Kate Lundy (ACT, Australian Labor Party, Parliamentary Secretary to the Prime Minister) Share this | Hansard source

I understand that towards the close of business last night Senator Xenophon moved these amendments and I would like to respond on behalf of the government. The government opposes these amendments because they set out a less effective, less efficient and more expensive way of reducing greenhouse gas emissions in the electricity sector. The government and other members of the Multi-Party Climate Change Committee did consider a range of options to price carbon, including an intensity based approach. The government also consulted with the business community and other stakeholders on the viability of such a model in light of a set of agreed principles for pricing carbon. The government, the business community, the Multi-Party Climate Change Committee members and other stakeholders rejected this approach.

The amendments would weaken incentives to reduce emissions through energy efficiency. Treasury modelling based on conservative assumptions estimates that responding to carbon signals in electricity prices accounts for almost 50 per cent of abatement from the electricity sector to 2020. The response in the form of reduced electricity use delivers 60 million tonnes of emission reductions between 2013 and 2020. Conversely, these amendments provide even weaker incentives for households and businesses to reduce emissions than the amendments proposed under the CPRS. It reduces the effectiveness of the carbon price and requires that other more expensive abatement options must be pursued in instead, including greater purchases of international permits.

The amendments would entail a high budgetary cost. If this option were pursued it would require other initiatives to be cut back. Based on our very preliminary estimates, the effect of the proposed part 8A is to allocate around 2.5 billion permits to electricity generators over the next 19 years with a potential total value in today's dollars of over $80 billion. The amendment would lock in benchmarks by which carbon units are allocated to generators, ignoring real world uncertainties over future national targets and future electricity demand. This would likely render these benchmarks entirely inappropriate. It is for these reasons that the government is opposing these amendments proposed by Senator Xenophon.