Well thank you very much John, ladies and gentleman. I'm delighted to be back at CEDA, and I hope in the remarks I have to make today which are a serious attempt to analyse some of the challenges facing us in the area of water and energy - I can contribute to the reputation of this organisation for thoughtful, considered discussion of issues of long-term national challenge.
I thought I might start by referring to an observation made by the world's most successful, retired, university dropout, Bill Gates. And he said that most of us over-estimated change in the next two years, but under-estimated it over a period of a decade.
I think that's probably relevant to the issues I want to address today, because water and energy do represent great challenges and also great opportunities for this country and it's easy to state the goal of meeting the challenge and optimising the opportunity, but in order to achieve it, I think we have to jump to the three keys which unlock the solutions to those two challenges.
The first, Australia's proven adaptability and whenever I talk about our country and the men and women who make up our country, the adaptability of the Australian work force is the first thing that I mention. And we often sell short the great capacity of this country to adapt to challenges.
Secondly, we have a willingness to embrace difficult reforms and new technologies, and we do on occasions, despite what is often said of us, we do have a capacity to address rational debate and discussion in audiences like this. And I think these are three attributes that we will bring to our discussion of these two important issues. I think we all agree that reliable, low-cost energy makes our lives easier, underpins the competitiveness of our industries, generates investment and jobs, and provides a major source of export income.
To illustrate, in 2006/7 our energy exports will grow to about $45 billion and that's more than three times what we earned last year from meat, grains, and wool combined. Australia can and should supply the domestic and world economies with low-cost energy.
That was a key message of our white paper two years ago, and it's a message I re-affirm today. And making the most of our great comparative advantage in energy is not just in Australia's interests, but it also will contribute to the global economic welfare as well. Man's constant hunger for energy and all that this involves will profoundly shape geo-politics this century; perhaps more so than it did last century.
Energy security is assuming a strategic significance, once reserved for territorial security and the global environmental challenges from energy production and use are amongst our most pressing. The IEAE estimates that global energy demand will grow by more than 50% between 2003 and 2030. Most of this growth will come from countries like China and India.
Assume for a moment that over the next two and a half decades China and India follow the same development path as South Korea. I mention South Korea because it is a wonderful illustration of a country that threw off a backward looking approach to economic management and embraced the benefits of globalisation. But if that same growth occurs in India and China, by 2030, those two countries alone will consume at least three times as much primary energy as does the United States at present.
And on the strength of this the respected Financial Times columnist Martin Wolf wrote recently, and I quote: 'anybody who thinks that it will be easy to reduce global energy consumption is simply dreaming'.
As an efficient, reliable supplier of energy, Australia has a massive opportunity to increase its share of global energy trade. And with the right policies, we have the makings of an energy superpower.
Australia consumes about a third of the energy it produces, and we export the balance. We are one of only a few net exporters of energy in the developed world. And our relative proximity to these huge and growing markets in Asia and is an obvious asset.
We are the world's largest coal exporter and we account for about 30 per cent of world trade in that commodity. We have significant reserves of natural gas and, on industry estimates, could be the world's second largest LNG exporter by 2015.
Our gas reserves are particularly important given the adaptability of this fuel in stationary energy markets and as a potential alternative to petroleum in transport applications. Likewise our deposits of coal, both black and brown, offer great potential for conversion to transport fuels such as diesel and hydrogen.
While known oil reserves are declining, Australia remains relatively unexplored, particularly for petroleum in frontier offshore areas. Encouraging further exploration must be a high priority for the Government.
We hold close to 40 per cent of the world's low-cost uranium reserves. Our national interest in the resurgent global debate about nuclear power is a subject I will return to in a moment.
We also have extensive renewable energy resources. Hydro, wind and solar represent a small but growing part of our energy mix and other potential sources such as hot dry rocks are yet to be tapped.
In all of this, let's not forget our man-made assets: political stability; a growing economy; a quality workforce; reliable infrastructure; a competitive tax regime; transparent regulation; and now, importantly, new workplace laws that greater reward companies and workers for their energy and enterprise.
With world class assets at home, and enormous opportunity abroad, come domestic as well as global responsibilities including environmental stewardship. Energy is the single largest contributor to global emissions of greenhouse gases. Meeting the challenge of climate change will require changes to the way the world produces and uses energy. We are committed to an effective response to this challenge, but let us underline the word effective. And to meet our three goals of prosperity, security and sustainability, we need an energy policy framework that is pragmatic, rational, as well as being flexible. We must build Australia's energy advantage based on proven strengths. We must avoid putting all of the eggs in one basket. And we must invest in leading edge clean energy technology while being pragmatic about what technologies help reach our goals.
What are Australia's proven strengths, beyond natural assets? In the words of one global energy analyst who met government officials recently, Australia has two big things going for it: stability and rationality.
In some sense, this is an unremarkable statement. Survey after survey ranks Australia number one in the world for low sovereign risk on energy investments.
But it was the intangible quality which this international expert sought to emphasise - the ability to have a rational discussion about energy issues with political decision-makers. Australia stood out, in his view, not just against countries with well-known problems of governance and instability but against some of the most developed nations in Europe and North America.
To a CEDA audience, rational analysis and debate may not sound like a big hurdle to clear. Yet it underpins sensible energy policy at every turn.
It is what has seen Australia reform its energy markets to make them more efficient. The IEA has lauded Australia as 'one of the pioneers in energy sector microeconomic reform'. Reforms for example in the electricity sector alone are expected to add $7 billion to our national GDP over the period 2005 to 2010.
Abundant resources, extensive infrastructure and good access to world markets underpin a high level of energy security in our country. But in such a large and sparsely populated country, this cannot be taken for granted. Global concerns about energy security have risen sharply due to the very sharp rise in oil prices. Though of little, indeed speaking as somebody who monitors public reaction on a daily basis, indeed of no comfort to the long suffering Australian motorist, high fuel prices in Australia are a direct result of strong global demand, limited production and refining capacity and geo-political concerns especially, and I say especially, in the light of the recent upsurge in conflict in the Middle East, and Nigeria. Domestic fuel prices, believe it or not, do remain amongst the lowest in the developed world, due again, believe it or not, to relatively low fuel taxes in Australia.
I noted earlier the Government's commitment to oil exploration and we continue to examine what further can be done, knowing that offshore frontier exploration is a high cost, high risk undertaking. Measures are in place to increase the commercial viability of alterative transport fuels based on our objective of ensuring secure supplies at competitive prices.
Last September, I reaffirmed the Government's commitment to restore confidence in the bio-fuels industry and substantial new investments in that industry are now underway. Again, the watch-words must be pragmatism, rationality and flexibility. The White Paper recognised that a diversity of energy supplies helps to ensure reliability of supply and promotes competition between energy types.
This underpins government support for a commercially-viable bio-fuels industry and for renewable fuel alternatives.
The Government's third objective - energy sustainability - also calls for a pragmatism, rationality and flexibility.
Australia must change the way we produce and use energy because of the challenge presented by greenhouse gas emissions.
The Energy White Paper outlined a suite of measures aimed at lowering the cost of a broad range of low-emission technologies. The flagship is our $500 million Low Emission Technology Demonstration Fund designed to leverage large-scale demonstration of clean fossil and renewable technologies.
The Fund has received 30 applications seeking government funding of $2.6 billion in support of a potential $13 billion of investment. They cover innovative technologies for post combustion capture of CO2, coal gasification, brown coal dewatering, solar thermal and photovoltaics, geothermal and biomass.
An expert panel will report shortly on the successful projects.
If we are to reconcile our economic opportunity with environmental responsibility, Australia must aspire to be a world leader in clean coal technology. And the COAG meeting in Canberra last Friday agreed that this must become a long-term national priority to which all the governments of Australia will return. And with the release of the White Paper, I announced a $75 million investment in Solar City trials in urban centres across Australia. And I hope to announce the first trials very shortly.
Renewables will play an increasing role in Australia's energy mix. But pragmatism, rationality and flexibility also call for realistic expectations about this role for the foreseeable future.
The cost of delivering low-emission electricity from renewables remains very high with difficulties surrounding base load power demands. Coal, oil and gas will continue to meet the bulk of Australia's energy needs.
If we look globally, the same picture emerges. The IEA expects coal, oil and gas to account for about 83 per cent of the forecast increase in primary, global, energy demand over the period from 2003 to 2030. If one accepts these projections, that would mean an increase in the share of global energy demand accounted for by fossil fuels.
Such figures should serve as a reality check for those who argue that Australia should have signed on to Kyoto Protocol.
Australia remains determined to pursue an effective global response on climate change that encompasses the world's major emitters and avoids distortions that might lead to the international transfer of economic activity and emissions with no environmental benefits.
Unfortunately, Kyoto did not meet that test.
The results are striking. Global greenhouse emissions are projected to grow by 40 per cent by 2012 within the Kyoto framework. In the absence of Kyoto, they would have grown by 41 per cent.
A central flaw of Kyoto is its reliance on a distinction between developed and developing countries which makes little sense when translated into global emissions.
Let me illustrate. Australia contributes 1.4 per cent of global CO2 emissions. If we stopped overnight emitting all carbon dioxide in this country, it would take all of 10 months for the growth in China's emissions alone to eclipse or completely cancel out the global reduction caused by Australia ending all activities producing greenhouse gas emissions.
Today's ABARE report reinforces that moving ahead of the global community and achieving deeper emission cuts in Australia will impose significant costs on our country and ABARE finds that those costs would be a 10 per cent fall in GDP, a 20 per cent fall in real wages and a carbon price equivalent to a doubling of petrol prices in Australia and for good measure, yield no greater environmental benefits.
The other fundamental flaw of Kyoto, due to its limited application of binding targets, is that it can lead to distortions in economic activity without any environmental benefit. A good way to think about this is through the prism of Australia's historic $25 billion LNG deal with China.
Resource development supporting this deal has the effect of increasing Australia's greenhouse emissions by about 1 million tonnes. A Kyoto constraint could well have priced Australia out of a contract whose net effect is to lower China's prospective greenhouse emissions by some 7 million tonnes. Australia therefore would have lost out and, at best, the environment would have been no better off. Where is the rationality in that?
In my view, the problems being experienced in the European Union's Emission Trading Scheme also vindicate the Government's decision not to introduce a similar arrangement in the absence of an effective global regime. The EU scheme is beset with complexity and competing national interests. The first trading period saw an allocation of permits by governments designed more to protect industries than to reduce emissions. This has led to wild fluctuations and then a collapse in the price of traded carbon. And it seems likely that the new round of trading will suffer the same fate. I raise this issue because there are other political forces in Australia at both a federal and state level who are proposing a similar scheme for Australia. Global debate on greenhouse strategies has now moved beyond Kyoto and Australia is very much at the centre of it.
An Australian has been selected to co-chair a new UN dialogue on post-Kyoto arrangements. And we are at the heart of another global initiative, exemplified by the launch this year in Sydney of the Asia Pacific Partnership on Clean Development and Climate. The picture that emerges therefore is of a Government positioning Australia to contribute to an effective global response to climate change, both domestically and internationally. And it is in this context that I believe Australia must also engage in a rational debate about nuclear energy.
There is a growing body of evidence to suggest that nuclear power has an important role to play in stabilising atmospheric concentration of carbon dioxide. This, along with energy security concerns, has led to a revival of interest in nuclear power. Nuclear energy currently accounts for 16 per cent of global electricity generation. Most operating nuclear power plants are in Western Europe and North America, but most new plants under construction are in Asia. China and India are both undertaking major nuclear energy expansions, while Japan and Korea have also committed to increasing reliance on nuclear energy. The United States continues to be the world's largest producer and consumer of nuclear energy. And in Europe, countries such as the United Kingdom, Sweden and Switzerland are now re-evaluating plans to phase out nuclear power. At the same time, engineers from a ten-nation consortium are developing the so-called fourth-generation plants designed to be safer, more affordable, more efficient and more proliferation-resistant nuclear energy systems.
A growing number of environmentalists now recognise that nuclear energy has significant environmental advantages. Greenpeace founders James Lovelock and Patrick Moore are among those urging a re-examination of the case for nuclear power. Nuclear power emits virtually no greenhouse gases. The International Atomic Energy Agency states that the complete nuclear power chain, from uranium mining to waste disposal, and including reactor and facility construction, emits only 2-6 grams of carbon per kilowatt-hour. This is about the same as wind and solar power, and two orders of magnitude below coal, oil and even gas.
Of course, commercial factors remain critical to the future prospects of nuclear power. High oil prices mean that in some cases nuclear energy automatically has become more competitive for base load power generation. Australia cannot absent herself from global developments surrounding nuclear energy. We are part of the nuclear fuel cycle, whether we like it or not. With close to 40 per cent of the world's known low-cost uranium deposits, for Australia to bury her head in the sand on nuclear energy is akin to Saudi Arabia turning her back on global oil developments.
Uranium is already Australia's second largest energy export in terms of energy content and it plays a major role in decreasing the greenhouse intensity of other nations. Japan's 54 nuclear power stations alone save the equivalent of Australia's total greenhouse emissions, facilitated by our exports of uranium. Australian uranium is exported under stringent safeguard arrangements to ensure it is used for exclusively peaceful purposes and is fully accounted for through the nuclear fuel cycle.
The taskforce I announced last month will conduct a comprehensive, science-based review into uranium mining, processing and the long-term contribution of nuclear energy in Australia. I believe that the opposition expressed to this Inquiry both at political and other levels is hypocritical, irrational and weak. It is hypocritical because it says that while Australia will not use uranium, we are very happy to sell it to other countries and let them deal with the consequences. It is irrational because it falls back on nothing more than simple slogans and gesture politics when confronted with a serious issue. As Greenpeace founder Patrick Moore has said, those who would shut down debate on nuclear energy have 'abandoned science in favour of sensationalism'. And it is weak because it responds to immediate and potentially transient public reaction, rather than the facts and the longer term challenges that this country must face.
The real question is whether Australia should fully consider our interests and responsibilities in the global nuclear energy debate or whether we succumb to a dogma of denial. If Australia does not engage in this debate, if we sacrifice rational discussion on the altar of anti-nuclear theology and political opportunism, we will pay a price. Maybe not today or tomorrow, but in 10, 15, or 20 years Australia will surely pay a price.
Ladies and gentlemen, as with energy, access to water is fundamental to a prosperous, secure and sustainable Australia. We are the driest inhabited continent on earth. Our rainfall and our rivers are the most variable in the world. Drought has a tormenting place in our art, our literature and our song, as well as being a daily heartbreak for so many of our fellow Australians today and in years gone by. Rational water management has eluded Australia for far too long.
Now, I believe with the National Water Initiative, we are starting to turn this around. For the first time, all Australian governments have committed to a national blueprint for water reform. In support of this the $2 billion Australian Government Water Fund is delivering practical water projects to improve water efficiency and environmental outcomes. Funding of more than $400 million has been approved supporting more than $1 billion of investment in water conservation projects.
The Commonwealth has also taken the lead in helping to restore the Murray-Darling river system to better health with an additional investment of $500 million in this year's Budget, the Commonwealth Government delivered the single biggest commitment ever made to our most important river system.
We must, however, maintain a sense of urgency about water reform. There is still too much reform slippage in some areas. There is still too much blame-shifting between governments. And there is still too little truly innovative thinking about Australia's large-scale water challenges.
Let me identify the six "basics" of the initiative where this sense of urgency needs to be focused. All governments need to do one, improve approaches to water pricing; two, ensure that water entitlements are secure and tradeable; three, facilitate permanent interstate water trading; four, ensure scientifically-based and transparent water planning; five, improve water resource accounting; and finally integrate management of environmental water. I especially urge New South Wales, Victoria and South Australia to move quickly towards effective water trading arrangements.
Water reform can only be a collaborative effort, but the Commonwealth Government has a particular duty to put the national interest first. And against this background, last Friday at the COAG Meeting, I asked that the states and territories bring forward more ambitious water infrastructure projects for joint funding with support from the Commonwealth Government Water Fund. What I am really talking about here is a small number of large projects of state and national significance. The Government's Water Fund is not designed to provide a small subsidy to every worthy piece of water infrastructure. This will not be a scheme where everyone gets a prize. And I have asked directly that state and territory leaders look at this issue with a larger, national perspective in mind. And I will be writing to all the Premiers and Chief Ministers shortly setting out what I regard to be minimum criteria for projects that can deliver a genuinely transformative impact on water management.
Allied to this, I believe we need nothing short of a revolution in thinking about Australia's urban water challenges. Two assumptions have dominated water infrastructure in our cities. The first is that water should only be used once. The second is that storm water should be carried away to rivers and oceans as quickly as possible. Neither assumption is suited to a world in which we should judge water by its quality and not by its history. Compared with desalination, for example, water recycling and capturing storm water have much more to recommend them as strategies for solving Australia's urban water challenges.
The simple fact is that there is little or no reason why our large cities should be gripped permanently by water crises. My Parliamentary Secretary, Malcolm Turnbull who I gather is here today, made the point rather forcefully to this audience last month. He reminded you that if ancient Rome's 11 aqueducts 2000 years ago could deliver a billion litres of water to its million inhabitants every day; before powerful pumps, pressurised pipes, recycling systems or any of our modern technology, how can we seriously tolerate major water constraints in our great cities?
Our goal should be nothing less than to drought-proof our large coastal cities. Having a city on permanent water restrictions makes about as much sense as having a city on permanent power restrictions. We would not tolerate it with electricity and we should not tolerate it with water. Part of the solution is better pricing, but the real issue is better management and adequate investment in water infrastructure. In many cases, water restrictions, which are held out as designed to protect and preserve a scarce resource, have got more to do with protecting the cash flows and dividends of government-owned water utilities.
Again, I want to stress to the states and territories that my default setting is towards a cooperative approach to urban water challenges. But the Commonwealth is not interested in the sort of cooperation where the Australian taxpayer just writes a cheque. If Commonwealth funding is sought, we will need to be satisfied that the urban water plans which we are asked to support are the right ones.
Ladies and gentlemen, can I finish by reminding you that hunger for energy and thirst for water go to the very foundations of our civilisation. And every generation can be judged by the balance between what it uses up and what it leaves behind. But as the economist Robert Solow reminds us, the obligation to leave future generations the ability to be at least as well off as we are does not imply an obligation to leave them the world exactly as we found it. What matters is the whole range of resources, knowledge and technology we leave behind to fulfil the needs of humanity.
This legacy is as much about the quality of our institutions and ideas. And that's what I mean when I talked about national flexibility and the importance of those crimson threads that run through modern, successful Australia: our proven adaptability; our willingness to embrace difficult reforms and new technology; and our commitment to rational debate and discussion. They are what led the IEA last year to describe Australia as a 'model for other countries' in electricity reform. They are what saw The Economist magazine single out Australia a couple of years ago as taking 'the top prize for sensible water management'. And more than anything, these resources will help us lock-in and leverage our national strength for the great challenges that lie ahead.
May I again thank CEDA for the forum it's given me today to give you some of my thinking of these issues. Over my years in public life, not only as Prime Minister, but in the various other positions that I occupied prior to 1996, CEDA has been a wonderful forum for discussion and serious consideration of long term national challenges. There can be few of those challenges more important than of energy and water, and I thank you very warmly for the opportunity you've given me today.
Thank you.
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