ALY: For more, the Minister for Finance, Penny Wong, joins us from the ABC Adelaide news room. Penny Wong, good morning.
WONG: Good morning Waleed.
ALY: If you, meaning the Government, believe as you repeatedly said yesterday that a market based mechanism is the lowest cost method of reducing carbon emissions, why is there so much reliance on non market based mechanisms that the Productivity Commission specifically said were inefficient, like pumping $10 billion into renewable energy subsidies?
WONG: Because what we are looking at is a transformation of the Australian economy. An economy that will move to clean energy, a massive transformation in the years ahead. And we need a lot of policies to help press that transformation, to move to Australias clean energy future.
And so they include a carbon price mechanism, so that you make polluters pay, and you give an incentive to invest in clean energy, additional assistance for renewables and other clean energy, as well as improvements in the land sector so we can get landholders being part of the solution as well.
ALY: I understand your point about transition, but presumably the Productivity Commission understood that point as well, and yet deemed that this was an inefficient way to go about it. Is there a specific reason that you would not take their advice on that?
WONG: The inefficiency is in the alternative thats proposed, which is simply taking $720 a year from Australian households - this is Mr Abbotts policy - and giving it to polluters, and hoping that might do something. Remember, all of our policies in the framework of putting a price on pollution to give a clear signal to business that they need to reduce their pollution, and a clear signal to investors not to invest in dirty and polluting businesses, but to invest in clean energy and cleaner ways of doing business.
ALY: Sure, but youre taking a fair whack of the direct action plan that Tony Abbotts talking about yourself, in the form of for example putting carbon into land, paying farmers essentially to do that, the investment into renewables weve spoken about, this is Government money that goes out, separate from a market based mechanism, to deal with the problem of climate change. Really a similar sort of political calculus -
WONG: Absolutely not -
ALY: And a similar sort of theoretical idea -
WONG: Absolutely not Waleed, I dont agree with that, and thats because our plan is a coherent plan where there is a price on pollution. You see, with Tony Abbotts plan, you could have taxpayers funds going into one factory, making that cleaner, and then a new factory next door starting up, being just as dirty or dirtier, and polluting just as much or more. So you get no benefit for the taxpayers funds.
Our plan, it is true we put money into renewable energy; its true we put money into energy efficiency, and its true we put money into the land sector. But it is also true that we put in place a price mechanism. A price mechanism that gives the incentive not to build a factory, not to increase pollution, not to build a factory that is investing in dirty ways of producing things and in dirty energy.
ALY: So those investments that youre making, youve mentioned them, renewable energy, land, so on, is that an admission really that the carbon price that youve set is too low to reach the emissions reduction targets, and that it will have to increase significantly if this scheme is ultimately to be sustainable?
WONG: No, its a recognition that you need a number of policies to give effect to this transition to a clean energy future. The core of it is a carbon price, but you also need a massive transformation of your energy sector, thats where most of the reductions in emissions will come from. And we need to put additional funding to get more renewables off the ground.
Remember we already have a 20 per cent Renewable Energy Target, thats going to drive about $20 billion worth of investment in renewable energy. But we need to do more. We need to invest even more to gain that transformation, and thats what these policies will ensure.
ALY: But I guess what Im asking is, for how long are you going to invest that? Because you cant just keep pumping money into that area. At some point youve got to let the market mechanism or the pricing mechanism take over. So doesnt that price then have to rise to a level where thats able to be done?
WONG: Weve laid out a plan yesterday, the Prime Minister laid out her plan. A plan that is, as I said, put a price on pollution, invests in clean energy, invests in the land sector, moves Australia to a clean energy future, and gives tax cuts. Tax cuts to Australians, particularly those earning up to $80,000 a year, who will all get a tax cut.
But whats important here, is weve laid out a plan. There are different years associated with different funding mechanisms, Waleed, and thats all laid out in the policies which weve announced. But I think whats important to understand is you need a range of policy mechanisms, but you absolutely need a carbon price. Thats the centre of this, and thats what the Governments putting forward.
ALY: A huge amount of the carbon abatement in this scheme comes from purchasing permits from overseas. How are you going to ensure the quality and veracity of those permits?
WONG: That is a good question, and thats something the Prime Minister specifically addressed yesterday, that we will ensure the quality of the credits which are purchased overseas. I notice that the Opposition is saying this is a bad thing. What theyre actually saying is, if theyre really saying we shouldnt allow Australian companies to purchase abatement overseas, what theyre really saying is we want a higher price here in Australia.
Remember, climate change is a global problem, and if we can give people here an incentive to invest in things overseas which are credible, which reduce emissions in developing countries, thats a good thing for Australia.
ALY: When we spoke just after the Federal Budget in May, you said that we could trust the figures that youd put forward on that occasion because although the carbon tax wasnt included in the budget it would be budget neutral. We now know its definitely not, to a significant degree, something like a 20 per cent differential. What happened?
WONG: I dont know where you get the 20 per cent figure from, Waleed, I dont agree with that. There is a -
ALY: Well Im saying $4 billion, itll cost $4 billion more than youll raise, and youre raising $17 billion, so thats roughly 20 per cent, 25 per cent.
WONG: When its up and running, youll see the scheme is, theres a very modest impact in the forward estimates on the budget. In the first year, the upfront cost for 2011-12, there is about a $2.9 billion impact, that is the case. But thereafter youre looking at a fairly modest impact on the budget. So, up and running, the scheme is broadly budget neutral. And in terms of accounting for it, we will account for this policy, as we do for all policies, in our next budget update.
Remember, at the budget time, we hadnt announced price, we hadnt announced all of these policies, they had not been finalised. It wouldnt have been responsible to put them in the budget when they hadnt been finalised. As is the usual way, as John Howard did when he announced the GST, we will update the budget figures after this announcement.
ALY: Sure, but you were insistent that we neednt worry because of budget neutrality, because of revenue neutrality, and so clearly thats changed. Was that just a misjudgement on your part at the time of the budget?
WONG: I think Ive answered that question. There is an upfront cost, as you would expect for a reform of this size. But when the scheme is up and running, it is broadly budget neutral, theres a modest impact over the forward estimates. The scheme is consistent with our fiscal strategy, we will ensure that it is consistent with our fiscal strategy, and well update the figures in the usual way.
ALY: Penny Wong, we have to leave it there, thanks for your time.
WONG: Good to speak with you, Waleed.
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