The Carbon Tax and Regional Australia – Richard Marles

On Wednesday the 8 June 2011, The Hon. Richard Marles, Parliamentary Secretary for Pacific Island Affairs, joined Sophie Mirabella, Opposition Shadow Minister for Industry, Innovation and Science, to discuss the impact on regional Australia of a carbon tax. Both from Victoria, Richard Marles (Corio) and Sophie Mirabella (Indi) are well placed to evaluate how local businesses and investors outside large metropolitan areas view the economic and industrial change the tax will establish.

THE CARBON TAX AND REGIONAL AUSTRALIA

RICHARD MARLES

In talking about the Carbon Tax and regional Australia, I thought I would start by talking about that part of regional Australia where I hail from – Geelong, an hour south-west of Melbourne. Geelong has had many identities in its life. The answer to a trivia question about Geelong is that it was first proclaimed by an act of the New South Wales parliament because it was then part of New South Wales.

Nowadays, Geelong’s economy retains a manufacturing base servicing Melbourne and a large part of southern Australia. It’s increasingly becoming a lifestyle city. People are choosing to live in Geelong, with its proximity to the Surf Coast and the country lifestyle, and commute to Melbourne for work. It’s also a transport hub: with Avalon airport, Melbourne’s second airport, and the Port of Geelong as well as a lot of land that accesses both of those facilities. Tourism is also a large part of Geelong’s future. It is the gateway to the Great Ocean Road, the major tourist attraction of Victoria.

Geelong is very much on the front line of the debate around carbon, and public policy responses to carbon. Geelong is one of the most, if not the most, carbon intensive cities in Australia, with an oil refinery, an aluminium smelter, a car plant, cement works, fertiliser plants, abattoirs and many other manufacturing sites. Geelong has three major international brands operating out of it: Shell, with its oil refinery, Alcoa with its aluminium smelter and Ford with its car plant. Debate about public policy which puts a price on carbon is an issue keenly followed in a place like Geelong.

At the same time, Geelong is also a place which is on the other side of the climate change debate. We live in a part of Australia where the predictions suggest less rainfall going forward and we live in a part of Australia which is more water stressed than a place like Melbourne. My eldest son is 14, and he has lived most of his life in a world of water restrictions. Geelong is also something of an agricultural hub. Incitec Pivot, a fertiliser manufacturer, has been manufacturing out of Geelong since the 1920s. Two years ago it closed up shop: not because of the global financial crisis but because, at the height of the drought, agricultural production was down. There simply wasn’t demand for the product that had been made in Geelong for 80 years. The good news is that, with the rain, Pivot has restarted its operations. We’re also a seaside town, where the coastline forms a large part of our existence. If there were increases in sea levels, Shell for instance, would rapidly go underwater, as it is basically at sea level. I mentioned our major tourist attraction, the Great Ocean Road. That’s a tourist attraction that is defined by the current configuration of the coastline.

So, at both ends of the equation, the whole debate around climate change is intensely felt in Geelong. It is understood to be a hard issue which needs some hard thinking. What Geelong – and I think, Australia – does not need is for one half of the political spectrum to go missing from the equation, which in my view is what the Liberal Party has done. Having a “head-in-the-sand” approach to what is a profoundly difficult issue for Geelong, and for the country, will not save a single job in Geelong or in Australia.

The foundation of this debate is the climate science. It still amazes me that we find ourselves in the position of having to justify, explain and defend that science. There are still people who argue that the climate science is wrong, and that there is no climate change going on at all. I suggest that this attitude is being fuelled by the current attitude of the Opposition, in their scare-mongering and their dog-whistling, to people who want to believe that there is nothing going on with our climate. Humanity did not actually see the Earth as round until we went into space, but for hundreds of years before that science understood the Earth was round. To be in a position now where you seek to deny the need for action on climate change is a little akin to the people in those times who declared the Earth remained flat.

In essence, the climate science is reasonably simple. There are three propositions which are not contested by scientists at all.

The first is that, right now, we have unprecedented levels of carbon dioxide in our atmosphere, and we are putting unprecedented levels of carbon dioxide into our atmosphere. Right now, the concentration of carbon dioxide in the atmosphere is about 390 parts per million. In the 1830s, before the industrial revolution, that figure was around 280 parts per million. Ice core samples – which can be readily tested  – take the timeline back 800,000 years and show that, during that time, levels of carbon dioxide in the atmosphere have varied between 180 and 300 parts per million. So, we know we have an unprecedented situation, which is the levels and concentration of carbon dioxide in our atmosphere. This is uncontested fact.

The second is that, because of that fact, scientists have been out there for the last 30 years modelling what that means. What does it mean that we’ve got an unprecedented level of carbon dioxide in our atmosphere? The preponderance of those models shows it will likely give rise to climate change; to an increase in temperatures, to the rising of sea levels. That this is the preponderance of the climate change models is not contested.

The third proposition is we are now experiencing and observing phenomena which are consistent with those models. We have, for example, just lived through the hottest decade on record.

Now when you put those three propositions together, the question is answered.

But there are many false questions being put forward in this debate. People say “haven’t we seen global temperatures rise and fall over the last 800,000 years?” Of course the answer to that is yes, but we have never seen carbon dioxide at the level it is at the moment. People say “can we say with certainty that temperatures are going to rise as these models show?” The answer is they’re models, so you can’t say that with certainty. Can we say with certainty that Hurricane Katrina, or the Queensland floods were functions of climate change? Of course the answer is no. We can’t say any of that with certainty. Is it possible that climate change won’t happen to the degree that it is predicted? Yes, of course that is possible. All these are the wrong questions, but they are fertile questions for climate change deniers.

There is one key question that we need to be asking from the point of view of making public policy, and it’s a question based around the precautionary principle. It is this. Are we facing a substantial risk that our current behaviour, in terms of the way we are putting carbon dioxide into the atmosphere, will cause catastrophic damage to the climate? Are we facing a substantial risk? We certainly are. That doesn’t mean it’s going to happen, but it certainly means we are facing a substantial risk that it will, and given the precautionary principle, that is enough to demand action. And the truth is that this question has now been answered for more than a decade.

Certainly, in my role as the Parliamentary Secretary for Pacific Island Affairs, there is no question as to the response to the precautionary principle in the Pacific. If you live on a coral atoll, which is one or two metres above sea level and that is your entire country, it focuses the mind on the effects of rising sea levels.

It’s also very clear that if you look at the major companies that are involved in Geelong, the companies that would have to deal with any changes in public policy, they too are in no doubt about the existence of climate change. Shell says: “Shell shares the widespread concern that the emission of greenhouse gases, such as CO2 from human activities, is contributing to global climate change.” Alcoa says, “Alcoa supports an economy wide response to the challenge of climate change.” And Ford says, “At Ford, we acknowledge the science of climate change, and the company is investing a significant share of its annual $5 billion-plus global research and development budget in seeking to be a part of the solution.”

Far and away the most remarkable statement, though, from that quarter about what we face comes from Shell. It was in a booklet published this year as part of the Shell Energy Scenarios 2050 series called “Signals and Signposts”. It says:

The majority scientific view is becoming increasingly pessimistic about the potentially devastating effects of climate change from greenhouse gases….The climate change crisis is far from over….Society continues to face (the) dilemma … (that) a failure to reduce emissions now will mean considerably greater cost in the future. But concerted global action is still too far off given the extreme urgency required.

That is the Shell Oil Company making that statement. It is clear in Geelong that the big industrial players understand what is going on. They get it. They talk to their workforces and their workforces also understand what is going on, and the threats involved.

The existence of the climate science is obviously the main rationale for action on the part of the government. It is about, in part, Australia playing its role in a global context of, literally, saving the planet. The rationale behind the climate science is what led to Kyoto, it’s what led to Copenhagen, and it’s what led to Cancun. It’s led to the actions of the EU, and it’s led to significant public opinion in support of action around climate change. Of course, public opinion is going to vary from day to day. It can literally vary as a function of the weather. Public opinion in support of action on climate change was at its height when the drought was at its most ferocious. But there can be no doubt that now, as compared to 10 or 20 years ago, climate change is an issue which concerns the public. It has been a really significant part of the last two elections and that sentiment is as evident in industrial Geelong as much as it is anywhere in Australia.

But, in Geelong and in Australia, there has been a more powerful rationale coming forward for action. With the rest of the world moving in terms of climate change, there is now a real risk that places like Geelong and Australia will be left behind. And the rest of the world is moving. Thirty-two countries now have in place an Emissions Trading Scheme, ten US States. California is about to introduce an Emissions Trading Scheme from January 2012. Korea has a trial going.

Nowhere is this action as significant, and as relevant, to the Australian context as what is going on in China. China has set a target where it will reduce its emissions per unit of GDP by the year 2020, as compared to 2005 levels, by 40-45 per cent. And the Chinese hit their targets when they put in place policies like this. They have a target of seeing non fossil fuels make a fifteen per-cent contribution to their energy resources by 2020, a target of increasing their forestation by 40 million hectares by 2020, based on 2005 levels, and they have set interim targets in the meantime to make sure they meet all of those. China has the largest installed renewable energy electricity generation capacity in the world. There are 13 districts in China today trialling low-carbon pilot plans including the examination of market mechanisms. A$30 billion is being invested by the Chinese Government in energy saving emission-reduction programs which in turn will generate A$300 billion worth of investment in those programs.

The fact is, China is moving and with it the world will go. It is so important that Australia is not left behind. We currently have the highest carbon dependency of any developed country in the world. That means that a place like Geelong is one of the most carbon-dependent cities in the world.  And we risk being saddled with a high carbon dependent economy in a world which sees this as a massive competitive disadvantage.

Qantas today is being taxed 15 per cent on its carbon emissions for flights inbound to the EU because Australia has not put a price on carbon, and it will be slugged with an additional tax by the UK. That is happening right now. A failure to act will see Geelong’s economy condemned. A failure to act will see Geelong fail to change in a world which is changing. And a failure of the government to facilitate companies in that change is a decision to condemn Geelong’s industrial workforce. That more than any other issue is what motivates me to work for the interests of Geelong.

Once you reach the conclusion that action is required, the next question is what sort of action ought to be required. At this point, we enter the easier part of the debate. In terms of the question of what ought to be the fundamental mechanism for action, that is a no brainer. We must harness the power of the most significant social phenomenon we have seen in the Western world – the market economy. Malcom Turnbull knows that. Greg Hunt wrote a thesis about that. Every serious economist out there knows that if you’re going to act, a market based mechanism is the way to do it.

A direct action policy, as put forward by the Liberal Party, is not a serious contribution to this debate. If you fully cost it, it would be extremely expensive, leaving a $30 billion hole in the budget. Taxpaying households would pay $720 a year to fund that kind of direct action. Malcolm Turnbull got it right when he said that he couldn’t cite any economists that agree with it. But it was Ross Garnaut who belled the cat on the question of “direct action” when he said that “it could have some rationale, if we wanted to pretend to take action against climate change but not do too much”. It is ironic that the Liberal Party, a party that supports the power of markets and is about smaller governments, on this issue of profound change is  arguing for direct government intervention into the economy that is essentially based on the government picking winners.

In terms of those who support market mechanisms you’ve got GE, AGL, Linfox, Ikea, Fujitsu, BP, the list goes on. The Business Council of Australia, the AI Group are all supporting the notion of a market mechanism. If you look at the companies in Geelong, each of Shell, Ford and Alcoa support a market mechanism as the mode of action. They support the idea that there should be action. In citing that, I don’t presume to suggest what they will ultimately say about whatever proposition is ultimately put forward by the Labor Party and by the government.

Clearly, there are some very significant issues which each of these companies will want to discuss with the government, and indeed they are. There is an intense dialogue going on from the Prime Minister, the Minister for Climate Change and Energy Efficiency Greg Combet, all the way down to those who represent areas such as I do, to make sure that the detail of these issues is made right. But as to the principle of whether we should act, there is unanimity. As to the principle of the form of that action, there is unanimity around using a market mechanism. The politics of this, and particularly the politics in relation to the fear of a price on carbon, has played out in two respects.

Firstly, there is a concern about the cost of living. Tony Abbott, in the last 24 hours, has talked about how the increased costs in our economy will be unimaginable. That’s a ridiculous comment to make. These are costs which are completely imaginable, because they can be modelled. Tony Abbott visited Sanitarium where he said that the price of Weetbix would skyrocket. Yet the modelling of the CPRS on that suggests the price increase for Weetbix would be 0.0006 of one cent. Tony Abbott went to a nappy manufacturer, where he said the same thing about the price of nappies. If we were to take the CPRS as the basis, the increase in the price of nappies would be 0.00155 of one cent. He said that food and grocery bills would go up 5 per cent, if we had a figure of $26 per tonne of CO2. Yet Treasury, when they did that modelling, put that figure at 0.6 to 0.8 per cent.

The fact is there are many other price shocks in our economy, such as what’s going on in the Middle East, such as the natural disasters over the summer, such as the value of the Australian dollar, which will have a much greater effect on the cost of living than the carbon price itself. But in a way this is something of a hollow debate, because we are going to experience this from 1 July next year so people will be able to see that for themselves.

The second fear issue is around job security. Here the Opposition Leader has been out scaremongering as well. The hypocrisy of the Liberal Party in picking car manufacturing as the focus for their campaigning is breathtaking. If the Liberal Party had its way, it would take half a billion dollars out of the car manufacturing industry, by taking it out of the Automotive Transformation Scheme. The Liberal Party has never been a friend of the car manufacturing industry, and Ford workers in Geelong know it. Action does need to be taken carefully, and that’s why there is significant assistance being provided to emissions-intensive trade-exposed industries, and it’s why the dialogue I have described with industry is well underway.

The real question here is what will be the consequences of failing to act. The consequences of failing to act for industry and industrial workers in Geelong would be devastating, and so in that respect, the Carbon Price is fundamentally a pro-jobs policy.

The conduct of the two political parties in this debate has been the subject of much comment. There is criticism of the Labor Party for changing its position from before the election to after it. But the Labor Party has supported an Emissions Trading Scheme for a very long time. We supported it in Opposition. We supported it in the 2007 election. We spent as much political capital on it as an issue in our first term of government as any other. We went to the last election supporting an ETS, and now we are implementing an ETS that would have at the outset a three year fixed price. No-one could seriously question the Labor Party’s attitude to the issue of climate change, and what needs to be done, either pre or post the 2007 or 2010 elections.

The Liberal Party, on the other hand, is a party which is currently being led by a self-proclaimed weathervane on this issue. Tony the Believer has at times said he believes in the science of climate change, but then Tony the Denier has at times said it is “absolute crap”. Tony the Believer in Markets has said that “there is much to be said for an Emissions Trading Scheme. It was, after all, the mechanism for emission reduction chosen by the Howard Government”. Tony the Socialist is out there saying “what we need is environmental direct action”.

The truth is the Liberal Party has been captured by climate change deniers. Rational thinkers like Greg Hunt and Malcolm Turnbull have been taken hostage by, or are now complicit with, those who deny the science. The consequence of that is the Liberal Party has gone AWOL on this debate. In doing so, they have done this country a great disservice, and they have done workers in Geelong who are at the pointy end of this debate, an enormous disservice. This is a tough issue. We need every shoulder to the wheel on this issue. We need every brain switched on. That half the political representation of this country is plunging their heads in the sand is an act of desertion. As hard as this issue is, my responsibility representing a place like Geelong is to engage with this debate as best I can, to bring whatever intelligence I have to this debate, and then to act. In my view, that’s exactly what this government is doing.