It my pleasure to be contributing to the debate on this important package of bills. The Clean Energy Amendment (International Emissions Trading and Other Measures) Bill 2012 and related bills will help modernise our economy and drive us towards a clean energy future. As with every contribution, I will start with a reminder about why we are doing it. We are not doing it out of some folly, as you might have been led to believe if you had listened to the member for Cowper's contribution. He spent a good 15 or 20 minutes, like some modern-day Don Quixote, in search of windmills to tilt at—and he has been doing that for about 2½ years now. Nothing is so sad as a man whose predictions of devastation have not been realised.
We are doing this because we on this side of the House believe that climate change is real. We believe that we are facing the risk, within a generation or two, of serious and dangerous climate change. If we do not act, we will be condemned by our children for having let go of an opportunity to alter our path towards climate change, dangerous climate change which will affect their futures and their children's futures.
Australia has a special obligation to act because Australia is one of the highest per capita emitters of carbon in the world. We know that the rest of the world is acting. If we do not act, not only will it affect our diplomatic relations with our neighbours, it will affect our trading relations with our neighbours. As we see neighbours in our near region acting to put a price on carbon, to change their markets and to restructure their economies, it is inconceivable, if they look south and see Australia—one of the wealthiest countries in the region and one of the highest per capita emitters of carbon in the world—not acting, that they would not seek to level the playing field somehow. That would not be in our interests.
We know we are not acting alone. We know that, by next year, over 850 million people will be living in a jurisdiction covered by a carbon price. We know that Korea, California, some of the largest states within China, Japan, New Zealand, Thailand, Indonesia and Vietnam have developed emissions trading schemes and either have them operating right now or are in the process of implementing them. The Leader of the Opposition last month claimed that there are no developing carbon markets within the Asia-Pacific region. The truth is far different. You just need to look across the ditch to New Zealand to see an operational carbon trading market. If you look to our neighbours in the near region, you see other emerging carbon markets. So we are not acting alone. If we do not act, we will give up the chance to be innovators and early adapters and we will swap that for the opportunity to be laggers and losers when it comes to developing a modern economy.
On this side of the House, we believe in adopting a market based mechanism. Put simply, if you put a price on something, people start to value it and it starts to change their behaviour. It is like running water—if it were free, people would leave their taps running. They would use it wastefully. When you put a price on water, people start to think about the way they use it and they turn their taps off.
So it is with carbon. If you put a price on it, it changes behaviour. Producers start to look at it. It becomes a commodity and producers start to look at it as an input cost and to do what any good business would do—try to reduce that cost. In particular, if you are a producer of electricity, you are going to put in place every mechanism possible to reduce that input cost. If you are a user, you are going to do everything within your power to reduce the impact on your hip pocket.
We on this side of the House know that it is not that simple, which is why we have put in place mechanisms to provide assistance to households and to provide either exclusions or assistance to certain industries. For example, industries in my electorate which are emissions intensive and export exposed are effectively excluded—or near excluded—from the impact of the carbon price.
Earlier, we heard the member for Cowper deriding the actions of bureaucrats in far-flung places. That is misguided. Quite simply, if you put in place a market mechanism, it is day-to-day users and businesses who control the price of carbon. When you link that market mechanism to markets around the world, it will not be just 20 million consumers making the input decisions which control that price, it will be over 850 million users. Far from it being a few public servants in Canberra, Geneva, Munich or somewhere else who will control the price of carbon, it will be everyday users through their actions.
So we link the markets—and that market linking is incredible important. It has been government policy since at least 2007 that Australia should link its price on carbon, its emissions trading scheme mechanisms, to schemes around the world. Through this legislation and through negotiations with the European Union, we are linking our scheme to the EU's emissions trading scheme. That scheme is a mandatory trading scheme, the largest in the world. It covers over 30 countries and it has operated since 2005. By the time it had been operating for six years—that is, by 2011—it had been so successful that the EU had managed to reduce carbon emissions from the countries covered by the scheme to 17½ per cent below 1990 levels. From that we can see that the operation of a market based mechanism can be effective.
There are great potential benefits to Australians—Australian manufacturers and Australian businesses—from linking to the European scheme. The House of Representatives Standing Committee on Economics, of which I am a member, conducted a public inquiry into these bills and a number of businesses and business organisations welcomed the legislation. They pointed out that they could see enormous benefits from linking to the EU scheme. The Australian Financial Markets Association, for example, had this to say in their submission to the committee:
Linking of the Clean Energy Scheme with sound international schemes has been consistently requested by AFMA as a mechanism to increase market depth, achieve least cost abatement and reduce overall risks for participants.
It was a message repeated by the Clean Energy Council in their submission, where they said that they supported the linking of the Australian carbon pricing scheme with international emissions trading schemes for the following reason:
With international linking, the carbon price in Australia will essentially be set by international supply and demand for abatement.
They go on to say that this will guarantee that, on an international basis, they have access to the lowest cost of abatement, and that is what it will be all about for business.
I do not know if this has been raised in this debate to date, but there is a second benefit of linking our scheme to the scheme covering those 30 countries in Europe. It goes to the heart of the opposition to the scheme—raised by the opposition—on the basis that we are acting alone. Well, we know we are not acting alone. But by Australia linking its scheme to an international scheme we create international momentum which will encourage other countries around the world to link their schemes to the international schemes in operation. That, after all, is what we are on about. That is the long-term objective of Australian government policy and the stated policy of many other nations around the world. So there are great benefits, as recognised by business and by other countries in our region and around the world, in linking our scheme to the European scheme.
The second part of the legislation that I will comment on is the removal of the floor price. It is true that, when the carbon price was originally introduced, the floor price was placed in the legislation with the objective of creating certainty not only around the costs for businesses and users but also to assist in driving long-term investment in low-carbon-emitting technologies, particularly when it comes to energy generation. These are long-term investments, sometimes 20-, 30- or 40-year investments, and it is in the interests of businesses and financial markets to have some certainty around prices. So we do not resile from the need to have some certainty and putting in place a mechanism which will drive long-term investment.
But there are other ways that can be achieved—for example, by linking our scheme to the largest market scheme in the world, which has a well-established futures market. As people who operate in the markets, particularly the financial markets, will understand, the existence of a futures market provides not only hedging arrangements but also some capacity for businesses to make long-term investments and manage their risk over that time with some certainty.
The removal of the floor price is also supported by business, as shown by the comments that businesses made to both the Department of Climate Change and Energy Efficiency and the committee that inquired into the legislation. The Business Council of Australia, for example, in a submission to the department, had this to say:
The BCA supports the removal of the floor price and a surrender charge. Both these elements of the legislation distorted the market that is intended by the legislation and would have brought additional costs to the economy and consumers at a time when all efforts should be directed at maintaining a strong and growing economy.
There were several other submitters to the committee and to the department who echoed those comments. So the removal of the floor price as proposed by this legislation is well and truly supported by business.
There are some limitations on the capacity of domestic producers to link with other schemes and access international markets for the purpose of low-cost abatement. The first is that an Australian business may offset no more than 50 per cent of their liability through accessing international permits. The second is a limitation on accessing what are known as Kyoto units for the purposes of abatement, and there is a very good reason for that limitation: we are not purchasing carbon for the sake of purchasing carbon; we are pricing carbon as a means to change behaviour, particularly production behaviours; and the problem with the Kyoto units is that they are uncapped as units and as a commodity. That is to say that there is no cap on the number of them that may be issued, which has led many within the economy to say that perhaps the price is artificially too low for these units and we are not actually purchasing real abatement. At $2.50—that is the current price of Kyoto units—we certainly know that that is not going to be enough to drive the sort of change that is required both in business and in behaviour. For that reason, quite wisely, there is a 12 per cent cap on the number of Kyoto units that can be accessed for the purposes of abatement by Australians who have a carbon price liability.
The package of bills before the House today are appropriate adjustments to be made to this major reform, and I dare say they will not be the last because we will need to make adjustments to the scheme as dictated by practice in the marketplace. However, what this legislation shows is the willingness of the Labor government and the minister responsible to ensure that we take on board concerns and that we are continually attempting to do what we can to link our scheme to international schemes and to make the necessary adjustments to ensure that we are putting in place arrangements which will change behaviour and enable people with carbon price liabilities in this country to access the lowest-cost abatement. I commend the legislation to the House.