Angus Taylor (Hume, Liberal Party) Share this | Hansard source

I welcome the introduction of this bill to the House and the hard work of the ministers for environment and industry and many others to get the bill to this point. I welcome the fact that this bill brings an unavoidable period of uncertainty to an end, and protects past investments that were made in good faith.

I want to begin with a word of caution. Much work is necessary to deliver good policy outcomes from this bill. Many different stakeholders will determine the success, or otherwise, of this bill, including project developers, retailers, the Clean Energy Regulator, the Clean Energy Finance Corporation, local and state planning authorities, or any federal government in power during the life of the legislation. The choices and actions of these stakeholders will heavily impact on the quality of the outcomes we get from this legislation. These stakeholders can get it right, or, alternatively, they can get the implementation desperately wrong. Some of the stakeholders I have mentioned could trample over local communities, be biased towards the wrong technologies, ignore the inherent risks in this scheme, and ignore the real justification for the legislation. If they choose this path we will all pay the price. Or, they can choose to pay respect to committees, make sensible technology choices and set Australia up for a lower emissions future. That is what we all want.

Since 1983, I have closely followed developments in the science and policy of climate change. Over that time I have seen the science strengthen in demonstrating the causal relationship between rising atmospheric concentrations of carbon dioxide equivalents and global warming. I do accept that there is much uncertainty in the modelling, the forecasting and some of the causalities, but I also believe, as a policy maker, that the risk and uncertainty is, in itself, a strong reason for precautionary action. I remain firmly convinced that the world does need to act, and Australia does need to do its piece.

But I have learnt over the years that emotional policy responses to a problem, whilst understandable, rarely make for good policy. So we need to remember some very basic principles in developing our policies across the globe, not just in Australia. The number one point here is that this is a global problem and it requires a global solution. The atmosphere is totally neutral to the cause of rising concentrations. It does not matter whether it comes from China, India or Australia, from the electricity grid, from transport, or from other sources of carbon emissions. We also know that outsourcing carbon emissions from one country to another helps no-one and has no impact. You only have to look at the result of what has happened in Europe to see that. The Europeans have outsourced their industry and their carbon emissions and have claimed that as emissions reductions. Of course, the atmosphere does not see it that way.

Secondly, we cannot bring this down to a choice between prosperity and the planet, or we will not save either. Instead, we need to focus on the lowest cost of reducing emissions and containing atmospheric concentrations of carbon dioxide equivalent across the world. As a world, we are still moving 50 million people per year into the middle class. When your income is $5,000 or $10,000 per year, then food, housing, basic education and health come first. We will only solve this problem if a solution does not slow the pathway to prosperity for the poorest amongst us and for those moving into the middle class. We need to develop prosperity and the future of our planet.

We should avoid expensive symbolic gestures when there are other better, lower-cost alternatives. But we also know that if we are going to avoid this choice between prosperity and the planet new technologies will be central to any solution. This is not just in the electricity grid, but off grid as well. We do not yet have a technology that can replace transport fuels and nor do we yet have a low-cost technology that can provide a sure supply of baseload electricity at low cost in our electricity grids. This will continue to be a challenge for the world and for Australia.

More locally, we need to remember some key principles. The first of these is that the electricity grid in Australia is an expensive place to reduce emissions. There is a very simple reason that: we have low-cost coal and high-cost gas. Worldwide, developing countries have found the easiest way to reduce emissions, aside from outsourcing them to other countries—which is completely ineffective, as I have already said—is to switch quickly from coal to gas. That is not an easy solution for us because we export our gas at high prices and our local coal is very cheap. But we do have very good options for off-grid reductions: changes of land use, capturing waste methane, and energy efficiencies. That is why the direct action program has worked at a phenomenally low cost—much lower, and with far greater volumes, than anyone expected.

So, it should not worry us that Australia is an expensive place to reduce emissions in our grid, because the electricity grid is only about a third, or a little more, of our carbon emissions. We still have a huge part of our carbon economy outside the grid, where there are low-cost options, and that is why Direct Action has been the right policy and has been such a successful policy. But we are also unusual amongst developed countries in being a major exporter of carbon-intensive goods. That means that solutions and targets which are acceptable to the US and Europe, which are increasingly importers of carbon-intensive goods, should not apply to us, and I will come back to that in a moment. Ultimately, though, if the science continues in its current direction we will need to achieve significant reductions in emissions in our electricity grid, and that requires exploration and commercialisation of new prospective technologies.

Turning now to the LRET and why it needs to change, we need to reduce the target while at the same time making sure that we maintain our commitment to a five per cent reduction in overall emissions by 2020. The reason for this is very simple. The original target of 41 terawatt-hours for the large-scale renewable energy target became unachievable. The highest rate of new generation coming in to our system has been about 1.6 terawatt-hours a year, but in order to achieve the target of 41 terawatt-hours we need to go from 1.6 up to 7. It was never going to happen. It was an impossible target, set by a trajectory set many years ago, which was totally unrealistic, and it meant that we simply were not going to achieve it. And, as I will explain in a moment, that would have meant the system going to penalty, and we would have been paying out large amounts in our electricity bills for no emissions reduction. This was not going to work.

We also know that demand grew far less than was expected. In fact, the 41 terawatt-hour target was looking like it was going to take us to something closer to 30 per cent renewables rather than the original target of 20 per cent, which was anticipated when the legislation was put into place. So, the target was quite simply wrong, and it needed to be changed. On top of this, we have a situation in which we are punishing our exporters for absolutely no reason. If an exporter shuts and that industry moves to another country, there is no improvement in carbon emissions. In fact, in all likelihood, because the outsourcing would more likely shift to a high-emission country using high-emission technology, we would see a deterioration in atmospheric concentrations as a result of punishing our exporters. So that too needed to change. What is being proposed in this legislation is a target that is much more realistic—33 terawatt-hours—and exemption of our major exporters. These are good changes and the right changes.

We still face some serious challenges in making all of this work, and they come down to three. The first is that the large-scale renewable energy target risks becoming a technology monoculture—that is, all wind and nothing else—and this is a serious policy problem. You cannot justify the large-scale renewable energy target on the basis of its being the lowest-cost means of driving emissions down. Even at the moment, the cost of a certificate is about $45. That is supposed to be the equivalent of $45 per tonne of emissions reduction. In fact, in all likelihood it is more than that, because we do not get a tonne of emissions for every certificate. But let's go with $45. We know from Direct Action we can reduce emissions for under $14. This is expensive. So, how can we justify doing it? The only real justification is in providing a platform to test, commercialise and refine new technologies that offer us good prospects in the medium to longer term.

If the technology used in the LRET is exclusively or largely wind, the problem is that we know wind will not see the learning curve improvements that we are seeing with solar. Most who look closely at this over a long period of time have come to the conclusion that the technology that has the best prospects is not in fact wind but, in time, will be solar. And we are seeing massive improvements in the cost of solar cells and the cost of batteries, which are central to storage.    Wind is also highly intermittent, and supply often comes at the wrong times, at night. It is focused in the south of Australia, and we know that the demand growth we are seeing in the electricity grid is in the north of Australia, not in the south.

It will also be a huge challenge to meet the target. We will need to build more in the next five years than we have ever built before. We know that if we do not reach the target the impact will be that the certificate prices will go to penalty, flowing through to electricity prices.    Claims are being made that that is not the case, and these claims are deeply flawed. If the certificate price goes to penalty, we will pay for it in our electricity prices. The argument made is that because there are many long-term contracts at lower prices then the short-term prices of going to penalty will not be passed through. Of course, this flies in the face of the most basic principle of microeconomics: that prices equate to marginal costs. But, more simply, as one farmer in my electorate put it, this is the equivalent of a farmer buying sheep for $30, the market price moving to $100 and the farmer selling the sheep for $30. What business is not going to pass on the price increase? Of course they are going to. So, clearly, if the certificate price moves to penalty because we missed the target then there is no question that electricity prices will increase very significantly, and that is likely to be a cost of about $3 billion per year by about 2020 if we go to target.

The third risk is that, in the rush to meet the target, local community concerns will be ignored. Some wind projects are planned in regions with highly subdivided country, like the outskirts of the Canberra region, and the community divisions can be deep and damaging. Land prices are elevated in many of these regions, which means that there are significant downside risks to those land values, and we need to be conscious of that.

To solve these problems, we need to do three things. One is to closely monitor our performance versus the target, and we need to take strong and immediate action if it is clear that we are not going to reach the 33 terawatt-hour target. We need to avoid a wind monoculture in the large-scale renewable energy target scheme by encouraging solar and other technologies beyond onshore wind. The focus needs to be on technologies which offer the best prospects for the longer term. I take great comfort that retailers are starting to understand the real advantages of well-located large-scale solar projects. They are quick to commission, better able to match supply with demand and better suited to the north of Australia, where demand growth and prices will be higher. Regulators, particularly the Clean Energy Finance Corporation and the Australian Energy Regulator, have an important role to play here in making sure that we get technology diversity in the large-scale renewable energy target scheme and do not end up with a monoculture. The retailers and developers also need to be aware of this.

Finally, we need the retailers and developers to be alive to community concerns. I will be quick to challenge developers and retailers who promote developments where there are strong unaddressed community concerns. I ask that these developers provide appropriate compensation for all parties that are impacted on. I congratulate the ACT, which has actually taken these things into account.

The implementation of this legislation is critical for my local communities and many communities across Australia. It will also ensure that we have a portfolio of low-cost new technologies. I, for one, will be watching closely and will be quick to point out when we are getting it wrong. Subject to these caveats, I commend this bill to the House.

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