House of Representatives

Second Reading Speech

Mr Combet (Minister for Industry and Innovation and Minister for Climate Change and Energy Efficiency)

I move:

That this bill be now read a second time.

The Australian government accepts the advice of climate scientists that greenhouse gas emissions are contributing to climate change and that this poses great risks to our environment, our economy and our society.

Climate change is a diabolical international problem with an achievable international solution.

In this matter, Australia has a choice.

We can be part of growing international action to reduce greenhouse gas emissions and use the market to reduce emissions at least cost to our economy.

Or we as a country can reject the advice of scientists, reject the advice of economists, ignore our international responsibility, and in so doing put our future prosperity at risk.

The Australian government has a responsibility to act in our national interest to be part of the international solution. Australia will not ignore that responsibility. This government will not ignore it.

Australia is in fact one of the top 20 greenhouse gas emitters internationally, and the highest per capita emitter amongst the advanced economies.

And anyone who suggests to the Australian community that we can have a free ride and that other nations with lower per capita emissions and less-developed economies must take all the responsibility while Australia does nothing is engaged in nothing less than an act of deceit.

That pathway will lead to retaliation in our trading relationships.

Australia has the 14th-highest GDP per capita in the world. Does anyone seriously think that our Asian trading partners, which are so vital to our economic future, which have much lower per capita income, which are dragging hundreds of millions of people out of poverty, will give us a free ride in tackling climate change? They will not.

Australia must do its fair share-and it is in our economic self-interest to do so, because the economies that will be competitive in the 21st century will be those that innovate, those that move to clean energy, those that reduce the emissions intensity of their economies.

If we are the innovators, if we reduce the emissions intensity of our economy, if we utilise our renewable energy resources, Australia will have that competitive edge.

Now, the Gillard government began this process through the enactment of the clean energy legislation last year, and the commencement of the carbon price mechanism.

And let's be clear about it-we have introduced an emissions trading scheme that commences with a three-year fixed price period where the carbon price is fixed just for those three years. After that transitional period, we will have a fully flexible emissions trading scheme where the carbon price will be set by the market-a market that will be international in its nature.

The carbon price began 80 days ago and the world has not ended, as those opposite had forecast. We have simply begun a sensible economic transformation and started the process of cutting our greenhouse gas emissions in an economically responsible way.

From 1 July 2015, when emissions trading commences, national greenhouse gas emissions will in fact be capped, enabling Australia to meet targeted cuts in emissions each year.

These targeted cuts in emissions reflect the commitments that have been made by this country to the international community-commitments that reflect our fair share of the task in tackling climate change, commitments that both sides of politics have signed up to.

But the baseless fear campaign by those opposite against action on climate change has demonstrated that they have no commitment to anything at all. The only thing that matters over there is the shallow political opportunism that they have engaged in. Any deceit will do. But it will not do for the good of this country.

As our Prime Minister made clear just over a year ago, this government is on the right side of history.

This bill that I am introducing today and the associated bills make amendments to the Clean Energy Act 2011 and related acts which will extend the international dimension of our contribution to the challenge of climate change.

They give legislative effect to an interim link between Australia's emissions trading scheme and the European Union Emissions Trading System, along with a number of changes to Australia's scheme to facilitate this linkage.

This bill also makes minor changes designed to improve the flexibility of Australian auctions of carbon units and to recognise specific circumstances around the treatment of natural gas under the Australian scheme.

International linking

If I could turn to the issue of international linking, which is at the heart of the bill that I am presenting. The bill means that from 1 July 2015, we will be linking the Australian carbon price mechanism to the European Union's emissions trading scheme. It is an important international agreement that has been reached between the Australian government and the European Commission. This confirms that the fixed carbon price will end on 30 June 2015 and that we will move to a fully flexible emissions trading scheme where the Australian carbon price reflects the price in the largest carbon market in the world.

In other words, the Australian carbon price will reflect the price in our second largest trading bloc and be the same as in at least 30 other countries, including the United Kingdom, France and Germany. Our carbon price will be consistent with that which obtains in countries inhabited by no fewer than 530 million people-making a mockery of the fallacious argument that Australia is acting alone, or somehow has a carbon price ahead of the pack. Our carbon price will in fact be consistent with that which obtains in 30 other countries, including, in aggregate, our second largest trading bloc.

The European Union Emissions Trading System was the first international carbon market and now makes up more than three-quarters of the world's carbon market. It has operated since 2005 and has delivered cost-effective emissions reductions across the European Union.

Overall, linking the Australian emissions trading scheme with the European ETS is good for Australian industry, good for our economy and good for our environment.

Linking means that an Australian business with a carbon price liability under our scheme will be able to purchase a carbon emissions unit-which is effectively a permit to emit a tonne of greenhouse gas-in either the Australian or the European carbon markets.

Those permits in fact can be bought now, for compliance in the period following 1 July 2015 in the Australian scheme.

Businesses know that the most cost-effective way to cut pollution is through an open market mechanism and that is exactly what this legislation ensures. Providing Australian businesses access to the world's largest carbon market allows emissions to be reduced in the most cost-efficient way, by broadening the pool of carbon units that can be used by businesses.

As well as benefiting businesses, linking also has wider economic benefits. Linking will reduce the cost of the emissions reduction effort to the Australian economy.

As Treasury modelling clearly demonstrates, without the ability to access international carbon markets, without the ability for Australian businesses to purchase international permits, the cost of reducing emissions in our economy would double in order to meet Australia's bipartisan unconditional emissions reduction target. This is something those opposite need to carefully consider. They say they have committed to the same emissions reduction target. They oppose international linkage, which means that their policy will cost at least double if they were to genuinely pursue the emissions reduction effort they say they are committed to, and that is the importance of this bill to the Australian economy. It will achieve our emissions reduction targets at the lowest possible cost.

We have always, as a government, recognised the benefits of linking in this way, and that is why it has been the Labor government's policy to link with international carbon markets. In fact, linking with international carbon markets has been Australian government policy since 2007 under Prime Minister John Howard's government. The Australian government's 2007 Shergold report, the report commissioned by Prime Minister John Howard, had this to say:

As a supporter of the development of a global system, Australia has a direct interest in promoting links between comparable schemes. Any Australian domestic trading scheme should be designed to enhance the scope for links, both formal and informal, with as many different systems as possible.

It is common sense to support international linking because it assists in providing emissions reduction at least cost and it contributes to knitting together different national and regional schemes.

Mr Hunt interjecting -

The DEPUTY SPEAKER ( Ms AE Burke ): The member for Flinders is warned!

Mr COMBET: It develops a common carbon price across economies, a common incentive to cut emissions, and fairly shares the burden of doing so.

We have a responsibility, as the leaders of this nation and as elected representatives of the federal parliament, to act in the interests of all Australians, both current and future generations. Ultimately, the scientists have warned us that the planet is warming and that warming is caused by rising concentrations of greenhouse gases in the atmosphere. They have warned us that continued warming will have severe consequences, which may include more frequent droughts, more days with high fire danger, changes in rainfall patterns, increased heat waves and more intense cyclones. This poses a risk to the environment, our economy and our way of life. No responsible government can ignore these risks.

Responsible governments must take action-action that is environmentally effective, economically efficient, and socially fair. Those have been the underpinning principles of government formulation of policy in responding to climate change-environmental effectiveness, economic efficiency, and being socially fair and equitable. That is Labor's approach-action we can take to protect our economy and minimise the risk of the most extreme impacts occurring. That is the action we are taking.

This is a global problem and it requires global efforts to reduce pollution. There are many out to mislead the Australian public by saying that Australia is acting alone and our efforts are meaningless unless part of global action. But this argument falls down on two fronts, and it is important to address them.

Firstly, Australia is far from acting alone. Every major economy is taking action. From 2013, 850 million people will live in a place where polluters pay for their pollution. The world is acting and we are part of that action.

The second reason the argument of these detractors falls down is that many of these same people who say a global solution is required also categorically oppose international linking. If you accept that climate change is a global problem that needs a global solution, it follows that you should support opening up trade with other countries to ensure pollution is reduced at the least cost. A globally coordinated approach must be fundamental to Australian climate change policy.

Because the Australian and European systems both cap the overall level of emissions, the use of a European allowance by an Australian emitter means that one less tonne of carbon pollution is released in Europe. Our challenge is to reduce global emissions. One tonne of pollution reduced in Europe delivers the same environmental benefit as a tonne of pollution reduced in Australia.

We are an open economy and a trading nation. This is one more commodity that needs to be included in our trading relationships with other countries. By opening up trade in carbon, we will ensure that pollution is reduced at the least cost, which will benefit households, businesses and the environment. The type of economic xenophobia and anti-market rhetoric that has been used when it comes to linking emissions trading schemes is backward and irresponsible.

We are very proud to stand on this side of the parliament and be able to say this will be the first intercontinental linkage of emissions trading schemes. It represents an important development towards the establishment of an interlinked global carbon market and global action on climate change. It is the first link between Europe and emerging carbon markets in the Asia-Pacific region.

Emissions trading schemes, it is worth noting, are currently being developed in China, which is our largest trading partner; Korea, our fourth largest trading partner; and California, which in its own right is the world's eighth-largest economy. These are just some examples of the development of carbon markets in our own region which ultimately we have the objective to link with.

In fact, market based mechanisms to reduce pollution are in place or being developed in eight of our top 10 trading partners.

Other key economies in the Asia-Pacific such as Indonesia, Thailand and Vietnam are also entering the carbon market.

This will lead to the development of a cooperative Asia-Pacific carbon market in the future.

The link with the EU is also very important for the competitiveness of Australian industries. The linking arrangements-this is an extremely important feature of the bills I am presenting to the House today-have the potential to increase the effective assistance delivered to our emissions-intensive trade-exposed industries by the Jobs and Competitiveness Program. For example, if a highly emissions-intensive activity is able to source Kyoto units on the market for half of the price of European allowances, their effective assistance rate in 2015-16 could rise to 97 per cent. The assistance delivery also retains the incentive for emissions reductions.

This is an extremely important measure to support the members of our community, and their families, who are employed in these important emissions-intensive trade-exposed activities like aluminium smelting, steel making, cement manufacturing and a host of others. It will support the competitiveness of those businesses.

This bill and the amendments it contains are intended to provide the legislative foundation for this link and future links with other emissions trading schemes.

The link with the European Union ETS will first allow European allowance units to be used for compliance under the Australian scheme for liabilities incurred between 1 July 2015 and 30 June 2018. This will be followed by a full bilateral link from 1 July 2018 where units from both schemes may be used for compliance in either system.

To simplify the linking arrangements and facilitate the convergence of Australian and European carbon prices, the government has announced that it will no longer proceed with the carbon price floor from 1 July 2015, and that it will restrict the quantity of eligible Kyoto units that Australian entities can use to discharge their liability.

This bill eliminates the price floor from existing legislation by removing the requirement for a minimum auction reserve price for the financial years 2015-16, 2016-17 and 2017-18, and repealing the act that provided for a surrender charge on eligible international emissions units.

The bill also limits Australian entities' use of eligible Kyoto units to 12.5 per cent of their total liability and provides the government with the ability to introduce other limits on eligible international emissions units should this flexibility be required in the future.

In relation to the designated limit of 12.5 per cent, or one-eighth of a liability, for Kyoto units, the bill provides that this designated limit percentage may not be changed before 1 July 2020. This will provide certainty to Australian liable entities in relation to their allowable surrender of international units, and hence certainty in relation to their emissions reduction investment and compliance strategies and also certainty in relation to the level of assistance available to them under the Jobs and Competitiveness Program. That is eight years of certainty.

The bill also provides the government with flexibility to implement the most appropriate set of registry arrangements to establish the interim link with the European Union ETS, and flexibility in establishing future registry arrangements with other jurisdictions should links to other schemes be concluded in the future.

Equivalent carbon price

This bill also alters the current arrangements for applying an equivalent carbon price to synthetic greenhouse gases and some liquid fuel use, to ensure that it reflects the effective carbon price faced by liable entities under the Australian Emissions Trading Scheme when linked to the European Union ETS.

Auctions

The government proposes to make minor and technical changes to the design of the auction scheme for the Australian emissions trading scheme, to improve its operation and streamline the arrangements. These changes take account of further consultation on the detailed design of the auction scheme and the commencement of the detailed design process.

The amendments increase the carbon unit auction limit from 15 million to 40 million for 2015-16 carbon units that are auctioned in 2013-14, and 20 million for all other advance auctions before a pollution cap is set.

The amendments also establish that where there is not a pollution cap in place, units cannot be sold at auctions held more than three years in advance of their vintage year.

In addition, the bill provides for the approach to setting auction reserve prices to be determined in a ministerial determination.

Finally, the bill simplifies the treatment of relinquished carbon units.

Natural gas

There are also some measures contained in the bill in relation to natural gas. In order for the carbon price to maintain effective and complete coverage of natural gas, the bill allows regulations to be made to provide for coverage of alternative natural gas arrangements, supporting competitive neutrality in the industry.

The bill also amends the National Greenhouse and Energy Reporting Act 2007, so that from 1 July 2013 the methods to measure and adjust liabilities for liquid and gaseous fuels may be set out in a disallowable ministerial determination. This will give more certainty to the liquid and gaseous fuels sectors and more flexibility in emissions reporting, which is appropriate given the complex commercial arrangements in these sectors.

Conclusion

In conclusion it is important reiterate some key elements. The fact of the matter is that countries around the world are taking action to tackle climate change.

Australia's carbon price is now part of this global action.

It is submitted in pursuit of the commitments that we have made internationally, which are supported by the opposite side of parliament, to tackle this problem in our domestic economy.

With emissions trading schemes in 33 countries and 18 subnational jurisdictions expected to be in operation from 2013, it is likely this linking arrangement is the first of many to come, which will lead to a deep and liquid global carbon market.

It gives the lie to the claims that no other countries are acting.

Linking to the European Union Emission Trading System is a historic achievement not only for Australia but for global action on climate change.

When future generations look back on the Clean Energy Act and associated acts, the emissions reductions it will have driven and the global carbon market it will have supported, I believe they will thank the members of this parliament who have rejected the argument for delay in acting on climate change and who have embraced a clean energy future. I commend the bill to the House.

Debate adjourned.