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

At the outset of my speech on the Carbon Farming Initiative Amendment Bill 2014, I would like to thank Minister Hunt and his advisers, Temay Rigzin and Alex Caroly, for the many, many hours they have spent discussing this bill and the government's policy with me. I appreciate their time and the good faith in which we negotiated on this legislation. It would also be remiss of me, despite her protestations, not to thank Hannah Wooller, my senior legislation and policy adviser, who has worked very, very hard on this and has provided valuable advice and shown a great commitment to improving this piece of legislation.

I also want to make my position very clear: I am a strong believer in anthropogenic climate change, and I consider it to be one of the biggest challenges we face as a nation and as part of the global community. And for those who are sceptical, I urge that they heed Rupert Murdoch's salutary warning that we need to give the planet the benefit of the doubt.

I believe we need to take real and urgent action to address the environmental and economic challenges before us. I supported the repeal of the former government's carbon tax because I believed, as I still do, that it had significant economic impacts due to its enormous revenue churn, impact on power prices, unnecessary compensation and its tax interaction effect without the commensurate environmental benefits in return.

I also still have concerns about the current government's direct action policy, and with the shape and operation of the Emissions Reduction Fund. But my greatest concern is that, if this legislation does not pass, we will be left with nothing—nothing to support the reduction of Australia's emissions; nothing to provide investment certainty, let alone investment incentives for businesses engaged in abatement or related activities; nothing to meet our international obligations; and nothing to protect our future.

I also want to emphasise the need to pass this bill as soon as possible. I do not and will not support motions to gag the debate. But I do believe that there are genuine reasons to give this bill priority, and I was happy to support the extended sitting hours to ensure that this is the case.

If this bill does not pass, the existing projects under the Carbon Farming Initiative will face collapse. The main market for credits generated by these projects has been companies looking to offset their emissions under the carbon tax, and, now that the tax has been repealed, the CFI projects face the loss of their main market. There are currently 171 projects registered under the CFI. The failure to pass this bill will mean the loss of hundreds if not thousands of jobs and the end of these projects as the carbon tax legislation obligations are completely wound up in February next year. We will also lose the abatement that these projects are achieving, which will seriously impact our ability to reach our 2020 target, as modest as it is.

We are already being left behind many other developed countries in terms of our policies and activities. I have no desire to see that gap widen. And I suspect that early next year the United States and China will announce significant and ambitious emissions reduction targets, which will be the subject of debate at the Paris conference at the end of next year.

One of the most important factors in achieving environmental outcomes and successful emissions reduction is investment certainty. We are, however, now facing a situation where investors are simply turning away from Australia because they just do not know where things will be in a few months, let alone a few years. And that means a lack of clear direction doesn't just hurt our environment; it hurts our economy.

The establishment and then the repeal of the carbon tax, the uncertainty and lack of clear policy regarding Direct Action, the attempt at the dismantling—still thwarted by the Senate, fortunately—of the Clean Energy Finance Corporation, ARENA and the Climate Change Authority have all created disincentives for investment. And of course there is the whole issue of the RET.

Since 2008, over 100,000 jobs have been lost in the Australian manufacturing sector. Even more are set to go as Holden, Ford and Toyota wind up their manufacturing arms. This will hit particularly hard in Victoria and in my home state of South Australia, where job losses from Holden may well set off a chain reaction of more losses from component manufacturers, particularly if the government's reckless policies in respect of gutting the Automotive Transformation Scheme are implemented. These are policies I will resolutely oppose.

Renewable energy and other innovative technologies could at least partially fill the gap left by these closures and create more jobs. And part of that support required is the government signalling a long-term commitment to growth and investment in the area. In my view, the ERF is not an ideal scheme. But it is the scheme that we have before us, and I believe there are ways to make it work much better than was proposed just a few months ago.

My biggest concern with the legislation as it stands is the lack of a safeguard mechanism. I acknowledge that the government's direct action white paper outlines the intention to introduce a safeguard mechanism in separate legislation before 1 July next year, but I cannot see that date being realistic, and nor is there a guarantee that it would be legislated in any subsequent legislation. That is why these amendments have been brought forward.

Also, without a hard legislative trigger to require the introduction of the mechanism by a certain date, it is a very real possibility that the harsh realities of this Senate and the political environment may mean the safeguard never really happens. If the government is intent on creating a scheme that relies solely on taxpayer funds to reduce emissions, then they have a clear duty to ensure that those funds are appropriately spent and represent true value for money, as well as achieving a credible environmental outcome. There is no point in handing out billions of dollars to reduce carbon emissions only to have those gains offset by increases in emissions elsewhere in the economy.

As US President Theodore Roosevelt once said, the key to diplomacy—and therefore, presumably, the key to negotiating with large emitters—is to speak softly and carry a big stick. In this case, the safeguard mechanism needs to be the big stick to the ERF's gentle encouragement. I am also concerned that the ERF is too dependent on the budget. There is little to no incentive to encourage emissions reduction activity outside the reverse auction process to be established by the government.

At this point in time, that may not necessarily have a significant impact. It is generally acknowledged that Australia is well on the way to achieving the bipartisan agreement of five per cent reductions on 2000 levels by 2020, as modest and unambitious as that is. But the Paris conference is just 12 months away, and we might—or at least we should—be facing much tougher targets in the near future. There is just no way in the tough financial times the government tells us that we are facing that we can make the necessary financial outlay to meet those potential targets. Instead of just focusing on 2020 and the forward estimates, we need a longer term scheme that can operate independently of government funding. We need to know what the next steps are going to be beyond the next election cycle.

I readily admit that the ERF is not my ideal scheme for reducing emissions reductions. I made a secret in saying that I still support the scheme drafted by Frontier Economics for then opposition leader Malcolm Turnbull and me in 2009. I take this opportunity to thank the tremendous work, the integrity and the credible work that Danny Price from Frontier Economics, Matt Harris and others that work with them have done over the years. I thank them for their prescient advise in relation to having a credible emissions trading scheme. But given the political context, both domestically and overseas, I have tried to take a pragmatic view. We must not let the perfect be the enemy of the good.

A few weeks ago, I circulated draft amendments aimed at addressing my particular concerns in relation to this legislation. I asked for feedback from peak bodies, industry groups and other interested parties, including my colleagues in this place. I would like to take this opportunity to thank the many organisations that took the time to provide their feedback on these draft amendments. I think it is fair to say that most of these responses were generally supportive, although many believed the proposed amendments could go further. I foreshadow that I will be moving the final version of these amendments during the committee stage, but I will take this opportunity to outline them in brief.

There are five sets of amendments in total, with the most complex being those that aim to establish a safeguard mechanism and a strategic reserve. After the release of the direct action white paper and the ERF legislation, my biggest concern was the lack of detail surrounding the safeguard mechanism. In my view, without that the legislation is nothing more than a grants program. In that sense, Clive Palmer MP was right a few months ago. As much as it pains me to say that I agree with Mr Palmer, he was right in respect of that. I acknowledge that his approach a few months ago was a good one. He acknowledged that it was just a grants program.

There is no mechanism to make sure that emissions reductions in one area are not outweighed by increases in another. There is nothing to set baselines for operation or to ensure they are abided by. While all of these things were discussed in the white paper, there is nothing to guarantee they will be put in place. My proposed amendment puts a framework in place to require the minister to establish safeguard rules by 1 July 2016—that is, to operate from that date. This date itself is a compromise, given that the proposed date of 1 July 2015 is unlikely to be met.

The amendment requires the rules to cover reporting duties, the establishment of baselines and how emitters can reduce their emissions. It also makes it a breach of the law not to abide by the rules. The amendment also requires the minister to establish civil penalties through regulation. These penalties must ensure that an emitter does not benefit by breaching their baseline—that is, that the penalties are a true disincentive. This framework is consistent with the proposal outlined in the government's white paper. What it does, however, is provide some certainty by signalling the introduction of the rules and what shape they will take. I note that Minister Hunt has said that any penalty will not be going into a general revenue, but that does not mean that you could have a system in place whereby an emitter that exceeds the baseline must purchase carbon credit units. I would have preferred to have the mechanism established by the 1 July 2015 deadline, and for the baselines and rules to be much stricter than is likely to be the case. But there is a framework in place that is credible and workable.

I have also circulated a proposed amendment that introduces the capacity for a strategic reserve to be created. The aim of such a reserve is to allow the regulator to purchase international units to assist Australia in meeting the 2020 target, if required. The amendment puts the creation of a strategic reserve at the minister's discretion, but does require the minister to consider certain matters before directing the regulator to purchase units. For example, the minister needs to have regard to    Australia's obligations under international climate change agreements, Australia's undertakings concerning the reduction of greenhouse gas emissions that Australia has given under international climate change agreements,    the total amount of carbon abatement contracted by the government under the Emissions Reduction Fund, Australia's current and future climate change targets, and ensuring the value for money of funds expended under the strategic reserve.

The reserve is capped at $500 million to 2020, which is a maximum of 20 per cent of the current amount allocated for the proposed fund. The regulator is also restricted in the kind of units it can purchase to ensure only high-quality units make up the reserve. In the longer term, the existence of the reserve would also provide a pathway for broader international trading for Australian entities. However, the government appears to have taken an obdurate, ideological stance to the concept of a strategic reserve and, as such, will oppose these amendments. I urge the government to reconsider and to listen not only to environmental groups that believe this reserve is essential to achieve higher targets but also to key business groups. For instance, I am grateful for the strong support of Innes Willox from the Australian Industry Group for a strategic reserve, as proposed in these amendments. I would urge him and his colleagues in the business community to continue to encourage the government to see common-sense on this proposal.

I have also drafted amendments to extend the standard contract duration from five to seven years. Similarly, a further proposed amendment requires the Emissions Reduction Assurance Committee—ERAC—to review the crediting periods for each methodology one year before the crediting period of the first project registered under that methodology expires. The purpose of the review is to require the committee to recommend to the minister whether the crediting period under the methodology should be extended. If that is the case, projects already registered will have their crediting periods extended in line with the committee's recommendations.

This is a good thing for certainty and particularly for those bigger projects in emissions abatement. This will help to support and encourage projects with longer term abatement capabilities, and to signal to investors that this scheme has the potential to operate beyond the initial budgeted period. An extension of crediting periods will also help to support a market for units outside the government's reverse auction mechanism. In turn, this could assist in transitioning the scheme away from its dependence on government funding and towards operating independently.

The final proposed amendment proposes a change to the objects of the act to ensure that agreements entered into post-Kyoto will be taken into account. This amendment is based on section 55(3)(b)(ii) of the existing act and will not have any additional impact other than to be a point of clarification. Again, the aim here is to signal the long-term operation of the ERF and to help to provide certainty to a sector that has borne the brunt of short-term policymaking by successive governments. Together these amendments will also provide a solid foundation and the architecture to enable future governments to meet the increased targets that I believe will be inevitable after the Paris conference. Any future changes will of course require the approval of the parliament.

I would also like to take this opportunity to acknowledge that the final version of these amendments does not differ substantially from the draft, despite the constructive and detailed feedback I received in response to these exposure drafts. Unfortunately, despite many hours of negotiation, the government was not willing to concede to any but one of these proposed changes, and I will be asking for more details of their positions during the committee stage of this debate. I do still believe that these amendments are worthy, however, and that they represent a significant improvement on the bill as it stands. I also take this opportunity to call on the government to ensure that the relevant aspects of this legislation are thoroughly and constructively discussed with industry and environmental groups.

This is not a perfect scheme, but if the proposed amendments pass it will be a good scheme. I also call on the opposition to give their support to the amendments and to the legislation, because an indication of bipartisan support will go a long way to providing further investment certainty to Australian industry. I look forward to debating these matters further in the committee stage, and I hope that we can conclude this bill this evening.