The Hon. Greg Hunt MP

Minister for the Environment

The Hon. Greg Hunt MP

Minister for the Environment

The Coalition Government's plan to repeal the carbon tax and tackle climate change

Paper to the Clean Energy Council Annual meeting, Melbourne
29 November 2013

Introduction

The first 100 days of any new government are critical. This is when a government gets down to the business of implementing its vision and working directly with the people and groups who are fundamental to making it a reality.

Everyone here will agree with me that protection of the environment and economic growth are not mutually exclusive objectives but rather two essential elements of a single goal: a stronger Australia.

As Minister for the Environment it is my privilege to be with you today to talk about the opportunities for the Government and the energy sector to work together and how with simple, practical and targeted actions we will build a partnership between business, the community and the Government.

Business and industry have a major role to play in a cleaner environment and a strong Australia. We know that business and sustainability go hand in hand.

We cannot sustain growth without clean air, safe and reliable water supplies and access to natural resources.

This view frames the Coalition Government's environment policy. Our Plan for a Cleaner Environment - rests on four pillars: Clean Air, Clean Land, Clean Water and Heritage Protection.

This plan is an essential element of our national policy framework and encompasses simple, practical actions that will achieve real, measurable results.

Clean Air centres on two important reforms: the abolition of the Carbon Tax and the implementation of our Direct Action plan.

Clean Land is based on the Green Army, Landcare reform and approvals simplification, otherwise known as the One Stop Shop.

Perhaps Australia's most important natural asset - the Great Barrier Reef - is a particular focus of the Coalition's Clean Water strategy. Our Reef 2050 plan seeks to tackle the risks to reef health with a $40 million Reef Trust to fund major projects.

Other elements of Clean Water include a 10-point Murray-Darling plan and a national Water Security plan.

The primary goal of the final pillar, Heritage Protection, is to instil a new sense of pride in Australia's heritage. Our major focus is on a new National Heritage Strategy, a draft of which will be released for comment during Australian Heritage Week next year.

Together, these initiatives form the backbone of the Coalition Government's plan for the environment.

We have a strong environmental record and will continue the tradition of practical, on-the-ground work that will protect our unique landscape, marine environment and wildlife for future generations.

Today, I would like to focus on three key elements of our Plan for a Cleaner Environment that will be of particular interest to the membership of the Clean Energy Council: the repeal of the Carbon Tax, international approaches to direct action and opportunities under the Direct Action Plan, particularly the Emissions Reduction Fund and new solar initiatives.

1. Carbon Tax repeal

Repealing the Carbon Tax is central to our commitment to working with business and delivering direct action on climate change.

Legislation to repeal the Carbon Tax was the first bill the Government introduced into the new Parliament, and has now been passed by the House of Representatives.

We are repealing the Carbon Tax to reduce costs for households and business and to pave the way for the Direct Action Plan. Abolishing the tax should flow through to businesses in the form of lower input costs and to households through lower energy bills and cheaper household items.

To ensure that the repeal of the Carbon Tax proceeds in an effective and efficient manner, the Government has consulted extensively on exposure drafts of the repeal bills, giving stakeholders and businesses the chance to comment on the details of the repeal process. Ending the Carbon Tax at the end of the financial year will allow the repeal to proceed with the least disruption possible to the energy and business sectors.

The Government accepts the science of climate change. The Government has made a commitment to provide an additional $9 million over three years for the National Climate Change Adaptation Research Facility to support practical research and guidance on how to deal with the challenges of climate change.

Alongside the Bureau of Meteorology and the CSIRO, NCCARF plays a vital role in making our world-leading research on climate change actionable.

We are committed to our unconditional emissions reduction target to reduce emissions by 5 per cent below 2000 levels by the year 2020.

However, the Government believes that there is a fundamentally better way to reduce emissions than through a Carbon Tax.

The Carbon Tax is a multi-billion dollar impost on the Australian economy and it doesn't reduce Australia's emissions. Under the Carbon Tax, Australia's domestic emissions will go up and not down.

Rather than the punitive Carbon Tax, the Australian Government will reach its emissions reduction target through its Direct Action Plan to efficiently and effectively source low-cost emissions reductions and improve Australia's environment.

There is international support for the Government's position. On 13 November 2013 Mr Paul Calandra, Parliamentary Secretary to the Prime Minister of Canada welcomed the Australian Government's legislation to repeal Australia's Carbon Tax:

He said: "Canada applauds the decision by Prime Minister Abbott to introduce legislation to repeal Australia's Carbon Tax. The Australian Prime Minister's decision will be noticed around the world and sends an important message.

He went on: "Our government knows that Carbon Taxes raise the price of everything, including gas, groceries, and electricity. Prime Minister Abbott has said that, in Australia, the repeal of the Carbon Tax will reduce the average household's cost of living by (in Australian dollars) $550 a year, take $200 off household power bills and $70 off gas bills."

2. Direct Action

The Coalition Government believes there is a better way to tackle climate change than by imposing an economy-wide electricity tax that hinders business and does nothing for the environment. In tandem with the abolition of the Carbon Tax, we will implement our Direct Action plan.

As I've said before, we absolutely accept the science of climate change. We accept that it is real and that humans are contributing to it.

And we are absolutely committed to our target to reduce emissions by five per cent below 2000 levels by 2020.

The Prime Minister has also made clear the Government's intention to consider further action and targets in 2015 on the basis of comparable real global action, in particular by major economies and trading partners.

International Direct Action

While the ALP might claim that Carbon Taxes and emissions trading schemes are the only way to tackle climate change, this is simply not correct. A look at the international situation reveals a very different picture.

I have previously covered the limited role Carbon Taxes play in reducing emissions. Today I want to discuss the world that is, not how some would imagine it to be.

There are a variety of active international approaches to directly reducing emissions.

First, there is direct abatement purchasing. The Norwegian Carbon Procurement Program purchases abatement credits worth millions of dollars through a competitive tender process.

Japan is establishing its Joint Credit Mechanism which will help it to meet its emissions reduction targets by purchasing direct abatement and funding low-carbon technology diffusion through bilateral agreements with developing countries. Agreements to purchase abatement have been made with Bangladesh, Ethiopia, Indonesia, Laos, Kenya, the Maldives, Mongolia and Vietnam.

Further, the United Nations Clean Development Mechanism (CDM) operates as an abatement procurement scheme. It has registered over 7,000 projects and generated over 1.4 billion tonnes of abatement for market-based purchase.

Second, the European Union, Russia, South Africa and the United States, among many others, all employ energy efficiency measures to abate carbon emissions.

In the United Kingdom residential building sector, all new homes built from 2016 will need to have zero emissions for heating, hot water, cooling and lighting.

Under the Korean Target Management Scheme, around 500 large-emitting entities are required to meet energy efficiency targets.

Third, there are renewable energy targets in Europe, and countries as varied as China, India, Russia, Brazil, Indonesia, Mexico, South Korea, Vietnam and New Zealand, as well as over 30 US states.

Mexico has a goal of 35 per cent of electricity from renewable energy sources by 2024.

There are energy intensity and efficiency targets and schemes in countries such as China, India, Indonesia, Japan, South Africa, Mexico, Russia, New Zealand, Thailand, Turkey and the US.

New Zealand has an economy-wide energy intensity improvement target of 1.3 per cent annually to 2016.

Fourth, to tackle vehicle emissions, the US, the EU, and Canada all rely on emissions standards. The EU emissions standards for cars aim for a fleet-wide average of 130 grams of carbon dioxide per km in 2015 and 95 grams of carbon dioxide per kilometre in 2020. Fleet-wide emissions are currently on track to meet the 2015 target.

Meanwhile Canada is progressively implementing regulatory fuel economy and emissions standards for new cars and trucks (mirroring US rules).

In the power generation sector, regulatory standards for power stations have been tightened in the US and Canada. Regulatory standards for coal-fired power plants in Canada will start from 2015 and are expected to reduce emissions by 31 million tonnes of carbon dioxide in 2020 from 2005 levels, according to Environment Canada.

Last but not least, forest emissions reduction programmes have been implemented in Brazil, Indonesia, and Mexico. In addition, Indonesia's Presidential Regulation on the National Action Plan requires each Province to create mitigation plans in the forestry, peatland and agriculture sectors, among others.

Emissions Reduction Fund

Most of you here today will already be familiar with the components of our Direct Action Plan.

You will know that the heart of that plan is the Emissions Reduction Fund.

The Fund will create positive incentives for industry to innovate and invest in new technologies to reduce their emissions.

With an initial allocation of $300 million, $500 million and $750 million over the forward estimates period, the Fund will provide a pool of capital to create a market for abatement, and this will be far more effective at reducing Australia's emissions than the Carbon Tax.

This Fund will be designed to provide a powerful and direct incentive for businesses across the Australian economy to work with the Government to reduce their emissions.

Design of the ERF

Allow me to briefly outline the model for the Emissions Reduction Fund.

The Fund will 'buy back' abatement via a reverse auction. This is a well-established market mechanism that will allow the Government to achieve its environmental outcomes while minimising costs.

By buying up the 'abatement cost curve', we will provide powerful incentives for businesses to bring forward the lowest cost emissions reduction projects.

The Fund will create a market for abatement in the same way that the National Water Market System has created a market for water. The latter system also relies on a reverse auction and has proven effective in allowing the Government to minimise its cost, while achieving additional water flows.

Opportunities for industry from the ERF

I'm often asked where the emissions reductions will come from. We are not being prescriptive about where the emissions reductions will come from. In fact, we are keen to unlock abatement opportunities across all of the Australian economy.

The lowest cost abatement may involve projects to clean up waste coal mine gas, clean up power stations or capture landfill gas.

It may be a mix of energy efficiency improvements in Australian buildings and industrial facilities.

It may be reafforestation of marginal lands, or revegetation, or improvement of soil carbon.

The important thing is that emission savings are real, measurable and additional to business-as-usual.

What I can say, however, is that the Fund will offer a range of opportunities for industry - not only to reduce emissions but to increase productivity as well.

I've often provided the example of Linfox as a case study of how reducing emissions can have enormous benefits for a company's bottom line.

Linfox, one of Australia's largest transport and logistics companies, has reduced its energy costs by cutting its carbon emissions intensity by 37 per cent through improved practices, technologies and staff behaviour.

Similar opportunities exist across industry to achieve productivity gains through energy efficiency.

Consider this - electric motors exist in homes, hospitals, office blocks, plants and factories. In the industrial sector, they are absolutely integral to virtually every process. Motors control everything from pumps to compressors, drives to fans. Over half of Australia's electricity passes through an electric motor.1

The International Energy Agency believes that it is possible to cost-effectively improve the energy efficiency of motor systems by roughly 20 per cent to 30 per cent using technology that already exists. Such an outcome would reduce total global electricity demand by about 10 per cent.2

In other words, there are massive opportunities to reduce energy use and emissions from targeting the upgrade of just one type of industrial system.

This is exactly the sort of innovation that we want the Fund to unlock.

Consultation on the Emissions Reduction Fund

As many of you are aware, over the past weeks we have been consulting widely on the design of Fund. We will shortly be presenting the approach we have arrived at through these discussions and submissions in the form of a Green Paper.

The Green Paper will set out the Government's preferred options for the design of the Fund.

A White Paper will follow in early 2014, which will outline the final design of the Fund.

I wish to thank everyone who has given so generously of their time and expertise to bring us to this stage of the Fund's design. I hope that we can build on the relationships that have been established through the remainder of the development process.

The door is wide open to any of you here today to still play an active role in finalising the design of the Fund through the consultation on the Green Paper, which as I said will be released shortly, before the end the year.

We are serious about this process being a full, honest and open consultation, where all ideas are welcome. We want and value your input.

We know that considerable experience and expertise in this area resides among Australian industry and businesses, and it's our intention to draw from that experience so that the Fund can operate as efficiently and effectively as possible.

One Million Solar Roofs, 20 Million Trees Solar Towns and Solar Schools

Now let me turn to what is likely of most interest to you: what the Government is doing to support the uptake of clean energy.

There are many avenues, but one stands out as the most glaringly obvious. A shining beacon, you might say.

The sunburnt country that we are, with one of the highest global average number of sunny days per year, it makes sense to harness the power of the sun for energy use.

Ongoing developments in solar power technology provide enormous opportunities for Australian households and families to take direct action to reduce energy consumption and household emissions, while at the same time delivering real savings for family budgets.

Our Direct Action Plan therefore encompasses support for solar power through our million roofs and solar towns and schools programmes.

These initiatives are in addition to support for renewable energy through the Renewable Energy Target and the Australian Renewable Energy Agency, which is funding projects as well as research across the spectrum of renewable energy sources, including bioenergy, hydropower, geothermal, ocean energy and wind.

My focus today is on the new initiatives under our Direct Action Plan.

The Government will provide $500 million for the One Million Solar Roofs Programme; and a further $50 million each for the Solar Towns and Solar Schools Programmes.

The Solar Roofs programme will provide $500 rebates for installing one million rooftop solar energy systems over the next ten years.

This rebate will be in addition to the support already provided through the RET. Eligible systems will include small-scale photovoltaic systems, solar water heaters and heat pumps.

Priority will be given to low-income households and solar water heaters, and the energy needs of remote indigenous communities will be carefully considered under the programme.

The potential for including energy storage linked to photovoltaic systems will also be examined. Around 10 per cent of the rooftop systems will be allocated for not for-profit organisations as part of the Community Solar Programme.

The Solar Towns Programme will support at least 25 Solar Town projects with a maximum of $2 million per town.

The Solar Schools Programme will support a minimum of 100 schools with a maximum grant of $500,000 per school.

Each of these three new programmes is being prepared for implementation and will commence in the 2014-15 financial year.

The final Direct Action measure I want to mention is our commitment to plant 20 Million Trees by 2020 to re-establish green corridors and urban forests on both public and private land.

Revegetation projects will garner economic benefits such as preventing soil erosion and other land degradation.

The 20 Million Trees Programme will be complemented by a range of other new government initiatives, including the Green Army and the National Landcare Programme which will help the community to look after their local environment.

3. Renewable Energy Target

The Government believes that renewable energy has an important role to play in reducing Australia's greenhouse gas emissions.

In addition to the investment we are making through the solar programmes under the Direct Action Plan, the Government is committed to undertaking a review of the Renewable Energy Target in 2014 to ensure the scheme is operating efficiently and effectively.

The RET scheme is a key element of the Government's agenda for reducing emissions in a sustainable and broad-based manner.

Since the Coalition Government introduced the RET in 2001, the scheme has supported over 1.1 million small-scale solar PV systems - adding nearly 3 Gigawatts of new renewable generation capacity to the grid.

Furthermore, the RET has also supported over 830,000 solar water heaters and heat pumps. Each of these systems, as you know, is helping families and businesses save money on electricity and reduce emissions.

The RET is helping to transform our electricity generation mix to cleaner and more diverse sources, while also supporting growth and employment in the renewable energy sector.

The Government is mindful of the need for policy certainty for the renewable energy sector and will seek to complete the review well before the end of 2014.

The review will be an open and transparent process. Arrangements for conducting the review will be announced shortly.

Broader agenda for change in the energy market - COAG reform agenda

While the reasons for recent increases are well documented, there is no denying that energy costs have an impact on cost of living and the cost of doing business in Australia.

We are facing changes in the way electricity is being produced and used, including significant changes in overall consumption.

COAG's electricity reform agenda is aimed at ensuring Australians pay no more than necessary for a reliable and secure supply of electricity.

A key component of the reform agenda has been to ensure the regulatory framework and associated appeals mechanism are promoting sufficient investment in network assets to maintain reliability while minimising costs to consumers.

Work is also progressing on promoting greater demand side participation to minimise peak demand and associated infrastructure investments.

There is still some work to do on introducing a national reliability framework.

This will help ensure reliability requirements reflect the value consumers place on a reliable supply.

The changes to the regulatory framework will promote efficient network expenditure, avoiding undue price pressure on electricity consumers.

Energy White Paper

As you would be experiencing first-hand, Australia's energy production, distribution and use are undergoing major transformations, including changing domestic and international markets; primary energy resources, generation technologies; and how consumers source and use energy.

Priority outcomes for the Coalition Government include addressing cost-of-living pressures and business competitiveness, with both requiring competitive pricing, productive and efficient use of energy and reform of regulation.

Growing energy exports will bring benefits to Australia, but add to competition for energy resources and link domestic energy prices more closely to international markets.

The Government has therefore committed to a set of signature economy-wide reforms to grow the economy while addressing rising business and household costs.

Securing our long term domestic energy needs, maintaining international competitiveness while meeting international obligations, and growing our export base are fundamental to a strong economy.

An Energy White Paper to be released late next year will outline a coherent, integrated and efficient regulatory and policy framework, stimulating sustainable growth, building community confidence in environmental safeguards and growing investment in the energy sector.

Terms of Reference for the White Paper are expected to be released shortly and I encourage you to refer to the Department of Industry's website for further details on how to contribute your valuable experience and ideas to this reform.

Conclusion

To conclude I'd like to reaffirm the Government's commitment to meeting both our emission reduction targets and energy needs in a way that compromises neither clean air, nor economic competitiveness.

Protecting the environment and economic growth are not mutually exclusive objectives, but rather two essential elements of a single goal of a stronger Australia.

Business and industry have a major role to play in a cleaner environment and a strong Australia. We know that business and sustainability go hand in hand.

We cannot sustain growth without clean air, safe and reliable water supplies and access to natural resources.

We need clean power that is affordable, effective and safe. And, for risk of one play on words too many, I would consider solar power a shining, if not stellar example of just that.

Thank you.

1 E3 Committee (2013) Electric motors product profile

2 IEA (2011) Energy-Efficiency Policy Opportunities for Electric Motor-Driven Systems

Greg Hunt

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