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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 July 2011

NO.026

Treasurer's Economic Note

Australians have every right to be proud about how our nation punches well above its weight in so many fields – whether it be in science and medical research, in the arts or on the sporting field. However, there's one area where we're leading the world that provides less cause for celebration: carbon pollution. Australia generates more pollution per person than any developed country in the world – more even than the United States. Our pollution per person is about five times that of China's and ten times that of Indonesia's. Australia's emissions are high largely because most of our electricity comes from burning coal – this accounts for about 37 per cent of our overall emissions. And pollution is continuing to rise at a rapid rate. Without action, it's expected to rise by almost 2 per cent a year to 2020.

Countries Moving on Climate Change

The world is moving to reduce pollution. Eighty-nine countries – representing 80 per cent of global emissions and 90 per cent of the world's economy – have already pledged to take action on climate change. As the highest polluter per person in the developed world, our economy will be increasingly exposed if we don't act. Businesses and industries will remain locked into their old emissions-intensive practices and will defer investments in clean-energy technology. Australian exports could become a target for trade sanctions if we don't do our share to cut emissions. We don't have to worry about going early; we need to focus on keeping up – ensuring we position Australia as a beneficiary of the transition underway in our region and the wider world.

I saw one of the clean-energy projects of the future at Carnegie Wave Energy's research facility in Fremantle, Western Australia, on Friday. They are developing technology to produce zero-emissions power, as well as desalinated water, all from ocean waves. It's Aussie innovation at its best, and shows the potential for new jobs and businesses being created from the shift to clean and renewable energy. As former Prime Minister Paul Keating said last week, it's essential for the Government to support this shift in the market: "Only a price on carbon will start allocating capital to the right places, where we should be investing in the new Australian economy. See, the question is, I think: do we want a first-rate industrial economy or do we want an economy with a brown, fat underbelly?"

Supporting the Move to Clean Energy

As well as the market signal of the carbon price, the Government will help expand the clean-energy sector with targeted investments of more than $13 billion through:

  • A $10 billion Clean Energy Finance Corporation to work with the private sector to invest in businesses seeking funds to get innovative clean-energy proposals and technologies off the ground;
  • An Australian Renewable Energy Agency to manage $3.2 billion in funding for research and development of renewable energy at an early stage; and
  • A $200 million Clean Technology Innovation Program to provide grants to support business investment in renewable energy, low-emissions technology and energy efficiency.

Along with introducing a carbon price, investments like this will kickstart about $100 billion in investment in the renewables sector over the next 40 years. Treasury modelling shows energy from the renewables sector is projected to account for around 40 per cent of our electricity generation by 2050 with a carbon price – a significant increase from its current level of around 10 per cent.

Of course, despite the change in our energy mix, the coal industry still has a bright future. We saw evidence of this last week in the $5 billion takeover bid for an Australian coal miner. And the level of investment shows the confidence coal miners have in the future. As of April, there was a staggering $70 billion on the drawing boards or underway for coal-related projects. That's up by more than four times from the level of just three years ago. The impact of a $23 carbon price will be low – around $1.80 per tonne in fugitive emissions of coal produced. That's not a lot when you consider the spot price for high-quality hard coking coal is over $300 per tonne and around $120 per tonne for thermal coal – around double the level of three years ago. However, the cost of a carbon price will be higher for a small number of 'gassy' mines. That's why the Government has announced a $1.3 billion assistance package to support jobs and help pollution-intensive coal mines reduce their emissions.

The Kiwi Experience

With action being taken to reduce pollution in countries around the world, it was interesting on Thursday to hear about the successful introduction of New Zealand's emissions trading scheme. I met with my New Zealand counterpart, Bill English, as well as the Environment Minister, Nick Smith, to talk about their country's experience with a price on carbon pollution. Their scheme is working well, there's been only a very minor impact on prices, and the New Zealand Government's modelling proved to be spot on. The scare campaigns over there proved wrong, just as the scare campaigns here are being proved wrong too. We talked about the opportunity to link our two emissions trading schemes sometime in the future. Linking to other credible international schemes is in our national interest because it will help cut carbon pollution at the lowest cost. Obviously, we'll only allow trading of credible and high-quality international units. The independent Climate Change Authority, to be headed by former Reserve Bank Governor Bernie Fraser, will play a key independent role in this area.

Protecting our Environment and our Economy

Yesterday I was lucky enough to travel out to the Barrier Reef with marine biologist Dr Suzanne Long to hear first-hand how our precious ecosystems in Far North Queensland are being affected by climate change. Suzanne explained that scientists now know what is happening not just to the Reef, but to other connected ecosystems like the coastal wetlands and the Daintree Rainforest, and what kinds of damage will be inflicted by unchecked climate change. This includes increased coral bleaching, large-scale loss of bio-diversity, and more frequent and severe extreme weather events. She also explained that the scientific community knows equally well what needs to be done to prevent these disastrous outcomes – cutting carbon pollution. So all that remains is for us to get on with the job.

Of course, climate change isn't just a massive environmental threat – it's also a threat to local economies in Far North Queensland and around the country, which depend on keeping these vital ecosystems healthy to sustain local jobs and businesses. There's no doubt the economic costs of climate change will be felt right across the country if we fail to act in this critical decade. For example, just imagine what will happen to food prices and the costs of living if we let climate change destroy the Murray-Darling foodbowl. It's not a question of whether we should act on dangerous climate change; we simply cannot afford not to act.

Getting the Facts on Climate Change

The Prime Minister has talked about wearing out her shoe leather to explain our plan to move Australia to a clean-energy future. Certainly, everyone in the Government is also out pounding the footpaths and talking about the importance of this transition. Like any big reform, it's natural that some people will feel anxious about the change – particularly given the barrage of exaggerated claims and scare campaigns from vested interests. Whatever your opinion or even if you don't yet have one, I'd encourage you to use the announcement of the Clean Energy Future plan last Sunday as an opportunity to think again about this important issue. Get the facts. Do some reading – www.cleanenergyfuture.gov.au is a good place to start. In the years to come, you'll be able to look your kids and grandkids in the eye and tell them you supported the right decision for the economy and the environment.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 17 July 2011

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