INTRODUCTION
I thought today I’d concentrate on giving you a brief 10-minute outline on our climate change and energy policies, with a particular focus on energy, given I know that’s such a competitive impact on so many of the businesses here. And then I’m very much looking forward to the panel discussion, when I think we will get to the nub of some really important issues.
So, we always start with, why are we doing this? Why are we taking action on climate change? Climate change poses an existential threat to this planet, and I don’t say that lightly. We are facing a climate disaster. We saw the first extinction of a mammal purely related to climate change this year, so you cannot overstate the impact of climate change and the need to take action.
Secondly, the Paris Accords represented a real sea change in the climate change debate. The Paris Accords were the first time we saw true, effective action committed to by almost all the nations in the world with the goal of keeping global warming below 2 degrees, with the goal of keeping it well below 2 degrees.
The Paris Accords represent a real break with what was occurring previously and no one can seriously claim that Australia is trying to lead the world on climate change. We are, if anything, trying to make up for lost time, to be frank. So we’re committed for Australia playing our key part in the Paris Treaty and an appropriate contribution based on the best advice from the independent Climate Change Authority is for Australia to reduce emissions by 45% by 2030 and achieve net zero emissions by 2050. That is what the independent scientists at the Climate Change Authority say is a reasonable and appropriate contribution from Australia. Besides making an effort as part of a global effort to combat climate change, people should be embracing action on climate change out of pure self-interest. And, I don’t have to tell people in this room that the impact on this nation both of climate change, if you look at the 63,000 jobs at risk in the Great Barrier Reef, if we see the Reef go, you look at the impact on the Murray Darling Basin if we lose a lot of water, the direct financial and economic self-interest on taking action on climate change is there for all to see.
And, as importantly, it is directly in the economic interest of businesses in this country to be taking action. Leave aside the planet and environmental impacts, we are seeing more and more investor groups who are making it very clear that they will direct their dollars based on companies taking action on climate change. You saw reports yesterday around the investor group on climate change about the shadow carbon price that many, many businesses are already including in their investment decisions. And from a basic economic principles point of view, the sooner you start the adjustment process the least cost it is compared to sudden and more dramatic adjustment later on. So there are compelling economic reasons to take action on climate change. And to be quite frank, I think we’re in a position now where most businesses are very frustrated with all sides of politics, because most business is already ahead of government in taking action on climate change and I dare say if I went to the websites of many businesses here I would see statements on climate change, on taking action on climate change.
A SECTORIAL APPROACH
So, that’s the broad background for Labor’s approach to climate change. And we’ve taken a significantly different approach to when we were last in Government where we attempted to impose, we did impose, a broad-based emissions trading scheme. Not a carbon tax, a broad-based emissions trading scheme that was never economy-wide. We should be very frank about that. At most it covered 65% of the economy through an emissions trading scheme. But we’ve decided that, given the last six years of political inaction from Canberra, we’ve got some architecture in place, the fact that the political arguments have moved on, that it’s probably more appropriate to take a sectorial approach, to cut in each sector based on what each sector can do, and what is the best approach for this sector. And I’ll outline those briefly with a focus on energy, and obviously I can go into some detail in the panel discussion.
ENERGY SECTOR
So, on energy, emissions related to energy production constitute about 32% of total greenhouse gas emissions in this country, and it’s fair to say failure of the Federal Parliament to land a coherent and long-lasting energy policy in this country over the last six years has been the greatest political failure of the last 20 years, if not the last 50 years. The knife-fight in Canberra has been a public embarrassment and has led to very significant cost impacts on people in this room and the millions of people who rely on the businesses in this room.
For example, in real terms the cost of electricity at a retail level has increased by over 15% by 2013; for manufacturers it’s been over 21%. The cost of generation, the cost of producing the electricity, according to the ACCC, has increased by 63% in real terms since 2013. So just ponder that for a moment – the cost of producing electricity in this country has gone up by 63% in real terms in six years. That is a dramatic change. We’ve gone from, in 2004, having the fourth cheapest electricity prices in the OECD, to the 10th cheapest in 2016, and I’m sad to say that in 2018 we had the fourth highest electricity prices in the OECD. This is a dramatic turnaround.
And what’s driven this dramatic turnaround? What we’ve seen is 5,200 Megawatts of coal-fired power retire in the last seven years, 4,000 Megawatts since August 2014, and they have retired mainly because of their age. We’ve got a fleet of coal-fired power stations that are very old. 75% of the existing coal-fired power fleet is operating past its operating life. I’m an MP for the Hunter. In my Sarah Palin moment I say I can see the biggest power station in the country from my front window, I’ve got a coal mine from my side window, my neighbour is a coalminer. I’m at the heart of the transition. And these power stations are getting very old. They are held together by duct tape and chicken wire, to some extent. Any hot day we get we see outages because of their age. So, the question is not will they retire; the question is when will they retire and do we have adequate replacement.
And over the last seven years we haven’t had adequate replacement. And we haven’t had adequate replacement because of the policy uncertainty in Canberra. How can you make a decision on an asset that has a payback period of 40 to 50 years if you’re seeing policy change constantly? In fact, I did a calculation and we keep having to increase it as we go on, but we’ve had 13 energy policies since 2016. Thirteen energy policies since 2016. In fact, in a 14-day period in August last year we had four energy policies – NEG 1, NEG 2, NEG 3 then NEG-junked. Four in 14 days. You wouldn’t see that in a military junta in the Third World, to be frank, and it is having a direct impact on the companies in this room. Any energy uncertainty must end if we are to improve the competitive advantage of Australian businesses and take action on climate change.
So, the heart of Labor’s climate change policy is a commitment to reducing emissions in the electricity sector by 45%, and driving 50% renewable energy. Our first plan, our Plan A, is using the National Energy Guarantee, Malcolm Turnbull’s NEG - a NEG associated and linked with a 45% emissions target. Most stakeholders have said it’s not their ideal mechanism but it is a mechanism that can work. And so, we’re not intending on reinventing the wheel. If we’re elected in 17 days’ time, we will attempt to get a National Energy Guarantee through Parliament. Importantly, we signalled that we will only prosecute a NEG if we can get bipartisan agreement for it. There’s no point instituting a market mechanism like the National Energy Guarantee, if in three years’ time it is repealed by another Government. So, we’ve been very clear to provide investor certainty. We will only go down the NEG path if the new Liberal Opposition – if we win Government, if we win the election – agrees with the mechanism. They may not agree with the target but industry have said as long as the mechanism’s agreed to we can deal with two different targets. Because businesses will just hedge their investments to make sure that their investments work under both scenarios. But the mechanism must be enduring, it must be stable, it must be bipartisan. So, that’s Plan A.
Plan B, if the NEG doesn’t get up, to provide certainty to investors in the energy sector through direct contracts with energy companies to build the new generation required to deliver the 50% renewable energy and deliver 45% emissions reduction. Those contracts will deliver that certainty through other means. Future governments are always hesitant to rip up existing contracts. It happens occasionally, rarely, and they always happen at very extensive cost to the taxpayer. So, that’s another way of providing certainty to the energy sector in getting power prices down.
The good news is, that if we deliver this certainty, if we drive this investment in renewable energy, not only will we reduce emissions in the energy sector, we will reduce the cost of electricity. Independent economic modelling has found that Labor’s policies will reduce electricity prices in the wholesale sector by 25%. And that’s because renewable energy is the cheapest form of new power generation. And we’ve seen a real change in the energy sector over the last five years, and I can get into more detail in the Q&A if you want to. But I can hand on heart say that if you are looking at building a new power plant the cheapest form of new power production is renewable energy firmed up with pumped hydro or peaking gas, and in the long-term batteries. It is the cheapest form of new power. And what we saw interestingly last year was a real step-change when the head of generation for Origin Energy, our largest energy company, went on the public record and said not only are renewables cheaper than new coal, renewables are cheaper than running his existing coal fleet. So, the world has moved on. And so our plan will deliver that stability for the energy sector.
We’ve also got very concrete announcements around energy efficiency that I won’t go into now, but they will drive significant improvement in energy efficiency. We are one of the worst countries in the world for energy efficiency. In fact, in the world rankings we rank 22nd behind Russia on energy efficiency. And we haven’t even grasped the low-hanging fruit. I’ll give you some examples. In contrast, in California, the largest economy in the world in its own right, it’s often held out as the idea goal in this area, I don’t endorse all their policies but just to give you some context. Since 1990, their population has doubled but their energy demand has stayed the same through a real focus on energy efficiency. So, that’s the energy sector.
INDUSTRIAL SECTOR
In the industrial sector, there’s another large contributor to greenhouse gas emissions, so large-scale manufacturing, steelmaking, aluminium smelting, we have said we will announce the existing government’s safeguards mechanism – the safeguards mechanism that is already in place. We’ve listened to industry. Industry have said rather than Labor going back, going through a tortuous green and white paper process, rounds and rounds of industry consultation, just modify the existing safeguards mechanism. So, we have signalled that we will do that. We will make sure that the safeguards mechanism works properly. It will be tailored to the emissions intensity of each firm that’s covered – about 240 firms across the country – and they will be required to reduce their emissions in line with our emissions goals. Importantly, there is a direct financial incentive for them to do so. If they can’t reduce their emissions they will be able to access a range of other offsets in other sectors that I will go to in a minute. As importantly, unlike in the current scenario, if you can actually reduce your emissions below your trajectory, you can sell those emissions abatement to other actors in the industrial arena. So, there’s a direct incentive for people who can cut their greenhouse gas emissions to do more.
Importantly we’ve signalled, yet again, that we acknowledge that there is some unique for emissions-intensive, trade-exposed industries and we don’t want to see carbon leakage. So, we have said that in government we will work with business to develop a tailored treatment for emissions-intensive, trade-exposed industries. There will also be our strategic industry fund to work with key strategic industries where we need a bit more planning and vision to reduce their emissions – industries like aluminium and steel. And the sector will be able to access offsets within the sector, they’ll be able to access offsets from the land sector, which I’ll get to in a minute, they’ll be able to access offsets from the electricity sector where energy companies do more than their 45%. And importantly they’ll have access to international permits. We think it’s crazy that you can’t access international permits for genuine abatement. The current government actually signed up to that part of the Paris Treaty so we think, being a bit political at the moment, it’s a bit hypocritical to say that we shouldn’t do that. You’re allowed to trade with the rest of the world for wheat, gold, wool, fuel, why can’t you do it for carbon permits. So, that’s a key part of the treatment in the industrial sector.
TRANSPORT SECTOR
In the transport sector, the key driver of emissions abatement in the sector that constitutes 18% of emissions in this country is fleet-wide emissions standards modelled on the US approach, not the European approach, where we will work with the fleets, the manufacturers, to reduce the emissions of their fleets with the goal of being 105 grams of CO2 per kilometre. Importantly it’s at fleet-wide. No one is going to be taking anyone’s ute. No one is saying you’ve got to swap a ute for a Nissan Leaf or anything else. You can still drive the ute. What will happen is that fleets – the manufacturers – will know that if they’re selling a certain number of utes above the emissions average they will have to sell a certain number of smaller cars. That will drive incentives. We’ll also see the cleaning up of fuel, both imported fuel and fuel produced in this country, to improve fuel efficiency. And the good news is, this policy according to the Government’s own reports, will save the average motorist $7,000 over the life of the vehicle. So, like in the energy sector, taking action on climate change not only will reduce greenhouse gas emissions it will save businesses and consumers money over the long run.
We’ve also got some incentives for electric vehicles that have got a lot of attention. I think, quite frankly, there’s been a ridiculous scare campaign, similar to the whale wipeout or the $100 leg of lamb – Craig [Emerson] was in the room, so I had to go to Whyalla. It has been a ridiculous campaign, a campaign that I think has embarrassed a lot of people. All we’ve said is that we will put in place policies that will ensure that by 2030, 50% of new vehicles will be electric vehicles. And we think the market will do a lot of that work. So, for example, Bloomberg New Energy Finance think by 2021-2022 the whole-of-life cost of electric vehicles will be cheaper than the whole-of-life cost of an internal combustion engine. So, the market will drive it.
We’re putting aside $100 million to drive $200 million worth of investment in charging infrastructure for battery electric vehicles. We’ve made announcements around support for hydrogen fuel cell electric vehicles. We’ve said that from 2025 onwards half of government fleets must be electric vehicles. And importantly for businesses we have put in place the Australian Investment Guarantee which allows businesses to write off immediately 20% of the cost of a new asset and that will apply to electric vehicles as well. So, if you consider the life of a typical vehicle is eight years, so you can normally write off 12.5% off a vehicle each year, if one of your businesses wants to purchase an electric vehicle you’ll be able to write off immediately, depreciate, 32.5% of that vehicle in the first year. So that will be a direct benefit to the businesses in this room. So that’s our approach in transport.
LAND AND AGRICULTURE
In the land and agricultural sector, we’ve acknowledged as we have done in the past, that putting hard caps on probably won’t be the most effective way to do it so we will turbo-charge the Carbon Farming Initiative which we put in place when we were last in Government. It gives direct financial benefits to landholders to store carbon in the landscape through changed agricultural practices. We can’t stop cows burping for example, but methodologies might be developed that mean that farmers might feed seaweed to their cows which will reduce the methane emissions. From cattle, you can look at capping settlement ponds from abattoirs. Tree planting is another good example. Savannah burning is one our Indigenous brothers and sisters are very excited about where you control when you burn the savannah to reduce the carbon load in the landscape. And I’ve met with the northern land councils in the Northern Territory who think that savannah burning will actually provide a stronger financial stream for them in five years’ time than cattle grazing, which will be a dramatic change for the Northern Territory. So, that’s really our focus in the land sector. And they’ll be able to see excess permits into the industrial sector.
So, as you can see with our project, we’ve customised it to the needs of each sector. We’ve intentionally left some of the details to be decided in Government, and that’s for a couple of reasons. One, Opposition always has limited resources. We have limited resources so it would be silly to nail down every detail in Opposition. Some of that stuff you can only do in Government. Secondly, we’ve signalled that we want to develop and fine-tune the policy with business and other key stakeholders. We’ve listened to business. I think business would be quite annoyed with us if we presented a bible of 300 pages on day one of the election campaign and said, this is it, this is exactly what we are going to do. I think it is much more important that we’ve signalled what our targets are, what our main policy architecture will be to deliver those targets, and we’ve said we’ll work with business to deliver the real details.
ECONOMIC IMPACT
In terms of the economic impact, I point people to the modelling by Warwick McKibbin that Tony Abbott commissioned in 2015 – that is probably the most relevant modelling – which found that a 45% emissions reduction target coupled with access to international permits has exactly the same economic impact as the Government’s 26% reduction goal with no access to international permits. So, if anyone wants to talk about the economic impact of our plans the McKibbin modelling provides probably the best approach to that.
FUTURE OPPORTUNITIES
And finally, and I’ll finish up here because I’ve probably taken too long, we always forget in these debates the future opportunities. We always look at the cost, and the downside of the cost in adjustment and that is understandable, that’s human nature, but there are huge economic opportunities in this for Australian business. A lot of people don’t know that 60% of the world’s photovoltaic cells that you see on people’s rooves are based on technology developed in the University of NSW. But we got zero jobs out of it because we didn’t have a Federal Government committed to taking advantage of that technology. Or the fact that at the end of World War II we were the fifth largest manufacturer of aircraft in the world. But we abandoned those industries because we didn’t have vision. The party that I am part of is committed to that vision, committed to driving the jobs and business that will come from that change. For example, independent modelling has found that our renewable energy commitment will deliver up to 71,000 jobs into the Australian energy sector. Our $1 billion hydrogen commitment – and I can bore anyone about the exciting hydrogen possibilities in the Q&A if people want to ask me about it – will deliver 16,000 jobs in a new export industry that will rival the LNG industry. We have the world’s greatest resources of lithium, we have every single element required to build a battery in this country. We have the greatest solar radiation in the world. More solar radiation falls on this continent per square kilometre than any other part of the world. So, when the world makes the transition to renewable energy we can be the home of low-cost manufacturing again. We can be a powerhouse in aluminium smelting, steelmaking, every industry that you can think of where energy is a dominant input. We can compete in those again in the world if we get through the transition, if we have a government with vision, if we have a government that is prepared to plan, and co-invest with industry to get there.
Thank you for inviting me along to chat today.