Speech - Australian Industry Group 12th Annual Economic Forum

AUSTRALIA'S CLEAN ENERGY FUTURE PACKAGE:

A POLICY FOR FUTURE PROSPERITY

AUSTRALIAN INDUSTRY GROUP 12TH ANNUAL ECONOMIC FORUM

11 APRIL 2012

Introduction

It's great to be asked to speak at the Australian Industry Group's twelfth Annual Economic Forum. Ai Group plays a fundamentally important role in Australia's economic debate.

The topic of this conference, ‘achieving growth in difficult times', is an important one.

It's important because while Australia is doing very well by international standards, the global economic outlook is uncertain and domestically many businesses are suffering as a result of the strong dollar.

Today I want to talk very briefly about the way in which this Government is fostering economic growth though our productivity agenda and I want to explain how our approach to tackling climate change is part of this agenda.

By acting now - and by acting in the most efficient way by making an emissions trading system the lynchpin of our strategy to address climate change - we are making sure that we secure prosperity for the long term.

The global outlook

There is no doubt about it, in recent times we have lived through the worst global economic downturn in three quarters of a century.

As a result of the global financial crisis and the global recession in many countries, growth shuddered to a halt and unemployment soared.

In USA and the UK today the unemployment rate is still above 8 percent while in Spain and Greece more than 20 percent of the labor force is unemployed.

Many advanced economies contracted in the December quarter, including 4 out of the 7 major advanced economies - Germany, UK, Italy and Japan.

While we have not been immune to the continuing global uncertainty - and currency appreciation is putting parts of the economy, especially manufacturing, under significant pressure - our economy is in an enviable position.

Australia has solid growth, contained inflation, low unemployment - at around 5 percent, a sound financial sector, a triple-A credit rating and low public debt.

Much of this can be attributed to the Government's decision to introduce stimulus during the global financial crisis to keep the economy growing.

In the longer term we are well positioned to manage our economy by continuing our investments in the drivers of productivity - skills, training and infrastructure - and continuing to carefully withdraw stimulus from the economy by returning our budget to surplus next financial year.

As Paul Krugman once wrote, ‘Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.'

To drive productivity in the long term we have made a range of landmark investments - take just a few examples.

We have almost doubled investment in school education, upgraded facilities at every school and created 130,000 new training places tailored to the needs of industries and regions.

We have also thrown open the doors of our universities to new students by creating an additional 100,000 places since 2007. In 2012 there will be more than 500,000 undergraduates studying at Australia's public universities. This means a dramatic up-skilling the nation's workforce.

And our investments in the NBN mean that affordable, high-speed broadband will be available to Australians and Australian businesses no matter where they're based. This is about giving Australian businesses a massive global marketplace and providing a platform to innovate.

There are also profound opportunities for Australia arising from the global shift in economic weight to our region.

In 2009, there were around half a billion middle class consumers in the Asia-Pacific region. By 2020, this is expected to rise to 1.7 billion people, as growth in economies like China and India lifts those populations out of poverty. So although the focus today is on Asian demand for Australia's resource exports, these economies will also become major new markets for our agricultural, manufacturing and services exports.

Our Australia in the Asian Century White Paper, to be published later this year, is looking at what the Government is already doing and what we can do to best take advantage of our geographical position.

And our efforts to tackle climate change will help us take part in what will be a growing part of our regional economy - a cleaner, low carbon economy.

A clean energy decade

The Government's Clean Energy Future Package - which is the Carbon Price and its range of associated programs - is a critical driver in the effort to improve and maintain Australia's economic competitiveness.

This is a structural reform as significant as the reforms of the Hawke and Keating governments of the 1980s and ‘90s.

A carbon price will induce sweeping technological change in the Australian economy in the decade ahead and beyond by rewarding businesses that innovate to develop cleaner technologies and processes.

By getting the broader framework for pricing carbon right, Australia will enable discovery and new ways of delivering high-quality goods and services in an economy using cleaner energy and more efficient, low pollution production processes.

With the carbon price initially set at $23 per tonne of carbon pollution, it is designed to create an incentive to cut pollution at an industrial level on an industrial scale. This has already begun to drive change among companies with and without a liability. 

A good example is major plastics manufacturer Qenos, in Altona, is building Australia's largest co-generation plant in a decade to reduce its carbon pollution by 100,000 tonnes a year - the equivalent of 24,000 cars off the road.

It'll save substantial amounts on energy costs by generating electricity from its own waste heat when it becomes operational later this year.

Qenos CEO Jonathan Clancy says "this project is a further demonstration of the power of cooperation between industry, government, employees and the community...This is an investment in real sustainability.

"It also helps Qenos remain competitive as Australia prepares for a carbon constraint."

We cannot ignore or hide from the significant shift to cleaner energy sources and lower pollution industries by our global economic competitors. This shift is driving substantial investment in industrial innovation.

Thirty-two countries already have an emissions trading scheme in place.

This includes the UK, New Zealand and the whole of Europe. Some of these countries also have their own carbon price or pollution tax as well.  California, the world's eighth largest economy, started its emissions trading scheme this year.

And the biggest economy in our region, China, is deploying renewable energy at an astonishing rate. China is also about to pilot emissions trading schemes in 7 provinces covering 200 million people. It has prioritized climate change in its latest 5 year plan.

Australia is in no danger of going it alone.

The danger is that if we fail to act now, we will fail to grasp business opportunities, fail to modernize our processes and products and will not be able to secure our share of the growing clean economy.  The clean energy and low pollution technology, goods and services market was estimated to be worth $US5 trillion dollars in 2009 and is growing rapidly.

A global legally-binding agreement

At the United Nations climate change negotiations in Durban, South Africa, last year there was a significant breakthrough that was not widely or well reported back here in Australia.

It's crucial to the forward planning and business strategy of all AIG members and all Australian businesses to know and understand the importance of what happened there ...and explains why Australia needs to get moving.

China, the US, India and all other nations agreed that there would be a framework for a legally binding, global agreement by 2015 to reduce the world's rising pollution levels in order to slow down or avoid dangerous climate change - and by 2020, this is likely to mean a globally binding treaty.

Climate Change Minister Greg Combet has just returned from negotiations in Europe and will soon head to China and the US. I am about to visit Japan and Europe for similar negotiations.

A global agreement on carbon pricing is underway and the only economically responsible path is to be part of that.

Our major regional trading partners - in particular China and India - expect us to be part of this. We are, after all, the highest emitter of carbon pollution per person in the developed world.

By introducing a carbon price, along with targeted support for industries and households that need help to make the adjustment, Australia is beginning a well-planned and very carefully calibrated transition to a cleaner energy economy.

Under the scheme, the carbon price and its programs will be regularly reviewed by an independent body to make sure they are effective in driving change but also responsive to prevailing economic conditions. By 2015, with a legally-binding global agreement coming into view, Australian businesses will have begun adapting, innovating and modernising within a very supportive, stable framework.

As a Labor Government, we understand very acutely the need to transition existing industries over a number years - not overnight - to ensure jobs, businesses, living standards and the economy continue to grow.  

But make no mistake - if we do not make this change now with a carefully paced trajectory, we will still have to make the change.

To those who think it is acceptable to hold off till 2015 or 2018 let me say this: the potential economic shock caused by late action, by trying to transform Australia's economy overnight, will do untold damage to jobs, communities and business. We would run the very real risk of being expensively stranded in a world that has left us behind. 

The clean energy future package

With the right incentives in place under the Clean Energy Future package, low pollution growth represents a significant economic opportunity.

In designing the package, we worked closely with a range of industries - from electricity generation and aluminium production to steel making and meat processing.

While the Carbon Price is the centrepiece of the Federal Government's Clean Energy Future plan, all of its revenue will be invested in new and existing industries and to cushion households through this adjustment

I want to talk a little about these investments because they will aid the development of new technologies and processes which will yield long term economic benefits.

Traditional industries

To help industries adjust, the Federal Government is allocating $12 billion dollars from the Carbon Price revenue to support jobs and assist businesses.

As I'm sure you know, the Jobs and Competitiveness Program will ensure a manageable shift to a clean energy future for trade-exposed businesses such as steel, aluminum, cement and zinc which are constrained in their ability to pass on costs because their prices are set in global markets.

Manufacturing activities which do not meet ‘emissions-intensity trade-exposed' thresholds under the Jobs and Competitiveness Program will be provided with other support during the move to a carbon price.

Energy efficiency is regarded as the "low-hanging fruit" for most businesses - and households for that matter - and it's where innovations are expected to emerge in the early stages of the clean energy transition.

Energy efficiency has a two-fold benefit of reducing pollution and saving money which can be invested more productively.

Longwarry Food Park is a dairy processing company in Victoria and provides a great example of how to save energy, cut pollution and free up money for more investment.

Longwarry exports longlife milk and milk powder to 30 countries around the world. Ten years ago it had a turnover of $1 million, with high energy costs second only to the cost of raw materials.

The company decided to transform itself into a highly energy efficient operation and now makes a saving of 25% on energy bills despite increasing electricity costs. It has also reduced its carbon pollution by 25% or 19,000 tonnes a year, and has increased production by 300% since 2001. Last year, it had a turnover of $85 million.

Payback time for the various upgrades to the plant range from 6 months to 5 years. The company has made effective use of a number of previous government grants to achieve all this.

As you are no doubt aware, through the carbon price revenue, the federal government is providing a $1.2 billion  Clean Technology Program to help improve energy efficiency in manufacturing and support research and development in low-pollution technologies. Companies such as Longwarry would be eligible under the Food and Foundries category and is a good example of how to make the most of such grants.  (source ClimateWorks Australia)

With co-contributions from industry, the Clean Technology Program is projected to generate $4 billion of investment.

Small business

The Government has also established the $40 million Energy Efficiency Information Grants program to provide information to small businesses and community organizations on practical measures to reduce their energy costs.

Clear information from trusted sources is vital to small business. This program will be delivered through grants to industry associations and non-government organizations which have established relationships with small businesses and community organizations.

Small businesses will not have to count or monitor their carbon pollution or electricity use. They will not have to fill in a single form as part of the carbon price reform.

While most small businesses will not be materially affected by the carbon price, the federal government understands the huge contribution small business makes to our economy, which is why we will extend the small business instant asset write-off threshold to $6,500.

This will boost cash flow and help small businesses to grow and invest in more energy efficient assets.

Renewables

To complement the effect of the carbon price, about $13 billion of revenue will be used to develop our renewable energy technologies, jobs and industries.

This approach - building the industries of the future - is a key element of our productivity agenda.

The Clean Energy Finance Corporation will invest $10 billion in businesses seeking funds to get innovative clean energy proposals and technologies off the ground. It will also invest in the transformation of existing manufacturing businesses to re-focus on meeting demand for inputs for these sectors, for example, manufacturing wind turbine blades and solar photo voltaic panels.

The Australian Renewable Energy Agency will administer $3.2 billion in existing Government grants for research and development into renewable energy technologies and initiatives to bring them to market.

The work of these two agencies will be complemented by the Renewable Energy Target introduced 2 years ago, which will requires Australia to purchase 20% of its electricity from renewable sources by 2020. 

Together the Renewable Energy Target and the Carbon Price are expected to leverage around $100 billion in private sector investment over the next four decades.

The future

As a nation we cannot bury our head in the sand.

I hope that today I have been able to explain that the world is taking action on climate change.

Taking action on climate change is not just about acknowledging that as an international community we need to act collectively to safeguard our environment. It's about moving quickly to secure our place in a growing part of the global economy.