Address to the Sydney Institute
19 May 2021
Thank you Gerard for that introduction and thank you for the work you do. The Sydney Institute plays such an important role in facilitating the public policy debate we have across Australia.
It is great to be back. I have spoken here a number of times and I very much appreciate the work you do.
I should declare my interests in saying good things about The Sydney Institute – which I do all the time – is that my wife is on the board! [Laughter]
Tonight, I will talk about the principles and values that underline our approach to emissions reduction and energy policy.
I think going back to principles is always important because it helps people to understand what you are doing and why you are doing it, and what is important to you.
Around the world, right now we are seeing blue collar workers and rural and regional communities shouldering much of the burden of climate action.
It is their jobs, their industries, their homes and their futures that are being offered up, often, to reduce emissions – usually by those with much less at stake.
To adapt a line from Churchill: “Rarely has so much been asked, by so many, of so few.”
I believe that approach is neither fair nor sustainable.
There comes a point where this endless ask for sacrifice becomes too great – the costs and intrusion into people’s lives go too far – and the contract between workers, communities and government breaks down.
Political wars will continue to be waged until the world finds a way to reduce emissions without causing economic harm and dislocation.
The role of a member of parliament in a democracy is to give voice to the concerns and aspirations of their constituents. To not speak out, to accept community losses and suffering silently in service of some greater good, is a derogation of their responsibilities.
Speaking up for your community does not make you a denialist, as some in the Labor Party, Extinction Rebellion and extremists like to make out.
It makes you a representative responsive to the people you are elected to serve.
As with all things, Labor has sought to solve this particular set of problems that I am dealing with every day through redistribution – taking from one to give to another through even greater taxation until all that is left is the hollow shell of a once vibrant, thriving society.
In its place, a monolithic modern state.
And Menzies was asked whether we are for the subordination of the individual to the officialdom of government or believe that government is the servant of the people.
That question is very real in this context.
The pathway of sacrificing industries, jobs and regions is not acceptable to us as a government. Nor is it acceptable to the Australian people.
The science on climate change is clear – man made emissions are having a real and serious impact.
We must act in a practical, responsible way that is in our national interest.
There is an alternative approach to that being offered by the left – one that recognises that bringing down emissions, but without imposing an unfair economic burden on those in our society who can least afford it is the right way to go.
Without needlessly destroying jobs in our traditional industries, or denying a prosperous, secure and happy life to all Australians, and people around the world, particularly in developing countries.
It is an approach that is founded on traditional Liberal Party values of freedom, choice, enterprise and reward for effort - centred on technology, not taxes.
And that approach has five core principles in reducing emissions and driving energy policy:
- Focus on technology not taxes,
- Expanding consumer choice - not restricting,
- Partnering with the private sector to bring a portfolio of low emission technologies to parity with their current alternatives,
- Maintaining a historical advantage in affordable and reliable energy, and
- Setting goals that are ambitious but achievable, and then beating them.
Let me start with the first of those principles, and perhaps the most important which is technology not taxes.
The reality is that despite three major international treaties and the best efforts of governments and communities, entrepreneurs and investors, global emissions are higher now than they were before the pandemic, and higher than at any point in our history.
Now it is true that some countries – mainly a few very high income nations like the UK – who have managed to reduce their domestic emissions very aggressively in recent years.
But this has been driven, at least in part, by the forces of globalisation.
An ever-increasing share of global manufacturing, steel production and oil refining has shifted to Asia while European economies, and to a lesser extent the US, have shifted towards services and advanced manufacturing.
These sectors are much less emissions-intensive to begin with, and much cheaper and easier to decarbonise.
But while a few nations’ domestic emissions have fallen, global energy use has increased by more than 40 per cent since 2000, and emissions have risen by a similar amount.
And they’re projected to keep on growing.
In fact, if developing countries achieve their 2030 Paris targets, emissions from developed countries would need to fall more than 200 per cent over the decade to keep the world on the narrow path to 1.5 degrees.
Think about that for a moment.
Developed world emissions would need to fall from around 14 billion tonnes a year to net zero, not by 2050, but within the next few years.
Then, by 2030, we would need to be permanently sequestering as much CO2 as we currently emit every year.
This is fantasy.
It’s a recipe to repeat the failures of the past, of Copenhagen and of the Kyoto Protocol.
But I’m not saying all is lost.
Rather, this is a global problem in need of a solution that works across the world.
We need to make net zero practically achievable for all countries.
I have followed this debate for many years.
I recall reading the pioneering work of the Nobel Prize-winning economist William Nordhaus back in the 80s.
When I worked at McKinsey in the 90s, I was close to the development of abatement curves which are central to thinking about this issue today, still.
And I read the Stern and Garnaut reviews from cover to cover when they came out in the 2000s.
Over time, I have come to the conclusion that there are really only two ways to reduce emissions.
One is technology, and the other is taxes.
One is innovation, the other is elimination.
We can harness great innovators, engineers and enterprising organisations to bring low emissions solutions to the market at costs that are intrinsically attractive to investors.
Or alternatively, we would need to suppress and close energy-intensive sectors of our economy and the well paid, secure jobs they provide.
As well as deliberately imposing costs on the industries this approach would hurt the most-exposed to global competition,
Finally, on top of that, carbon taxes are regressive.
Their burden disproportionately effects blue collar workers and those who live in the regions, over those work in inner urban areas and work in service industries.
Carbon taxes disproportionately hurt lower income earners, because energy is a higher proportion of their household bills.
Efforts to compensate this through rebates or welfare are inefficient and expensive.
Canada has recently committed to a carbon tax of $170 dollars a tonne by 2030.
That tax will increase energy prices, reduce economic activity and with it, put more pressure on government finance.
By 2022, the price will be $50 per tonne on its way to $170, but that in itself will cause:
- Fuel prices to increase by about 8 per cent.
- Gas prices to increase by 75 per cent, and
- The price of coal to more than double.
Policies like these make it harder for businesses to grow and compete.
Instead of imposing new taxes and expanding government’s reach into the lives of every Australian through a new ‘money go round’, our goal should be to remove the ‘green taxes’ associated with new energy technologies.
Once the new technological solutions are at parity with current higher emitting alternatives, they will be adopted. That’s how our economy works.
How long it takes to get them to parity, will determine how quickly Australia, and the world, can reduce emissions without destroying jobs and economic opportunity.
Let me turn to the second principle – expanding consumer choice.
It’s also important to recognise that carbon taxes come in many forms. A straight-up tax or an emissions trading scheme are obvious examples.
But vested interests will also try to use a technology-led approach as cover for subordinating the individual to the dictates of government.
And there are many more ways to implement what I like to call a ‘sneaky’ carbon tax, by reducing consumer choice.
For example. Requiring Australians to purchase a certain number of electric vehicles is just a sneaky tax.
To illustrate this, Labor’s policy before the 2019 election, was to require car dealers to sell a certain share of electric vehicles. They were going to impose that requirement.
Independent estimates of the cost of that on a new vehicle was just under $5,000 on a typical vehicle.
It doesn’t look like a tax – but it is a tax when you go down that path.
Imposing quotas for particular technologies or fuel sources, is just a sneaky carbon tax.
Instead, government should support and expand consumer choice, consistent with our belief in the rights and freedoms of individuals.
We see an important role for government in supporting early-stage innovation, research and development through organisations like CSIRO, ARENA and our universities.
That is central to the approach we a taking in our Technology Investment Roadmap – investing in technologies that offer the potential for lower emissions without additional costs, without imposing economic burdens.
To do that deployment must be led by the private sector, with government serving as an enabler by:
- Supporting targeted infrastructure,
- Ensuring transparency, and facilitating choice and accountability
- Facilitating voluntary mechanisms for emissions reduction
- Facilitating the entry into the markets of technologies that are approaching parity, that aren’t going to cost consumers extra – as they approach that level, government can play a role financing, or purchasing low cost abatement.
Government’s role ultimately is to knock down barriers to deployment so that customers can benefit from the advantages of those lower-emissions technologies.
And there are many examples of where can do that.
Examples include certification of clean hydrogen, so buyers in Australia and overseas can have confidence that the energy they are purchasing is in fact low emissions.
Our $71.9 million Future Fuels Fund is all about making targeted investment in infrastructure so that households and businesses can buy an EV or a hydrogen-fuelled vehicle, if they choose to. We need to make that choice possible by investing in the right infrastructure.
The Emissions Reduction Fund is one of the world’s largest and most rigorous carbon offset schemes.
Indeed, when you travel around the world as an energy minister, you are often asked about that program. It is seen as absolutely best in class around the world.
It’s delivered more than 88 million tonnes of abatement, including a record 16 million tonnes last year.
And voluntary demand for Australian Carbon Credit Units or ACCUs, grew 76 per cent in 2020.
Supporting the development of markets with integrity is consistent with our values as Liberals.
But the difference between a voluntary approach and a carbon tax – whether sneaky or explicit – is that it won’t reverberate through our economy.
It won’t risk carbon leakage and job losses by imposing new costs on those who can’t afford it.
It won’t raise energy prices.
And rather than restricting consumer choice, we are seeking to enable it.
The third principle is bringing a portfolio of technologies to parity.
Now we clearly need if we are going to bring emissions down without imposing costs on the community, on society, on Australians, we need more horses in the race.
That’s the approach our Technology Investment Roadmap takes.
That’s why we’ve expanded ARENA’s mandate, only today, so the agency can support the full next generation of energy technologies.
And that’s why we are investing $20 billion in the next generation technologies that will drive over $80 billion of total investment. We know that from the co-investment from the private sector that we have been getting from these areas to date.
This will create 160,000 jobs, more than half of these in regional areas.
The Roadmap has a framework for prioritising technologies based on their global abatement potential, but also Australia’s comparative advantage and the scale of the potential economic benefit.
Can we get this to be a technology where people will choose it because it makes sense for them.
Our first, annual technology statement sets economic goals across five priority technologies:
- Hydrogen at less than $2 per kilogram,
- Long duration energy storage, to firm wind and solar at today’s wholesale electricity prices,
- Low carbon steel and aluminium, at the cost of today’s production,
- Sequestration from carbon capture and storage down to less than $20 per tonne, and
- Soil carbon measurement which has the potential to unlock enormous productivity at less than $3 per hectare, a 90 per cent reduction on historical costs.
The Government will also maintain a watching brief on emerging technologies with great promise that are still in the early stages of development, like small modular nuclear reactors.
Because a technology-led approach means keeping all options on the table.
Not restricting the choices, not restricting the portfolio as Labor seeks to do regularly in the Parliament – we are making sure we have as many open to us as possible.
The Government is actively engaging with countries like the US, UK, Germany, Japan and Korea.
And our former Chief Scientist, Alan Finkel, is leading our efforts to attract international investment to Australia and alongside Australia in these energy technologies.
Now the next principle is one that is very dear to my heart, and is really in many ways my highest priorty as energy minister and that is maintaining Australia’s competitive advantage in affordable, reliable energy.
Margaret Thatcher declared that it is: “prosperity which creates the technology that can keep the earth healthy.”
This continues to resonate today because it is true.
Our natural resources – coal, gas, uranium, water and wind, as well as sun of course – are abundant and in combination, almost unrivalled.
Australia has built some of the world’s largest and most successful energy supply chains into Asia – and we will continue to.
But our prosperity will be undermined if we pursue decarbonisation at the expense of reliable and affordable energy.
It is a folly to think that we can reduce emissions by restricting agriculture, coal or gas exports.
This won’t reduce global demand for those products. It simply won’t do it.
Until clean energy solutions are cheaper than their existing approaches, any supply gap will be filled by our competitors.
But as the economics of these new technologies change, energy systems can rapidly transform.
We’ve seen this first hand with solar, where underlying, unsubsidised costs of household solar have fallen dramatically - around 90 per cent over the last decade.
Australia is now deploying particularly household solar at a rapid pace, but all wind and solar is being deployed 8-10 times faster per person than the global average.
We have the highest levels of household solar in the world. One in four houses. You only need to go out to the western suburbs of Sydney to see the extraordinary uptake in that area.
And it is being driven increasingly by underlying economics, because of cost reductions.
A rising share of intermittent generation makes dispatchable, on demand generation more important than ever before.
Ideally we want to see the private sector making investments in that complementary dispatchable generation - that firmed generation that we need.
But we’ve seen distortionary incentives from state governments and breakneck pace of change.
In New South Wales (NSW) for example, we are seeing some change in recent times.
Energy Australia’s commitment to build a new gas-fired peaker at Tallawarra is the first investment in dispatchable generation in a decade.
But to keep prices low and ensure reliability, much more capacity is needed.
That’s why the Government announced today our investment in a new gas fired generator at Kurri Kurri in NSW, a major new project desperately needed as the NSW grid comes under increasing pressure.
We’ve seen that even in the last week where the Tomago Aluminium Smelter had to be turned off three times for between two and three hours to be able to absorb the changes that are taking place in our grid.
It’s why we are investing in Snowy 2.0 and Battery of the Nation in Tasmania.
So in the short term, we’re stepping in – but as the private sectors steps up, we will always step back.
And the 2025 market reforms in the National Electricity Market we have announced in recent weeks are all about sending the right investment signals to get that firm, dispatchable generation into the market alongside that record level of investment we are seeing in renewables.
We need to ensure that households, small businesses and industry continue to have access to affordable gas.
Our LNG supply chain to Asia has rapidly become one of our largest exports. We are the biggest exporter of LNG in the world. It is reducing global emissions by up to 165 million tonnes annually by displacing more emissions-intensive fuels.
Here we are – the biggest LNG export sector in the world is reducing emissions in our customer countries, and they need it for that amongst other purposes.
We have got to take advantage of our ample gas resources to capitalise on recent gains in our local manufacturing sector and our emerging hydrogen industry.
That is the essence of the gas-fired recovery.
Finally, I turn to my last principle. Ambition is important, but outcomes are what ultimately matter.
As John Howard once said: “I would rather promise half of what people might want and honour 100 per cent of it, than commit myself to everything and deliver only half of it.” What a great quote.
Many in corporate Australia are only now discovering what we in the Coalition have appreciated for a long time.
If you don’t have a plan to achieve your commitments, activists and special interest groups will hand one to you.
And that is a recipe for non-durable solutions.
Every year since we came to government in 2013, our forecast position on emissions reduction has improved.
While others walked away from Kyoto - countries like New Zealand and Canada - we stayed in. And we beat our targets last year by more than 459 million tonnes.
Emissions are now 19 per cent below 2005 levels, and between 2005 and 2018 we reduced emissions faster than peers including Canada, New Zealand, Japan and the United States.
We are on track to meet and beat our 2030 target and I look forward to releasing updated forecasts later in the year which will show further improvements.
The last time I addressed you in 2018, I noted the public’s lack of trust in politicians and government.
Australians have a healthy cynicism of politicians and their government.
And only today the International Energy Agency has pointed out the yawning gap between ambition and rhetoric, and what’s really happening on the ground.
That’s why a real plan to deliver on commitments is so important.
The alternative is for the many to continually ask the few to make even greater sacrifices.
I believe we are now in a rare window for bipartisanship, if only because there is no other approach.
Unlike our response to the pandemic, our response to this challenge cannot be temporary.
It needs to be sustainable – politically and economically – for many years.
I believe that our Liberal values are as relevant to the role of government today, as at any time in our history.
Those values are particularly important in a portfolio like mine, where left wing values have dominated.
And focusing on what works for all Australians – whether they’re in cities, suburbs or regions – is more important than ever.
Our values may not always be fashionable, but they work, and that’s why we remain committed to them.