Coalition Senators' Dissenting Report
Abuse of process
1.1
The Coalition condemns the abuse of process and lack of scrutiny the
Gillard Government, with the complicity of its fellow proponents of the carbon
tax The Greens, has afforded this legislation. This would be the case even were
it not for the very significant expenditure of public money this legislation
would enable, as discussed herein.
1.2
The inadequate scrutiny through this inquiry, including the very limited
time available to prepare this Dissenting Report, follows a similarly curtailed
and therefore unsatisfactorily inadequate inquiry through the House of
Representatives Standing Committee on Economics, and even that inquiry was
concurrently into other bills.
1.3
In a Dissenting Report to that inquiry, Coalition Members expressed a
substantial number of significant concerns in relation to the CEFC legislation
and CEFC itself. Whilst there was limited opportunity for those Coalition
Members to question departmental officials, clearly Coalition Senators participating
in this inquiry have not even been afforded that opportunity and therefore
endorse and reiterate those concerns.
1.4
Coalition Senators note that, even prior to this committee determining
its own inquiry timetable, the Government, supported again by fellow carbon tax
proponents The Greens, had already succeeded in passing a guillotine motion
limiting Senate debate on this bill to less than two hours.
1.5
Again, this curtailing of debate constitutes for Coalition Senators a
particularly appalling affront to the Senate and its democratic and
parliamentary scrutiny processes.
Significant amounts of taxpayer’s money, fixed appropriations
1.6
This bill involves the appropriation of, and ultimately the expenditure
of, $10 billion of taxpayers' money over just five years. It requires that
$2 billion per annum for five years be credited to the Clean Energy Finance
Corporation Special Account created by this bill.
1.7
Coalition Senators endorse the concerns of Coalition members of the
House Economics Committee inquiry at the appropriation of such significant sums
in this manner for investment at such great risk:
We note the CEFC’s funding is removed from typical budgetary
discretion owing to the method of legislative appropriation. As Australia has
experienced a very signification erosion of our fiscal position owing to
Government decisions, the CEFC and its funding is a clear Labor policy
indulgence funded by taxpayers.
The CEFC is directed to invest taxpayers’ funds in admitted
high-risk technologies that have failed to attract requisite private-sector
capital. Not only is there inherent risk presently associated with the
clean-energy sector, there is also insufficient clarity attaching to the
management of risk of loss of taxpayers funds invested through the CEFC.
Liberal Members of the Committee are particularly concerned
by the lack of diligence betrayed in both verbal and written responses to
questions in the public hearing on the issue of the assumed default rate.
Liberal Members were not provided with a satisfactory response to how the
forecast default rate was formulated and we remain concerned there is a very
real risk of unacceptable losses accruing from defaulting investments.
Liberal Members of the Committee are also concerned operating
costs of the CEFC appear unrefined. Start-up costs for the CEFC in the first
year are $57.3 million and are provisioned for the CEO’s remuneration, staff
remuneration, and consultancy fees. That notwithstanding, these are all yet to
be determined and were not able to be provided to the Committee.
Portentously, under section 41 of the CEFC Bill, these do not
have to be referred to the Remuneration Tribunal. The Committee was also not
provided with the board member’s fees, as they were yet to be determined by the
same Tribunal.
Liberal Members of the Committee hold the view the CEFC is a
politically driven creation being implemented at the behest of the Australian
Greens Party and the Labor Party, inappropriately rushed through the House of
Representatives Standing Committee on Economics with little opportunity for
genuine scrutiny.
The creation and operation of the CEFC will come at
significant cost to taxpayers. This is driven by the very real risk associated
with investing in the clean-energy sector and the future pressure the CEFC will
place on government revenue.
Perversely the beneficial environmental outcomes will be low,
with the CEFC not expected to deliver any reduction in domestic energy prices,
nor have any impact on Australia’s ability to meet our Renewable Energy Target.
Liberal Members of the Committee have sought to highlight
serious concerns and shortcoming with the Bills in this dissenting report and,
as they are connected with Labor's Carbon Tax, recommend they be opposed.[1]
1.8
Coalition Senators note with grave concern that neither the Treasury nor
the Department of Climate Change and Energy Efficiency nor the Department of
Finance of Deregulation—all of which were represented at a roundtable hearing
as part of the curtailed House Economics Committee inquiry, with all but the
latter also responding in writing to questions taken on notice—made a
submission to this inquiry.
1.9
This is despite Coalition members of the House Economics Committee
inquiry having expressed numerous and substantial concerns through that inquiry
at various statements made by departmental officers.
1.10
In the absence of any submission, or opportunity to otherwise present
information let alone the opportunity for Coalition Senators to question
departmental officers at any hearing, Coalition Senators are left to share the
conclusions and concerns expressed by our Coalition colleagues on the House
Economics Committee on these matters, as follows.[2]
Risk to Taxpayers, Default Rate
1.11
The Coalition members of the Committee are all too aware of the cost,
waste and mismanagement of the Government programmes including the Home
Insulation Programme (HIP) and Building the Education Revolution (BER).
1.12
Time and time again, Government forecasts have proven wrong, budgets
have been blown and taxpayers have been left with little or nothing to show for
the billions added to public debt.
1.13
Liberal Members of the Committee were concerned that Departmental
testimony indicated many of the underlying assumptions which impact the
viability of the CEFC and its cost to taxpayers are based on little evidence
beyond Government direction.
1.14
Treasury could provide no substantive explanation as to how the default
rate for investments was arrived at or whether they bear any similarity to
experiences in Australia or overseas:
Mr TEHAN: You talked about this 7½ per cent. What evidence is
that based on—this default rate? What programs have you looked at? What other
investments have you looked at to come up with this rate? What evidence has led
you to the 7½ per cent?
Mr Nicol: The 7½ per cent was based on discussions between
departments when the body was initially conceived. It was some time ago, so it
is stretching my recollection, but it was based on a broad view, I think, of
the inherent risk of the industry. Every investment vehicle in any industry is
going to have a write-off rate of some description.
Mr TEHAN: So what did you look at? Did you look at the Solar
Flagships Program, for instance?
Mr Nicol: I will have to take that on notice to get exact
details.[3]
1.15
The response from Treasury to the question on notice was simply to
restate that 'The rate of 7.5 per cent is an average across the portfolio of
CEFC investments and is based broadly on expected performance of the
corporation, noting the risk of the industry in which the CEFC will invest,
particularly the potential for higher risk in renewable energy sector'.[4]
1.16
It is clear to the Coalition that Treasury could not provide any
evidence on how this figure was determined.
Failure to Heed Past Lessons
1.17
Mindful of the Solar Flagships Program and ZeroGen project which
together received some $800 million in taxpayer funds and delivered little,
Coalition members of the Committee were eager to understand how these
experiences were factored into modelling of expected failure/default rates and
the anticipated CEFC investment strategy.
1.18
Remarkably, Treasury testimony suggested these significant project
failures had not been considered and no assurance could be made similar
incidents of large-scale taxpayer losses would be avoided:
Mr CIOBO: I go to that conservative estimate allowance of 7.5
per cent. What has Treasury looked at with regard to, for example, the $700
million Solar Flagships Program the Australian government was involved in? What
mistakes were made there that will not be made with respect to investment by
CEFC in this case?
Mr Waslin: Solar Flagships was a grant program. The CEFC will
be making investments. The board will have the responsibility for determining
the investments. They will be co-financing with the private sector, so they are
brought on board. They are not directly comparable because the Solar Flagships
is a grant program.
Mr CIOBO: How much money was lost/granted on the Solar
Flagships Program by taxpayers?
Mr Waslin: It is not on the Treasury program.
CHAIR: It is not a relevant question when you are talking
about a grant.
Mr Waslin: A grant, by definition, is a payment with no—
Mr CIOBO: No, that is why I am asking how much money is
allocated?
CHAIR: It is not what you asked.
Mr Waslin: I do not know that number; it is not in the
Treasury portfolio.
Mr CIOBO: Would you let us know. What about the ZeroGen
project?
Mr Waslin: As I said, they are not projects within the
Treasury portfolio.
Mr CIOBO: I am just mindful that $700 million was spent on
Solar Flagships, $100 million on the ZeroGen project—that is $800 million. I am
just interested to know what lessons have been learned from mistakes that will
help to guide investment decisions of Australian taxpayer funds in future?[5]
No Legislated Safeguards
1.19
Given the remarkable size of the investment in CEFC and accounts of
massive losses in Australian-based and international renewable energy projects,
the Liberal Members of the Committee are concerned there is no explicit
stop-loss strategy included in the Bill as an ultimate safeguard for taxpayers:
Mr BUCHHOLZ: What mechanisms do you have in place should the
write-offs you have budgeted for be exceeded by the market? Would you stop
lending money? Is there any mandate, or are there any provisions you guys have
spoken about, like how bad is bad before you say, 'We can't continue to forge
ahead with this'? Is there a line in the sand where, bang, you say, 'This is
enough; we are not throwing good money after bad,' or is it just, 'Ten billion
is the number; when it's gone, it's gone'?
Mr Waslin: One of the board's functions, as listed in
provision 14(1)(b) of the bill, is:
... to ensure the proper, efficient and effective performance
of the Corporation's functions ...
So it is incumbent upon the board to invest within that
requirement. They are not going to go out there and say, 'We're going to blow
everything.' That is not consistent with the requirement. That is why we have
an independent board and why people of a high standard are appointed to the
corporation—to ensure the efficient operation of the corporation.[6]
Market Distortions, Crowding Out
1.20
As a significant borrower on capital markets, the Government is already
responsible for the upward pressure on interest rates driving up the cost of
finance for businesses and homeowners with mortgages.
1.21
Given the $10 billion investment in the CEFC will be funded by a
commensurate amount of Government debt, Coalition members of the Committee view
the CEFC as detrimental to the wider economy and further risk to the Nation's
fiscal position.
Funding Inferior, Less Efficient Technology
1.22
Treasury testimony made repeated mention of the principle purpose of the
CEFC: to invest in projects and technologies which would otherwise not receive
private sector funding.
1.23
Following questioning by a Coalition member of the Committee, Treasury
confirmed investments could be made which the private sector had assessed as
being too risky or delivering sub par returns.
1.24
Inherent in this admission is that taxpayers will be asked to underwrite
the riskiest of investments in exchange for some of the lowest possible
returns. Risk to capital aside, taxpayers will certainly not get value for
money:
Mr CIOBO: Yes, but I am asking why, in the department of
climate change's view, these projects would not get up?
Ms Wilkinson: They would not get up if they could not receive
funding on commercial terms which are available at the moment.
Mr CIOBO: From the private sector?
Ms Wilkinson: That is correct.
Mr CIOBO: And would that be a reflection of risk? This is
what we were talking with Treasury before. Do you think the private sector would
consider them too risky to fund?
Ms Wilkinson: It would be because the private sector made an
assessment that the return was not sufficient to cover the issues that they
were concerned about, and certainly the private sector would not take into
account the externalities that Mr Waslin was talking about.[7]
1.25
This strategy risks supporting inferior technologies not capable of
delivering a market rate return at the expense of promising technologies
competing for a share of the Renewable Energy Target:
Mr CIOBO: Earlier you made comments, Ms Wilkinson, about CEFC
altering the composition of renewable energy sources. Why will the operation of
CEFC alter the composition of renewable energy sources?
Ms Wilkinson: I am thinking in the long term. I am thinking
about the fact that the CEFC might support and provide funding for the
deployment of renewable energy sources which would not otherwise get up.
Mr CIOBO: Why would they not otherwise get up?
Ms Wilkinson: The mandate of the Clean Energy Finance
Corporation is to identify projects which they consider consistent with their
mandate.[8]
Taxpayers Value, Return on Investment
1.26
While acknowledging the CEFC as a 'business', Treasury was unable to
answer whether the CEFC would be subject to guidelines to which other Government
Business Enterprises (GBEs) must comply.
1.27
Significantly, Treasury was also unable or unwilling to provide
assurances shareholders (taxpayers) would receive value for their investment:
Mr FLETCHER: And I am also interested to know whether the
CEFC is required to comply with section 4.7 of those guidelines which says that
all GBEs are required to add shareholder value. Mr Waslin, are you confident
that the $10 billion that the Australian taxpayer is going to put into this
venture is going to be a good investment for the Australian taxpayer?
Mr Waslin: It is designed to overcome the financial barriers
for the clean energy sector.
Mr FLETCHER: That is not actually the question I am asking.
The question I am asking is this. It is from the point of view of the
Australian taxpayers as $10 billion of taxpayers' money is being put into this
venture. I am interested to know—
Mr Waslin: It is a governmental policy issue. The government
can decide how it wishes to make its investments and how to spend its funds.
Mr FLETCHER: So the government has made that decision. What I
am interested to know is whether Treasury is confident that that would be a
good investment.
Mr Waslin: That is a comment on policy.[9]
Rate of Return
1.28
Under questioning from Coalition members it was clear that the Treasury
could not state the expected rate of return for taxpayer dollars spent.
Ms O'DWYER: Speaking of investments, then, it is probably
worth looking at the investment mandate. What is the target rate of return for
the investments that the government will make?
Mr Waslin: Under the legislation the investment mandate is
made by the government with the board, so the investment mandate cannot be
physically done prior to the passage of the legislation and the board being
appointed. The government has publicly stated that the expectation will be
around the government bond rate, which is what was included in the expert
review panel's report.[10]
1.29
Under further questioning Mr Waslin conceded that Treasury had provided
no modelling on the rate of return and further conceded that 'It is up to the
government to determine the target rate of return'.
Overseas funds
1.30
Treasury were asked to provide specific examples of similar overseas
funds.
Ms O'DWYER: Like Dr Leigh, I would also like to apologise for
the short amount of time and notice you have had to be here, because we only
invited you on Friday, and it is rather a shame that there has not been more
time for you to prepare. A number of the questions I am going to ask I suspect
you will need to take on notice. I am interested in following up on my
colleagues Dan Tehan and Steve Ciobo's line of questioning in relation to the
failure rate. You may need to take this on notice. Would you be able to provide
us with a list of overseas examples of funds overseas, a list of their failure
rates and also their rates of return?[11]
1.31
Treasury provided only partial answers in response citing the United
Kingdom Green Investment Bank (which is yet to make any investment). It did not
provided any information on its rate of return.
1.32
Similarly, Treasury cited the United States Department of Energy Loans
Program and again did not provide the rate of return on investment.
Investment mandate
1.33
Treasury were questioned about the significance of s61 of the
legislation, specifically, what was meant by "Australian based investment"
that would form part of the investment mandate.
Ms O'DWYER: What about overseas investment? What about
companies that are predominantly owned by foreign or overseas investors?
Mr Waslin: We are talking about where the assets would be
located and not the ownership.
Ms O'DWYER: So, so long as the assets are here, for the
purpose of this section of the bill, you would say that that makes it an
Australian-based investment? Mr Waslin: Yes
Ms O'DWYER: Irrespective of the fact that the guidelines have
not yet been drafted?
Mr Waslin: That is what is behind the solely or mainly based.
It is a similar approach to what the UK Green Investment Bank is also taking.
Ms O'DWYER: But it would be up to the board to take a
different view?
Mr Waslin: Basically the board is to come up with what is
solely or mainly Australian based.[12]
1.34
It is unclear whether Australian taxpayer money will simply be sent
offshore.
Electricity Prices
1.35
The CEFC is vaunted by the Government as an instrumental part of the
Carbon Tax package. Its premise is to fund renewable energy technologies with a
view to making clean energy cheaper than that generated by fuels trapped under
the Carbon Tax.
1.36
Considering $10 billion is to be invested by taxpayers in the CEFC, the
Coalition members of the Committee were surprised to learn that no mandate had
been provided to invest in technology which would offset increases to
electricity prices under the Carbon Tax.
1.37
The Department of Climate Change and Energy Efficiency confirmed no
modelling had been conducted to determine whether electricity prices would be
higher or lower with the CEFC:
Mr CIOBO: Should Australian taxpayers therefore expect to see
the retail price of electricity decrease as a result of their $10 billion
investment in renewables through the CEFC?
Ms Wilkinson: Again, it depends. In most jurisdictions in
Australia, the retail electricity price is determined by independent pricing
tribunals, and they key off the wholesale electricity price. So a lower
wholesale electricity price, by and large, translates into a lower retail
electricity price.
Mr CIOBO: On your modelling, does the price decrease as a
result of the operation of the CEFC? Is it larger than, equal to or less than
the forecast increase in electricity prices as a result of the introduction of
the carbon tax?
Ms Wilkinson: As I said, I am not aware of modelling
undertaken within the department of climate change. I can take that on
notice—modelling what the impact of the CEFC is. It is difficult to actually
undertake that modelling until the CEFC has been finalised in all its elements,
including things like the investment mandate.
Mr CIOBO: But you are confident that it will reduce wholesale
electricity prices, even though you have not done any modelling?
Ms Wilkinson: No, I guess I am just making a statement of
fact as to what determines wholesale electricity prices, and one of the
important things is the actual cost of investing in new generation
technologies.[13]
Cost to Taxpayers, Estimated Write-offs
1.38
Coalition members of the Committee are deeply concerned with revelations
that, in the unlikely case Treasury estimates and assumptions are correct, the
CEFC will still be responsible for investment losses totalling some $600
million over four years:
Mr CIOBO: Based on that 7½ per cent figure Treasury
forecasts, therefore, that the Clean Energy Finance Corporation will lose $150
million in the year 2012-13, $150 million in 2013-14, $150 million in 2014-15
and $150 million in 2015-16. Is that correct?
Mr Nicol: I do not think you can characterise it that way
because the fund will be making investments that will—
Mr CIOBO: You are expecting defaults of $150 million for each
of those years.
Mr Nicol: The budget has included a provision for $150
million of investments that will not be recovered.
Mr CIOBO: So Treasury forecasts that taxpayers will lose $150
million a year, purely based on investments, not returns, each year for four
years—a total loss of $600 million. This is just on investments, I am not
talking about returns.[14]
1.39
As outlined earlier, given the estimated default rate is a 'guess' only,
losses could very well be much higher and put the goal of CEFC
self-sustainability at risk or, indeed, the total $10 billion investment:
Mr Nicol: We are assuming that 7½ per cent of the investments
each year are not recovered.
Mr CIOBO: So are you saying that you think in reality the
default rate will be higher than that or lower than that?
Mr Nicol: At the moment that is our best guess.[15]
Arbitrary Start-up Costs
1.40
The Coalition members of the Committee were concerned with the arbitrary
funding, some $60 million, for the start-up and establishment of the CEFC.
1.41
Treasury was unable to explain how these significant funds were
allocated and what proportion would be allocated to the remuneration of the
Board, CEO, staff and consultancy.
Ms O'DWYER: Will each of the board members receive fees?
Mr Waslin: Yes, and they will be paid as determined by the
Remuneration Tribunal.
Ms O'DWYER: Do you have any expectation around what those
figures will be?
Mr Waslin: No, not at this stage. The Remuneration Tribunal
will make the decision.
Ms O'DWYER: They will make the decision; but in coming up
with this figure have you made a provision? Do you have an expectation around
where it might be or in what range?
Mr Waslin: No. The Remuneration Tribunal will make a
decision. Other like institutions could be the Future Fund.
Ms O'DWYER: And the fees there would be what?
Mr Waslin: I do not know. We would have to take that on
notice.[16]
1.42
Concerns which were raised about the budgeted figures, which were not
higher in earlier years as one would expect, were not addressed and called into
question the assumption the CEFC can, in time, become self-sustaining:
Ms O'DWYER: I am interested in understanding a little bit
more about the board and the operating costs associated with the Clean Energy
Finance Corporation. The Inspector-General of Taxation in appropriations costs
about $1.5 million.
According to the appropriations that we are looking at here
over the forward estimates, we are looking at around about $60 million—to be
exact, $57.3 million over the forward estimates. Can you perhaps provide us
with a little more information as to exactly what that $60 million is going to
be funding?
Mr Waslin: There will be around 40 staff, when it is fully
operational. There will be accommodation and a lot of start-up expenses. The
corporation will need to take legal advice in terms of entering into
contracts—due diligence for entering into contracts. Basically, it is setting
up all the computer systems and consultancies on understanding the proposals.
Ms O'DWYER: As I look at these appropriation figures, there
is not, for instance, a lot of money in year 1 or even in years 1 and 2; it is
effectively the same throughout.
Mr Waslin: Government is giving the corporation money to help
with its establishment. During the initial years they are not expecting that
there will be a return, but the expectation from the expert review panel is
that the corporation will become self-sufficient and able to fund its own
operating expenses from its earnings.
Ms O'DWYER: What is that expectation based on?
Mr Waslin: For the expert review panel, that was one of the—
Ms O'DWYER: This is a bit circular.[17]
No Impact on the Renewable Energy Target
1.43
For the $10 billion invested and the inherent risk 'picking winners' in
the renewable energy sector, especially given the Government’s track record, it
concerns the Coalition members of the Committee there is no guarantee of
additional renewable energy generation capacity over and above the bipartisan
Renewable Energy Target:
Mr CIOBO: My questions in the first instance are probably to
Treasury although obviously Climate Change is welcome to contribute as well.
The mandatory renewable energy target is 20 per cent. Is that correct?
Mr Waslin: The RET—yes.
Mr CIOBO: As a result of the CEFC, what will be the energy
target into the future as a result of its operation?
Mr Waslin: The renewable energy target is 20 per cent. That
is government policy.
Mr CIOBO: So, 20 per cent with or without the CEFC?
Mr Waslin: Yes.[18]
1.44
In fact, testimony from the Department of Climate Change and Energy
Efficiency revealed that in the absence of this very risky $10 billion
investment Australia is nonetheless forecast to achieve the Renewable Energy
Target.
Mr CIOBO: So the department of climate change has done
modelling that looks at whether we can meet our renewable energy target without
the operation of the CEFC?
Ms Wilkinson: Yes. The renewable energy target has been in
place for some time. We have done a number of modelling exercises which
predated the announcement of the Clean Energy Finance Corporation.
Mr CIOBO: Great. Can we meet our renewable energy target
without the CEFC?
Ms Wilkinson: As I said earlier, the modelling certainly
suggests that, with the combination of the carbon price and the renewable
energy target in that model, you would expect the renewable energy target to be
met.[19]
1.45
To Coalition members of the Committee, this evidence highlights the
inherent flaw in the often-quoted principle purpose of the CEFC to 'overcome
financial barriers' for projects rather than pursue investments in projects
which would deliver the greatest possible environmental benefit.
Undue Political Influence / Appropriation Measures
1.46
The Coalition members of the Committee formed the view the Bill is
intended to bind future governments to the annual appropriations to the CEFC.
In what seems to be a politically motived strategy, the first payment to the
CEFC Special Account is timed to take place near or during the caretaker period
ahead of the next federal election thereby limiting the ability of an incoming
government to make changes to the funding model or wind up the CEFC.
1.47
It is interesting to note legislating automatic appropriations in this
manner is uncommon in the Australian context, and will require the Parliament
to amend or repeal the associated legislation to make any changes.
1.48
While the Treasury seemed to infer automatic endowment would provide
some certainty for co-investors, tellingly, no evidence as to why this measure
is strictly necessary was provided:
Mr FLETCHER: My last question for you is about section 46,
which deals with the appropriation. Could you just explain the effect of that
arrangement—so that is appropriating $2 billion a year over five years—and why
that is necessary? And, specifically, is that intended to lock in a future
government such that it is not able to reverse this?
Mr Waslin: The way in which it works is that the moneys are
appropriated to a special account. Through section 48, the corporation may
request funds from the special account when it needs those funds either to pay
its operating expenses or for loans, but for the initial period of three years
it will have funds for operating expenses. Getting to your point, from the
public consultations, the importance of the way the corporation is being set up
is that if it needs to enter into long-term contracts, because of the nature of
this, the corporation's credibility depends upon the private sector's
acceptance that the corporation will have the funds when it needs those funds.
So, if it enters into a contract to lend over five years—
Mr FLETCHER: I have heard the explanation. Let me ask this
question: is this a common arrangement?
Mr Waslin: The difference is that the corporation has had a
special account set up. The alternative would have been to provide the $10
billion directly to the corporation, and it could invest the $10 billion and,
therefore, it would have the funds over the whole period. This appropriation
arrangement and the operation of the special account is that it draws down the
funds only when it needs them for investment in the clean energy sector. The
idea was not to establish a corporation with a large pool of funds which would
go off and then become a money market corporation. It is designed to keep it
focused on investing in the clean energy sector.
Mr FLETCHER: Is it a common arrangement to legislate so that
there is a series of appropriations in a piece of legislation dealing with one
government owned corporation?
Mr Youngberry: There are other examples where we provide
appropriations over a period of time—most notably, the replenishments for the
International Development Association, which is under the World Bank, where we
do provide a special appropriation that exists through time to provide
certainty for that funding.
Mr Nicol: My recollection is that in medical research, I
think, or in general research we also have a similar mechanism.[20]
Lack of Proper Scrutiny
1.49
The Coalition members of the Committee took exception to the short
notice provided ahead of the public hearings and the limited time allotted
which saw key witnesses ill-prepared to answer even the most basic questions.
1.50
Coalition members note the Chair opposed a motion extending the duration
of the hearing and the tenure of the enquiry until 30 August 2012. This would
have provided an opportunity for public comment and for expert witnesses (at
other locations) to be called:
Ms O'DWYER: You are arguing against the whole existence of
House of Reps Standing Committee on Economics in that case. The first notice of
this inquiry by the House of Representatives into this particular issue was a
press release that was issued on Friday. The hearing is now today, on Monday,
and the report, according to the current tabling, is going to be on Wednesday.
That is, we have less than a week to deal with a $10 billion bill. My view
would be that not enough scrutiny has been applied to this bill. There would be
substantial witnesses who would be prepared to come before this committee to
provide evidence. It is simply not enough for us to have a two-hour hearing
today that has been called on effectively in the dead of night to try to deal
quickly with this legislation because the government wants to avoid scrutiny.[21]
1.51
The appropriations connected with these bills amount to at least $10
billion. It is unacceptable only two hours were allocated for their scrutiny
and that the hearing was summarily guillotined by the Chair:
Mr CIOBO: Can I ask the Department of Treasury—
CHAIR: You are going to have to call it a day, Mr Ciobo.
Mr CIOBO: Opposition members have had serious concerns about
$10 million worth of investment—
CHAIR: And the opposition have had the bulk of the questions
today.
Mr CIOBO: Well, that is great that, for $5 billion an hour,
they are getting the chance to ask some questions! We have many more questions
on our side we would like to continue asking.
CHAIR: I am sorry; I am going to call the meeting—
Mr CIOBO: So you are going to shut us down?
CHAIR: I am ... [22]
Interaction with Renewable Energy Target
1.52
Further to the concerns expressed by the Coalition Members of the House
Economics Committee inquiry in relation to the Renewable Energy Target,
Coalition Senators do not agree with this Senate committee’s majority view that
the role of the CEFC and its relationship with the Renewable Energy Target have
been adequately considered, including through the expert panel consultation
process.
1.53
Coalition Senators note the concerns of both the Conservation Council of
South Australia and Beyond Zero Emissions in this regard:
There is a risk that the more successful individual
CEFC-funded projects are in creating renewable energy, the greater the impact
will be on the forecast market price of RECs, which would re-introduce a
stalling effect in the market.
It is not commercially responsible to use billions of dollars
to fund renewable projects that displace other renewable energy, resulting in a
zero MWh gain. If there is a commercial filter applied, then no CEFC funded
project should be approved where it displaces other renewables.[23]
If the CEFC was to offer generous financing terms to wind
projects, it could depress the price of Large-scale Generation Certificates
under the RET, and undermine the viability of other wind projects utilising
only private finance. While this issue was noted, the best the Review can offer
as a solution is that it "will be cognisant of the potential impact on
other market participants when considering investment proposals."[24]
1.54
Coalition Senators note also the review panel's statement that:
The Panel has not addressed the appropriateness of any
adjustment to the overall 20 per cent target as this will be the subject of a
separate review in the second half of 2012 by the Climate Change Authority.[25]
Interaction with future Emissions Trading Scheme
1.55
Coalition Senators are aware of concerns of an apparently similar nature
having been expressed in the past in relation to the CEFC's role under any
future emissions trading scheme, towards which the Government’s carbon tax is
purportedly designed to transition.
1.56
Coalition Senators have been afforded no opportunity through this
inquiry to question departmental officers about the following statements, but
present them here for the record, particularly in the context of aforementioned
concerns about the method of legislative appropriation for years to come:
No place for a CEFC within an emissions trading scheme
framework
The CEFC is expected to start operations in 2013–14. This
means that only for the first two years will the CEFC operate in an environment
without an emissions trading scheme. From 2015, the carbon tax will be replaced
by a cap-and-trade scheme for greenhouse gases. This also means that from 2015,
there will be no need for the CEFC.
There are two basic options to any emissions abatement
policy. The first is to reduce emissions indirectly by investing in new
technologies, taxing energy use, issuing targets for renewable energies, etc.
The common theme in all these measures is that they aim to drive down the total
amount of emissions without actually putting a hard, enforceable limit on them.
This way, the total emissions are a result of government policies but not by
government policies.
The second option is a cap-and-trade emissions trading scheme
in which government decides the total amount of emissions and lets the market
decide how to achieve a mandated emissions reduction by trading pollution
rights. There would be no need for any government action under an emissions
trading scheme. In fact, further action would be futile as it would not have
any effect on emissions beyond the mandated target. The total amount of
emissions is already determined by the emissions trading scheme.
Suppose an economy emits 1,000 units of pollution and an
emissions trading scheme issues certificates for 900 units of pollution.
Polluters will themselves have to find ways to cut back their emissions by 100
units. Depending on the avoidance costs, the right to pollute would be priced
in the market. The cheapest ways to cut pollution would be implemented first,
and so the market would decide on the best way of cutting 100 units of
pollution from the previous pollution level of 1,000 units.
If government intervened directly and paid some polluters to
introduce technological improvements to reduce their individual pollution, it
would result in a lower price for the pollution certificates, but the total
amount of emissions would remain at 900 units. In other words, government's
extra investment would have a zero effect on emission levels.
The flaw in combining cap-and-trade schemes with further
emissions reducing measures is so obvious that it is hard to imagine
governments would make such illogical mistakes in the design of their policies.
Yet it has happened in other countries, and with the CEFC, Australia is about
to commit the same mistake.[26]
Conclusion
1.57
Coalition Senators agree with our Coalition colleagues on the House
Economics Committee that the CEFC represents an unacceptable risk to taxpayers
of which we believe Treasury and the Department of Climate Change and Energy
Efficiency failed to demonstrate a proper understanding.
Even assuming all assumptions are correct, the CEFC will see
upwards of $600 million lost in write offs and no increase in Australia’s
capacity to meet the Renewable Energy Target. To put it plainly, for all the
risk, and it is substantial, there is no environmental gain.
Perversely, rather than supporting competitive renewable
energy technologies which can be delivered at no cost to taxpayers, the CEFC
risks over representing inferior projects in the market by providing what essentially
amounts to a subsidy.[27]
Recommendation 1
1.58
That the Senate does not pass the bill.
Senator David Bushby
Deputy Chair
Senator Simon Birmingham
Senator for South Australia
Senator Alan Eggleston
Senator for Western Australia
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