Greg Combet, the federal Minister for Climate Change and Energy Efficiency, today delivered the keynote address to Carbon Expo Australasia 2010 in Melbourne. This is a transcript of his speech.

Thank you for inviting me to speak at the Carbon Expo, which comes at a critical time for the establishment of an effective climate change policy in Australia.  Today I will speak about the challenges of climate change and about the importance of establishing a carbon price as a necessary and responsible economic reform, one that will create an incentive to reduce pollution and drive investment in renewable energy and low emission technologies.

A carbon price is also necessary to ensure that the Australian economy is placed on a sustainable footing for the long term. Put simply, to build a strong economy, we need a sustainable environment.

Just as the reforms instituted in the 1980s were vital to helping us survive the Global Financial Crisis, the reforms we are embarked on now will allow us to prosper in a carbon constrained future.

Labor has a proud record of initiating tough reforms. Whether it was the Fisher Government’s battle to set up the Commonwealth Bank, Curtin’s introduction of Uniform Taxation or the visionary reforms of the Hawke-Keating Governments, Labor has a solid tradition of reform.

That is because it is the most vulnerable in the community, low paid workers, families, pensioners who are especially vulnerable to an economy unprepared for the future.

Labor’s values of fairness and justice, of equality of economic opportunity, drive Labor’s economic agenda.

To achieve improvement in social and economic justice we need a strong economy – one that is well placed to meet future challenges.

The challenge of climate change

The case for action on climate change begins with the science.

The Government accepts the fundamental conclusions of the science: that climate change is real, and that human activity is contributing significantly through carbon pollution, and that if emissions continue to grow without restraint, our climate could change in ways that present grave risks to our economy, our environment, and our way of life. And those risks fall most heavily on our children and their children.

Whilst some try to deflect attention by focusing on short term weather patterns, the climate trends are clear. Australia is already experiencing some of the impacts of climate change, through hotter summers, reduced rainfall, reduced river inflows — and further impacts cannot be avoided.

There have already been more days over 43.6°C in Melbourne this century than for the whole of the last century. And it will get worse. Melbourne currently experiences an average of 9 days above 35°C per year. This is projected to increase to 12-26 days by 2070.

We face huge economic costs from climate change impacts in the areas of energy supply, water security, agriculture, health, coastal communities and infrastructure.

Most of Australia’s population lives near the coast and is highly vulnerable to rising sea levels and increased storm surge.  Recent science indicates that sea level rise of one metre or more this century cannot be ruled out with unmitigated climate change, which could place tens of billions of dollars in coastal assets and housing at risk of inundation.

The government’s climate change policy

In the face of such risks, it is clear that change is required. The only responsible course is to reduce the risks of climate change by cutting carbon pollution. This requires a global effort, and Australia will be expected to play its part.

To reduce pollution to the point where we significantly reduce the risks posed by climate change, an economic transformation is required. We need to move away from high emitting technologies and practices towards a lower carbon pollution future.

We do not need to make this change overnight – indeed this economic transformation will take decades — but it is necessary that we get started.

The Australian economy is deeply dependent upon energy sources which generate carbon pollution.

The carbon intensity of our national electricity supply is one of the highest in the world – to deliver one kilowatt of electricity to a household we emit about one kilogram of carbon pollution. The responsible path is to take measured, purposeful steps towards reduced dependence on carbon pollution.

We have already started on our journey. The Government has three elements to its domestic climate change mitigation policy:

  • Strong support for clean energy;
  • Greater energy efficiency in industry and households; and
  • The introduction of a carbon price.

On clean energy, the Government’s primary mechanism to support renewable energy is the 20 per cent Renewable Energy Target (RET). Economic modelling suggests that the enhanced RET will drive around $16 billion of investment in renewable energy generation by 2020. Out to 2030 the total investment under the enhanced RET is expected to be around $19 billion.

While the RET supports the deployment of renewables, we are also supporting their development. The RET is complemented by the $5.1 billion Clean Energy Initiative, supporting the research, development and demonstration of low emission clean energy technologies. The $5.1 billion is allocated to programs that support large scale demonstration projects, fund R&D activities and commercialise new technologies.

The key aspects of the Initiative are:

  • The $1.5 billion Solar Flagships Program which provides funding to support construction and market demonstration of large scale, grid connected, solar power stations in Australia, using solar thermal and photovoltaic technologies;
  • The $100 million Australian Solar Institute (ASI) which funds research and development into concentrating solar thermal and photovoltaic technologies;
  • The Australian Centre for Renewable Energy which draws together more than $560 million of renewable energy investment to help commercialise renewable energy; and
  • The Carbon Capture and Storage (CCS) Flagships Program which provides around $2 billion of funding to support the accelerated deployment of industrial scale CCS demonstration projects.

Community based programs such as Solar Cities and Smart Grid Smart City demonstrate energy efficient, low carbon and renewable energy solutions.  The Solar Homes and Communities Plan and the Solar Hot Water program support households that install solar panels and hot water systems.  And the National Solar Schools Program supports schools with the installation of solar panels and energy and water saving devices.

The Government’s other key plank of action is on energy efficiency.  The Government has implemented a number of programs to support action by businesses and households. These include the $100 million Energy Efficiency Trust, managed by the Australian Carbon Trust, which promotes energy efficiency in the business sector.

New initiatives, namely the Low Carbon Communities and the Tax Breaks for Green Buildings programs, are a part of the Government’s broader push to encourage the uptake of energy efficiency measures across the economy, from industry, to communities and households.

In addition we have committed to new standards for coal fired power stations. These reforms would ensure all new coal fired power stations  meet new best practice coal emissions standards and are Carbon Capture and Storage ready.

Last Friday, the Government released the report of the Prime Minister’s Task Group on Energy Efficiency. Importantly, the Report reinforced the Government’s strategy and the need for a price on carbon. This Report is a significant contribution to the energy efficiency debate.

The findings of the Report will also complement other improvements in energy efficiency that the Government is making through the National Strategy on Energy Efficiency and other energy efficiency programs. The Report will help inform the further development and consolidation of the Government’s climate change policy.

The Labor Government’s efforts to establish a carbon price

Our clean energy and energy efficiency measures make a valuable start. But more is needed – to transform our economy in the long term, we need to build carbon consciousness into everyday business decision making. We need a carbon price to make low emissions choices more profitable than high emissions choices.

In its last term, the Government introduced legislation that would have put a price on carbon. However, the Greens and the Coalition blocked this legislation three times in the Senate.

After winning the 2007 election the Government went to work on designing the Carbon Pollution Reduction Scheme (CPRS). The Government held an extensive consultation process to get the balance right between meeting the environmental objectives of the CPRS, maintaining economic growth and prosperity and ensuring the costs of meeting this challenge are not unfairly placed on those most vulnerable in society.

We know of course that division within the Coalition over the CPRS delivered the Liberal Party leadership to Tony Abbott, who has stated that the climate science is “absolute crap”. In truth his position is completely opportunistic and utterly irresponsible – seeking to promote fear to win votes – in total defiance of Australia’s national interest.

The fact that the Greens blocked the CPRS three times has also received surprisingly little analysis and attention. The CPRS was a cap and trade emissions trading scheme that would have delivered quantifiable and significant reductions in pollution.

If the CPRS had been legislated, in the year 2020, our carbon pollution would have been at least 144 million tonnes lower than it is currently projected to be. By way of comparison, this is roughly two thirds of Australia’s emissions from electricity generation, or roughly twice our road transport emissions.

The Greens wanted stronger targets and deeper cuts in pollution and less transitional support for industry. Now that their focus on the primacy of their targets appears to have been set aside, and they have joined the Government’s Multi-Party Climate Change Committee, I look forward to their involvement in consideration of the real economic impacts of public policy in this area.

From the Government’s standpoint, we are steadfastly committed to a responsible economic and environmental reform.

A carbon price is a major economic reform

Passing legislation on carbon pricing was never going to be easy.

Major economic reforms never are.

The reason is that they entail change, which is always resisted. But change we must. If we are to remain internationally competitive over the long term, our industries must become less carbon intensive. The best and most responsible way of doing this is by establishing a carbon price in the economy.

Our economy has evolved without regard to the costs of carbon pollution. Reforming and restructuring our economy towards a low carbon pollution future means that emitting carbon pollution should no longer be free.  Putting a price on carbon pollution tilts the economic balance in favour of low pollution options. A carbon price gives commercial recognition to low emissions technologies, and encourages consumers to opt for lower emissions choices.

The repeated finding of independent analysis is that a carbon price mechanism is the cheapest way to reduce carbon pollution. Experts such as Professor Paul Krugman, Professor Ross Garnaut, Dr Peter Shergold and Lord Nicholas Stern all advocate a price on carbon as the key mechanism for achieving substantial emissions reduction in a responsible and flexible manner and at the lowest possible cost.

Decentralising the signal to abate, through a carbon price, means that the Government does not have to prescribe to individual firms or sectors how they are to reduce their emissions. A carbon price therefore encourages ingenuity and innovation. It does this through the everyday decisions of investors and businesses.

Alternatives to a market based mechanism, such as regulatory or subsidy based approaches cannot alone operate on the scale required to meet the Government’s targets and would be extremely costly.

Put simply, other approaches, such as that proposed by the Opposition will cost Australians more and will not be able to deliver the emissions reductions of the scale required to meet our targets. It is an odd time in Australian politics when an apparently market friendly Liberal party advocates old school Soviet-style command and control measures rather than supporting a market based solution to such a great challenge.

The impracticality of these alternate approaches was confirmed in the advice provided by the Commonwealth Treasury to both the Government and Opposition in their incoming briefs to government. The advice from the Treasury was that:

“Direct Action measures alone cannot do the job without imposing significant economic and budget costs…Moreover, many of the direct action measures cannot be scaled up to achieve significant levels of abatement, and for those than can be scaled up, the cost per tonne of abatement would rise rapidly.”

Costs of inaction

In the long term, if global carbon pollution emissions are not reduced, the risks to our economy, country and way of life are too great. Both Lord Nicholas Stern and Professor Ross Garnaut have made it clear that the costs of this transition will be much greater if we don’t start now.

The simple fact is that the longer we delay a carbon price, the sharper the adjustment that will be required and the greater the economic cost, which is why the business community is calling for this reform to be made.

The absence of a carbon price is already having significant impacts. Without a carbon price, business must build more risk into investment calculations; with the result that investment will be more expensive than it needs to be, leading to less investment taking place.

This uncertainty is already having an impact.

The CEO of the Energy Supply Association of Australia, Brad Page, has stated that the uncertainty related to domestic climate change policy will result in a rash of smaller capacity, open‑cycle gas turbine generators being built to meet incremental rises in energy demand, rather than fewer but more cost and emission efficient baseload combined cycle gas plants.

This is supported by analysis undertaken by AGL and The Climate Institute. They estimate that uncertainty caused by a delay in a carbon price, could cost the economy and consumers up to $2 billion a year in higher electricity prices or around $60 per household in 2020.

Let me make this clear, opposition to a carbon price will force up electricity prices.

A delay in implementing a carbon price raises transitional costs for Australia and negatively affects investment in critical industries, in particular in the power sector.

Australia needs to get ready for a global price on carbon or resign itself to this band aid approach to investment.

It is clear to most business leaders that a price on carbon is the most responsible policy option to achieve emissions reductions in Australia.

The CEO of BHP Billiton, Marius Kloppers, recently called for a clear price on carbon to be established in Australia.

The CEO of AGL Energy, Michael Fraser, has stated that it is “inevitable” that Australia will introduce a price on carbon emissions.

The President of the Business Council of Australia, Graham Bradley, has stated that part of a multifaceted approach will inevitably include the need for a market based mechanism that will give us the lowest cost approach to reducing the carbon intensity of our industries.

If we are to remain internationally competitive over the long term, our industries must become less carbon intensive. The best way of doing this is by establishing a carbon price in the economy. Inaction is the economically irresponsible course, leaving us with a legacy of heavy polluting investments that will be increasingly unable to compete as time passes.

A new political environment

Australian voters did not give a clear majority to any party at the last election. Labor has formed a minority Government. In order for any action on carbon pricing to happen, we will need consensus.

Recognising that this is the case, the Government formed the Multi-Party Climate Change Committee to explore options for the introduction of a carbon price.

The Committee comprises representatives of the Government, Greens and Independent Members of Parliament. An open invitation has been extended to the Coalition.

The Government is represented on the Committee by the Prime Minister, the Deputy Prime Minister and myself. Senators Brown and Milne are members, as are Tony Windsor and Rob Oakeshott.

Four independent experts— Professor Ross Garnaut, Professor Will Steffen, Mr Rod Sims and Ms Patricia Faulkner—have been appointed to support the Committee as expert advisers.

The Committee is starting from the position that a carbon price is an economic reform that is required to reduce carbon pollution, to encourage investment in low emissions technologies and complement other measures including renewable energy and energy efficiency.

It will consider mechanisms for introducing a carbon price including a broad based emissions trading scheme, a broad based carbon levy, a hybrid of both, and economy wide and sector based approaches.  We will consider issues such as coverage, international linking, implementation issues, assistance measures for households and businesses and review provisions.

The Committee will also play an important role in establishing community consensus for action on climate change.

We are also establishing two roundtables that will inform the Government’s approach: one for the business community; and one for non government organisations. This is an important recognition that when we are talking about economic reform of this kind we need to work closely with business, environment groups, unions and the social services sector.

I anticipate that the Multi-Party committee will have robust discussions on the best way forward for Australia. We are unlikely to agree on every point of detail. However, as we enter into our deliberations, we cannot lose sight of the real priority. What is important is to get agreement on a framework that will deliver a carbon price.

Without carbon pricing reform, Australia will not be able to maintain its long term international competitiveness. Without a price on carbon pollution, our goods will be too emissions intensive and face competitor countries who have begun the transition and have industries that can produce goods and services at a much lower level of carbon pollution.

The carbon price mechanism

There are several ways of creating a carbon price. The two broad options are a carbon tax or an emissions trading scheme. There are also ‘hybrid’ options that combine features of both. Within the broad family of emissions trading schemes, there are cap and trade schemes, baseline and credit schemes, and variants on these themes.

There are key differences between a carbon tax and an emissions trading scheme.

A cap and trade emissions trading schemes places a limit on emissions and allows the market to set the carbon price. In this way, emissions trading provides certainty about the amount of emissions reduction, but less certainty about the carbon price.

A carbon tax, by contrast, provides certainty about the price, but the amount of emissions reduction delivered by a tax at a particular price is uncertain.

Regardless of the mechanism, it is the price on carbon that is central to transforming our economy. It is the carbon price that creates a commercial incentive to find better, cleaner ways of producing goods and services.

While a potential carbon tax has received a lot of media and public commentary in recent times, it would be incorrect for people to assume that this is the market mechanism that will be inevitably selected.

In its search for a common view on the best carbon pricing arrangement for Australia, the Climate Change Committee will be examining a broad range of options, with no versions of a carbon price being ruled in or out at this stage.

Conclusion

Restructuring our economy towards a low carbon pollution future will take decades. The most economically responsible path is to start the adjustment as soon as possible – to give investors certainty and confidence about the future, to avoid locking in high emissions investments, and to ensure that our economic transition is gradual and manageable for households, workers and businesses.

We need to put in place the carbon price incentives that will begin our economic transformation, so that as the international situation evolves, Australia’s economy is not left behind. As previous major economic reforms have taught us, we sometimes need to do difficult things for the sake of our long term national prosperity.

Our priority now is to agree on carbon pricing arrangements that are achievable, economically responsible and fair. This reform will create jobs, strengthen the economy, and build a sustainable environment.

Combined with the great strides we are already making on renewable energy and energy efficiency, a carbon price is a structural reform that will ensure Australia begins its transformation towards the low pollution economy of the future.