result.
To recap, that first auction saw the Clean Energy Regulator contract with 43 participants for the delivery of 47,333,140 tonnes of CO2-e.
Covering 144 projects, the total value of the contracts is $660,471,500 at an average weighted price of $13.95 per tonne.
To put this into context, the first auction of the ERF – limited as it was by a relatively small number of new ERF methods – delivered more than four times the total emissions reduction of Labor’s $15.4 billion carbon tax, and at a fraction of the cost.
And it did so without raising household electricity and gas prices, reducing the profitability of small businesses or putting at risk thousands of Australian jobs.
Despite having been continuously wrong about the Government’s Direct Action policy, many of these same commentators have continued to come up with even wilder critiques – but more on that later.
So today I want to address the past, the present and the future with a clear message that we can, and we will, reduce our emissions without hurting jobs or Australian families.
Climate Change Policy – The Past, The Present and The Future
It is important that we have an honest conversation about climate change policy.
The starting point is to acknowledge that, irrespective of political view, the issue has never been about climate change or the science underpinning it.
There is a clear bi-partisan agreement on the science and the targets. Where the political and policy debate begins and ends is over the means of addressing climate change.
Under the Rudd and Gillard Governments, Australia endured a convoluted policy path.
First, the Carbon Pollution Reduction Scheme announced in December 2008. This lasted for less than two years until Prime Minister Rudd abandoned his own scheme. The pink batts scandal also came in this period – a massive and tragic public policy failure, followed by the Green Loans debacle.
Then, in July 2010 Prime Minister Julia Gillard announced her climate change policy of a “Citizens Assembly” and “cash for clunkers”. Just prior to the 2010 election she declared “there will be no carbon tax under the government I lead.” The first two were abandoned and as for the carbon tax, it became an infamous Australian phase.
Third, and despite all the promises and a very clear lack of consensus, the Australian people were confronted with the reality of the Labor-Green carbon tax in 2012.
But even then, this rushed, botched policy had to be changed five times from when it first became law and was slated to be terminated by its authors after just 12 months of practice.
Just how bad it was can be seen in the fundamental contradictions underpinning Labor’s carbon tax.
Through its various industry assistance packages associated with the carbon tax, Labor allocated over $30 billion of taxpayers’ money to underpin the carbon tax. The taxpayers paid the tax through higher electricity prices, then they paid the polluters to keep polluting.
To pay for it, Labor slugged industry and households with higher costs. In the case of households, $550 per year.
Despite all this, there were no meaningful emissions reductions. Over the period 2006-2012 emissions fell by 55 million tonnes, or roughly nine million tonnes per year.
Amazingly, the rate of emissions reduction actually slowed during the two year carbon tax experiment. Under the carbon tax, emissions fell just 12 million tonnes or annually about six million tonnes. And this assumes that after a declining average of nine million tonnes a year before the carbon tax, there were no external factors and that any and all abatement was exclusively because of the carbon tax. A generous assumption at best.
Most significantly, even if you attribute every tonne of decline in the two years of the carbon tax experiment to the tax, then just less than 12 million tonnes for a tax of $15.4 billion equates to over $1300 per tonne of emissions reduction. Put simply, the carbon tax was a failure at what it was supposed to do.
So our debate should be about how we can deliver better climate change policy. Put another way, what are the lessons we should take from this dismal period of policy failure?
There were three fundamental flaws of the tax.
First, taxing CO2 emissions is a license to pollute. Every time you pay the tax emissions are allowed to go up, not down. The correct metric is not the price to emit, it is the price to actually reduce emissions.
These are in fact the polar opposites of each other. One is a licence to increase emissions. But as we have seen with Point Carbon’s analysis of the European Emissions Trading Scheme (ETS), there are some expectations that the ETS system in Europe may produce zero emissions reduction between now and 2020.
Economic investment can be brilliantly successful, such as the US SOx and NOx programs, but this carbon tax was a comprehensive failure.
Second, the carbon tax, or its floating price version the ETS, is a regressive tax. It focuses on electricity and gas prices. It is not a polluter pays system but a pensioner pays system.
It operates by expressly driving up the price of electricity and gas. When it was brought in, electricity and gas prices went up. When it was removed, they came off. If it were to be reintroduced they would soar again. This is its very purpose.
Third, contrary to the claims of some, it was not cost-free to the Budget. The carbon tax came with $30 billion in budget or balance sheet-based expenditure, which I have outlined in an attachment to this speech. This is more than ten times the investment involved in the Emissions Reduction Fund.
Most amazingly, there was $5.5 billion in no strings attached payments to brown coal generators to keep operating.
By contrast, the Coalition announced its Direct Action policy on 2nd February 2010. It has survived five different ALP policies!
Unlike the carbon tax, it does not punish Australian families, businesses and farmers with high electricity and gas costs.
In coming to Government we have, step by step, worked systematically with business and the community to implement our signature climate change election policy: the Emissions Reduction Fund.
Over the past 18 months we have:
• released and consulted on a Terms of Reference, a Green Paper, a White Paper and draft legislation;
• provided $2.55 billion in funding in a difficult budget context;
• secured passage of legislation through the Parliament that many said would never pass;
• worked carefully with industry to design a reverse auction system that works for business and provides value for the taxpayer; and
• held a highly successful first auction.
The Emissions Reduction Fund is a market mechanism based on the United Nation’s Clean Development Mechanism (CDM).
I note that many of our critics have never challenged the CDM. Do they believe that scheme should also be scrapped?
The key point of difference with Labor’s carbon tax is that rather than pay emitters to keep emitting on the one hand while trying to tax them out of existence on the other, the Emissions Reduction Fund actually pays for emissions reduction.
The Emissions Reduction Fund builds on the architecture of the Carbon Farming Initiative. Credit should be given where it is due – this was, in general, a successful scheme implemented under the previous Labor Government.
But unlike Labor’s version of the scheme – which only applied to the land sector – the methods underpinning the Emissions Reduction Fund are expanding to emissions reduction activities in all sectors, enabling us to extend our ability to reduce emissions across the economy.
Whether it’s industrial energy efficiency, transport, power stations, agriculture or forestry, we have designed a scheme that can target a broad range of emissions reduction opportunities.
This is something the carbon tax could never do.
Fundamentally, we believe the environment is agnostic as to the source of emissions reduction.
As I noted earlier, 144 projects were successful in securing contracts at the first auction. These projects now have the security of commercial contracts with the Australian Government for between three and 10 years. Project such as:
• strategic burning to manage wildfires in savannahs in Cape York;
• methane gas capture at piggeries in New South Wales, Queensland and Victoria;
• native forest protection in New South Wales and Tasmania;
• transport projects in Western Australia;
• landfill gas capture, including with electricity generation, at more than 50 sites across Australia;
• waste diversion at sites in New South Wales, Western Australia, South Australia and Queensland;
• environmental plantings and human-induced regeneration of degraded lands; and
• more than four million tonnes of emissions reduction from soil carbon projects.
I know that many in this room have worked incredibly hard on many of the successful projects, either as developers, advisers or on the methods. I would like to thank you for your participation and congratulate you on our shared success.
I particularly want to thank Peter Castellas, Senator Nick Xenophon, Danny Price, Gordon Weiss and Stuart Allinson who have been crucial to the design and passage of the Emissions Reduction Fund. I would also acknowledge the constructive role of the Palmer United Party.
As was set out in the Green and White papers, the Emissions Reduction Fund is complemented by the safeguard mechanism.
The safeguard mechanism aims to ensure that emissions reduction purchased under the Emissions Reduction Fund is not offset by significant increases in emissions elsewhere in the economy. It will commence on 1st July 2016.
While the legislation to implement the safeguard mechanism is already in place, the Government must make rules and regulations to implement the detail of the system, such as baselines.
A consultation paper was released by the Government in March this year setting out possible policy positions for the safeguard mechanism as we work towards establishing rules and regulations by October this year, as required by the legislation. Key elements of the paper include:
• limiting coverage to facilities with direct emissions of more than 100 000 tonnes of CO2-e;
• approaches for setting baselines for existing facilities, new facilities and significant expansions to accommodate economic growth and investment;
• arrangements for baselines for new facilities and significant expansions that come into coverage under the safeguard mechanism beyond 2020 to be set at a level to encourage facilities to achieve and maintain best-practice;
• a flexible approach to compliance such as multi-year averaging; and
• administration of the safeguard mechanism by the Clean Energy Regulator.
Our view is that over time, as technology improves, it is likely that what constitutes best practice will improve and this will assist in reducing emissions.
The safeguard mechanism will play an important role in allowing Australia to meet its targets in the post-2020 period and will allow for review pre-2020.
Not all, however, have shared our enthusiasm for the Emissions Reduction Fund.
It was asserted after last year’s Budget that the Emissions Reduction Fund would be limited to $75 million in contracts in the first auction. This was wrong.
Some suggested there would be little if any demand under the Fund. This was wrong. Apparently the Carbon Farming Initiative would collapse. This was wrong.
Others suggested the price per tonne would need to be immensely high. This was wrong.
We were told there would be no demand in the farm sector. This was wrong, with 31 million tonnes of contracts in the farm sector.
And finally, some thought the concept of the Emissions Reduction Fund was so complex that it would require thousands more to be employed at the Clean Energy Regulator. This was wrong.
In fact, all of these predictions from the ALP and their friends have turned out to be completely wrong.
Now, some of these same people are saying there will be too little demand in the second auction or that the price will have to be higher and will blow out the budget.
At some point these critics need to have a very hard look at the increasingly desperate nature of their arguments. They do not have the benefit of a strong track record of successful predictions on their side. At the very least, the first auction result should have given them pause for thought. Already we have strong interest for the second and subsequent auctions.
But the most bizarre criticism comes from those who say taxpayers’ money should not be used to purchase emissions reduction. Who did they think was paying for the carbon tax?
In the end, it was overwhelmingly the mums and dads, pensioners and small businesses who paid through deliberately higher electricity and gas prices.
Are these critics seriously suggesting that the Government should not be spending any money on emission reduction? If so, they need to explain why they had little problem with $30 billion of taxpayers’ funds being provided to industry, much of it, bizarrely, to allow them to keep emitting under Labor’s carbon tax.
Australia will meet its 2020 greenhouse emission target of a five per cent reduction from 2000 levels – the equivalent of minus 13 from 2005 – and the Emissions Reduction Fund will be central to that.
I had always said that the previous election would be binary for climate change policy. The community voted out a carbon tax model. I do not believe they will support it again.
What they have now is a far more effective system and one that was always designed to be long term.
The Emissions Reduction Fund is designed for the next half century, with some of the contracts signed already going out to 2025. There will, however, also be a range of other elements.
The world is on the cusp of profound changes in the way we produce, distribute and use energy. These changes will lead to dramatic reductions in greenhouse gas emissions.
Minister Macfarlane in his Energy White Paper focuses on improved energy productivity. Australia also has significant opportunity to reduce vehicle emissions, and work under the Montreal Protocol will further assist in reducing emissions from synthetic greenhouse gases.
In this context, Direct Action provides a flexible long-term framework for meeting whatever emissions reduction challenge confronts Australia.
Australia will be one of the few countries to actually meet both the First and Second Kyoto Period Targets.
Unlike other countries, when we agree to a target we will meet it. That basic point appears to have been lost in much of the domestic and international criticism.
As such, we are approaching the Paris UNFCCC meeting in a constructive way.
We are committed to working towards an agreement that places us on the path of limiting warming to two degrees. As such, Australia will put forward a post-2020 target which represents Australia’s fair share.
The Government has released an issues paper to garner views on the post-2020 target and later today I will host another in a series of roundtables to further explore views and ideas about where Australia should be setting its target. Our position will be released mid-year, well ahead of the Paris meeting.
What we are already seeing is that countries are proposing a range of schemes to achieve their Intended Nationally Determined Contributions.
The EU does have an emissions trading scheme, but the US doesn’t. Japan is purchasing emissions reduction in agreements with other countries.
A more mature debate is emerging internationally that recognises the diversity of approaches rather than the one-size-fits-all approach.
Australia would be willing to accept, as it has in the past, a legally binding target. We also recognise, however, that not all major emitters share this view.
At the least, the agreement should have clear and credible emissions reduction commitments from all countries, particularly the major economies and our key trading partners.
So the focus now is on achieving outcomes.
It’s the type of constructive debate that I look forward to Australia having as well, and one which I am heartened to say has been evidenced by the discussions I have had so far with the variety of stakeholders from business to environment groups in these roundtables.
In conclusion, Australia has just contracted for the largest reduction in emissions in Australian history.
With Direct Action it has an approach that is practical, flexible, low-cost and efficient in actually reducing emissions. It is outcomes-focused. It is an efficient market mechanism.
Contrast this with Labor’s failed carbon tax that barely reduced emissions and where it did, cost $1300 per tonne of abatement and came with a supplementary cost to Australian taxpayers of $30 billion.
I would respectfully ask the ALP to outline when they will release their plan for a new tax, how much they will slug families and how much will electricity prices rise?
The Coalition has in place a climate change policy that will stand the test of time because it works for Australia. I invite all of you here to look for innovative ways to reduce our emissions and participate in subsequent rounds of the ERF auction.