Speech to The Sydney Institute
16 April 2014
Enabling, Efficient & Effective Environmental Management
Modern day environmental debate is too often presented as a crude choice between the environment and the economy. However, as those of both liberal and conservative outlook appreciate, the two are mutually co-dependent. A well-managed environment sustains our economy, just as a successful economy underpins the conservation of our environment.
Long recognised in debates about environmental sustainability is the importance of the intergenerational legacy we leave. The great conservationist and former Republican President Theodore Roosevelt highlighted this in his 1907 Arbor Day Message to the School-Children of the United States, in which he said:
“We of an elder generation can get along with what we have, though with growing hardship; but in your full manhood and womanhood you will want what nature once so bountifully supplied and man so thoughtlessly destroyed; and because of that want you will reproach us, not for what we have used, but for what we have wasted … Any nation which in its youth lives only for the day, reaps without sowing, and consumes without husbanding, must expect the penalty of the prodigal, whose labor could with difficulty find him the bare means of life.”
Not only is this prose an elegant testament to the conservationist instincts of Roosevelt, who did much to expand the national parks system and preserve the natural and cultural heritage of the United States, but the wonderful language in was a message to school children is a great credit to the educational aspirations of the era too!
A couple of generations later, across the Atlantic Ocean, another world leader delivered the same message, albeit in simpler, more market oriented terms. Said Margaret Thatcher in 1988:
“No generation has a free hold on this earth. All we have is a life tenancy – with a full repairing lease.”
As we aspire to deliver successful economic and environmental co-dependence for the modern era, the Abbott Government inherits the views of those who went before us, like Roosevelt and Thatcher, as well as our own domestic predecessors such as the McMahon Government who appointed Australia’s first Federal Environment Minister.
In Tony Abbott we have a Prime Minister who has long recognised the importance of sound environmental stewardship. Looking through the lens of his life he told The Sydney Institute in 2010 that:
“As a child exploring the bushland near the family home, a teenager canoeing down New South Wales’ coastal rivers, a student trekking through the wilderness to Sydney’s west or, these days, as a surfer and volunteer firefighter, I have always had a strong consciousness of environmental values and an appreciation of the need to protect the one planet that we have to live on.”
He put those words into practice as a local Member of Parliament in helping to drive the preservation of iconic sites around Sydney Harbour through establishment of the innovative and now self-funding Sydney Harbour Federation Trust. He did likewise as a young Parliamentary Secretary, establishing the Green Corp to give thousands of young Australians an opportunity to make a practical contribution to the improvement of our natural environment.
Today, Tony Abbott oversees a government that continues to give practical focus to environmental management, which recognises its duty to do what we can to ensure our natural environment is successfully passed to the next generation, just as we equally seek to pass on the best of economic opportunities and living standards.
Our Government has a vision for a stronger Australia – an Australia that is more competitive, more productive and better equipped to deal with both expected and unexpected change.
Our ambition is for business to prosper, communities to thrive and the unique and iconic aspects of our natural environment to be protected for future generations. We are getting on with achieving this by focusing on productivity and competitiveness, including through our environment policies.
This evening my comments will focus on the three tests that should be applied to environmental policy in Australia: that it be enabling, efficient and effective.
Firstly, environmental management must enable not stymie economic activity. That is not to say that it should give a green light to anything and everything, but that it must not be seen as an automatic impediment or road block to progress.
Secondly, good environmental management must be efficient. It must come at the lowest cost to taxpayers, businesses and the community. And we must be conscious that cost is measured not just in direct outlays, but also in lost time, lost opportunity and social impacts.
Finally, and very importantly, worthwhile environmental management must be effective. It should deliver what it was intended to achieve. If something is really worth protecting then it is worth protecting properly.
These three tests may seem simple but too often they have been forgotten, overlooked or neglected in the development of our environmental policy settings.
While they are relevant to all areas of environmental policy development, tonight I will focus on their application to issues of sustainable water allocations, emissions reductions and the protection of landscapes and biodiversity.
Water reform in Australia is driven first and foremost by the imperative to ensure there is enough fit-for-purpose water available for use now and in a world where future rainfall patterns and inflows are highly variable and unpredictable.
First and foremost our duty is to secure water for critical human needs. But water is so much more than a basic requirement for life. It is also an essential input into economic production and a foundation of our ecosystems.
We demand water for human needs, agricultural needs, industrial needs and environmental needs. When the availability of water fails so does the production of many crops; when the price of water rises so does the price of the goods in which it is an input cost; and when we use too much we threaten the future quality of water in our rivers or availability of water in our aquifers.
The correlation between water as an input and final economic output is most directly seen in irrigated agriculture. While less than one per cent of Australia’s agricultural land is irrigated, production from irrigated agriculture constituted 29 per cent of the total gross value of agricultural production in 2011-12, generating $13.5 billion. However, the supply of water is also essential for countless other areas of production, from the making of medicines to the refining of precious metals.
Without question the availability of reliable, affordable and good quality water is an essential enabler of economic activity. This economic imperative, coupled with rapidly emerging issues of water scarcity during the Millennium Drought and a fear that we may be doing long lasting damage to our water resources, sparked the current wave of water reform that we continue to ride today.
On June 25 Australia will celebrate the 10th anniversary of the signing of the National Water Initiative (NWI). This agreement with the states, secured by the Howard Government, has underpinned investment and trade in water markets in Australia.
The NWI has paved the way for water efficiency and water related investment that benefits us all. Extending standard economic and sustainability principles to water pricing, planning and allocation has helped to give water a price that reflects its true value.
Under the NWI, states are implementing comprehensive water plans, catchment by catchment, that account for wide-ranging environmental, community and business considerations. A clear definition of water rights has enabled the legal security of entitlements to water, as distinct from land.
The development of water markets, operating within caps that set sustainable limits on the use of surface water and groundwater, is now delivering more efficient allocation of this scarce resource, enabling greater productivity from its use and providing more effective protection for our rivers and water storages.
Efficiently operating markets come into their own in times of scarcity, where a limited resource should flow to the highest value outcomes. This was the case during the Millennium Drought.
Many horticultural farming operations were able to keep permanent plantings alive to preserve investments that had taken many years to establish through the purchase of water allocation from farmers of annual crops, who earned much needed income from this trade.
At the height of drought when incomes were diminishing and debt levels rising, it didn’t feel like much of a win. But imagine how much worse it would have been if effective trading had not been allowed and rights to use water had been stranded in locations where it was unable to be most efficiently used.
Not only did market principles help to reduce financial pain for many farmers but they also helped to maintain the value of agricultural production during the drought. From 2005-06 to 2007-08, the combination of trading, enhanced efficiencies and scarcity saw the amount of water used by irrigators fall by 57 per cent, yet the value of irrigated production fall by only 8 per cent.
The principles and requirements of the NWI also provided the basis for the Howard Government’s Water Act 2007, which sought to address an over allocation of water resources in our largest and most productive catchment, the Murray-Darling Basin.
Without acceptance of sound market principles the pathway to return the Murray-Darling Basin to sustainable levels of extraction would have been difficult to accomplish and would have resulted in poorer outcomes.
While the interaction of the NWI, Water Act and the Murray-Darling Basin Plan is enabling economic development, ensuring an efficient allocation of resources and giving effective protection to our riverine and groundwater ecosystems, the failure to do so in the first place has come at a high cost to taxpayers and river communities.
Some 2,750 gigalitres of water entitlements are being recovered to bridge the gap between previously unsustainable levels of extraction and new sustainable diversion limits. This is not the fault of farmers or communities but of previous state governments who facilitated the over allocation in the first place.
The economic and social costs of the adjustment to new limits are significant. To ensure we achieve maximum productivity under the new limits, our Government is focussing investment in water efficient infrastructure as our primary means of bridging the gap. Almost $7 billion in measures to make irrigation farms more efficient, irrigation systems more efficient and the delivery of environmental water more efficient are or will be undertaken.
The total cost to taxpayers of rectifying previously ineffective and inefficient management of water will ultimately reach around $12 billion. It is a salutary lesson in the costs of poor environmental management.
While Australia has, thanks to the commitment of successive governments, successfully reformed the management of water through a functioning market that best enables optimum economic outcomes, the same cannot be said of the approach to emissions reductions.
The advent of the carbon tax saw a policy that fails all three tests for sound environmental policy.
Far from enabling development, the carbon tax is a multi-billion dollar impost on the Australian economy and the competitiveness of Australian businesses. Stripping some $7.6 billion dollars out of businesses last year – and forecast to rise – the carbon tax makes investment in Australia less attractive and reduces the financial capacity of Australian businesses to invest in being more carbon efficient.
The carbon tax strangles investment and development, rather than enabling and encouraging it. With a Treasury estimated cost of living impact of $550 for every Australian household in 2014-15 the strangulating effects of the carbon tax reach every corner of Australia.
It also fails the test of being efficient. In addition to the whopping tax bill there are enormous red tape costs, with the Regulation Impact Statement undertaken for the carbon tax repeal bills estimating a reduction in compliance costs to business of $85.3 million per annum from its abolition.
The inefficiencies of Labor’s carbon tax regime are exemplified by the bloating of the public service through the creation of a cavalcade of quangos and bureaucratic acronyms. Around $400 million in expenditure associated with public service costs of implementing the carbon tax was budgeted by the previous government.
The final inefficiency created by the carbon tax is the distortionary behavior it incentivizes. The complex maize of exemptions, rebates and grants created is a magnet for the worst of rent seeking behavior. The incentives for business to get more of their business processes accepted under the activity definitions for emissions intensive trade exposed industries are far greater than incentives to actually reduce emissions levels.
In fact, the carbon tax has already been proven to be singularly ineffective at reducing emissions. A recent update of Australia’s National Greenhouse Gas Inventory shows that for the first year of the carbon tax overall emissions fell by just 0.1 per cent.
Even under Labor’s modelling of the carbon tax Australia’s domestic emissions are projected to go up, not down in the period to 2020.
The lack of effectiveness in reducing our carbon emissions is made worse by the likelihood that, left intact, the carbon tax will drive carbon leakage from the Australian economy into competitor nations without similarly punitive tax arrangements. Given the global nature of the emissions problem, this reality is perhaps the greatest example of the ineffectiveness of the carbon tax regime.
A real life example of the failings of the carbon tax is South Australian company Penrice Soda Products, which last Friday announced it was entering into voluntary administration. Penrice was a company already struggling to compete, but more than $3 million in carbon tax related fees, charges and penalties added to their woes and has made their survival that much harder.
As one of the smaller liable entities under the carbon tax regime, Penrice struggled not just with their carbon tax bill, but with the complexities of compliance. To reduce their carbon tax costs they even shut down domestic production of soda ash, only to import the good instead.
We will repeal the punitive carbon tax, whether or not Labor heed the latest wake-up call given by voters in Western Australia less than two weeks ago. In its place we will meet the bipartisan emissions reductions target through a policy that enables investment, is efficient to operate and will effectively reduce emissions.
Our Emissions Reduction Fund reduces costs for businesses, households and government, yet will result in genuinely verifiable emissions reductions. It is a simple and transparent market-based solution that will reward innovation and enable Australia to play its part in tackling this global problem.
The Emissions Reduction Fund targets low-cost abatement by providing an incentive to reduce emissions. This incentive based approach enables and encourages investment by Australian businesses in the transformation of their enterprises to lower levels of emissions intensity.
Our approach is more efficient in that it targets investment in the lowest cost means of emissions abatement, rather than just taxing the vast majority of emissions in the hope of reducing their scale.
This efficient targeting occurs via the creation of a market for abatement, in the same way that Labor and Coalition governments have used tender processes to purchase water entitlements in recent years. By utilising an auction process we establish a cost curve and market value for abatement, which allows the Government to minimise its cost, while achieving verifiable reductions.
Because verifiable abatement actions are contracted to the government, we know how, when and where emissions reductions will occur. All Australians will be able to assess the effectiveness of the Fund because they will be able to see where the emissions reductions have occurred and at what cost they have been realised.
Late last year, we released a Green Paper setting out design options for the Emissions Reduction Fund. The Green Paper has been central to our efforts to consult widely on the design of the Fund over the past months. In coming weeks we will be releasing the Emissions Reduction Fund White Paper, outlining the final design of the Fund.
A real world contrast to the impact of the carbon tax on a company like Penrice is the transformative impact the Emissions Reduction Fund can have by helping businesses reduce costs, as companies like Linfox have already demonstrated.
One of Australia's largest transport and logistics companies, Linfox reduced their energy costs and cut carbon emissions intensity by 37 per cent through improved practices, technologies and staff behavior. This is exactly the sort of opportunity we want the Fund to unlock, where they are additional to normal business practice.
While fixing policy failures in water allocations are well advanced and plans to implement better policies for emissions reductions are being implemented, there is much still to be done to ensure policies and laws in landscape and biodiversity protection are enabling, efficient and effective.
Over the last few decades we have seen a rapid growth in state and federal environmental laws and regulations. While nearly all are well intentioned, they have created a complex framework for environmental analysis, assessments and approvals that we have committed to simplifying.
Our government has already demonstrated our determination to cut $1 billion every year in red and green tape costs. This will improve our nation’s competitiveness, help to create more jobs and lower household costs.
The intent of our deregulation agenda is not to reduce the quality or the protections of environmental law. Rather, it is to recognise that regulation doesn’t always solve complex policy problems, but does add to the bureaucratic burden on business and society. We must focus on the effectiveness of environmental regulation, not simply the scope and scale of it.
The environment portfolio was an active contributor to the first Parliamentary Repeal Day. Streamlining amendments were debated for three Acts and 866 spent or redundant legislative instruments administered by the environment portfolio were repealed.
We will build on this initial work via an audit of all regulation across the environment portfolio to determine the cost imposed on individuals, business and not-for-profit organisations. The Department of Environment will work closely with stakeholders and key advisory bodies to seek feedback about how the portfolio can simplify complex, cumbersome and costly regulation.
Shortly I will announce the final terms of reference and membership of a panel to review the Water Act, with a key focus on reducing red tape or compliance costs and improving productivity outcomes for water users, without in any way reducing the effectiveness of the Murray-Darling Basin Plan.
Already underway, our election commitment to a one stop shop for environmental assessments and approvals is a key reform to reduce compliance costs for stakeholders while continuing to achieve good environmental outcomes.
The overlap and duplication of similar regulatory processes is an obvious source of unnecessary burden for proponents of major projects. Our one stop shop policy aims to minimise the bureaucratic process, so that businesses don’t have to jump over the same hurdle multiple times.
It will make the process of environmental assessments and approvals more enabling and more efficient by reducing the economic impact associated with delays. Lost time can act as a disincentive to invest, regardless of whether or not approval would ultimately have been granted.
The Productivity Commission has estimated that the cost of a one-year delay to an average major project is in the order of $26 million to $59 million per project, while for a major offshore liquefied natural gas project a one year delay could have an impact of up to $2 billion.
In a submission to COAG, the Business Council noted that obtaining approvals for one major project had cost $25 million and involved 4000 meetings, briefings and presentations, as well as the preparation of a 12,000 page report. After two years, 1200 state and 300 Commonwealth conditions were imposed with a further 8000 sub-conditions.
According to industry estimates, the average Australian thermal coal project is now delayed by an additional 1.3 years relative to projects in competitor countries. In Australia it takes an estimated 3.1 years to complete assessment and approvals, compared with 1.8 years internationally.
Pleasingly, Environment Minister Greg Hunt has moved quickly to clear a backlog of decisions under the Environment Protection and Biodiversity Conservation Act, with 52 final approval decisions in his first six months in office representing more than $479 billion in economic value.
Under our one stop shop policy State environmental assessment and approval systems will be accredited under national environment law to create an approval process that satisfies both State and Commonwealth requirements. Making the process more streamlined means reducing the timeframes for making decisions.
A three stage process is being used to deliver the one stop shop policy with each willing jurisdiction, comprising:
• signing a Memorandum of Understanding on the key principles and confirming co-operation on achieving a single process;
• streamlining assessments, including updating existing assessment bilateral agreements with willing states and territories; and
• negotiating bilateral agreements for environmental approvals.
Thanks to the outstanding work of Minister Hunt and the environment department our Government has already signed Memoranda of Understanding with all jurisdictions and has settled agreements to streamline assessments with a number of states. These agreements substantially broaden the range of matters of national environmental significance that only require a single assessment report and commit to a more cooperative approach to protecting the environment.
The next stage of the reform is to negotiate and agree on approval bilateral agreements with willing states, providing for the final removal of duplicative processes.
This reform will represent the most significant reduction in green tape Australia has seen, without diminution of environmental standards. But the work should not stop there.
As evidenced by the examples given previously, the scale of environmental impact statements, assessments and approval conditions is often immense. However, environmental assessments that resemble several volumes of phone books and conditional approvals that rival tax laws for complexity are no guarantee of optimal environmental outcomes.
In fact, the extent of complexity presents its own challenges in terms of the best utilisation of assessment information and the proper enforcement of approval conditions.
As implementation of the one stop shop reforms proceeds, the next wave of reform we contemplate needs to focus on how we can make assessments and approvals both more efficient and more effective.
In no way should this mean that we diminish the use of the best scientific information or lower our standards for the protection of matters of national environmental significance. To the contrary, we should strive for a system where more efficient application of our laws not only enables swifter approvals of complying developments, but also leads to more effective protection of listed species and habitats.
After all, the effectiveness of current frameworks should rightly be questioned when the number and severity of endangered species listings has continued to rise despite increasing regulation.
Work on the next wave of reforms is already underway. Minister Hunt has already referred a review of all environmental legislation and regulation to the House of Representatives Environment Committee, while the Commonwealth has commenced discussions with States and Territories to identify unworkable, contradictory or incompatible environmental regulation.
Opportunities for multijurisdictional reform to simplify, streamline or harmonise environmental regulation, whilst enhancing its outcomes and effectiveness, should be seized wherever possible.
To sum up, the protection of the environment and pursuit of economic growth are not mutually exclusive objectives but rather two essential elements of a single goal: a stronger Australia.
We cannot sustain economic growth without clean air, safe and reliable water supplies and access to natural resources. Our policies are underpinned by this simple truth.
A strong economy ensures we will be able to continue to deliver the services to people and offer the protections to our environment that Australians rightly want and expect.
By pursuing environmental policies that are enabling, efficient and effective we can deliver our vision of an Australia that is productive, innovative and forward looking while, to paraphrase Margaret Thatcher, passing on the tenancy of our nation to future generations with full repair.