Nick Xenophon (SA, Independent) Share this | Hansard source

by leave—I move the amendments standing in my name, (2) to (7) and (9) to (11) on sheet 5912, together:

(2)    Page 204 (after line 4), after Part 7, insert:

Part 7A—Electricity generation benchmark scheme

Division 1—Introduction

164A Aim and objects

        (1)    The aim of this Part is to create incentives for the electricity generation sector in Australia to reduce emissions.

        (2)    The objects of this Part are:

             (a)    to create incentives for abatement of emissions while mitigating the price impact of electricity wholesale prices on users; and

             (b)    to ensure that any increase in energy costs is a gradual increase for all users; and

             (c)    to promote lower emissions and improved price signals in relation to electricity generation; and

             (d)    to provide orderly transitional arrangements in respect of all electricity generated in Australia until 2030.

164B Simplified outline

                 The following is a simplified outline of this Part:

• The regulations may formulate a scheme, to be known as the electricity generation benchmark scheme, for the issue of free Australian emissions units in respect of all electricity generated in Australia.
• The electricity generation benchmark scheme may:

(a)

require a recipient of free Australian emissions units to relinquish units; and

(b)

impose reporting or record-keeping requirements on a recipient of free Australian emissions units.

Division 2—Formulation of the electricity generation benchmark scheme

164C Electricity generation benchmark scheme

        (1)    The regulations must formulate a scheme (to be known as the electricity generation benchmark scheme) for the issue of free Australian emissions units in respect of all electricity generated in Australia.

        (2)    For the purposes of regulations made under subsection (1) the allocation of free units to electricity generators under the scheme is the product of:

             (a)    the electricity production for the year; and

             (b)    the electricity generation allocation factor for the year;

                 where:

electricity production for the year means the total number of megawatt hours of electricity generated by the generation unit in the financial year.

electricity generation allocation factor for a year means the amount specified in the following table for the financial year:

For the financial year beginning...	Electricity generation allocation factor is
1 July 2011	0.86
1 July 2012	0.83
1 July 2013	0.79
1 July 2014	0.76
1 July 2015	0.73
1 July 2016	0.70
1 July 2017	0.67
1 July 2018	0.63
1 July 2019	0.60
1 July 2020	0.57
1 July 2021	0.54
1 July 2022	0.51
1 July 2023	0.47
1 July 2024	0.44
1 July 2025	0.41
1 July 2026	0.38
1 July 2027	0.35
1 July 2028	0.31
1 July 2029	0.28
1 July 2030	0.25

        (3)    The electricity generation benchmark scheme must provide that free Australian emissions units must not be issued to a person in accordance with the scheme unless the person:

             (a)    meets such requirements as are specified in the scheme; and

             (b)    has a Registry account.

        (4)    The Minister must take all reasonable steps to ensure that regulations are made for the purposes of subsection (1) before 1 July 2010.

164D Relinquishment requirement

        (1)    The electricity generation benchmark scheme may provide that, if:

             (a)    a number of free Australian emissions units have been issued to a person in accordance with the scheme; and

             (b)    any of the following subparagraphs applies:

                   (i)    a specified event happens;

                  (ii)    a specified circumstance comes into existence;

                 (iii)    the Authority is satisfied about a specified matter;

the person is required to relinquish a number of Australian emissions units ascertained in accordance with the scheme.

        (2)    Division 3 of Part 15 relating to compliance with relinquishment requirements applies in relation to the scheme as if a reference to the emissions-intensive trade-exposed assistance program was a reference to the electricity generation benchmark scheme.

        (3)    The number of Australian emissions units required to be relinquished by the person must not exceed the number of units mentioned in paragraph (1)(a).

164E Reporting requirement

Scope

        (1)    This section applies to a person if free Australian emissions units have been issued to the person in accordance with the electricity generation benchmark scheme.

Requirement

        (2)    The electricity generation benchmark scheme may make provision for and in relation to requiring the person to give one or more written reports to the Authority.

164F Record-keeping requirement

Scope

        (1)    This section applies to a person if free Australian emissions units have been issued to the person in accordance with the electricity generation benchmark scheme.

Requirement

        (2)    The electricity generation benchmark scheme may make provision for and in relation to requiring the person to:

             (a)    make records of information specified in the scheme; and

             (b)    retain such a record, or a copy, for 5 years after the record was made.

164G Other matters

        (1)    The electricity generation benchmark scheme may make provision for and in relation to the following matters:

             (a)    applications for free Australian emissions units;

             (b)    the approval by the Authority of a form for such an application;

             (c)    information that must accompany such an application;

             (d)    documents that must accompany such an application;

             (e)    the method of calculating the number of free Australian emissions units to be issued to a person in accordance with the scheme.

        (2)    The electricity generation benchmark scheme may provide that an application for free Australian emissions units must be accompanied by a prescribed report.

        (3)    The electricity generation benchmark scheme may provide for verification by statutory declaration of statements in applications for free Australian emissions units.

164H Ancillary or incidental provisions

                 The electricity generation benchmark scheme may contain ancillary or incidental provisions.

Division 3—Compliance with reporting and record-keeping requirements under the electricity generation benchmark scheme

164I Compliance with reporting and record-keeping requirements

Reporting requirements

        (1)    If a person is subject to a requirement under the electricity generation benchmark scheme to give a report to the Authority, the person must comply with that requirement.

Record-keeping requirements

        (2)    If a person is subject to a requirement under the electricity generation benchmark scheme to:

             (a)    make a record of information; or

             (b)    retain such a record or a copy;

the person must comply with that requirement.

Ancillary contraventions

        (3)    A person must not:

             (a)    aid, abet, counsel or procure a contravention of subsection (1) or (2); or

             (b)    induce, whether by threats or promises or otherwise, a contravention of subsection (1) or (2); or

             (c)    be in any way, directly or indirectly, knowingly concerned in, or party to, a contravention of subsection (1) or (2); or

             (d)    conspire with others to effect a contravention of subsection (1) or (2).

Civil penalty provisions

        (4)    Subsections (1), (2) and (3) are civil penalty provisions.

Note:   Part 21 provides for pecuniary penalties for breaches of civil penalty provisions.

Amendments (3) to (7) are consequential to amendment (2)

(3)    Clause 82, page 128 (after line 12), after paragraph (a) under the fourth dot point, insert:

           (aa)    the total number of free Australian emissions units issued in accordance with the electricity generation benchmark scheme; and

(4)    Clause 88, page 131 (after line 14), after paragraph (b), insert:

           (ba)    in accordance with the electricity generation benchmark scheme; or

(5)    Clause 93, page 136 (after line 29), after paragraph (a), insert:

           (aa)    the total number of free Australian emissions units with that vintage year issued in accordance with the electricity generation benchmark scheme; and

(6)    Clause 101, page 141 (after line 23), before subparagraph (1)(a)(i), insert:

                 (ia)    in accordance with the electricity generation benchmark scheme; or

(7)    Clause 103A, page 143 (after line 29), before subparagraph (1)(a)(i), insert:

                 (ia)    in accordance with the electricity generation benchmark scheme; or

(9)    Clause 167, page 207 (after line 10), after subclause (1), insert:

      (1C)    The regulations must determine coal mining to be an emissions-intensive trade-exposed activity.

(10)  Clause 167, page 207 (after line 10), after subclause (1), insert:

     (1D)    For the purposes of regulations made under subsection (1):

             (a)    emissions-intensity must be assessed in relation to whether the industry-wide weighted average emissions intensity of an activity is above a threshold of:

                   (i)    1,000 tonnes of carbon dioxide equivalent per $1,000,000 of revenue; or

                  (ii)    3,000 tonnes of carbon dioxide equivalent per $1,000,000 of value added; and

             (b)    assistance to eligible activities must be set at 100% of the emissions-intensive trade-exposed electricity allocative baseline for activities that have an emissions intensity above the threshold in the assessment period; and

             (c)    the level of assistance to an eligible activity continues to apply to that activity until there is a comprehensive international agreement in relation to carbon pricing.

(11)  Clause 167, page 207 (after line 10), after subclause (1), insert:

      (1E)    The emissions-intensive trade-exposed electricity allocation factor for a year is:

1  –  electricity generation allocation factor for that year.

These amendments are a package of modifications that will adapt the government’s CPRS to an ETS in line with the Frontier Economics recommendations. The Frontier modelling demonstrates that the government’s CPRS model will result in too much churn, will impose too big an impost on the Australian economy and will not deliver enough for the environment.

Specifically, amendment (2) incorporates the electricity generation benchmark scheme, its aims, objectives, formulae and reporting requirements, through a new part 7A. The amendment outlines that the purpose of the scheme is to create incentives for the electricity generation sector to reduce emissions without the steep price rises that you would see in the government’s scheme. We know that the demand for electricity is relatively inelastic relative to price and I consider that this is the most effective way to compensate consumers for the cost of the CPRS whilst reducing the intervention of government through the scheme as proposed.

It also indicates the method through which the majority of modifications will be made through the guidelines, with the minister to create regulations using his aims, objectives and formulae. I draw my colleagues’ attention particularly to part 7A, division 2, section 164C. This provides not only for a number of free units to be allocated each year but also for a formula to reduce the number of permits issued under a benchmark for each year until 2030. This formula relies on the reduction of an electricity generation allocation factor, which is documented in the table included within section 164C, and these changes equate to an allocation of 0.86 tonnes of CO2 permits per megawatt hour of electricity generated in 2011 being progressively reduced to 0.25 tonnes per megawatt hour generated in 2030.

The implication of this benchmark is that it will preserve the incentives for all generators to reduce emissions, but it will reduce the average cost to consumers and provide shielding for a smoother transition to increase energy prices than under the CPRS. The final part of amendment (2) details requirements of relinquishment of permits and reporting and record-keeping requirements, as well as compliance provisions, including several penalty provisions. Amendments from (3) through to (7) are consequential. So this provides for an electricity benchmark scheme. It is something I have had numerous discussions with Senator Wong about. We have a fundamental disagreement, but I think you can still want to do the right thing by the environment but have an alternative policy approach. It is important that we put into context that it is very unfortunate that the information that has been requested previously in terms of the full modelling has not been provided.

Broadly, this debate and this vote are clearly not as simple as a black-and-white choice between those who believe in climate change and those who do not. The other dimension that must be acknowledged is that many people agree with the need to do something about climate change, the need for action, but disagree with the means for achieving this. These people fall on both sides of the parliament, including those interested in minimising the costs of the scheme and those interested in pursuing higher reduction targets. That is something that I want; I want both. This policy needs to be judged on its merits, and to do so we need to be fully informed. So far the government has not provided full and transparent analysis of the costs involved, and I do not think this is excusable for a policy decision of such magnitude. Interestingly, the government did provide some details last week, and I welcome that, but they still do not go far enough in the material that is needed to have a fully informed debate.

I have been transparent about my information analysis because I welcome a debate. The government, and Treasury in particular, have been less than fully transparent about their analysis in response. If the government believe as strongly as they do about the importance of passing this bill, surely they can make the effort to support their case for this policy with transparent analysis so that we can make a fully informed decision in relation to the Frontier model. I note the media reports today—an article by Lenore Taylor in the Australian and one by, I think, John Breusch in the Financial Reviewabout a Treasury analysis about the Frontier model, which was obtained by the Australian. That analysis has not been released publicly. I accept fully that the government was not behind that leak. For some reason it has been leaked, and I would have thought that, now that the material is out in the public domain, the full modelling and analysis ought to be out there.

In particular, the government still has not provided the information on a whole range of key matters to properly consider the Frontier scheme with regard to electricity price projections. This is my main concern, since the government analysis appears both internally inconsistent and inconsistent with all reports of projected electricity price rises, including the reported findings of IPART—the Independent Pricing and Regulatory Tribunal—in New South Wales, which indicated quite significant price rises projected over a three-year period in terms of the CPRS specifically. This raises grave concerns about the government’s claims regarding the level of household compensation on offer and also its purported comparisons with the Frontier analysis.

Last year Treasury estimated a 17 to 24 per cent electricity price increase, of about $4 a week, and 11 to 15 per cent gas price increases resulting from the CPRS. Yet last week the government’s media release on compensation to households, which reports that compensation will be in the order of 120 per cent—and the government has been entirely transparent about that level of compensation—relies on an estimated seven to 12 per cent electricity price increase, about $2 a week, and a four to seven per cent gas price increase. This difference cannot be explained by the capped carbon price of $10 in 2011, since the assumed carbon price is $26 in 2012. The government has not provided anything to support these latest estimates in my view, but it is the cornerstone of the claim regarding the level of household compensation, so this information is essential.

However, the reports are that IPART in New South Wales are projecting electricity price increases in the order of 50 to 60 per cent, of which around half can be attributed to the CPRS. If these estimates are correct then the government claim regarding the level of compensation must be corrected so that we can make an informed decision on this policy. With regard to the growth in emissions-intensive trade-exposed industries, the Treasury has never released full details regarding the projected ET growth and the assumptions underlying its allocated expenditure for this purpose, which is a key component of the budget projections. On the face of it, it appears that Treasury has relied on simple accounting assumptions that ETs will grow at historic rates, which is inconsistent with the intent of the scheme. This remains speculation, because Treasury has not provided the adequate information in relation to that. Again, we need this information to make an informed decision.

The Australian today reports on the secret Treasury analysis of the Frontier model, which I have already referred to, that claims a considerable difference in budget impacts. The lack of transparency is disappointing given the importance of this debate. It is not clear why the government refuses to open its analysis to scrutiny in terms of the full modelling. It is difficult to comment on this secret report, and again I am not blaming the government for releasing it. However, the headline result does not stand up to logical analysis. Both schemes essentially involve a tax that is recycled back to Australian householders, including both businesses and households. It defies logic to suggest that the government scheme can simultaneously take the same tax pie and provide more back to the community and still deliver a larger budget result as claimed. I just do not follow that. The most logical explanation is that the government has relied on its incorrect assumption of low electricity price increases to purport to deliver a higher level of compensation at a lower cost. Of course, this is the danger of relying on analysis based on simple accounting analysis rather than rigorous modelling of the alternative.

Furthermore, the government groups a range of policy amendments under the banner of the Frontier model. To be clear, the government’s purported differences in budget impacts appear to be driven by the treatment of coalmines and easy compensation, and they are only part of the policy package that Frontier modelled and could hardly be described as a core part of the Frontier scheme. Simply put, the government cannot claim to reject the electricity benchmark scheme on the basis of the budget impacts of other policy measures. The government appears to completely ignore the impacts of the CPRS on tax revenue, such as PAYE, company tax et cetera, which is where the main gains of the Frontier model arise from.

On the issue of uncertainty, the government has suggested that it is concerned about the uncertainty of permits allocated to electricity consumers under the Frontier model. This incorrectly implies that the government scheme delivers certainty. That is a fallacy. The government also faces carbon price uncertainty in its lump sum compensation to households, amongst other things. It is already evident that if the carbon price is lower than projected then the government will run out of revenue sooner and run into deficit. No scheme is entirely certain and to suggest otherwise just would not be accurate.

It has also been suggested that the electricity benchmark scheme somehow increases the potential cost for other sectors. The original Frontier report made it clear that this is simply incorrect. Businesses are indifferent about buying permits from the Australian government or from overseas and the domestic cap set in Australia does not limit domestic emissions in Australia. As such, this does not increase costs to other sectors and nor does it provide any certainty around domestic emissions in Australia. The government must concede that they have no control over domestic emissions under their scheme so that any implication of greater certainty is simply not true. That is why I support this particular model and I welcome debate in relation to this.