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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2023-08-29 Daily Xml
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Statutes Amendment (National Energy Laws) (Emissions Reduction Objectives) Bill

Committee Stage

In committee.

(Continued from 27 June 2023.)

Clause 8.

Mr PATTERSON: In this clause, it talks through when the amended objective is due to take place for particular matters and it talks through relevant revenue determinations already going through as part of that clause. Of course, SA Power Networks are also currently preparing their next regulatory period throughout this time, so they have been through engagements with the community statewide.

The legislation that includes emissions reductions as part of the objectives will take effect before SAPN's next revenue determination, and so of course you would expect SAPN to already be incorporating emissions reductions into their investments and decisions. Can the minister inform the committee what discussions you have had with SA Power Networks in regard to this amendment bill, and what their feedback has been?

The Hon. A. KOUTSANTONIS: Alas, your predecessors have not put me in a position where I do have these direct discussions with SA Power Networks. As the previous owner of the SA Power Networks, the current owners will not negotiate with the South Australian government about their regulatory frameworks; they will negotiate with the market bodies and ESCOSA. What this framework does is give SA Power Networks and the market bodies a framework to work towards, taking into account carbon as they do their regulatory framework. It is no different from them maybe potentially considering reliability or their asset renewal program, so it is no different from any other consideration that any other market body requirement or obligation that they place on it.

My discussions with them about this—remembering this is a national reform, so this is going on across the country—are not so much what the state-based energy ministers are saying; this will now be about the market bodies speaking to SA Power Networks about their regulatory considerations and their applications on the basis of taking into consideration of carbon. I think the question that you probably want to ask me is: what is the cost of taking into account carbon in a regulatory framework?

The cost of carbon, this is not a carbon price per se; it is simply that they must take into consideration carbon as a factor in all their undertakings, so it is a slightly different proposition. I am not sure there is a dollar value I could put on it, to say that this is the impact on consumers of this new rule. What it will make sure is that, as all new infrastructure is built, carbon is taken into consideration, as it should be, much like the safeguard mechanisms beginning to apply across the economy. Border abatement measures will start having impacts on carbon. This is the new world we are living in.

Mr PATTERSON: Compared to that value you talked about, one of the other amendments is around administrative guidance about the value of greenhouse gas emissions. I note the information paper talked to this in some way, that, as you said, there is already a value placed on each of the other objectives in this bill—safety, quality, reliability, as well as price. The information paper talked about the role of the energy sector in achieving Australia's greenhouse gas emissions, because of course not all the country's greenhouse gas emissions are tied up in the electricity sector, although some may think they are. They gave consideration to weight placed on actions now against actions into the future on intergenerational impacts on climate change and those sorts of factors.

It is interesting that in one of the submissions the Australian Energy Council talked about the role of the energy sector in achieving these targets as well, making the statement:

…the electricity sector has made extraordinary steps to prepare for a low carbon economy. Indeed, almost the entire effort to reduce emissions in the economy has been undertaken by the electricity sector.

They went on to say:

…electricity is the only sector projected to meaningfully reduce its emissions this decade.

A tonne of carbon emitted by the electricity sector or by the transport sector or the agricultural sector, I am really interested in how a value is going to be placed on that, even if I know they might not have the exact regulation in place now, and what the overall view would be.

Also, does it take into account the fact that the overall aim is global greenhouse gas emissions and that some regions, as stated in the recent IPCC report, showed their emissions increasing markedly, well in excess of any reductions made here in South Australia or Australia? How does it take into account place of value? Is it Australian-specific, South Australian-specific, or does it take into account emissions worldwide?

The Hon. A. KOUTSANTONIS: This is a very difficult question to answer and probably a very difficult question to explain. Whenever we are going through any proposal to build infrastructure in the National Electricity Market, value propositions are often considered. The market bodies are looking at value propositions: lowest cost to consumers, most efficient allocation of capital, all sorts of measures. Now we are adding carbon to it.

There is an interjurisdictional working party that is working on a value of carbon emission—not in a proposition of a tax but in a proposition of (and I suppose I will paraphrase here and stand to be corrected) this type of infrastructure has this carbon impact, this amount of infrastructure that is also considered to deliver the same outcome has a lower carbon emission. Then you add the values to the different benefits they all weigh up, and then the market bodies will make recommendations. So it is very difficult to quantify, but it needs to be considered as part of any infrastructure build.

Taking a step back, this is not purely carbon pricing and, 'If you do this infrastructure this is the price of carbon.' They need to understand the value of carbon and the value of the emissions to understand how to appropriately regulate through their market body prism. They will look at infrastructure and then apply that, which is very, very difficult.

But in the end it becomes a value proposition. For a long time in the NEM, the value propositions have been reliability and lowest-cost dispatch. They are the two sort of foundation principles. Reliability: what is the reliability standard you want to meet? What is the lowest cost of dispatch? We have built these market bodies around that. We have a rule-making body, we have the operator and then we have the independent regulator. Now what we are asking the market bodies to do and consider in their regulatory processes is the value of emissions.

The interjurisdictional working party will then try to evaluate what a value is on those carbon emissions and apply it through the market bodies. It is complex. But like any organisation, I imagine that if you are the Commonwealth Bank of Australia in your board deliberations, all those boards now are considering emissions and carbon. I think that General Motors in the United States, regardless of there being a carbon price or not, are looking at valuing carbon in their internal processes. Anyone involved on a corporate level now, and especially in regulated bodies, is considering carbon emissions.

I am not sure that gives the member a fulsome answer, but it is the best of my ability to try to explain what it is we are attempting to do here. I think it is a very, very hard question for me to come up with a very simple, one-line answer for: 'This is what it means.' The market bodies have to consider the value of carbon in applying their regulatory decision-making process.

Mr PATTERSON: You are right: it is difficult. I probably have quite a number of questions with only the three there, but I have also talked about Australia's emissions and where they fit in terms of global emissions. One of the ancillary questions was: will this only place the value on Australian emissions, or will it also take into account where global emissions are going? As I said before, the latest IPCC report showed that global emissions had gone up from 49,000 megatonnes to 59,000 megatonnes while Australia was trying to bring its emissions down. There is a value there, and then also the intergenerational value. How can we get some sort of equity in terms of trying to balance that intergenerational equity? It becomes, I would think, quite subjective.

The Hon. A. KOUTSANTONIS: To be clear, the objectives here are about Australian-based targets, taking into account Australia's carbon reduction plan and state-based ones, knowing that different jurisdictions may have different plans but the country has a plan. That is the carbon consideration that we have in place for this body of work. If Australia decides to change those national targets, this body will consider that in that respect.

But you are right: everyone thinks that the electricity market is the nation's carbon emissions—it is not. Steelmaking is between 9 per cent and 12 per cent of the world's carbon emissions. Steel is not going anywhere. Concrete has carbon emissions, manufacturing has carbon emissions and industrial furnaces have carbon emissions. Carbon emissions are economy wide, not just in the electricity sector.

I suppose the electricity sector decarbonisation story is the most mature, especially in our state. We know how to do it, we know what the process is, we have found the alternative fuel sources and now we are looking for efficiency to try to eke out every last ounce of carbon that we possibly can. What this is doing is overlaying to the market bodies an official target, which is Australia's emissions target. This sector represents a portion of those emission targets. We have obligations to meet, and that is what this measure is about.

Clause passed.

Clause 9.

Mr PATTERSON: This clause concerns the national energy retail objective and talks about amending section 13, deleting the existing objectives and then substituting them with, effectively, the existing objectives in one line:

(a) price, quality, safety, reliability and security of supply of energy…

Paragraph (b) refers to the achievement of targets set by the participating jurisdictions. The first question, in terms of how these objectives are evaluated by these regulatory bodies, is making sure that price has equal status as quality, has equal status as safety and has equal status as targets, rather than grouping all of those together as one objective and then target as another. I am making sure that they are all treated equally and that targets do not effectively have priority over all those other ones.

The Hon. A. KOUTSANTONIS: We love all of our children equally and so all the targets have equal weight.

Mr PATTERSON: Thank you. I did ask this to some extent in the amendments to the electricity laws, but these are the retail laws. One of the points in the Australian Energy Council's submission was that including emissions reductions into the objectives does increase the risk. On the chance of litigation, they said specifically:

In Australia, there are numerous, well-funded organisations which frequently challenge decisions [by regulators] on the basis that [the decisions] do not have sufficient regard to climate change and other environmental risks. The challenges, although mostly unsuccessful, create considerable delay and expense for energy projects when the energy transition can ill-afford further delays and even higher expenses.

I would appreciate some clarification on how this bill takes into account litigation risks and how the risk of litigation will be minimised by the participating energy market bodies so that we do not have expenses and delays from court action impact on customers' energy bills.

The Hon. A. KOUTSANTONIS: This is a democratic nation that supports the rule of law: an independent court system. Market bodies are subject to judicial review. People who have an interest are entitled to seek judicial review. I am not planning and would not recommend removing that from the statute. It is a common law right and the foundation principles of our democratic system. That is the price we pay for freedom. It is a good system. Winston Churchill once said that it is the worst system of governance anywhere in the world, but there are none better.

Mr PATTERSON: I think we are in agreement around that: democracy. What I am getting to, though, is that if there is the potential for delay there may be a bit of comfort around, yes, they will be heard, but there will be consideration given by the market bodies such that in effect the question becomes: is there a risk that, by having this, it will impact on prices for households and businesses for both electricity and gas bills?

The Hon. A. KOUTSANTONIS: It has always been the case that people have a right to judicial review. The market bodies are subject to it. Does it impact on delays? Yes. What we are trying to do is minimise those risks. Unless I have misunderstood the question, the idea that we would make market bodies non-justiciable would mean that even governments would not have the opportunity to take judicial review. I do not want to speculate on what a court may consider appropriate to hear or not. What we are doing here by including the consideration of climate is minimising the ability for a judicial review because we take into account something that should have been taken into account a lot sooner.

The nation does have these targets. You could make an argument—and I am sure lawyers would have made arguments—that, if the nation and state jurisdictions have these targets, why are the market bodies looking at the infrastructure not taking carbon into consideration? Well, we are dealing with that now in this body of work, so hopefully that does minimise it. There is always going to be the opportunity for that judicial review on any market body's decision, and I think we have done everything we can to minimise that while maintaining judicial independence and democratic freedoms.

Clause passed.

Clause 10 passed.

Clause 11.

Mr PATTERSON: This clause talks about targets for greenhouse gas emissions and how those targets could either be set by the federal government or either of the state government jurisdictions. That could be either by what is in their legislation or policy. That is submitted into the AEMC and then they have to maintain and prepare documents. They become the targets that the market bodies work off, as we talked about before, to potentially ascribe a value to emissions. Once that target is there on the AEMC's ledger, is it the case that this target cannot then be challenged in court litigation by proponents trying to say that the target that the AEMC holds for either the country or a jurisdiction is different from what is legislated in a particular jurisdiction?

The Hon. A. KOUTSANTONIS: Can you repeat that question?

Mr PATTERSON: Sure. If the target that the AEMC hold on their ledger, for want of a better word, and that they are in charge of is different from what is legislated—a legislated target by a particular jurisdiction—is there a possibility of the target held by the AEMC being challenged?

The Hon. A. KOUTSANTONIS: I think the High Court has found that all ministerial executive decisions are justiciable. If I set a target, the Premier sets a target or a minister sets a target that is lower than the legislated target, then the justiciable action, I imagine—I am not a lawyer; I look over to my colleague, the Minister for Health. But I imagine that all decisions that are justiciable are about the process that ministers have gone through to come to that conclusion: whether they have taken into consideration all the appropriate information before them, whether they have consulted.

If there is a legislated state target and a legislated national target and then I, as energy minister, set a much lower target through some sort of jurisdictional process, I think your question is: am I open to judicial review, or are the market bodies open to judicial review for that target? I think we have established that all decision-making by the market bodies is open to judicial review, but in terms of executive decision-making, this would reflect what the state-based targets and the national-based target are, so I am not sure that there is that much discretion.

We would publish a list of targets. I think we are arguing at counter purposes here. Ministers are subject to judicial review. I am subject to one right now as we speak. That is the democratic process, and I have no problem with it. It should be like that.

Mr PATTERSON: In regard to these targets, obviously there are different jurisdictions. They might have different targets, and there might be infrastructure that spans those state borders. It might even conflict with what the federal target may be, so there may well need to be a priority taken by the market bodies; in fact, I think the Australian Energy Council made that point. Is there a possibility or a way in this document that the Australian Energy Market Commission holds to indicate an order of priority? How would these cross-jurisdictional potential differences be dealt with?

The Hon. A. KOUTSANTONIS: Like they are dealt with now. Different jurisdictions have different liability standards. They have different safety standards. The market bodies try to filter that through their processes and come up with unique solutions. This is not new law. This is not new process. We have been regulating the National Electricity Market now for a long time, so there are established protocols in place by the market bodies.

As I said, we love all of our children equally: carbon emissions, cost, reliability standards, safety standards. They are all treated equally. Different jurisdictions will have different emissions standards. I might hypothesise that there might be some Liberal-National jurisdictions that have lower emissions targets than some Labor governments—I am just taking a wild guess.

There might also be a scenario where one state has a higher reliability target on its infrastructure than another jurisdiction contemplating interconnection and its availability. The market bodies are well resourced, well trained and well equipped and have a body of corporate knowledge, past practice and precedent to fall back on. They are able to deal with these conflicting standards and variations in policy.

You are right; you could have a scenario where infrastructure goes from South Australia to New South Wales. Technically, that is three jurisdictions: the Australian jurisdiction, New South Wales and South Australia. There could be three different variations on emissions reduction.

I have faith that the market bodies can cut that Gordian knot and know exactly on the basis of past practice. It is no secret that we have a very stringent reliability framework here in South Australia since the statewide blackout. That is different from other jurisdictions that have not suffered a statewide blackout. The market bodies are well versed in how to deal with this.

I take the shadow minister's point. Yes, there is complication here. If it was easy, it would have been done ages ago, but it is difficult and it is complicated, and that is why our market bodies are so well resourced. They have expertise on them to be able to deal with this. I am comfortable that they can thread this needle.

Mr PATTERSON: Around the setting of these targets, it states that it allows either the minister, the Ministerial Council on Energy overall for Australia, or the minister for a participating jurisdiction to give a written direction to include a target or even remove it if they so wish. In general, what sort of considerations will a minister need to take into account when changing a target, in regard to consultation and potentially different organisations in the middle of their revenue determinations? Previously, yes, they were taking emissions into account, but there was no value ascribed to emissions, so these targets could potentially—I would also like to understand the effect of changing a target on the value that is ascribed to it.

The Hon. A. KOUTSANTONIS: Government policy is formed through elections. Elections have consequences. I am not going to support a piece of legislation that would tie your hands to a policy that you cannot change. If the honourable member decides to go to the 2026 election promising to alter the carbon reduction standards that I have put in place through our cabinet process here, and he is successful at that election, he has every right to then attempt to implement that. That is your consultation; it was the election commitment.

If I as minister set a target and the market bodies consider it, then I receive scientific advice from our agencies saying, 'The target is not high enough,' or, 'It's too high,' I can alter it and the market bodies will consider that. All we are doing is actually reflecting government policy within the market bodies' decision-making processes. We are not restricting the opposition to lower or increase these targets. These are policy considerations that are now being fed through the market bodies, as they should be.

Clause passed.

Clause 12 passed.

Clause 13.

Mr PATTERSON: In terms of clause 13, this again talks about this question around value and coming up with a formula for value. Previously, we talked about it from just an electricity point of view. Now, with the energy retail laws considering both electricity and gas, in relation to placing a value on reductions in emissions in electricity and gas bills, will that value be the same for electricity and gas? Will it treat it at the same value, or will there be a different value placed on reducing a tonne of carbon via electricity compared with a tonne of carbon via gas?

The Hon. A. KOUTSANTONIS: Can you just give me a nod or a wink if I am right on this. Your question is in terms of the energy retail law, the retail part of the law—not the upstream stuff, the infrastructure about gas, the infrastructure about electricity—the retail aspect between customers and their retailers. You want to understand how valuers are assigned to those carbon emissions.

Mr PATTERSON: But, also, is there a difference between how value is ascribed for electricity compared to the gas bills, or is it treated the same?

The Hon. A. KOUTSANTONIS: No, it will be uniform. It will apply equally across both. Obviously, if the value of a carbon emission is X, with Y being gas and Z being renewable electricity, you apply the formula and then you know the value. I am assuming that is what you are getting at but, yes, it is uniform. Coal-producing carbon is valued the same as gas-producing carbon, but the quantities of carbon produced for energy are different obviously, so gas has half the emissions of coal on the same input but they are valued the same. We are not assigning different values to different fuel sources. The value of carbon remains uniform.

Mr PATTERSON: One aspect of this clause talks about the guidance for these values being consistent with a statement from the Ministerial Council on Energy ministers. Maybe if you could just elaborate on how you expect this process to occur. Obviously, there is a statement bill but there will be a fair body of work leading up to it specifically around consultation and also how consistent this is going to be. Once the value is ascribed, that does lock in a lot of decision-making. Once it is put in place, in terms of length of time between that and then potentially another ministerial statement around this, what will be the processes around that, because you would not want it to change often at all?

The Hon. A. KOUTSANTONIS: This clause we are talking about here is a transitional clause. This is not the final destination where we are heading. The ministerial council will make a statement, and the ministerial council work is done by unanimous decision, so we would need all the states to agree. That will be a complex process in itself, but this is a transitional provision to give the market body some guidance for this transition to the new more rigorous process of valuing what carbon is—the price of the carbon.

This is a holding pattern rather than the final destination, if that assists the opposition. If it does not assist the opposition and they have more questions on this transitional provision, I am more than happy to make my officers available to give you a more in-depth explanation. They will probably do a lot better than me. I think what we are trying to do here is this: we are at this point in time and we are trying to get to over here, and there are a lot of cats we are trying to herd, that being the NEM states. We have come to a uniform position on the legislative framework. Now we are getting to the regulatory aspect and the decision-making process, so we have a transitional provision in place to get us from one spot to the next. That is where I think we are at here.

This will not be the long-term practice. This is just an initial placeholder for how we get to a point on the value of the emission without doing what I think everyone will be afraid of, which is forcing jurisdictions to do something they do not want to do. Because it is a statement from the energy ministers' conference, we would want uniformity of decision-making around that body. I think that answers your question.

Mr PATTERSON: To some extent. The corollary to that is that, okay, so this is transitional; at some stage it is going to become more permanent. What will be the process around ascribing the value going forward if it is not through a ministerial statement from the energy ministers? Will there be a market body that comes up with that and how will that be decided?

The Hon. A. KOUTSANTONIS: I will go back to the beginning. In Australia, we cannot have nice things. We cannot have an EIS of a baseline of the market price carbon. The conservative parties are opposed to the market setting a price of carbon. The conservative parties are now asking government regulatory bodies to determine prices of carbon. I think this whole process is back to front, but we are where we are now. It is too late to go down a market-based efficient method of carbon pricing. It is too late, we have missed that boat and we are now in direct action territory, which is what Tony Abbott and Joe Hockey envisaged in the 2013 election. They were successful, they overturned the emissions trading scheme with the carbon price all gone, and the market now no longer puts a value on what a tonne of carbon is worth being emitted.

So now market bodies—I am talking about the regulatory bodies within the Australian national electric framework—are openly consulting about what should this value be. We set the target; they work out the value. What is a robust way of working out the value of a carbon emission without the market pricing it, without a baseline, without a market mechanism, because—and I mean this politely—you and your friends do not want the market to be involved in this.

So now it is left to government regulatory bodies—see where I am going here, how crazy it is—and market regulatory bodies have to set the price of carbon. We are all agreeing across the country, including Liberal jurisdictions, that we need to value what carbon costs, what is the value of an emission. We are going through this process now where we are consulting, sector by sector, what are the emissions, what is the value and what should it be. So by 2024 the commonwealth government, through its auspices and consultation through the market bodies, will come out with this value, as opposed to the Greg Combet view, which was: we will put out a baseline on what your emissions can be and the market will price the carbon.

The most efficient way to decarbonise, without picking winners, was to let the market set a price on the basis of a baseline of emissions. The conservatives, the free marketeers, said no, so here we are, and now government bodies are going to be setting the value of carbon. In other jurisdictions, like Europe, and even in some cases almost by default in China, they have market-based values of carbon, which is much more efficient.

This is probably the hardest part of the entire task, in my opinion, what the value is. I suppose the way they will work backwards is what are Australia's omissions, what are they by sector, what is the value internationally and what is our contribution for this. They will come up with a formula that will be put to a political test, and that political test will probably be the national cabinet through the national energy ministers, state-based cabinets, back to the energy ministers' conference. It will work from there through the market bodies. I think that is the framework.

I may have got some of that wrong and some of that right but, by and large, that is what the process is. It is a very, very difficult process but, my understanding from the advice I have received, is that the market bodies are now actively consulting with agencies about what that value should be. We will not know until that critical work is finished by the federal agency, DCCEEW: I am not sure what the acronym stands for exactly, but I think it is energy and climate change, and there might be biodiversity in there as well; I am not quite sure. So that is the process.

Class passed.

Clause 14.

Mr PATTERSON: Similar to the question that was asked about the previous amendment around objectives, of course this time on the gas objectives, can you confirm that here, where we are adding in a target—and the way it is done in the amendment is to put the original objectives of price, quality, safety, reliability and security of supply of natural gas in the one clause and then targets in the second—the one that is interpreted still is that price is just as equal, as you say, to safety, is equal to reliability. You are talking about children, but if you could just confirm that to the committee.

The Hon. A. KOUTSANTONIS: I can confirm that.

Clause passed.

Remaining clauses (15 to 18) and title passed.

Bill reported without amendment.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (11:48): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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