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Senator Xenophon Additional Comments
Climate change is one of the biggest challenges facing us as a nation,
something of which our farmers in particular are all too aware. I believe we
need to take meaningful and appropriate action to address the issue from both
an environmental and economic point of view. The cost of not doing so in the
next few years effectively will be much greater for generations to come.
Given the significance of this issue, the solution to it must be
well-considered, effective and flexible. It must take into account, and meet,
environmental, social and economic needs. I do not believe the current carbon
pricing mechanism and associated measures do this.
I agree that the current mechanisms have created a poor economic outcome
without even any reasonable environmental return for the economic impact
involved. I did not support the former Government’s legislation to introduce
these measures for these reasons, not because I do not believe we need to take
action on climate change. For me, the debate on these issues is about finding
the most cost-effective way to abate greenhouse gases.
As such, I agree with the comments of some submitters, who called for
alternative measures to be in place before the existing scheme is repealed. I
believe it is vital that the Government release draft legislation or detailed
policy as soon as possible, both to demonstrate their commitment to this issue
and to provide certainty for businesses and investors.
I am also extremely concerned, indeed shocked, that Treasury has not
undertaken any modelling to determine whether it is more effective to spend
money to reduce high-emissions activity or to spend money to increase cleaner
generation activity. This is a significant gap in policy-making, and I strongly
believe the Government should commission such modelling as a matter of
Senator XENOPHON: In terms of abatement, you could
spend money to reduce high-emissions activity or you could spend money to
increase cleaner generation activity. I am not saying that is the only way you
can do it, but those are two of the policy choices. Does Treasury consider that
has a different effect on electricity pricing and on outcomes in terms of
Mr Campbell: We have not undertaken an analysis of the
effectiveness of different programs for delivering abatement and its impact on
Senator XENOPHON: It is pretty fundamental. Would you
agree that it is potentially quite important as to whether you spend money to
reduce high-emissions activity or whether you spend it to produce cleaner
generation activity. It could have quite significant impacts in terms of the
merit order and, presumably, one would be more efficient than the other in
terms of abatement, particularly in the context of a direct action scheme.
CHAIR: Senator Xenophon, aren't you seeking an
Senator XENOPHON: No, I am asking whether there has
been any modelling in respect of the two. Is this something that has been
considered by Treasury?
Mr Campbell: No. We have not undertaken any work on
Senator XENOPHON: Is Treasury planning to undertake
any work on that?
Mr Campbell: We will undertake work if we are
requested to do so.
Senator XENOPHON: Are you in a position to say whether
you would be advising government that it would be prudent to do so in terms of
the most-effective use of taxpayers' funds in the context of the most-efficient
way of achieving abatement?
Mr Campbell: We will make our usual comments to
government through the processes around the consideration of the emissions
reduction fund in the normal course. We would not be making a decision beyond
Senator XENOPHON: But you are familiar with the merit
order argument? The merit order could be appreciably changed in the context of
the electricity market and the effect on prices and also on abatement in the
context of how you spend that money—whether it is by reducing high-emissions
activity or by increasing cleaner generation activity.
Mr Campbell: I am aware of the issues that are at
Senator XENOPHON: I am shocked that Treasury has not
undertaken any modelling in respect of this. I will leave it at that.
I would also draw to the Government’s attention the modelling done by
Frontier Economics in 2009, which was jointly commissioned by myself and
then-Opposition Leader Malcolm Turnbull. The Frontier scheme can deliver deeper
cuts to emissions at a lower cost than the CPRS and the Carbon Tax, because it
avoids the enormous economic cost associated with the revenue churn of the
former Government’s scheme. Frontier’s modelling has estimated that, for every
dollar invested in abatement, there is a churn of five to six dollars through
the economy. 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 and loss of economic activity.
While I support the committee’s comments in the majority report, I also
believe it is important to highlight the fact that these matters are not
straightforward and that the abolition of the current scheme may not lead
directly to a reduction in costs. This is particularly true of the electricity
market, where a number of factors are at play. I strongly suggest the
Government refer to the matters raised by the Senate Select Committee on
Electricity Prices, which need urgent attention.
The political debate regarding electricity prices over the past few
years has been narrow and simplistic. To suggest or imply that the carbon tax
is the primary cause of electricity price rises ignores the fact that charges
for the use of electricity transmission and distribution accounts for about
half of electricity bills. Currently, these charges are paid by retailers, who
then pass them on to consumers. The doubling of retail tariffs over the past
few years can be directly linked to the rise in network tariffs.
Network tariffs are regulated by the Australian Energy Regulator, which
is part of the ACCC. The Rules governing how networks are regulated oblige the
AER to provide network businesses with a guaranteed return on their investment,
regardless of whether the investment was necessary or worthwhile and regardless
of whether the investment is later found to be unnecessary or premature.
The changes that have been made to address this issue do not go far
enough. The Australian Energy Regulator needs the ability to conduct detailed
optimisation analyses of electricity networks’ asset bases to uncover instances
of excessive or premature spending. To the extent this has occurred, network owners
need to be penalised so that consumers are not forced to pay for investment
decisions that were made with little genuine justification of need or due to
electricity demand forecasts that were clearly inflated in defiance of the
Finally, I am also concerned about the proposed abolition of the Clean
Energy Finance Corporation. A vital part of any scheme to reduce carbon
emissions is investment in clean energy projects. The CEFC is not, as the
committee report suggests, ‘a private bank’,
but an agency with specific knowledge and expertise to support renewable energy
projects. Utilised effectively, the CEFC’s $10 billion fund, allocated over
five years, could make significant changes to Australia’s renewable energy
sector and emerging technologies. It should not be discounted lightly, and I
query whether any modelling has been done to suggest where that funding could
be spent with equal effectiveness. I found the evidence of the Chair of the
Clean Energy Finance Corporation, Ms Jillian Broadbent, to be compelling.
Ultimately, I am supportive of the Government’s move to abolish the
current scheme, with the exception of the CEFC. However, I strongly encourage
the Government to release a detailed policy document or draft legislation for
Direct Action as a matter of urgency, and for the Government to consider the
benefits of the Frontier Scheme, which the Coalition jointly commissioned with
me in 2009.
Senator Nick Xenophon
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