The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 July 2008

Interview with Mark Bannerman

Radio National, ABC Radio

17 July 2008

SUBJECT: Carbon Pollution Reduction Scheme, Trip to New Zealand

BANNERMAN:

Treasurer, Wayne Swan, is in Wellington this morning. He’s taking a closer look at New Zealand’s proposed carbon trading scheme and he joins us now. Treasurer, good morning.

TREASURER:

Good morning, Mark. How are you going?

BANNERMAN:

Now, congratulations on what most people concede is a terrific political document, but will it cut carbon emissions?

TREASURER:

Well, it’s a very important policy document. This is a very responsible approach to the biggest economic reform of the generation.

BANNERMAN:

But will it cut emissions?

TREASURER:

Absolutely it will cut emissions. Look, cutting emissions is not cost free, and what we’ve put out there is our plan to cut emissions and what we’ve put out there for everybody to see and for everybody to discuss, is the impact that will have on the economy. What we’ve put out there are our proposals to assist people who are adversely affected. But this scheme, this carbon pollution reduction scheme, will reduce emissions over time. It’s long overdue. If we delay any longer the consequences for our economy in the longer term are catastrophic. So we’ve decided that there’s a right thing, the responsible thing: put up our hands to accept responsibility for dealing with this very tough challenge, and publish this Green Paper. And you’re right, we are going to consult widely with business and with households over the next few months on the contents of this Green Paper, and we will come back at the end of the year with our final proposals for the scheme.

BANNERMAN:

Okay. You say it will cut emissions over time. In the first year, how much carbon will it cut?

TREASURER:

Well, all of those issues will be discussed further when we publish our targets. You see what we’ve put out here for consultation is the design of the scheme, but what we will have when we have the Treasury modelling in October is the background information, and then we will talk to people about our targets and the number of permits. That’s all to come.

BANNERMAN:

Alright. But in the paper it talks about setting five yearly targets…

TREASURER:

That’s right.

BANNERMAN:

…leading up to say 2020, which seems to be something of a benchmark. But in the first five years let me ask you, notionally would you expect significant cuts in carbon?

TREASURER:

There’s no doubt there will be cuts in carbon.

BANNERMAN:

Significant?

TREASURER:

Well, I can’t answer that question at the moment until we publish our targets. We will do that when the modelling is available. What we’re putting out there in the Green Paper is the design of the Carbon Pollution Reduction Scheme. We will come forward later with the targets, the permit allocation, and so on. What we’re debating at the moment is the design of the scheme, and that’s the entirely responsible thing to do at this stage.

BANNERMAN:

But you can see why on that basis, given what you are saying to us today, the Greens are getting edgy. They are concerned that in the first period of this scheme not a lot might happen.

TREASURER:

And they will be able to make their commentary on that when we put the targets out there.

BANNERMAN:

They’re making it now.

TREASURER:

Well, they can make it now if they like, but we actually have to govern the country. We have to take householders into our confidence. We have to take the business community into our confidence. We have to have a sensible discussion, and what we’ve put out there is a preferred position on a Carbon Pollution Reduction Scheme. The targets will come later. Then the legislation will come following the finalisation of all of the proposals. We will be debating this for a very long period of time Mark, and that’s entirely appropriate. We can have that discussion in October, November and December, if you like.

BANNERMAN:

Alright. Well, I’m talking to the Australian Treasurer who is in Wellington today. Now, Wayne Swan, I understand all those things that you are saying, but when you look at the framework that you have laid out, what does Treasury tell you that electricity generation and heat production actually puts in in terms of the percentage of CO2 into the atmosphere? What’s that figure?

TREASURER:

Well, it’s a very significant figure.

BANNERMAN:

Well, what is it?

TREASURER:

I couldn’t tell you the exact figure. I haven’t got it in front of me. It is the biggest amount of emissions that are being put out.

BANNERMAN:

Okay. Well it’s over 50 per cent.

TREASURER:

That’s right.

BANNERMAN:

But you are proposing that in fact permits should be given to many of those companies and so, therefore, that’s the point of my earlier question. How will this affect their behaviour if they get permits and potentially free permits?

TREASURER:

No.

BANNERMAN:

Very little will happen.

TREASURER:

I don’t think that’s an entirely accurate read of what we’re saying in the Green Paper.

BANNERMAN:

Alright, well tell me then.

TREASURER:

Well first of all we’re talking about the energy-intensive, trade exposed sector. Let me just go through the various categories. The first category is the energy-intensive, trade-exposed sector. Those are the industries which are trading in international markets, and we’ve talked about an allocation of free permits there. But when it comes to strongly affected industries, which are particularly the generating sector, we have said we will provide some assistance which may include some free permits. But we are not going to be allocating willy-nilly free permits to strongly affected industries. We certainly will be providing a significant allocation to the energy-intensive, trade-exposed sector – the aluminium industry for example, the refinery industry. But when it comes to the strongly affected industries, we will sit down with them and look at the adjustment assistance that can be given responsibly within the scheme.

BANNERMAN:

So I get this clear, there may be some permits? Some is what you’re saying?

TREASURER:

That’s right. There may be some free permits in that sector, but we are not going to be allocating free permits, willy-nilly, to anybody. We’re not going to do that. That is one of the mistakes of the European scheme as your report earlier indicated.

BANNERMAN:

Okay. So, the shoe will be designed to pinch in relation to electricity generation?

TREASURER:

There’s no doubt that this will have a significant impact on electricity generation. The Green Paper makes that very clear and we talk about specifically an adjustment scheme to assist the electricity generating sector.

BANNERMAN:

Alright, because it’d be fair to say that the Premier of Queensland, Morris Iemma, the Premier of New South Wales, and also the Premier of Victoria will be banging down your door and asking you for permits to ease the way for these generators.

TREASURER:

Well, we’ve already said in the Green Paper we will be providing some specific assistance to electricity generation, but there’s no way we will be handing over willy-nilly free permits to that sector. It may be part of the eventual adjustment package that we reach with the sector, and there will be an adjustment package, but it won’t be one entirely composed of free permits. I can absolutely assure you of that.

BANNERMAN:

Now, I know you’ve been asked a lot about petrol and you’ve been accused of making a political decision in relation to petrol, and let’s not get into that. But let me just ask you, if you combine the permits you will give to those export-exposed industries or internationally-exposed industries, possible permits to power generation, and the fact that petrol will not be part of the scheme initially because there will be excise cuts, then don’t we have a big whole there?

TREASURER:

No we don’t have a big whole. When it comes to energy-intensive, trade-exposed industry, if we don’t provide special assistance there, they will simply move offshore and there will be no reduction in their emissions if they locate elsewhere in the world. Anyone with any real knowledge of the importance of this scheme and how it works absolutely acknowledges the importance of providing assistance to those industries. There are some people in this country Mark who want to close down those industries. This Government does not. We will protect them because they deserve protection, because we are going to manage our economy responsibly and they do deserve that support. But there are cost impacts right across the board and even for that sector there will be a gradual withdrawal of permits over time. So everybody, including the biggest businesses in the country, will be paying a price over time, but there does need to be special assistance to business in particular areas, just as there needs to be some protection for households who are impacted upon by changes in the price levels.

BANNERMAN:

And I understand that. But say you take transport. That’s another 20 per cent of emissions.

TREASURER:

But, Mark, we are including transport in our scheme. The Opposition is arguing that it be excluded. We’re including it.

BANNERMAN:

But because of petrol being quarantined you’re getting only a very small bang for your buck there aren’t you?

TREASURER:

Not at all. I mean, just look at what has happened to the price of petrol in the last six months alone. It’s gone up over 30 cents a litre. That is a dramatic impact. It has had dramatic impacts on motorists. It has had dramatic impacts on the behaviour of motorists as well as affecting household budgets. We are not going to add to that, or cause any good public policy outcomes, by further increasing the price of petrol in those circumstances. It’s simply madness for anybody to argue that in our current circumstances, and the likely outlook for the price of petrol, that we should be adding to those increases in the middle of this horrific situation with fuel in international markets.

BANNERMAN:

I accept that. But what happens though if two years down the track the price of petrol falls, actually falls. Does then the scheme go into reverse?

TREASURER:

No, what we’ve said is that if the emissions trading scheme is having an impact on the price we will review that impact periodically for the first three years. At the end of that period, we will then have another review as to where we go from there, because we are serious about including transport in the scheme. The opposition are going to not include transport in the scheme. They ought to just say so.

BANNERMAN:

But if petrol fell in price, according to your formula, is it possible that two years down the track we’re paying less for petrol than now, and therefore the increases that have come down, the change in behaviour that you’re talking about, won’t work?

TREASURER:

The change in behaviour – if you’re suggesting that somehow the price of fuel may crash or halve in the next six months…

BANNERMAN:

No, say 20 per cent. It’s gone down $10 over the last week.

TREASURER:

But it may have gone down $10 over the last week. It is still substantially up on any baselines you would like to choose and will remain there. Our commitment in the context of the introduction of this scheme is to adjust the excise where the impact of the scheme comes in the first three years.

BANNERMAN:

Alright. Treasurer, now going to the other ticklish issue, in terms of your modelling, we’re talking about if we put a price say of $20 on carbon, you get to a situation where it may have an impact of around 1 per cent of inflation, close to 1 per cent.

TREASURER:

0.9.

BANNERMAN:

0.9, fair enough. But what does the Reserve Bank do there? How does it deal with that? Because the instinct would be with a three per cent cap on its target for inflation, it might have to put up interest rates, mightn’t it?

TREASURER:

Well, I can’t speak for the Reserve Bank. They take their decisions independently. But Governor Stevens has made some commentary in public on this issue, and he’s made the very simple point that the one-off impact of the introduction of a Carbon Pollution Reduction Scheme would be looked through, to use his language, by the Reserve Bank. In other words he’s saying it would not necessarily be taken into account when they are making their decisions on what is occurring with inflation over the longer term.

BANNERMAN:

Alright. In terms of the modelling though, at $20 a tonne, 0.9 per cent inflation, would you be comfortable with that flowing through? And say you double it to $40 a tonne, you’re getting up to around two per cent. I mean at what point do you get uncomfortable as the man who runs our economy?

TREASURER:

Well, this is the reason why we have to have some essential assistance to households on the one hand and also to businesses on the other. Because there’s no cost free way of tackling climate change. I mean, we make that very clear. The Opposition somehow pretends that it’s cost free to address climate change. They’re out there saying that what we’re producing is a tax, but on the other hand they’re saying that they’ll do the same thing a year later without any cost impact. I mean, I challenge Brendan Nelson to tell us how you can introduce this scheme without having any price rises.

BANNERMAN:

Well, we may get to talk to him about that later. But I suppose that’s the value of being in Opposition. You’re in Government.

TREASURER:

Too right, and that’s why we’ve put up our hand to tackle this challenge, something the previous government wouldn’t do over 12 long years.

BANNERMAN:

Alright. Now, you’re in New Zealand. You’re in Wellington, and you’re looking at the introduction of a scheme over there, an emissions trading scheme. What do you imagine you might learn there? Is there something you can learn do you think?

TREASURER:

I’m sure there’s always something you can learn and that’s why I’m here, but I haven’t had any of my meetings as yet. I mean I’ve spoken to Dr Cullen before about these issues. I mean New Zealand is particularly interested given its dependence upon agriculture for example. And as you know agriculture may join our scheme later. That’s the wish of the industry at the moment. There’s certainly a lot to be learnt here about that. But I don’t want to pre-judge the outcome of what they may say to me here today.

BANNERMAN:

Alright. Well, we wouldn’t want to do that Treasurer. Listen, thank you very much for joining us today.

TREASURER:

Good to talk to you.

BANNERMAN:

Okay, good to talk to you.