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Estimates hearings - vehicle fuel efficiency

STANDING COMMITTEE ON ECONOMICS

Discussion
02/06/08

Senator MILNE—In relation to that matter, in the Innovation, Industry, Science and Research portfolio, are you working on developing mandatory vehicle fuel efficiency standards?
Senator Carr—They are matters for Mr Albanese’s department. The question of mandatory vehicle standards is a matter for another portfolio.
Senator MILNE—But I thought your portfolio was to improve the economic viability and competitive advantage of Australian industry, et cetera, and that includes the car—
Senator Carr—Vehicle standards are not matters for this portfolio.
Senator MILNE—Who develops the policy initiatives for government in relation to fuel efficiencies? Can you just explain that to me?
Senator Carr—In general terms of the vehicle industry, I have responsibility. For vehicle standards, per se, that is a matter for Mr Albanese’s department.
Senator MILNE—The point here is that the silos approach that is being taken is actually getting us nowhere—
Senator Carr—Sorry?
Senator MILNE—The silos approach. If you are responsible for innovation and competitiveness in Australian industry, then surely your innovation and research portfolio should be looking at ways in which you can rapidly increase Australian competitiveness. One of the initiatives would be making all subsidies to vehicle manufacturers subject to vehicle fuel efficiency standards, and someone would be bringing that in. Where does that all fit with your innovation?
Senator Carr—The vehicle industry, per se, is the responsibility of this portfolio, the administrative orders, but fuel standards are a matter for the Department of Transport.
Senator MILNE—Tell me how—
Senator Carr—I have just got to correct that. There are two areas. I have just been corrected. Fuel standards specifically are a matter for the Department of Environment and the other standards relating to the vehicles themselves are matters for the Department of Transport.
Senator MILNE—What initiatives is your department taking to make car manufacturing more competitive in the face of oil depletion and in the face of manufacturing going out the back door because we are making the wrong sorts of cars?
Senator Carr—There is a subjective judgement there in regard to making the wrong sorts of cars—
Senator MILNE—There is a closure of a factory to show for it.
Senator Carr—No. Whether or not Australia is making the wrong sort of car is a matter of considerable public debate. However, in terms of improving the sustainability of the vehicle industry in Australia, considerable action is being taken. We have established the review into the automotive industry which is canvassing all of these issues. We have also established a Green Car Innovation Fund which is aimed at improving, on a project-by-project basis, particular measures by the car industry to actually transform the industry.
Senator MILNE—Why is the green car fund delayed until 2011 in the face of rapidly escalating oil prices?
Senator Carr—The fact is that the vehicle industry inquiry is looking at ways to increase investment in high-end R&D, including new technologies that reduce greenhouse gas emissions, such as changes to power trains, whether they be in the form of hybrids, diesels or alternative fuels. There are also questions that go to other drive-train technologies, whether they are in carburettors or in transmissions—gearboxes or differentials. There is a broad approach being taken to improve the fuel efficiency of the Australian built vehicle fleet. These measures that are being taken have to be presented in a way that allows the industry time to actually adapt, given the enormous lead times there are on transforming this industry. As you would be aware, it costs the better part of $1 billion to bring a new model on-stream in the Australian automotive industry. Australia is one of 12 countries around the world that can actually design and produce a vehicle from inception through to the assembly line. The question arises as to how long we will be able to do that and whether or not we want to do that. Therefore, these matters are subject to quite important discussions about how the industry is transformed. This is not something that one could reasonably expect to be done tomorrow. Given that there is this long lead time for the production and manufacture of a vehicle, it is appropriate that the industry is able to engage in those conversations to ensure that a transformation actually occurs.
Senator MILNE—In the absence of vehicle fuel-efficiency mandatory standards in Australia, how can the industry know what it is meant to be building, the dimensions and what level of performance it has to get? You still have not answered the question: if this is so urgent, why have we delayed the funding until 2011?
Senator Carr—The question of the funding streams are ultimately budgetary decisions. The role of mandatory fuel standards in the decision-making process is a matter of some conjecture. There is no doubt in my mind that the industry is responding to the Green Car Innovation Fund that we have articulated and budgeted for in this budget. There is no doubt in my mind that there will be clear signs of the industry’s commitment to change. However, this is not something that can be done in a reckless manner. I am a strong supporter of the automotive industry in this country, given that on present figures it employs directly some 66,000 Australians and it provides high-skill, high-wage jobs to that number of people. It is an international industry. It is a highly internationalised industry and, therefore, actions cannot be taken in isolation as much as we would like. The fact of life remains that the economics of the industry and the social impact and importance of this industry make it appropriate that these decisions be taken carefully and in consultation with the investors because this is about co-investment, it is about ensuring investment attraction, and it is about ensuring that the industry is placed on a sustainable basis. That is the basis on which I am proceeding and I am confident that the industry will respond to the challenge. When I say ‘industry’ here, this is not just about people who own capital; it is also about the workers directly employed and we are in the process of ensuring that the industry, broadly defined, moves forward in a manner that ensures that we do have a sustainable vehicle building industry in this country into the future.
Senator MILNE—There would be many people, and I would be one of them, who believe that the 66,000 people who work in the industry have been let down by the government’s failure to recognise the trend to small vehicles and recognise the trend towards vehicle fuel efficiency. So there is a very different set of opinions here as to why these vehicle manufacturers are going out the back door. But tell me, are the subsidies going to vehicle manufacturers in Australia tied to vehicle fuel efficiency? In other words, if they do not come up with it, are they going to lose their subsidies?
Senator Carr—You have made a number of statements there that are based on assumptions that the industry is doing the wrong thing—
Senator MILNE—They have been building the wrong sort of cars and governments buy the wrong sort of cars.
Senator Carr—As I indicated, in the real world of manufacturing, decisions are made in an international context—
Senator MILNE—That is right. China has got fuel efficient cars—
Senator Carr—And they are also on the road to producing 10 million cars a year—10 million. This country produces 400,000. This country has a niche in the international global trading system which happens to be large rear-wheel-drive vehicles. It produces a high-quality, highly innovative product. It produces it at remarkably low cost. Since the current arrangements were put in place in 2002, there has been the better part of a 77 per cent increase in the Australian dollar and since 2001, when this program was actually designed, there has been a 100 per cent increase in the Australian dollar. That has the effect of transforming the price of an Australian family sedan by about $8,500 per unit. If you want to talk about international real-world economics, I suggest that you actually go down to a few car plants, talk to a few people whose livelihoods depend upon this industry and get this straight because you are wrong. You are wrong about the way in which this industry actually functions.
Senator MILNE—I appreciate that the vehicle manufacturing industry operates in the real world of manufacturing but they also operate in a real world of carbon constraint, climate change and oil depletion. I want to now understand the connection between your obvious preference to stick with a large-car industry and your policy discussion interaction with the Department of Climate Change. The Department of the Prime Minister and Cabinet is supposed to be overseeing a whole-of-government approach in response to climate change. How does your science and innovation department interact with them on the future of vehicle fuel efficiency, or anything else, in relation to the work you are doing? Have you taken any direction from them on transport policy?
Senator Carr—The review that is being undertaken that I spoke of has as its terms of reference:
e. facilitating leadership among Australian automotive producers and component suppliers in developing and adapting fuel efficient technologies and know-how in the production of motor vehicles in Australia;
It also goes on about:
f. improving Australian companies’ access to global supply chains in export markets.
The role of this department is to ensure that that review is serviced properly. There have been a very, very large number of submissions received and the discussions with other agencies within government are part of that process.
Senator MILNE—Can you tell me which market you have identified as the growing market for large vehicles, and does it include the Australian domestic market?
Senator Carr—If you want to look at the vehicle figures, I think you will find there was a 40 per cent increase in the large SUV component of the Australian sales figures. I think it is something in the range of an 18 per cent increase in SUVs more generally. The question of fuel economy in terms of vehicle sales is a bit more complex than is the general public discussion on these questions. As to expansion in markets, Toyota is now exporting the better part of 60 per cent of its production; General Motors is exporting the better part of 50 per cent of its production—
Senator MILNE—To where?
Senator Carr—There is a range of markets but primarily to the Middle East. General Motors is exporting around the world but increasingly to the United States. In fact, this might be of interest to you, General Motors is exporting a V8 to the United States which, again, I suggest would sort of be counterintuitive to some of the public debate about consumer choices in these issues. The V8 ute, I am told, is expected to do very well in the United States. That is not a lawnmower.
Senator MILNE—That is under current US policy—
Senator Carr—That is not a lawnmower.
Senator MILNE—But the point I am making is that climate policy and oil depletion are going to collapse those markets. The US at the moment is still full of gas guzzlers, and I accept that. In the short term, that will be the case. But they will rapidly make the shift and then that market collapses. Why are we not looking at highly efficient vehicles? Why are we importing all our hybrids? In the face of oil depletion, why are we not moving rapidly to electric vehicles? Surely, that is where our competitive advantage is, not hanging around with the gas guzzlers until they collapse?
Senator Carr—As to the ‘gas guzzlers’, as you refer to them, there is a range of views on the consumption figures for Australian produced automobiles. I do emphasise that the issue of whether or not there are jobs in Australia is something that should not be overlooked. I acknowledge the point that you make that we are importing vehicles and it is a matter that we will obviously seek to do something about. My intention is to work with the industry to transform the Australian industry and to do so quickly. There is no doubt there is a legitimate question about improving fuel efficiency. There is a range of strategies that will be pursued to achieve that.
Senator HEFFERNAN—Price signals in the market can alter consumer patterns?
Senator Carr—Yes.
Senator HEFFERNAN—As with alcopops, that is right?
Senator Carr—Yes.
Senator HEFFERNAN—We were all surveyed the other day; do we mind if they use a Prius instead of those guzzlers at the door. I rang them and said, ‘I’m not filling in the form, just do it.’
Senator Carr—Did you?
Senator HEFFERNAN—But the question is: why would you not put a price signal in the market to help protect the jobs of the people that you are worried about in the plants, the 60,000 employees who are still there? You could introduce a price signal. I was talking to a bloke this morning, a member of parliament, with a brand new car. I said, ‘That thing does 12½ litres to 100 kilometres; why would you buy that?’ He said: ‘I didn’t know. I just thought it was a great car.’ Why could we not say that if people want to register a city based vehicle we will put a price signal in the taxing process—whether it is rego, stamp duty or whatever—that benefits the person who prefers a vehicle that consumes 6 litres to the 100 kilometres over one that consumes 12 litres to the 100 kilometres. Why would anyone slip up to the football on Saturdays in a huge four-wheel drive like the one I drive because I go out the back of Bourke where there is no tar?
Senator Carr—I do not want to discuss your vehicle habits—
Senator HEFFERNAN—We could discuss yours. You have got a gas guzzler and it is city based.
Senator Carr—Excuse me. I have got a Territory. It is a very innovative, a highly—
Senator HEFFERNAN—It is a gas guzzler.
Senator Carr—No, it is not—
Senator HEFFERNAN—Don’t take it to heart. They drive them in the Kremlin.
Senator Carr—On these issues we are concerned to ensure the sustainability of the Australian automotive industry. We are concerned to ensure that this industry continues to provide high-wage, high-skill jobs for Australian workers and, while people are very anxious to import vehicles, we are in the business of ensuring that there are opportunities for Australia to produce vehicles which are more fuel efficient. And that is our intention. If you want the Commonwealth car fleet to be given over to imports, that is a matter for you.
Senator MILNE—If I can come back to those two issues, on the import tariff for four-wheel drives, has your department made any recommendations to Treasury about increasing the tariff to 10 per cent for—
Senator Carr—Sorry?
Senator MILNE—Has your department made any recommendations to Treasury about increasing the tariff on SUVs for urban use, not country use; we can fix that after the event?
Senator Carr—To the Treasury?
Senator MILNE—Yes.
Senator Carr—There is a review under way at the moment. There will be range of opinions—
Senator MILNE—No. Did you in this budget? Did you actually say this would be a good thing to do?
Senator Carr—There are a range of options being explored. The review terms of reference allow for that. I have no doubt that that is a question that will be pursued through the inquiry and I would expect that a range of submissions would pick up that question.
Senator MILNE—But I am asking: did you, or did your department, recognise that the tariff differential was a bad idea?
Senator Carr—The review is underway. We look forward to the findings of the review.
Senator MILNE—So the answer is no. Have you made any recommendations about changing the government’s procurement policy to reduce dependence on oil?
Senator Carr—There have been a range of issues canvassed in the inquiry. I am not in a position to discuss the submissions the department has made on those matters.
Senator JOYCE—In regard to you statement of support for the Australian car industry and your discussions about innovation, is the Toyota Prius that is painted white with a Z-plate on it parked at the front of the Senate entrance a fully imported vehicle or is it an Australian-made vehicle?
Senator Carr—Yes, it is a fully imported vehicle.
Senator JOYCE—Why are we buying a fully imported vehicle when you are espousing belief in the Australian car industry?
Senator Carr—Because a number of senators, a number of members of parliament and a number of government agencies have sought exemptions from the current procurement requirements.
Senator JOYCE—We could lose all the Australian produced vehicles and just replace them with these imported Japanese vehicles—
Senator MILNE—For 10 years nobody did any work in this country about vehicle fuel efficiency—

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