Bob McMullan (Fraser, Australian Labor Party, Shadow Minister for Federal/State Relations) Share this | Link to this | Hansard source

I rise on behalf of the opposition to indicate our support for the passage of the Liquid Fuel Emergency Amendment Bill 2007. The purpose of the bill is to amend the Liquid Fuel Emergency Act 1984, an act introduced by the Hawke Labor government to provide the Commonwealth with the necessary authority to prepare for and handle a liquid fuel supply emergency. When introducing the bill in 1983, the then Minister for Science and Technology, Barry Jones, said:

The fundamental objectives of a national response to a major fuel shortage should be to minimise the total impact on the community—in terms of maintaining essential services and minimising economic dislocation—and to ensure that available supplies are distributed as equitably as possible.

The petroleum industry obviously holds commercial levels of petroleum stocks, reflecting their commercial decisions and judgements about the amount of stock required to maintain the viability of their commercial operations. They have a clear incentive to operate with the minimum levels of stocks possible because it is a cost and retention of stocks unnecessarily is an inefficiency. They have to strike a commercial balance; that is their task.

The Liquid Fuel Emergency Act and its guidelines allow ministers to direct industry to establish and maintain strategic levels of petroleum reserves. The act provides the government with a number of powers—for example, contingency planning powers to facilitate management of liquid fuels in an emergency; a power for the Governor-General to declare a liquid fuel emergency; and emergency powers to regulate supplies, to regulate maintenance of stock levels and their transfer, to direct the sale of liquid fuels and to regulate refinery operations. It also includes a power for a mechanism through which demand reduction and supply measures can be implemented. As you can see, those words are neutral, but when you think about what they mean they are a sweeping set of powers and would not be lightly applied. But I think every Australian would think, in the sort of circumstance which might lead a government to recommend declaring a liquid fuel emergency and the Governor-General to act upon the recommendation, that we were in a circumstance where sweeping powers were required. That is the starting point.

This bill seeks a number of amendments to the act, the majority of which were identified in the 2004 ACIL Tasman review. That review made 31 recommendations intended to encourage parties in the liquid fuel market to carry out their own contingency planning. The Ministerial Council on Energy accepted the recommended changes in December 2005—roughly 18 months ago—and they have also been accepted by the four major petroleum producers through their organisation, the Australian Institute of Petroleum. The major changes include removing the concept of ‘high-priority’ users to encourage further contingency planning; narrowing the concept of ‘essential’ to include users ‘essential to the health, safety and welfare of the community’; a change made necessary by the introduction of self-government in 1984 in my home territory here in the ACT, which is the inclusion of a separate reference to the ACT in the act in its own right—it clearly could not have occurred in 1984; extending the delegation capacities under the act; amending the compensation provisions, removing the right to compensation of persons or corporations subject to direction in a liquid fuel emergency; extending the immunity to breaches caused by directions issued prior to a national liquid fuel emergency; and exemption from prosecution for a breach of part IV of the Trade Practices Act where conduct during a period of national liquid fuel emergency was required by direction. It is obvious why that is required. Many things that would need to be done under such a direction would be collusion if they operated in the normal marketplace. But, of course, a company operating under an order such as this could not possibly be seen to be in breach of the Trade Practices Act; they would be acting in the national interest and doing so only because they were required to by a direction. Another major change is the provision regarding the operation of the Legislative Instruments Act 2003 to allow the government to respond quickly to changing circumstances and changes to the enforcement provisions of the act.

As I said in opening, the Labor Party opposition supports the passage of this amendment bill, and I would like to take this opportunity to make some brief remarks with regard to Australian production of liquid fuels. The Australian Labor Party acknowledges the significant contribution that the upstream oil and gas industry makes to our economy. Currently, Australia’s known reserves of oil to production are limited, while exploration costs are high. It may not be well known to many Australians, but unless we find new oilfields soon domestic oil production could represent less than 20 per cent of our consumption by 2015. That is not far away. When you think about the lead times from exploration to development to production to distribution, we do not have much time to start to turn around that 2015 target and to seek to do something about that 20 per cent. We are looking at the possibility of a profound shift in the source of our liquid fuels, which has major implications for our energy security in the future.

When you think about that, Mr Deputy Speaker, compared to many countries we have been quite complacent about the issues of adequacy and security of fuel supplies. There are a number of reasons for that—and I am not making a partisan point that it is this government the previous government, or the opposition: it is Australians across the board—and one reason is that in the crucial area of energy generation we are so well endowed with coal and gas that we take for granted that our capacity to supply ourselves is going to go on forever. More recently, in the period since the rash of oil discoveries and development in Bass Strait and off the North West Shelf, with such a lot of hydrocarbons we have found ourselves much more self-sufficient than many. If you think about the part that energy security and liquid fuel security play in the diplomacy of a country like Japan and if you contrast that with the Australian situation, you can see that it might not be unfair to call it complacency. We have had a degree of legitimate comfort because of the strength of our position and the capacity of our domestic supply, but that is about to change. If we are coming to the point where less than 20 per cent of our consumption of liquid fuels will be met from domestic oil production within a mere eight years, then we need to focus much more attention on this issue. It will require us to look at alternative sources of our liquid fuels and to give serious consideration to our energy security in the future.

Our shadow minister Senator Chris Evans has been drawing the attention of those of us in the opposition and the public to the call by APPEA, the Australian Petroleum Production and Exploration Association, for more support for oil exploration in Australia. You can understand that people might say, ‘They would say that, wouldn’t they’? They are the Petroleum Production and Exploration Association. But the fact that they are, by their own charter, advocating the interests of people engaged in that area of work does not make them wrong. It does not make them automatically right, but it certainly does not mean that their argument should be dismissed. When you think about it in the context of the decline in our domestic oil production and the increased risk to our energy security, I suspect that they are quite correct. In fact, on the advice provided to me by Senator Evans, the issue of support for exploration is probably a broader point that goes beyond oil resource exploration—but that takes us too far away from the subject matter of our bill for me to go there. However, that broader question of support for resource exploration is something that, once again, Australians take for granted.

I grew up in Western Australia, where there has always been a very big focus on the resource industries and exploration across a whole range of technologies, from the most basic individual prospector to the most highly sophisticated geophysical analysis that you can get. This is something to which we need to give more attention. However, while we must continue to look for oil, our long-term energy security demands that we look to develop a secure supply of alternative liquid fuels over the medium to long term. Australia’s energy needs are best served if we have a diversity of sources of liquid transport fuels; thus the Labor Party has made it clear that we will support the development of gas to liquids, coal to liquids and biofuels to secure a diversity of supply.

In addition to the energy security benefits of this approach, the development of alternative fuel sources could also yield benefits in terms of employment and technological know-how and lead to new export opportunities for Australia. But of course it also feeds directly into this question of the circumstances in which Australia faces a liquid fuel emergency and what might be our adequate and appropriate response to that. So, in concluding my remarks on this, I want to reiterate that the Labor opposition supports this bill which seeks to improve the efficiency of Commonwealth liquid fuel emergency response arrangements.

Martin Ferguson (Batman, Australian Labor Party, Shadow Minister for Transport, Roads and Tourism) Share this | Link to this | Hansard source

I welcome the opportunity to say a few things about the Liquid Fuel Emergency Amendment Bill 2007. As the member for Fraser has said on behalf of the opposition, this bill is clearly supported by the opposition, but I seek to use this debate to raise a few issues related to fuel and the question of security of supply. As I have noted many times before in the House, it is disappointing that yet again it has taken the government three years to bring this bill to the House after the original act was reviewed in 2004. I suggest to the committee that this reflects the arrogance and the laziness of the Howard government when it comes to turning its mind to challenging issues which are of vital importance to the future of Australia’s economic prosperity. The fact that this bill was so far down the legislative program reflects the government’s contempt for the due process of parliament and the need to modernise Australia’s legislative framework to keep pace with a rapidly changing world.

As has been noted by the member for Fraser, the review of the Liquid Fuel Emergency Act 1984 was carried out by ACIL Tasman and included 31 recommendations to encourage parties in the liquid fuel market to carry out their own contingency planning for liquid fuel emergencies. The Liquid Fuel Emergency Act and its guidelines allow ministers to direct industry, and appropriately so, to establish and maintain strategic levels of petroleum reserves—and that is exceptionally important given the uncertainty of the world in which we operate at the moment, not only in terms of the challenges of the Middle East but also with respect to problems of the weather and sudden reductions in the production of petroleum as a result of cyclones throughout the world. Such a need obviously arises if global supplies are interrupted by war or terrorist activity or issues of climate.

Indeed, as we have noted in recent years, natural disasters can have a very significant effect on world oil and refined product markets as we have seen with Hurricane Katrina in the United States a couple of years ago. Oil production then was unfortunately shut down for an extended period in the Gulf of Mexico, as were numerous Gulf Coast refineries. Oil, petrol and diesel were diverted from markets right across the world to meet the shortfall in the United States as a result, with a huge consequent impact on the price of oil and petrol. As I have acknowledged, as a result of these cyclones the prices skyrocketed around the world as the booming economies of Asia tried to compete for supplies. The Liquid Fuel Emergency Act is very important to ensure that Australia can maintain its fuel supplies in emergency situations. But what is lacking from the debate at the moment—the opposition has been calling for this debate for some considerable years—is a long-term plan for national fuel security. This is where the debate should be in the lead-up to the next election—not just about the importance of the bill before the House, the Liquid Fuel Emergency Amendment Bill, but also about energy security for Australia. Unfortunately we do not hear the government addressing this huge potential challenge to Australia. I regard this as a huge failure because the issue is actually about addressing where Australia might be in 10, 20 or 30 years time.

The opposition suggests that the best way for Australia to protect itself in an emergency situation is to have its own home-grown fuel supply industries, and Australia is well placed in the world to embrace this challenge. This would mean not only maintaining a robust refining industry but also encouraging exploration for oil in frontier areas as production declines in established basins; utilising other resources like LPG, gas and coal; and encouraging the use of biofuels. Unless we find new oilfields soon, domestic oil production could represent less than 20 per cent of our consumption by 2015 and Australia will, potentially, be in real difficulties. We are, more than ever, a net importer of oil. At the same time, we have hundreds of years supply of coal and natural gas, which means that we are required to embrace new industries. Technology to convert coal and natural gas to clean diesel is well-established and growing in significance around the world, but Australia is not moving fast enough to establish these industries which will be vitally important to industry and to Australia’s future.

When it comes to biofuels, I think it is fair to say that more has been done; but in this case we have to be careful not to overplay our hand. There is a growing ethical debate about food versus fuel, with ethanol in Australia produced from starch, grain or sugar. In the US and South America in recent months, the diversion of land from food to biofuels production is already driving up the price of food. Mexican corn prices have doubled in the last year, forcing the government to put a ceiling on tortilla prices, and sugar prices have also doubled. This shows the complex nature of the biofuels debate that is emerging worldwide today, and Australia will also be confronted with huge challenges on the issue of water in the foreseeable future.

Countries all around the world are now considering biofuels production from various crop sources. These will be grown on land that was previously used for food crops or on newly-cleared forest land. Again, this is a complex debate, given that timber and forests are carbon sinks. Interestingly, 80 per cent of Brazil’s greenhouse gas emissions have arisen because of deforestation of the Amazon basin—mainly to grow sugar cane for ethanol. This dilemma comes at a time when climate change is also perceived as a threat to world food supplies and when drought in Australia is a great concern to all of us. In fact, when members of the Australian community are asked about climate change, they often identify the issue of water as being what climate change is about. That fits into the current complex world debate which goes to whether or not we should turn food-growing areas into areas to produce crops for ethanol. That debate is going to get more and more complex and difficult in the foreseeable future.

I note a ScienceAlert report this week that indicated that industrial production of biofuels threatens to create conflict over food for humans, feed for animals and feedstock for liquid transport fuels. In Australia in recent years, with the debate about ethanol, there has been an intense lobby from the feedlot industry with respect to the production of animals about whether or not it is appropriate to take feed from that industry for the production of ethanol. So there has already been a debate in recent years, and we have all received correspondence and lobbying efforts from the feedlot industry.

I therefore believe that we must be very careful as a nation when it comes to the mandating proposed by some state governments at this time. I raise these issues because I think we have to think our way through this complex debate. Firstly, there is no guarantee that, while we are relying on grain or sugar production for Australia’s ethanol, supplies could be maintained to meet a mandate. State governments might create a hurdle which just could not be met, given the complex debate and requirements with respect to the production of grain and sugar. We all know what that potentially means for consumers if this debate goes wrong—an increase in prices. We will see how rigorous politicians are with mandating if the debate turns that way; they will run for cover as usual because they are looking for short-term fixes rather than long-term solutions to potentially complex issues.

Prices would go up for foods that rely on grain and sugar for their production. That potentially is a real issue because of our commitment to food manufacturing and our desire to increase production. For example, when the sugar levy was brought in, the manufacturing industry in Australia was screaming because of the increase in the cost of production. So now, if we have an increase in the cost of these products as a result of mandating the use of ethanol, we will have manufacturing industry screaming yet again because of the potential loss of jobs, and some of those serious job losses could be in regional communities that more than ever are doing it tough either because of the drought or because of difficulties with recent bushfires. Then we have the issue of potential increases in price for our livestock feed, which could send meat prices through the roof. Again consumers will be screaming. Also, if we get this debate wrong, the price of petrol could go up—and we all know how sensitive an issue that is to Australian consumers. If we have to meet mandated volumes and there is a shortage, we will soon see that reflected in prices.

I raise these issues in the context of the debate about the Liquid Fuel Emergency Amendment Bill and, in doing so, say there is obviously a case to encourage the biofuels industry. But I think the market is actually working. There has been a huge growth in ethanol sales amongst service stations around Australia. But I suggest caution in going down the mandating route because you might create more difficulties than were first envisaged. As I have indicated today, there could be a huge impact, not only on consumers, but also on potential choices between the production of food, including grain and meat, and the production of ethanol. Also, the impact on the price of fuel could become a huge public issue. So I say—and I caution some of my state colleagues—that in my mind commerce is the best and most efficient way of enabling consumers to choose which fuel they desire. There are clearly buyers out there now willing to purchase fuel, including ethanol, and ethanol sales are increasing dramatically as a result of encouragement by all tiers of government in Australia.

So on the basis of the complex debate that is emerging internationally and in Australia, there is no need to proceed down the mandating path at this point, and I urge strong caution. There is obviously a desire to decrease greenhouse emissions, but with respect to some of these biofuel suggestions we also need to consider whether there will be a real impact on greenhouse emissions. Obviously there is a small greenhouse benefit of about five per cent from the greenfield plants that have been constructed, but in a lot of ways this merely touches the margins.

There is a more complex debate about the issue of diesel. The conversion of coal and gas to liquids could potentially have more long-term benefits for Australia. There is also a complex debate not only about being more conscious of the greenhouse emission challenge but also about being more focused on our requirement to lock in energy security for Australia in an unstable world, both politically and from a climate change point of view with respect to recent events—for example, cyclones in the Gulf of Mexico.

I welcome the opportunity to speak on what I regard as an important bill. It is a requirement of government to make sure that we have some security in case of emergencies, but the debate extends beyond the legislative requirement to encourage the development of new industries to ensure our energy security. In doing so, we must be cautious about encouraging ethanol by mandating. Mandating could go wrong for Australia if consumers are impacted upon in respect of both the supply and price of food, including grain and meat, and fuel. I indicate our support for the bill, but caution politicians of all political persuasions not to get carried away by emotion and to think about this debate scientifically, in respect of what is best for Australia—unlike the white shoe brigade, who will potentially gain huge personal short-term windfalls. I commend the bill to the House.

Bob Baldwin (Paterson, Liberal Party, Parliamentary Secretary to the Minister for Industry, Tourism and Resources) Share this | Link to this | Hansard source

I congratulate the member for Batman on his speech on the Liquid Fuel Emergency Amendment Bill 2007; there was some good, solid structure there. I remind the member for Batman that this government is not about setting mandatory targets in relation to ethanol. We appreciate his support. I also take the opportunity to remind the member for Batman about a program the federal government instituted involving $776 million for LPG conversion. We see that as another way of extending the life of energy availability within Australia. The program runs over eight years. Also to consider in that is the revenue forgone because of the reduced excises that we would claim on that. I also remind the House about the $138 million that we are expending through Geoscience Australia on further exploration. Again, I congratulate the member for Batman on his comments and appreciate his support on the bill.

The bill we are debating today will make a number of commonsense changes to the operation of the Liquid Fuel Emergency Act. It will finetune our liquid fuel emergency response regime, providing greater economic and administrative efficiency and bringing our emergency arrangements up to speed with our modern economy. The government acknowledges that in the vast majority of cases the normal operation of the market will be sufficient to deal with any shortfall in liquid fuel supplies. Some disruptions may indeed cause prices to rise and will probably result in shortages in some situations. Only the most extreme circumstances will require government intervention. The Liquid Fuel Emergency Act provides us with the tools to respond in such a situation. This bill simply sharpens those tools. The changes introduced by this bill will encourage fuel users to take steps to improve their own fuel supply reliability. These are commonsense steps to sharpen contingency management practices and encourage better planning. The bill makes appropriate provisions for compensation, gives the government sufficient flexibility to deal with the inherent uncertainty a national liquid fuel emergency would cause and clarifies the expectations of the government with regard to anticompetitive conduct in the event of an emergency.

The bill also tidies up a number of technical problems that have afflicted the act as a result of the passage of time. These changes have been the subject of an independent review by ACIL Tasman and an inquiry by the Senate Standing Committee on Economics, which is supportive of the bill. Extensive consultation between the Australian, state and territory governments and industry stakeholders has occurred. I am pleased to say that this bill has the support of all participants on the National Oil Supplies Emergency Committee, which is charged with providing advice to government on the planning for and management of a prospective national liquid fuel emergency. The changes that this bill will make to the Liquid Fuel Emergency Act are sensible, rational and justifiable. Therefore, I commend this bill to the Main Committee.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.