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

I propose to be concise because the time for debate and consideration of the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 [No.2] and related bills is truncated. I do appreciate very much my crossbench colleagues Senators Madigan and Muir for rejecting the proposed guillotine of this debate today. I acknowledge that the numbers are such that the bills will be dealt with by tomorrow, which at least gives more time for debate and for the essential scrutiny of the committee process.

I support the repeal of the carbon tax. I am obliged to do so because it is a position I took as a platform to the people of South Australia at the last election and I will be true to my word to my fellow South Australians. I also have an obligation to explain my position and the context of my decision. Firstly, I strongly support the concept and indeed the science of anthropogenic climate change. We should, as Rupert Murdoch once said, 'give the planet the benefit of the doubt' and tackle as effectively as possible the impact of greenhouse gases in the atmosphere and their consequential effect on global warming. Secondly, anthropogenic climate change presents us with the most complex policy problem we have ever faced. I think it is more complex because of what has been named as the Gidddens paradox, after Lord Anthony Giddens, who said that often politicians will not take action on a problem when the impact is many years away but when the impact of the problem becomes apparent it is too late to do anything about it. That is the policy paradox we have here, which has so bedevilled the debate in relation to this matter. The Giddens paradox is echoed in the comments made just last week in the New York Times by Henry Paulson, a staunch Republican. As Secretary to the Treasury and the George W Bush administration, he said:

This is a crisis we can’t afford to ignore. I feel as if I’m watching as we fly in slow motion on a collision course toward a giant mountain. We can see the crash coming, and yet we’re sitting on our hands rather than altering course.

Sensibly, Paulson also talks about the need to manage risk. He goes on to say:

When I worry about risks, I worry about the biggest ones, particularly those that are difficult to predict—the ones I call small but deep holes. While odds are you will avoid them, if you do fall in one, it’s a long way down and nearly impossible to claw your way out.

Thirdly, in terms of an effective policy response, I believe the carbon tax has been a failure. It has involved enormous revenue churn, caused businesses to shift jobs overseas to countries with arguably greater emissions because of lower environmental standards. The tax was not high enough to change behaviour but it was high enough to damage jobs. It involved the worst of both worlds.

Back in 2009, then opposition leader Malcolm Turnbull and I jointly commissioned Frontier Economics to model and formulate an alternative intensity based emissions trading scheme. The Frontier scheme could have delivered deeper cuts to emissions at a lower cost than the CPRS and the carbon tax because it avoided the enormous economic costs associated with the revenue churn of the former government scheme. Frontier's modelling estimated that for every dollar invested in abatement, there is a churn of $5 to $6 through the economy. The Frontier scheme would have involved a much lower churn. Shortly I will talk about direct action which I believe will involve even less churn.

An intensity based scheme by contrast sets emissions targets for industries, particularly the stationary energy sector, and avoids that level of churn and with it distortions of loss of economic activity. Frontier also calculated that it would be relatively simple to amend the CPRS legislation at the time to make it one-third cheaper and twice as effective by introducing intensity based elements. Warnings were given at that time by Frontier of the potential for a budget black hole and they used the same economic modellers that the then government used, out of Monash. The Frontier scheme was dismissed by Senator Wong. At the time she called it, 'a mongrel scheme'. I think she said that more with hyperbole then with any malice. I have to say that every dog has its day because Frontier has been proved correct in terms of its economic analysis.

It warned the Rudd government back in 2009 of the budgetary black hole created by the decline in revenues from permit sales. The government ignored this and the black hole turned out to be about $5 billion a year. It also warned that one group that would see the upside of the abolition of the price floor announced in September a couple of years ago would be the private brown coal generators in Victoria and South Australia. These are important issues.

Something that Treasury has also ignored over the past years in the context of carbon policy, which must be tackled now, is a tax interaction effect associated with different mechanisms for producing emissions. Frontier's proposed amendments of CPRS would have substantially reduced the economic distortions that the proposed CPRS or carbon tax would create as a direct result of savings due to a reduction in the inefficiencies of this tax interaction effect on current policies.

As Frontier puts it, pre-existing taxes already create economic distortions that discourage investment, consumption and labour. When a carbon price tax is imposed in addition to these existing taxes, the resulting economic costs are multiplicative not additive. That means that the revenue churn of the CPRS and carbon tax has a disproportionate drag on the economy as well as leading to much higher abatement costs, but in the context of this vote to repeal the carbon tax there ought to be, at the very least, a bipartisan commitment that there needs to be a minimum five per cent reduction, which is very conservative, on 2000 levels by 2020. I hear what Senator Whish-Wilson is saying but its appears to be a bipartisan commitment of the major parties in respect of this. Although, on ABC's Lateline said last night, in a feisty interview between Emma Alberici and Lord Deben, the chairman of the UK Committee on Climate Change, the assertion made by Ms Alberici was that this target needs to be considered in the context of the 2005 baseline that other countries have adopted, so that a five per cent reaction in Australia comes up to 12 per cent on a 2005 baseline, which compares quite favourably to international comparisons, to the US with 17 per cent and even to the EU where there is a variable degree of between 13 per cent and 24 per cent.

I want to speak very briefly on some of the elements of this bill and to acknowledge Senator Muir's amendment to keep ARENA, the Renewable Energy Agency, something the Australian Greens have long campaigned for. I support this amendment. I believe if you want to wean yourself off carbon then you need to support those nascent emergent technologies such as baseload geothermal in my home state of South Australia where they just need to get to critical mass, where they need to overcome technical issues and difficulties so that there is real hope. I also support the Clean Energy Finance Corporation. If it is not costing money in the budget we should keep it.

I have an issue with an overreliance on wind energy because I believe we have put too many eggs in the wind farm basket for a range of other reasons. I support retention of the Climate Change Authority because it is important to have an independent watchdog to monitor what the government of the day is doing. We will have an opportunity to debate that next week.

I have had extensive discussions with the Minister for the Environment, Greg Hunt, on this matter. I actually believe he wants to do the right thing by the environment. He wants to achieve these targets. I believe that Direct Action must be modified and changed so that there is a base, there are adequate penalties and safeguard mechanisms, and adequate long-term contracts to deliver the best, lowest cost abatement possible. There needs to be modifications to the scheme and, with the best endeavours and in good faith, I am working with the environment minister in respect of that. I hope to be able to table and circulate amendments to that by the end of this week, if not early next week.

The point is that I believe there is, at least, a transitional alternative to deal with these issues. Not to have any form of carbon abatement would be wrong. I believe that there are some potential safeguards. I believe that having a reverse option scheme, as proposed by Direct Action, can actually work. When others are criticised for saying it will cost taxpayers money, the alternative is that consumers will end up paying much more by way of electricity prices. That brings me to my second reading amendment, which I now move, Mr Acting Deputy President—