Malcolm Turnbull MP Federal Member for Wentworth Shadow Treasurer - **UNDER EMBARGO UNTIL 7pm EST **CHECK AGAINST DELIVERY
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Malcolm Turnbull MP
Federal Member for Wentworth
Shadow Treasurer
Speech to
John Curtin Institute of Public Policy
Perth
22 July 2008
**UNDER EMBARGO UNTIL 7pm EST
**CHECK AGAINST DELIVERY
1Our Prime Minister, Mr Rudd, dearly loves a grand gesture.
Saying “Sorry” to the Stolen Generation, ratifying the Kyoto Protocol, solving all the
problems of the world in one weekend with Cate Blanchett and 999 other friends.
If only, he must ask, politics was always like that.
There is nothing wrong with grand gestures, great occasions, fine words and
mellifluous oratory.
Unless you lose interest the moment the applause dies away.
Right now Australian taxes are being spent on an advertising campaign promoting the
Government’s Green Paper on an emissions trading scheme. Now it is not called an
“emissions trading scheme”. The spin doctors found that unsatisfactory and it has
been renamed a “Carbon Pollution Reduction Scheme”, but an ETS it is.
This advertising campaign earnestly seeks to engage the Australian people, to reach
out to them for their views. “Tell us what you think of our great plan?” the ads ask.
All will have their say. But they must get their say in by the middle of September.
Don’t be late or Senator Wong will pay no regard to you!
Now many people will struggle to read the 516 pages of the Green Paper by
September, let alone the equally weighty “draft” report of Professor Garnaut
published only a few weeks before.
But if they do they will find something missing.
Economic modelling – the numbers that assess the costs and benefits.
That’s right. Treasury’s modelling will not be ready until October; perhaps even
November.
So we are being asked to prepare submissions on the Green Paper without any idea of
what Treasury believes the ETS might cost.
And we don’t know what the rate of emissions cuts will be either. A flat or gradual
trajectory may be relatively painless – a steep one very painful indeed. Both might
reach the same objective.
Companies with thousands of Australian jobs and billions of Australian dollars at risk
will be asked to write what must be one of the most important submissions in their
history – in the dark. Their only inspiration: 500 pages of warm words and the best of
intentions.
Now Kevin Rudd was elected on a platform of change.
But will this change – this latest example of “new leadership” catch on? Will public
company directors be able to persuade their shareholders to re-elect them, let alone
increase their remuneration, without showing them the accounts?
2I don’t think so.
The challenge of global warming and its response deserves better than this. The spin
has to stop. The hard work, the detailed design, the careful painstaking analysis and
consultation has to begin.
So let’s start with a few hard facts.
The Governments of the world and almost all of our scientists now accept that human
activity is causing global warming by reason of our rapidly increasing emission of
CO2 and similar warming gases, largely through the combustion of fossil fuels for
energy as well as the destruction of the great rain forests of the world.
In order to limit an increase in temperature by the end of this century to not more than
2 degrees celsius, the United Nation’s International Panel on Climate Change says
that by 2050 global CO2 emissions will have to be reduced to a level equal to 50 per
cent of their 1990 level.
This is no mean feat. In 1997, the Kyoto Protocol sought to commit developed nations
to reduce their emissions by an average of 5 per cent by 2008-2012. Only a few
countries have managed to achieve this reduction, mostly through happenstance.
More ominously still, because of global population growth and strong economic
growth, emissions are projected to continue to rise rapidly through to 2050 on a
business as usual basis. The “50 per cent by 2050” target is more like an 80 per cent
reduction from the business as usual figure.
And to make matters worse, while the Kyoto Protocol’s first commitment period
obliged only developed countries to make modest cuts (which as I have noted most of
them will miss anyway), the vast majority of the growth in emissions will come from
the developing world and in particular China, which has now replaced the United
States as the world’s largest emitter, and India.
Of course, comparing national emission levels is somewhat dubious. Is Norway’s low
level emissions due to its advanced environmental awareness? Or does it have
something to do with the fact that almost all of its electricity comes from
hydropower?
How real are national boundaries when you are dealing with global emissions and
traded goods? The emissions of the NW Shelf LNG partners are counted against
Australia’s tally, but that LNG is exported to countries like China who, by using it
instead of coal, significantly reduce their emissions.
The simple fact is that even if the developed world were to cut its emissions by 100
per cent by mid century – plainly impossible and undesirable – the developing world
would need to cut its emissions by at least 40 per cent from their current business as
usual trajectory.
In other words, unless the Chinese, the Indians and the Americans can reach an
understanding on a roadmap to reduce emissions the global effort has no prospect of
success and we should all move to higher and cooler ground.
3Whichever way you slice and dice the numbers, there is no way we can reach the
massive reductions in greenhouse gas emissions without completely decarbonising the
world’s stationary energy and indeed most of the transport energy of the world.
We can certainly achieve a great deal with energy efficiency and reforestation, but as
billions on our planet seek to climb out of poverty and enjoy something of the
prosperity we take for granted they will need more and more energy.
In short, we need to decouple energy growth from emissions growth. We need to have
every coal or gas fired power station in the world replaced with a zero-emission
power source or coupled with a carbon capture and storage plant that strips the CO2
from its flue gases and stores it permanently under the ground.
The scale and the difficulty of this technological transformation is unprecedented. The
slogan “It’s Easy being Green” is right up there with “Your cheque’s in the mail.”
So what should be the objectives of Australia’s climate change mitigation policy?
Foremost among them are these:
• First, it must promote an effective global agreement on climate change –
without that all our efforts domestically will be futile.
• Second, it must develop and deploy low emission technologies foremost in
importance of which is carbon capture and storage (CCS) – we cannot
decarbonise our energy sources without the means to do so and we should be
world leaders in this technology.
• Third, we must continue to deploy our technology and resources to stop
deforestation and promote reforestation. We have world’s best technology and
expertise in this field and it is vital – 20 per cent of global emissions come
from deforestation.
• Fourth, domestically we must of course play our part and reduce our
emissions, but we must do so in a way that is globally environmentally
effective and at the same time economically responsible.
Unfortunately, the Green Paper has little to say about these points.
Above all, we have to recognise that there is no silver bullet to dealing with climate
change. Ratifying Kyoto was a symbolic act – an important one to be sure – but we
must not forget Mr Rudd ratified a treaty the terms of which we had already
committed to, and in fact will, comply with.
It has been just over a year since the Coalition committed to an Emissions Trading
Scheme that would begin not later than 2012.
2012 was an appropriate date for a number of reasons.
From a practical point of view, it was the earliest date our advisers told us they could
be confident the scheme would be ready. This is a complex design challenge and time
is needed to consult both with interested parties but also with the public at large. The
4Prime Minister has shown that he is unable to explain how an ETS works, so plainly
we need an extended public debate to raise awareness and understanding.
It was the last year of the first commitment period under the Kyoto Protocol whose
target we were and remain on track to meet. The European Union’s Phase 3 of its ETS
will begin with wider auctioning of permits in 2013. The Copenhagen meeting of the
UN Framework Convention on Climate Change will occur in late 2009.
A start date in 2011 or 2012 gave us time to take all these developments into account.
Labor’s response to our policy was that it would start an ETS – but in 2010.
It had no basis for setting an earlier start date. But it sounded good. It is too bad that
in the twelve months since the announcement of the Howard Government’s ETS
policy there appears, judging by the Green Paper, to have been very little in the way
of policy development.
Our policy described in terms more concise, but not much less detailed, a
comprehensive ETS whose final design and targets would be informed by Treasury’s
economic modelling.
We recognised that Australia, and indeed the world, would need to put a price on
carbon. After all, for the foreseeable future and no matter how well the technology
develops, a coal fired power station with CCS will always be more expensive than
one without.
Industry recognised the need for a carbon price, and an ETS allowed the flexibility of
market forces to enable abatement at least cost.
Now in an ideal world, literally, the whole globe would enter into a comprehensive
ETS on the same day. There would be a global price for carbon just as there is for oil
or gold. Everyone would pay more, but nobody would be disadvantaged relative to
another.
That ideal world is not likely to come along any time soon. Our judgement was that it
was in Australia’s interest to establish its own ETS prior to a global agreement but to
do so with great care to ensure that we did not damage our own economy.
Australia is a wealthy and developed country. But unlike most developed countries,
we are heavily dependent for our wealth on the export of commodities which are
themselves energy intensive. Because more than 80 per cent of our energy comes
from burning fossil fuels, and most of that coal, we are also emissions intensive.
Our trade exposed industries are price takers in a global marketplace in which
suppliers operating in developing countries face little near term prospect of paying a
carbon price.
The fact that companies are trade exposed does not mean they should be exempt from
Australian environmental standards which may be more stringent than those in other
countries.
5However if we impose a carbon cost on an Australian aluminium smelter or LNG
producer or coal miner or steelmaker and as a consequence that production is lost to
another country without a carbon price, we run the risk of exporting both the jobs and
the emissions. There is an economic detriment without any environmental benefit.
Many of our high emission, trade exposed industries are very efficient by world
standards. As Rio Tinto noted in its submission to the Garnaut Review, Australia is a
leader in reducing both the energy and emissions intensity of aluminium and alumina
production. There is a real risk that if Australian production is replaced by a plant in a
country with laxer emissions standards, there could be not just as shift but an increase
in CO2 emissions.
The Green Paper proposes that compensation be offered to trade exposed emissions
intensive firms. Determining who is trade exposed is not too hard – but the Green
Paper proposes to provide firms with free permits for 90 per cent of their emissions if
the firm emits 2000 tonnes of CO2 or more per million dollars of revenue and 60 per
cent if it emits between 1500 and 2000 tonnes.
The revenue test is itself controversial – high volume, low margin businesses will be
more affected. Equally, the cut off at 1500 tonnes means that a number of LNG
exporters in this State will miss out entirely - not just because their gas resources are
relatively low in CO2 but because through their own efforts they have reduced fugitive
emissions and reduced energy efficiency.
For example, in its submission to the Garnaut Review, Chevron noted that in 2002 the
North West Shelf Project was able to reduce its emissions intensity by 15 per cent by
replacing the solvent used for separating CO2 from the natural gas and that new plant
design for new LNG trains enabled a 40 per cent reduction in emissions intensity.
More troubling still, and this is a very clear difference in approach from that proposed
last year by Dr Shergold, the Green Paper proposes that compensation to the TEEIs be
phased down over time, regardless of whether the countries with which those
industries compete had imposed a comparable carbon tax.
The transitional nature of the compensation proposed means that a business in
Australia would have to question whether it could or should expand its operations or
indeed continue them.
A “no growth” approach to assistance for TEEIs is unrealistic. It is one thing for a
wealthy country like Australia to agree to pay more for electricity in order to reduce
emissions, it is quite another to expect customers in China to pay more for our LNG
or our coal or our iron ore.
This is a central issue in the whole ETS debate and it is one which I look forward to
discussing further with Western Australian industries this week.
Some people have asked whether it is appropriate at all for TEEIs to be included in a
national emission reduction cap. Should they instead be dealt with as part of a global
sectoral agreement?
I pose this as a question rather than as a policy proposal. I also remain comfortable
with the approach set out by Dr Shergold last year, but it is worth noting that in many
6of these energy and emissions intensive trade exposed industries a relatively small
number of countries and indeed companies represent the bulk of product and hence
emissions.
Regardless of the final treatment of TEEIs in the ETS, while a global sectoral
approach for these emissions intensive trade exposed industries may seem a way off
today, it should be a central longer term objective of Australian climate change
diplomacy.
Addressing these sectoral issues early and decisively is very important not least
because of the risk of the potential emergence of carbon taxes at the frontier. One way
for a country to ensure that imports are treated equally to domestically produced
goods is to impose a carbon tax on all imports which have not been subject to a
carbon price in their own country.
This approach has been the subject of active discussion in the European Union where
no doubt it could be used as another pretext for the protection of agriculture. It has
also been discussed widely in the United States.
Given Australia exports much more emissions intensive products than it imports we
have a strong vested interest in ensuring that the concept of carbon taxes at the
frontier does not acquire momentum.
Another particularly difficult area in the design of the ETS is that of domestic (ie not
trade exposed) industries which are nonetheless disproportionately (or to use the
Green Paper jargon “strongly”) affected by an ETS in the sense that they are unable to
pass on all or even most of the carbon cost to their customers.
The classic examples include brown (particularly) and black coal fired electricity
generation facilities.
ACIL-Tasman modelling suggests that a cut of 20 per cent emissions by 2020 could
reduce the asset value Victorian and South Australian coal fired power stations by
over 90 per cent.
The key here is the inability for the generators to fully pass on the increased costs to
consumers.
This is why the Government needs to be very careful – the heavy reliance on brown
coal electricity in Victoria means that there are energy security issues relating to a
shift to emissions trading.
Clearly it will be vital for carbon capture and storage to be deployed to our brown
coal and black coal generators if they are to survive in the longer term. But this
technology is unlikely to be widely deployed before 2020.
In these circumstances, even if we had the means to make up the energy shortfall,
would it be prudent to allow our brown coal generators to shut down and then, in
2020, perhaps reopen? Probably not.
This brings me to what is a key issue in the climate change debate both globally and
domestically.
7An ETS imposes a price on carbon. As permits are auctioned by the Government, the
Treasury coffers will fill just as they would for a carbon tax.
In terms of energy efficiency a carbon price simply adds to the cost of energy and in
that sense is not distinguishable from a general increase in energy prices. Today’s
motorist does not need a carbon charge to tell him that it is time to move to a more
fuel efficient car.
But a carbon price also encourages a shift to lower emission energy sources – it
encourages the coal fired generator to switch to gas or renewables or to CCS. But if
the cost of reducing the carbon emission is higher than the carbon price, then the only
consequence of the carbon price is an increase in the cost of energy and an increase in
government revenues.
Nothing screams out of the literature on climate change more than the central
importance of CCS. Even in countries like China and India where nuclear power is
being rapidly expanded, long term dependence on coal for energy is a given.
With China building enough coal fired power stations to equal Australia’s total
capacity every six months, there is little prospect of meeting those long term emission
reduction goals without CCS being made to work or some yet unknown technology.
The Coalition Government committed considerable funds to CCS projects including
the Gorgon project here in Western Australia. But to date, in Australia, all of the CCS
projects presently in operation are very small indeed. While there are several CCS
projects of scale internationally in the oil and gas business and with more to come
including Gorgon, there is nowhere in the world a major coal fired power station
which is using CCS to make it emission free.
Everything I have learned while Environment Minister and since has convinced me of
the need for Australia to do much more in developing and deploying CCS at scale.
It is worth describing briefly what CCS involves.
CO2 can be removed at different stages of the process in newer plants but the most
important technology in the medium term is likely to be post combustion capture and
storage where flue gases from a coal fired power station are run through a medium
(typically an amine solution) which bonds with the CO2 from which it is then
separated leaving a pure CO2 stream that can be compressed to a liquid state (where it
has a similar volume and weight to water) and then pumped under pressure into a
suitable geological formation, typically a depleted oil or gas field or a saline aquifer.
This is not a cheap process nor is it straightforward either at the capture, or as you
learned here at Kwinana at the storage stage.
Additional energy is required to capture and store the CO2 from a power station. So
one third more coal, one third more water. Put another way to store the CO2 from
three 600 MW power stations you would need to build a fourth one. Thus while clean
coal may be low emissions, it is not energy efficient – quite the contrary.
And this gives rise to a paradox and further complexity. Because CCS requires more
coal to be burned, it makes coal fired power stations with CCS considerably less fuel
8efficient than those with CCS. Improving that efficiency is plainly a key research and
development priority.
It is estimated that around 70 per cent or more of the cost of the CCS process is taken
up with the business of separating and compressing the CO2 from the flue gases. The
balance consists of transportation and storage the cost of which is heavily dependent
on the distance of the storage geology from the power station and the nature of the
strata where the CO2 is to be injected.
The European Union’s climate change policy has the deployment of 15 CCS
demonstration plants as an urgent priority although not one has yet been established.
As the world’s largest exporter of coal and heavily dependent on it ourself we have a
very keen self interest in ensuring that CCS is shown to work effectively sooner rather
than later.
The Howard Government was very focussed on CCS, it was central to our very
practical response to climate change. And while our clean coal programmes have
survived and appear to have been extended, I do not detect the same enthusiasm or
commitment to clean coal technology from the Rudd Government.
Indeed the Rudd Government’s extended Mandatory Renewable Target, in stark
contrast to the Howard Government’s Clean Energy Target, expressly excludes CCS
as a qualifying technology notwithstanding its vital importance to our, and the
world’s, clean energy future.
Climate change will continue to be a dominating topic of debate over the years ahead.
Perhaps most difficult of all the climate measures will be the design of the ETS.
Mr Rudd is already off to a bad start by promising to introduce the scheme in 2010
allowing too little time to take into account the many complexities only some of
which we have already seen.
Last year the Coalition was more modest. We knew an ETS would be extremely
difficult to design and implement. We knew it would take time to consult carefully
with affected industries, time to produce, review and debate the economic models that
will tell us what the likely costs will be.
We knew that there was much we would learn from industry, from the community,
from other countries and, indeed from academia, as the scheme was developed. All of
that would take time.
The objective is to get it done right.
So when Mr Rudd calls on the Coalition to be his collaborators, we say that we will
certainly not collaborate in a rushed job nor will we collaborate in putting at risk
Australian industries, jobs and our standards of living for no environmental gain.
We are thoroughly committed to an economically responsible and environmentally
effective response to climate change, one that will speed the world to a high energy,
low emission future. And in fulfilling that commitment we will act resolutely and
responsibly in our national interest.
9You can also read
