Andrew Leigh

I spoke in parliament yesterday about the government's renewable energy legislation, and also used the chance to discuss some of the other alternatives, such as the Beyond Zero Emissions report and the Opposition's Direct Action plan.

Australian Renewable Energy Agency Bill 2011, Australian Renewable Energy Agency (Consequential Amendments and Transitional Provisions) Bill 2011
1 November 2011

Clean energy markets are the high-growth sectors of the future. By encouraging investment and innovation, they will transform our energy sector. In the process, Australia will become a market leader in clean energy innovation. Climate change is already shaping the world economy. The world, whether the opposition likes it or not, is shifting to a clean energy future. It might be slower in some countries, such as the United States, where Tea Party intransigence is standing in the way of good policy, and it might be politically fraught in other parts of the world too; but the emergence of clean energy markets is undeniable. In 2008 Europe spent nearly $50 billion in clean energy investments, China has announced a $400 billion clean energy technology investment program, and global investments in energy markets are predicted to reach up to $424 billion a year by 2030.

Australia has a great opportunity to take the competitive edge in two big renewables markets. The first market is the high-tech, high-skilled global market of technologies for renewable energy generators. We can be at the forefront of innovation. We have the scientists and the researchers. The second market is the energy market. As a major user of energy, Australia can implement renewable energy technologies. We have natural resources in abundance. To be a market leader, Australia must have the market conditions for clean energy industries to establish a foothold. Once an industry has an initial foothold in a region, that region is much more likely to become a hub for future growth. This effect has been called a cluster. It is a powerful way of organising firms to increase innovation, productivity and economic growth. The dominance of Stuttgart in the performance car market and Los Angeles in the entertainment industry demonstrates the growth benefits of clusters.

The Gillard government brought 18 bills to this House to establish the carbon price. I spoke on these bills on 14 September this year. This bill addresses renewable energy technology development. I am grateful to Angela Winkle, an intern in my office, for assistance in preparing these remarks. The government has already established a guaranteed market for renewable energy development through the renewable energy target. The Australian Renewable Energy Agency, ARENA, complements the renewable energy target. It encourages research and development of technologies. The Clean Energy Finance Corporation will then provide leverage for private investment in the commercialisation of clean energy technologies. These mechanisms complement the carbon price. They will encourage rapid investment in innovation in clean energy technologies. They will encourage the transformation of the energy sector on the scale required. They will enable the broadest range of inquiry into new technologies. These policies will mine the ingenuity of the market and encourage investment in renewables.

On 19 September Senator Kim Carr announced finalists in the Australian Clean Technologies Ideas Competition. The range of ideas proposed highlighted the inventiveness of Australian businesses and entrepreneurs just waiting to be tapped. Finalists proposed ideas ranging from silent wind turbines and improved wave energy systems through to centrifuge technology for cleaning oil and lime calcination for energy storage. Supporting the development and commercialisation of innovative ideas will transform the Australian economy. It will provide Australian businesses with the competitive edge in emerging global clean energy markets. By creating market incentives, the most innovative and cost-effective technologies will emerge. Those technologies will include those we have not even thought of yet—those with unexpected benefits, those that emerge from the ingenuity of the market and those that would remain undeveloped with a direct action plan.

The opposition proposes climate policy with tunnel vision. It picks technologies to support and excludes new ideas. Yet projections of renewable energy have been notoriously bad at projecting which technologies will succeed. Pre-2000 modelling projected that in 2010 wind energy would be nothing in Australia's renewable energy mix. But in 2010 wind actually accounted for 44 per cent of the renewable energy mix. Bagasse was projected to be two-thirds of the renewable energy mix by 2010 but in reality accounted for less than 10 per cent. The opposition's insistence on selecting technologies to support ignores the role of a market in identifying the most cost-effective solutions.

The opposition's insistence on a 'Moscow on the Molonglo' approach to climate change is clear in their focus on soil carbon. The direct action plan identifies soil carbon as the single largest opportunity for CO2 emissions reductions in Australia, but that is misleading. Soil carbon has potential for short-term carbon sequestration, but soil has a carbon saturation point which limits sequestration potential. There is a point at which soil cannot absorb more carbon. The CO2 will remain in the air, raising the concentration of CO2. CSIRO has found that carbon sequestration diminishes to almost zero after 40 years. Soil carbon can be used as a 'time buyer' while other technologies are developed, but the opposition provide no policy to ensure technology development. Their plan is short-sighted and designed—as the member for Wentworth has pointed out—to be withdrawn at the first possible moment.

In place of the coalition's command-and-control approach, the government's portfolio approach backs multiple technologies. It generates the broadest platform for innovation. It is a broad platform that enables cross-pollination of ideas and creates a foothold for clean energy industries in Australia. ARENA will be an independent statutory agency. ARENA's board will consist of industry leaders in technology, commercialisation and business generally. The board will direct investment in renewable energy and enabling technology projects. In supporting early-stage technology development, ARENA will fill a market gap. The public-good nature of clean energy technology innovation warrants government support. Successful technologies developed through ARENA funding can be commercialised through the Clean Energy Finance Corporation.

We have the opportunity to take a leading role in research and innovation and to develop a competitive advantage in high-tech, high-skill, clean energy industries. As market leaders, Australian businesses can partner with manufacturing countries. Earlier this year I was with the Minister for Resources and Energy, Martin Ferguson, at the Australian National University for a launch of a major project researching the efficiency of photovoltaic solar cells. China has the world's largest solar panel manufacturing industry. As a result, a Chinese company, Trina, has committed to investing in ANU's endeavour. ARENA and the CEFC will encourage more relationships like this one.

Transforming our energy sector will not be easy. For example, one report, the Beyond Zero Emissions Zero carbon Australia stationary energy plan, claims that we can get to zero emissions by 2020. This plan describes a complete phase-out of all fossil fuels by switching to electric systems. It envisages all Australian energy demand being supplied by wind power and concentrated solar thermal power with a minor contribution from biomass and hydroelectricity. The plan is a $370 billion investment program. It requires energy efficiency measures, the transfer of half the road transport to electric rail, the replacement of the current car fleet with electric vehicles and the transfer of all domestic air travel to rail—all by 2020. The zero emissions plan suffers from impractical time frames for investment, infeasible costs and an underestimation of Australia's energy requirements in 2020. I do admire the authors' optimism, but the task is hard.

More worrying is the so-called plan put forward by the opposition, so in writing this speech I decided I would do what no-one has yet done in this House: explain direct action. So I got their policy and their talking points and set to work. While the government's policy encourages innovation and positions Australia as a market leader, the coalition would have us in the back blocks of clean energy innovation. As well as stifling innovation, direct action is far more expensive than a market solution. The Grattan Institute said that a:

'… carbon price … can achieve the scale and speed of reductions required for Australia to meet its 2020 commitments without excessive cost to the economy or taxpayer.'

But in their direct action plan the coalition propose an emissions reduction fund that operates as a grant-tendering program. Analysing past policies, the Grattan Institute found that, for every dollar a government commits to grant-tendering programs, only 3c worth of operational projects result within five years, and only 18c worth result in 10 years That means that for a direct action plan to meet the 2020 emissions target it would need a fund of $100 billion. That is a big, whopping new tax.

Another component of the direct action plan is rebates for renewable energy projects. But the Grattan Institute also found that rebate programs produce little abatement for their cost. Using rebates to achieve the 2020 target would require $300 billion over the next 10 years. The coalition claim that they can reach the bipartisan 2020 emissions target largely through grant-tendering and rebates for only $3.2 billion is absurd. From my primary school days, I recall going to the tuckshop with 50c and asking for a meat pie, a chocolate Breaka, a Paddle Pop ice cream and some red frogs to top it off. I was surprised when I was told that my 50 cents would buy me only half the Breaka. As an eight-year-old I learned that my 50c would not buy me everything I wanted. The members opposite do not seem to have learned the same lesson on the value of money.

The coalition's plan also costs more because it does not deal with international action. It does not matter where the emissions occur; they all have an equally detrimental impact on the environment. Each tonne of abated CO2 reduces the chance of bleaching the Great Barrier Reef, whether abated from Australia or elsewhere. Abatement is available at lower cost overseas. By forcing all abatement to take place in Australia, the coalition is choosing to pay more for the same environmental benefit. The coalition is choosing to increase the burden on Australia and therefore on Australian taxpayers for the same environmental outcome.

On the topic of the coalition's direct action plan's price tag, I note that on page 17 of the coalition's talking points they claim that direct action has no cost to families, yet page 18 states that direct action will cost $3.2 billion over the first four years. The coalition seem to be confused as to where funds for government expenditure come from. In fact, Treasury modelling estimates the cost of direct action at $1,300 per household per year. The opposition's approach to renewable energy uptake is to provide minimal funding for limited projects such as solar roofs and just 25 geothermal or tidal towns. If we could predict the future and know that solar and tidal are the best technologies, this would be a credible approach; but, given that crystal balls are notoriously unreliable, the opposition's desire to micromanage industry is mind boggling. The approach picks winners, is inefficient and has been demonstrated to be cost ineffective when compared with market based mechanisms.

I also note the opposition's regular complaint that Australia should not act because the world is not acting—that we do not want to get ahead of the pack. This complaint is curious because page 8 of the direct action plan states, 'Most developed countries have undertaken action on climate change.' The opposition go on to state there that the action taken by most developed countries are national emissions trading schemes, taxes or a mix of the two. Also curious is the direct action plan's labelling of Nordic countries' electricity tax incentives as direct action. Page 8 of their plan states:

'Many of the Nordic countries have taken more direct action by introducing electricity tax incentives for most users to use less electricity and extensive subsidies for public transport.'

Should this be taken to mean that the opposition views taxes as direct action?

The confusion is illustrative of the direct action plan generally. As a Labor Party member I cannot believe I have to explain this to the coalition. Markets work well; but, rather than use the market, the coalition want to micromanage business. Rather than use the market, the opposition want to pick their favourite technologies. Rather than the market, the coalition want an ineffective and expensive grant-tendering fund. Rather than use the market, the coalition want an ineffective and expensive rebate program. Rather than use the market, the coalition want to pay for promised projects, not actual reduced emissions. Rather than use the market, the coalition want direct action—an expensive, ineffective and confused scheme. The coalition's direct action plan will result in either very high cost to taxpayers or the 2020 emissions target not being met. Direct action will not promote innovation and will leave Australia locked out of the world's clean energy markets.

The government's renewable energy policies encourage innovation, research and development, and commercialisation of technologies. ARENA and the Clean Energy Finance Corporation will position Australia as a market leader in high-growth, high-tech, and high-skills clean energy industries.

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