6 Demographic, employment, and skill challenges for Tasmania

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1 6 Demographic, employment, and skill challenges for Tasmania Although Tasmania has recently experienced an increase in unemployment due to a lack of jobs, the longer term concern for a maturing population such as Tasmania s is a lack of sufficient labour and a lack of skilled labour. Both concerns can also, paradoxically, drive an increase in unemployment. 1 For example, business investment can decline over concerns that there are not enough workers with the right types of skills to make an investment worthwhile. Furthermore, growth in many of the sectors of opportunity for Tasmania, such as dairy, wine, and horticulture, requires long-term immobile investment, such as investments in vineyards, orchards and improved pastures. Therefore, the demand for appropriately skilled labour will extend at least a decade or longer into the future. Several long-term trends point to future challenges for the supply of labour in Tasmania. First, even though the fertility rate in Tasmania is slightly above the replacement level of 2.1 children per woman, there is a long-term pattern of emigration of individuals between 15 to 29 years of age and low net immigration. Tasmania s total population has been growing slowly over the past 30 years and even declined for several years between 1993 and In the boom years between 2002 and 2006, net annual population growth was rarely over 5,000 per year, or approximately one per cent of the state population. Second, the labour supply could shrink in the future as more Tasmanians are leaving the labour market than entering the market (compared to the opposite for all of Australia). Third, labour force participation rates in Tasmania are approximately four to five percentage points below the national average and may be increasing, in part due to men starting to leave the workforce after age 45 and women after age 55. The underemployment rate (the unemployed plus individuals working fewer hours than desired) is also high, at approximately 14 per cent for women and 18 per cent for men. Some of these negative trends provide an option for growth if they can be reversed. For example, Tasmania experienced a decline in both unemployment and labour force participation rates between 1990 and 2002, suggesting that part of the decline in unemployment was due to people leaving the labour force. However, after 2002 labour force participation rates increased rapidly, from 58 per cent in 2002 to 62.5 per cent in 2006, while unemployment fell from close to eight per cent in 2002 to four per cent in This highlights how good economic conditions can increase the labour force participation rate, which could conceivably increase to the Australian average. The high level of underemployment also provides a buffer for increasing the labour supply. The communities that are most affected by the decline in native forestry have incomes that are considerably below the state average, particularly the Dorset and Kentish LGAs. Some of the affected LGAs are among the highest levels of economic disadvantage in the state, although this is partly due to high shares of retirees, as in Glamorgan/Spring Bay and 1 Hermann,

2 Tasman. Lower average wages in some LGAs could help the early growth of new sectors by providing a competitive advantage, as long as below-average wages are combined with acceptable skill levels. A positive trend in this respect is an increase in the share of employees with formal educational qualifications, due to the entry of better-educated younger age cohorts. The high public sector dependency rate also highlights the need for economic diversification through the growth of tradable sectors. In 2009/10, Tasmania had Australia s highest share of the adult population, at 35.1 per cent, dependent on either Commonwealth government income transfers or public sector jobs. The following sections provide an overview of demographic conditions, labour force status and participation rates, and educational attainment levels for all of Tasmania and, given data availability, for each of the three regions. This is followed by a brief overview of conditions in the target LGAs. Details for each target LGA on the population age structure, labour force status, employment by sector, and educational achievement are provided in Appendix 6.1 through to Demographics The economic development potential of a region is strongly linked to the size of the labour force, generally defined as the population between age 15 and 64, although older individuals can also be active in the workforce. Other factors such as the dependency ratio can reduce the labour force, for instance when adults withdraw from work to take care of young or ageing dependents. The supply of labour in Tasmania will vary depending on natural population growth, emigration and immigration; and conditions that influence working-age individuals to join the workforce or to leave it. Individuals are more likely to join the workforce when there is low unemployment and to leave it when job opportunities are scarce. Individuals will also leave the labour force to study, take care of family members, or for early retirement Population and age distribution The Tasmanian population is characterised by a distinct peak for the 45 to 49 year old cohort and a deep valley for 15 to 34 year olds, as shown in Figure 6.1, whilst nationally the valley is very shallow and the peak is spread over the 35 to 49 year old age groups (Figure 6.2). The valley in Tasmania is not due to a drop in births between 1977 and 1981: 2 it is too deep compared to the Australian results to be caused by a decline in births alone and it is also observed in the previous decade, as shown in Figure 6.3, implying a general pattern of net out migration for this age group in Tasmania. In fact, the out-migration effect has been increasing over time, with a deeper valley in 2006 than a decade earlier. The 2 A decline in births after the boomer generation has been observed in other OECD countries, followed by an increase in births due to boomers. This has been referred to as the boom, bust and echo effect. 99

3 population distribution for the state is seen in all three regions (see Figure 6.1) and in the target LGAs (Figure 6.4), but is particularly deep for the Central Highlands, Huon Valley, North Midlands, and Dorset. Figure 6.1 Population distribution by age for Tasmania and regions, 2006 Source: ABS, 2006a Census for Population and Housing Figure 6.2 Australian population distribution by age, 2006 Source: ABS, 2006a Census for Population and Housing 100

4 Figure 6.3 Tasmanian population distribution by age for 1996, 2001 and 2006 Source: ABS, 2006a Census for Population and Housing Figure 6.4 Tasmanian population distribution by age for target LGAs, 2006 Source: ABS, 2006a Census for Population and Housing The drop in the population for younger age cohorts is not observed in the two metropolitan regions of Hobart and Launceston, where there is an increase in population for this age range (Figure 6.5). This implies that whilst some of the population in this age cohort leaves the state (explaining the Figure 6.1 results for all of Tasmania), some of the decline at the LGA level is due to relocation to either Hobart or Launceston. The presence of the University and other tertiary campuses in Hobart and Launceston plus more work opportunities could 101

5 explain the diverging results between the target regions and the metropolitan centres in Tasmania. Figure 6.5 Population distribution by age for Hobart and Launceston, 2006 Source: ABS, 2006a Census for Population and Housing, Data refers to the Urban Centre/Locality rather than the municipal area Factors driving population change in Tasmania The main factors driving population growth in Tasmania are natural increases (births exceed deaths), net overseas migration, and net interstate migration. Net migration rates have the greatest impact on Tasmania s population growth rates and the subsequent supply of labour and skills. As shown in Figure 6.6, both net interstate migration and net overseas migration have been negative in the past, net interstate migration considerably more so than net overseas migration. The change in net interstate migration has a large effect on labour supply and skills because of differences in migration by age group. As is evident from Figure 6.7 below, Tasmania typically experiences net interstate migration losses in the age groups 15 to 29 (1,284 in the 2010/11 year) and net gains in the zero to 14 and 30 to 75+ age groups (1,237 in 2010/11). 102

6 Figure 6.6 Population components by year, Tasmania: June 1981 to June Source: ABS, 2011c, data for 2011 are for January to June only. Figure 6.7 Net Interstate Migration by age group, Tasmania: 1996/97 to 2010/ Natural Increase Net Overseas Migration Net Interstate Migration Source: ABS, 2011k, Interstate migration: Arrivals, departures and net, State/territory, age and sex Financial years, 1997 to Table 6.1 gives the detailed results for interstate migration that are summarized in Figure 6.7. Tasmania s net migration movements between 1996/07 (when this type of migration data were first collected) and 2001/02 were strongly negative, with net losses in almost all age groups below 55. It was only during the strong economic performance period from 2002 to 2005 that Tasmania recorded net gains in interstate migration. Since 2002/03, the net losses have generally been confined to the 15 to 29 age group, with smaller gains in each older age group. After the GFC of 2007/08, the net out-migration of the 15 to 29 age group has stabilised at approximately 1,200 per year. 103

7 Table 6.1 Net Migration by Age Tasmania: 1996/07 to 2010/ Total Loss/Gain Source: ABS, 2011k, Interstate migration: Arrivals, departures and net, State/territory, age and sex Calendar and Financial years, 1997 to 2011 Age cohorts by time with positive migration are shaded: light= up to 100, moderate = 101 to 199, dark =

8 Data from the 2006 Census showed a net loss of lower skilled (less qualified), younger persons, and a net gain of higher skilled (more qualified) older persons to the state. 3 This switch from a brain drain to a brain gain may have reflected good economic conditions in the state. It is not known if the weakening of the state economy since 2010/11 (also reflected by a switch from a gain to a loss in net interstate migration) has affected the skill structure of interstate migration Projections of future population in Tasmania As at June 2011, Tasmania s estimated residential population was 510, Future low, medium and high population projections were estimated by the Demographic Change Advisory Council (DCAC) in 2008 and are shown in Figure 6.8. Each estimate makes different assumptions about the fertility rate and life expectancy (determinants of the natural rate of population change with no emigration or immigration), and net interstate and overseas migration. The medium series projection in Figure 6.8 makes assumptions that are closest to the past historical experience of Tasmania. For example, the medium series population projections assumes a fertility rate of 2.16 in 2007, decreasing to 1.95 by 2017 and remaining constant thereafter, life expectancy is assumed to reach 86.0 years for males and 89.5 years for females by 2057, interstate migration is assumed to be zero and overseas migration a net gain of 1,000 persons per year. For comparison, the fertility rate in the previous four years has averaged 2.17 children per woman, net interstate migration has been slightly positive since mid 2002 (although showing a net loss of up to several thousand a year in the 1990s), and overseas migration has been approximately 1,000 per year since Life expectancy affects population growth, but it has much less of an effect on the supply of labour. In 2012, only 12 per cent of men and eight per cent of women in Tasmania remained in the workforce after age 65 and the majority of these were employed part-time. Even though the workforce participation rate of individuals over 65 is expected to increase in the future, the effect on the total workforce is likely to be minor due to low current labour force participation rates. The high series for the population projections assumes a fertility rate of 2.16, life expectancy is assumed to reach 92.4 years for males and 94.8 years for females by 2057, interstate migration is assumed to be a net gain of 1,000 per year and overseas migration a net gain of 2,000 persons per year. The low series for the population projections assumes a fertility rate of 2.16 in 2007, decreasing to 1.8 by 2017 and remaining constant thereafter. Life expectancy is assumed to reach 82.9 years for males and 86.9 years for females by 2057, interstate migration is 3 DCAC, ABS, 2011c 105

9 assumed to be a net loss of 1,000 persons per year (less than half the loss rate for the 1990s) and overseas migration to be zero. Figure 6.8 Observed and Projected Population of Tasmania Actual Projected Source: ABS, 2011c and DCAC, medium low high If the low population estimate is the best predictor of the next decade, then Tasmania s population will remain stable. An increase in the labour force will need to come from increasing the labour force participation rate or the average retirement age, reducing the underemployment rate, or increasing the attractiveness of the state for the age cohorts between 15 and 29. For both the low and medium population estimates, growth is very sensitive to the assumptions for interstate and overseas migration patterns. As occurred during the state economic boom between 2002 and 2008, net in-migration is likely to depend on economic opportunities. Population estimates for target LGAs The population projections for the target LGAs follow similar population fluctuations as for all of Tasmania, with some variations as follows. 5 Glamorgan/Spring Bay has a net in-migration for 50 to 70 year olds, probably due to the attraction of this area for retirees. In the Southern Midlands, expected net migration is not as great as other LGAs, but there is an overall decrease between the 15 to 45 year age cohorts. In Tasman, there is no net change in the population structure. There is a large net out-migration among 15 to 34 year olds in Waratah-Wynyard. 5 Appendix 6.14 provides the results for each target LGA. 106

10 Most of the target LGAs face a decline in the labour supply from younger cohorts, which could create problems for longer term economic growth, particularly for LGAs beyond commuting range from the two metropolitan areas of Hobart and Launceston. Of note, proximity to these two areas could also drive out-migration from the target LGAs, as shown by the much larger decline in the 20 to 34 year cohorts in the Huon Valley and the Northern Midlands (close to Hobart and Launceston respectively) compared to Circular Head, which is beyond commuting distance Future age structure of Tasmania In addition to changes in the total population of Tasmania, the age structure is expected to change in the future, which will influence the percentage of a population that is available to work. In general, younger populations with a large share of working age individuals will have a higher supply of labour than older populations with a large share of retirees. The demographic structure of Tasmania is less favourable than that for all of Australia, with a smaller working age population share due to the decline in the 15 to 29 year old cohort and a higher share of the population over 64. There are different types of age structures which describe the composition of a population, ranging from very young (a triangular based profile with high proportions of children) to declining (numbers and proportions diminish through younger age groups, denoting persistent low fertility rates, and a population with negative momentum, where the potential for population growth enters decline as a result of persistently low birth rates. In Tasmania s case, the population age structures for the state and LGAs are also affected by outward migration movements by younger age groups, as seen in Figure 6.1. These are referred to as a bite in the age structure. This results in a higher share of older age cohorts in the total population. The types of population age structures which exist in Tasmania are maturing, old and declining and with some areas of undercut, explained below: Mature age structures are transitioning between young and old types of structure but still with a relatively high share of children. Old age structures are rectangular in shape, indicative of low birth and death rates. Declining age structures taper downwards in shape and have lower proportions of the younger age groups, denoting fertility rates at or below the replacement level and in Tasmania s case, a bite in the age structure. Undercut age structures appear in Tasmania s mature and declining age structures, where there is a deficit in the child age groups, indicating either a recent decline in the birth rate or a bite in the age structure due to out-migration. 107

11 Tasmania s age structure is predicted to mature over time, as shown in Figure 6.9. These structures reflect the migration movements resulting in a bite in the age structure and the subsequent undercut and thus impact on the current and future working age population in Tasmania. The working age population is identified in circles. Figure 6.9 Population Age Structure, Tasmania, 2011 Actual, 2016 and bite 2011 Working Age Population Working Age Population

12 Source: ABS, 2011c and DCAC, Working Age Population The Tasmanian total fertility rate of 2.17 is slightly above the replacement rate of 2.1 children per woman, in contrast to rates below replacement of 1.89 for all of Australia in and lower replacement rates in other developed regions. 7 The above-replacement birth rate in Tasmania should lead to an increase in new entrants into the labour force, but the bite, due to a combination of out-migration from the state and a reduced number of births in the past, counteracts this effect. Age structure by region The population age structure varies by region, as shown in Figure 6.10, which also includes all of Tasmania for comparison. The Southern region has a larger population base distributed more evenly than the Northern and Mersey-Lyell regions. In particular, the Southern region lacks the large bite of Mersey-Lyell. This is probably due to in state migration of young adults to the Hobart region for either education or employment. While both the north and Mersey-Lyell regions have bites in their age structures, the structures are actually quite different, with the Mersey-Lyell region having a high proportion of its population in the very young and young age groups (0 to 19) while the north has less very young (zero to nine), indicating that the north could be entering population decline, whereas the Mersey-Lyell population could be stabilising at replacement level, provided it can offer incentives for the 20 to 39 year age group to remain in the region. 6 ABS Births, Australia, See The most recently reported total fertility rate is 2.06 for the United States, 1.91 for the UK, 1.56 for Canada, and 1.41 for Germany. 109

13 Figure 6.10 Population Age Structure by Regions of Tasmania, 2010 South North 85 and over and over Mersey-Lyell All of Tasmania and over Source: ABS, Note: the population scale varies per chart. 6.2 Employment Dependency and labour market entry exit ratios The impact of the population age structure on labour supply can be measured by the total dependency ratio and the Labour Market Entry Exit (LMEE) ratio. The former equals the number of children (0 to 14) and aged (65+) persons per hundred people of working age. The number of dependents that need to be supported by working age individuals increases with the working age ratio. In fact, the number of dependents is higher than the dependency ratio due to individuals in the working-age population that are not in the labour force. In February 2012, the labour force participation rate in Tasmania was only 61.1 per cent, compared to the Australian average of 65.2 per cent. 8 The LMEE ratio is the number of people entering the labour market (those aged 15 to 24) per hundred people exiting the labour market (55 to 64 years). The LMEE ratio identifies the ability to replace the loss of labour due to reaching retirement age or exit from the workforce. 8 ABS, 2012a, Feb

14 As shown in Table 6.2, the number of people dependent upon the working age population (children and the elderly) is expected to increase over time and the number of people entering the labour market per hundred people exiting the labour market is decreasing. In 2011 in Tasmania, there were 54 persons dependent on every 100 people of working age (whether they were employed or not) and there were 98.3 persons entering the labour market per one hundred people exiting it. For comparison, the dependency ratio for all of Australia is 48.3 and the LMEE ratio is By 2021, the Tasmanian dependency ratio is estimated to increase to 63.2 compared to 56.3 for Australia, with only 83.4 people entering the labour market for every hundred who are exiting it, compared to for Australia. The dependency ratio is higher in Tasmania than Australia as a result of the bite in the working age groups and the higher proportion of older people in Tasmania. The significant difference between the LMEE ratios for Tasmania and Australia is also a result of the bite in the age structure due to outward migration (and inward migration of the older age groups), however the difference is compounded by the loss of potential births as a result of the outward migration (and therefore potential young labour supply to replace those retiring), causing Tasmania s mature age structure. While the birth rates in Tasmania have increased in recent years to above the replacement level, the births will not be sufficient enough to replace working age individuals and potential births lost to outward migration. Table 6.2 Dependency Ratio and LMEE Ratio Australia and Tasmania 2011 (actual) 2016 (projected) 2021 (projected) Tas Aust Tas Aust Tas Aust Dependency Ratio LMEE Ratio Source: ABS, 2011c and DCACl, Population Projections, Unemployment and labour force participation rates In addition to demographic factors and migration rates, labour supply is influenced by the labour force participation rate and the unemployment rate (the per cent of individuals in the labour force without employment). The former is defined as the percentage of all individuals over 15 that are employed or actively looking for work. Even with no inmigration, an increase in the labour force participation rate can increase the supply of labour. Figure 6.11 provides the unemployment rate and the labour force participation rate for Tasmania over the period 2001 to The gap between the two lines and the trajectory of the lines can be interpreted to represent the strength and confidence in the economy at a point in time. When the lines move together in an upward trajectory, as near A in Figure 6.11, labour force participation and unemployment rates are both increasing. This can occur if greater confidence in gaining employment increases the labour force faster than 111

15 Feb-1978 Mar-1979 Apr-1980 May-1981 Jun-1982 Jul-1983 Aug-1984 Sep-1985 Oct-1986 Nov-1987 Dec-1988 Jan-1990 Feb-1991 Mar-1992 Apr-1993 May-1994 Jun-1995 Jul-1996 Aug-1997 Sep-1998 Oct-1999 Nov-2000 Dec-2001 Jan-2003 Feb-2004 Mar-2005 Apr-2006 May-2007 Jun-2008 Jul-2009 Aug-2010 Sep-2011 the supply of new jobs. 9 Between 1992 and 2002, both unemployment and the labour force participation rate decreased (near B). Combined with a high rate of migration out of Tasmania, this suggests that part of the decline in unemployment was due to out-migration and a fall in the labour force participation rate as people gave up actively seeking employment. An increase in the labour force participation rate combined with a fall in unemployment (Point C) suggests that the demand for labour is increasing quickly, causing individuals who had left the labour force to re-enter the labour market. Figure 6.11 Labour Force Participation Rates (LFPR) and Unemployment Rates - Tasmania % A B C L F P R unemployment rate LFPR Source: ABS, 2012a, Feb 2012 The national labour force participation rate has steadily increased over time since 1983, perhaps reflecting the increase of women participating in the labour market and a general sentiment of increased confidence and need for gaining employment and more recently, the impact of the GFC on retirement savings, forcing older people to stay in the workforce longer. As shown in Figure 6.12, Tasmania s labour force participation rate has historically been between four and five percentage points below the Australian rate. As at February 2012, Tasmania s rate was 61.0 per cent compared with the Australian rate of 65.2 per cent. Tasmania s labour force participation rate has fluctuated more than the Australian rate because of greater variation in the state s economic climate. 9 It can also occur because of an influx of younger workers (for instance the effect of a previous baby boom) or because of changes to welfare rules that force working age individuals to enter the labour market. 112

16 Feb-1978 Jun-1979 Oct-1980 Feb-1982 Jun-1983 Oct-1984 Feb-1986 Jun-1987 Oct-1988 Feb-1990 Jun-1991 Oct-1992 Feb-1994 Jun-1995 Oct-1996 Feb-1998 Jun-1999 Oct-2000 Feb-2002 Jun-2003 Oct-2004 Feb-2006 Jun-2007 Oct-2008 Feb-2010 Jun-2011 Feb-1978 May-1979 Aug-1980 Nov-1981 Feb-1983 May-1984 Aug-1985 Nov-1986 Feb-1988 May-1989 Aug-1990 Nov-1991 Feb-1993 May-1994 Aug-1995 Nov-1996 Feb-1998 May-1999 Aug-2000 Nov-2001 Feb-2003 May-2004 Aug-2005 Nov-2006 Feb-2008 May-2009 Aug-2010 Nov-2011 Figure 6.12 Labour Force Participation Rates Australia and Tasmania: 1978 to February Tasmania Australia Source: ABS, 2012a, Feb 2012 Consistent with the national trend, Tasmania s female labour force participation rate has steadily increased as the rate for males has decreased, the differential being 10.8 percentage points as at February 2012 compared with 19.2 percentage points in February 1978 (see Figure 6.13). This reflects the changing nature of the industry composition in Tasmania with a move away from the male dominated traditional manufacturing sectors to service and care based industries, dominated by female employees. That said, Tasmania still has a higher reliance on the traditional industry sectors than the other Australian states. Figure 6.13 Labour Force Participation Rates by sex Tasmania: 1978 to February Males Females Source: ABS, 2012a, Feb

17 Nov-2007 Jan-2008 Mar-2008 May-2008 Jul-2008 Sep-2008 Nov-2008 Jan-2009 Mar-2009 May-2009 Jul-2009 Sep-2009 Nov-2009 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Nov-2007 Jan-2008 Mar-2008 May-2008 Jul-2008 Sep-2008 Nov-2008 Jan-2009 Mar-2009 May-2009 Jul-2009 Sep-2009 Nov-2009 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Nov-2007 Jan-2008 Mar-2008 May-2008 Jul-2008 Sep-2008 Nov-2008 Jan-2009 Mar-2009 May-2009 Jul-2009 Sep-2009 Nov-2009 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Regional data Data on labour force participation rates by region are only available since As is evident in Figure 6.14 to Figure 6.16, the labour force participation rate is considerably higher in the Northern region than in the Southern and Mersey-Lyell regions. Figure 6.14 Labour Force Participation Rates Southern Tasmania: 2007 to February South male South female Figure 6.15 Labour Force Participation Rates Northern Tasmania: 2007 to February North male North female Figure 6.16 Labour Force Participation Rates Mersey-Lyell: 2007 to February Mersey-Lyell male Mersey-Lyell female In the Northern region, labour force participation rates for men have remained close to 70 per cent, compared to a gradual decline in the Southern region from 65 per cent to 60 per cent and a decline in Mersey-Lyell from 70 per cent to 60 per cent. The particpation rate for 114

18 women is also higher in the North, increasing from 51 per cent to 58 per cent, while showing little long-term change in the Southern and Mersey-Lyell regions, with participation rates close to 50 per cent Labour force engagement and spare capacity While labour force participation rates have increased for women in Tasmania (and Australia) and have decreased for men, the existing supply of labour can be further understood through an analysis of the current level of engagement with the labour market, in terms of employment (full or part time), unemployment, and those not participating in the labour force at all (i.e. not employed or unemployed), for both males and females and by age group. Results are given in Figure 6.17 for men and in Figure 6.18 for women for February Figure 6.17 Per cent Labour Force Engagement for Men by Age Tasmania: Feb Employed Full time Employed Part time Unemployed Not in the Labour Force Source: ABS, 2012a, Feb 2012 As is evident from these two figures, men engage in full time employment more so than women. The proportion of men engaged in full time work starts to decline after the age of 44 and the rate of not participating in the labour force at all starts to increase considerably. At all ages, women have a notably greater proportion engaged in part time employment than men, and also have a greater proportion not engaged with the labour market at all. 115

19 Figure 6.18 Per cent Labour Force Engagement for Women by Age Tasmania: Feb Employed Full time Employed Part time Unemployed Not in the Labour Force Source: ABS, 2012a, Feb 2012 Potential sources of additional labour and skills are available in Tasmania from those who are unemployed, underemployed, 10 underused 11 and those who are not participating in the labour market at all. This is sometimes referred to as the 'hidden' potential in the labour force, indicating the spare capacity in the Tasmania labour force. Figure 6.19 and Figure 6.20 below illustrate the extent of underemployment and underutilisation in Tasmania which has increased considerably since Underemployment is particularly evident for females in comparison with men (see Figure 6.19), however the gap closes in the labour utilisation measure (see Figure 6.20), perhaps reflecting that more men are unemployed than women and that comparatively more women work part time and would like to increase their hours. For those not participating in the labour market at all, there are a number of reasons for not participating. These are outlined in Table 6.3. For all ages, the large majority of people not participating in the labour market are not looking for work. These people may be students, providing care to children or elderly or engaged with the community in a form of unpaid work. There is a small proportion looking for work in each age group (who were not available for work within a week and were therefore not counted as in the labour force) and a small proportion are permanently unable to work, increasing with age. 10 The underemployment rate captures those who are employed, but willing and able to work more hours. 11 The labour force underutilisation rate combines the unemployment rate and the underemployment rate into a single figure that represents the percentage of the labour force that is willing and able to do more work. 116

20 Feb-1978 Jun-1979 Oct-1980 Feb-1982 Jun-1983 Oct-1984 Feb-1986 Jun-1987 Oct-1988 Feb-1990 Jun-1991 Oct-1992 Feb-1994 Jun-1995 Oct-1996 Feb-1998 Jun-1999 Oct-2000 Feb-2002 Jun-2003 Oct-2004 Feb-2006 Jun-2007 Oct-2008 Feb-2010 Jun-2011 Feb-1978 Jun-1979 Oct-1980 Feb-1982 Jun-1983 Oct-1984 Feb-1986 Jun-1987 Oct-1988 Feb-1990 Jun-1991 Oct-1992 Feb-1994 Jun-1995 Oct-1996 Feb-1998 Jun-1999 Oct-2000 Feb-2002 Jun-2003 Oct-2004 Feb-2006 Jun-2007 Oct-2008 Feb-2010 Jun-2011 Figure 6.19 Underemployment (employed but willing to work longer hours) by gender Tasmania: Underemployment rate - males Underemployment rate - females Source: ABS, 2012a, Feb 2012 Figure 6.20 Labour Force Underutilisation (underemployed and unemployed) by gender Tasmania: Labour force underutilisation rate - males Labour force underutilisation rate - females Source: ABS, 2012a, Feb

21 With the exception of those permanently unable to work and the institutionalized share, some of the population not in the labour force that were not looking for work could be drawn back into employment if jobs were available and if skills matched job requirements. Figure 6.11 above shows labour force participation rates are pliable and can respond to employment opportunities. Table 6.3 Reasons for not participating in the labour market by age Tasmania: Jan 2012 Took active steps to find work Did not take active steps to find work Looking for work Not looking for work Permanently unable to work Institutionalised Source: ABS, 2012b, Feb 2012, Jan While data is available on an Australian level for unemployment information by industry and occupation, it is not reliable enough at the Tasmanian level to be included in this report Summary of labour supply indicators for target LGAs Most of the labour supply indicators are not available at the LGA level. The analysis of labour and skill supply at this level is largely dependent on an analysis of the 2006 ABS Census of Population and Housing, with the exception of data for the population age structure, which is available for 2010, and data on employment by major industry, which is available for November Due to the GFC, the mining boom, the crisis in the Tasmanian forestry sector since 2008, and the recent rise in unemployment in Tasmania, it is highly probable that the population and industry make up of each LGA in 2012 will differ from conditions in In addition, at the time of the 2006 Census there was near full employment across Tasmania, high levels of population growth and skill and labour shortages in almost all industry sectors. 12 For each LGA, an analysis of the 2010 population age structure and the projected age structures for 2016 and 2021 is undertaken to determine the potential supply of labour. Further analysis of each population is undertaken to identify the current level of engagement with the labour market, i.e. employed, unemployed or not currently participating in the labour force; the industry sectors in which the population is employed, the educational attainment of the population and the field of study undertaken by the population. It is important to note that the data is relevant to the LGA in which the individual resides, not necessarily the one in which they are employed. An unknown share of the population is likely to travel out of their LGA of usual residence for employment purposes. Even so, this analysis provides a valuable insight into the supply of labour and skills in each LGA. 12 Taylor,

22 Table 6.4 summarizes the labour force supply indicators and the share of employment in three key sectors (agriculture, fishing and forestry; tourism, and manufacturing) for each LGA and for each region of Tasmania. For all LGAs, the population age structures are at various stages of the ageing cycle, ranging from younger to maturing to declining. The degree of ageing is influenced by the size of the bite in the age structure, the proportion of children, and access to opportunities such as employment and education. Each of the target LGAs has a significant proportion of the potential labour force (those aged 15 and over 13 ) not engaged with the labour market (neither employed or actively seeking employment). This ranges from 38 per cent of the total labour force in Sorell to 48 per cent in Tasman. This level of non-participation could be attributable to the age structure, participation in education and training or the lack of opportunity for employment in the area. With the exception of Burnie, each LGA is currently experiencing more labour market exits than entrants, ranging from 37 entrants to each 100 exits for Tasman to 110 entrants in Burnie for each 100 exits. LMEE ratios are expected to worsen for all LGAs by 2021 with the exception of Tasman which will increase to 47 entrants per 100 exits. The situation is similar when analysing dependency ratios. For all LGAs there are currently around two workers for every dependent (children younger than 15 or those aged 65+), with Sorell having 48 dependents per 100 workers and the Northern Midlands with 58 dependents per 100 workers. By 2021, this is projected to deteriorate to 84 dependent for both the Central Highlands and Glamorgan Spring Bay per 100 workers. The best predicted dependent ratio in 2021 is 55 dependents per 100 workers for the Southern Midlands and Circular Head. 13 The labour force is usually defined as the working age population between 15 and 64. However, at the LGA level data are only available for the entire population above age

23 Table 6.4 Labour force indicators for the target LGAs Not in Employment by Industry Sector Comment Age Structure Dependency Ratio LMEE Ratio Dependency Ratio LMEE Ratio Labour Force (%) 14 AFF Tourism 15 Manufac turing Central Highlands Glamorgan Spring Bay Huon Valley Declining Persistent bite in age structure, however higher fertility is projected Declining High inward migration in older age groups Declining While ageing, recent trends see near replacement level fertility Sorell Maturing Larger numbers of older population but even population distribution in middle to younger years Tasman Declining Very old population, large bite and low fertility Southern Midlands Meander Valley Northern Midlands Younger to Maturing Younger to Maturing Younger to Maturing Not as old as other population, smaller bite and near replacement level fertility Less old, near replacement level fertility and no significant bite projected Less old and near replacement level fertility Burnie Younger Less old, small bite, above replacement level fertility Circular Head Younger to Maturing Less old, small bite, above replacement level fertility 14 ABS, 2006a 15 Accommodation and food services is used as a proxy for the tourism sector 120

24 Age Structure Dependency Ratio Not in LMEE Ratio Dependency Ratio LMEE Ratio Labour Force (%) 14 Employment by Industry Sector AFF Tourism 15 Manufac turing Comment Kentish Maturing Significant bite, but near replacement level fertility Waratah Wynyard Maturing to Declining Large number in older population, small bite, but relatively stable middle to young years Tasmania Maturing While ageing, recent trends see near replacement level fertility with potential to stabilise the population, subject to reducing bite. South Maturing Not available Not available North Declining Not available Not available Mersey- Lyell Younger to Maturing Not available Not available Not available While ageing, recent trends see near replacement level fertility Pronounced bite, below replacement level fertility Persistent bite in age structure, however higher fertility is projected 16 ABS, 2012a 121

25 Table 6.5 provides the distribution of employment by major industry group. Most of the LGAs have above the average share of employment for Tasmania in the primary resource sectors and in the manufacturing and industry sectors. Eight of the 12 LGAs have more than twice the Tasmanian average of employment in primary resources. Table 6.5 Per cent Employment by Industry Group Target LGAs (per cent), November 2011 Primary Resources Manufacturing and Industry Trade Accommodation & Food Serv. KIBS Public Services Other Services Central Highlands Glamorgan Spring Bay Huon Valley Sorell Tasman Southern Midlands Meander Valley Northern Midlands Burnie Circular Head Kentish Waratah Wynyard Total Tasmania Source: ABS, 2011a, Nov Primary Resources: Agriculture, Forestry and Fishing 2. Manufacturing and Industry: Mining, Manufacturing, Electricity, Gas, Water and Waste Services, Construction, Transport, Postal and Warehousing 3. Trade (Wholesale and Retail) 4. Accommodation & Food Services 5. KIBS: Information Media and Telecommunications, Financial and Insurance Services, Rental, Hiring and Real Estate, Professional, Scientific and Technical Services and Administrative and Support Services 6. Public services: Public Administration and Safety, Education and Training, Health Care and Social Assistance 7. Other services: Art and Recreation Services, Other Services. 122

26 6.3 Labour Force Skills Skill levels are influenced by school retention rates, the financial rewards for specific types of skills, and by cohort effects. As each successive age cohort tends to attain higher educational qualifications than older age cohorts, average skill levels can increase as older workers retire and younger workers enter the labour force. Skills comprise a whole gamut of abilities, capabilities and personal characteristics. Post school educational attainment is only one component of skill, but essentially the only measurable and quantifiable one. For this reason, the highest level of non-school qualifications is used to determine the skill level in Tasmania for this report. Compared with Australia, Tasmania has a lower proportion of its population with a formal qualification for each age group except for those aged 20 to 25 and 50 to 54, as shown in Figure Two conclusions can be made in regards to the interstate migration patterns discussed above. First, many people in Tasmania aged with formal qualifications could leave the state to pursue opportunities elsewhere (reducing Tasmania s proportion with post year 12 qualifications) and second, many of the interstate migrants relocating to Tasmania in the 50+ age groups possess formal qualifications, increasing the comparative proportion of the population with formal qualifications in the 50 to 54 year age group and significantly closing the gap in the older populations. Figure 6.21 Proportion of Population with Formal Qualifications: May Tasmania Australia Source: ABS, 2011d Formal qualification - a qualification obtained outside of primary and secondary school which is recognised within the Australian Qualification Framework (AQF). The lowest level is Certificate

27 The qualifications of Tasmania s working age population can be further analysed by the highest level of educational attainment. The results in Figure 6.22 are arranged from left to right in declining order. For example, certificate level III/IV is a higher qualification than Year 12. This means that an individual who completed Year 10 and obtained a certificate level III/IV is classed as having a higher level of education than an individual who completed Year 12 only. A greater proportion of women have qualifications of Advanced Diploma or Diploma and above, however, more women have only completed year 10, 11 or 12 than men (but more men did not complete year 10 at all). This may be due to Tasmania s older age profile and that older women particularly did not participate in formal education past secondary school. However, data is not available by age. Figure 6.22 Level of Educational Attainment for persons aged by gender, Tasmania: May 2011 % males females Source: ABS, 2011d. Percentages sum to 100 per cent for each sex. For example, slightly less than 25 per cent of women between 15 and 24 have only completed Year 10. The future supply of skilled labour in Tasmania is dependent upon the level of educational attainment achieved in the population and the age of those who possess the qualifications. As is evident from the 2006 census data (see Figure 6.23), there is a consistent supply of persons with a bachelor degree or higher qualifications from the ages of 25 to 55, and more women than men. 17 Before assuming a secure supply of education and skills for the future, consideration also needs to be given to any barriers to using the available educational qualifications in the labour market, particularly given that women have a lower level of attachment to the labour market than men. 17 Until the 1990s, more men than women completed a bachelor degree or higher, which creates a puzzle for the higher number of women in older age cohorts with a university degree. Possible explanations are that university educated men were more likely to leave the state, women were more likely to return to education at a later age and obtain a degree, or that university-educated women in older age cohorts were more likely to move to Tasmania. 124

28 Figure 6.23 Population Age Structure Bachelor Degree or Higher, Tasmania: ,000 3,000 2,000 1, ,000 2,000 3,000 4,000 female male Source: ABS, 2006a. An alternative measure of skills is to use occupational categories instead of educational attainment. Table 6.6 provides results for broad occupational categories for all of Tasmania and for each region. All occupational groups are relatively balanced across the regions, apart from the professional and administrative occupation categories which are dominant in the South and the technicians and trades occupations which are dominant in the North and Mersey-Lyell regions. Table 6.6 Employment by Occupation Tasmania and Regions: November 2011 South North Mersey- Lyell Tasmania Managers Professionals Technicians and Trades Community/Personal Service Clerical/Administrative Sales Workers Machinery Operators/Drivers Labourers Source: ABS, 2011a Summary of labour force skills for target LGAs In all target LGAs the majority of residents did not complete matriculation (years 11 and 12). The rates include the entire adult population, with lower matriculation rates for older cohorts than for younger cohorts. Consequently, educational achievement partly varies by the age distribution of each LGA. 125

29 The highest completion rate for year 12 is 28 per cent in Huon Valley with Sorell, Meander Valley, Northern Midlands, Glamorgan/Spring Bay and Tasman all having completion rates between 25 per cent and 27 per cent. Dorset and Circular Head had the lowest year 12 completion rate with only 17 per cent completing year 12 (see Figure 6.22). Of the three Tasmanian regions the Southern region has the greatest level of year 12 completion whilst Mersey-Lyell has the lowest level at 21.5 per cent. The year 12 completion rate for the target LGAs was less than the Tasmanian completion rate of 31 per cent and considerably below the national completion rate of 42 per cent. There are a number of education options beyond secondary school. Vocational certificates are available in many industries, diplomas and advanced diplomas can also completed, bachelor degrees through universities can then lead on to graduate certificate and graduate diplomas, and postgraduate qualifications (Masters and PhDs). Tertiary institutions in Tasmania include the University of Tasmania which has campuses in the North, South and Mersey-Lyell regions. There are also tertiary institutions in the form of the polytechnic (formerly known as TAFE) campuses. Distance or off-campus opportunities for some areas of study allow study to be undertaken without having to relocate closer to an institution. For the entire state, all regions and in all target LGAs certificate level is the most common highest level of qualification followed by a bachelor degree in all LGAs except Glamorgan/Spring Bay, Kentish and Southern Midlands where advanced diploma or diploma is the highest level (see Figure 6.23). Post graduate and graduate certificate or diploma account for a smaller proportion, as would be expected due to the general requirement for completing undergraduate qualifications before being able to commence post graduate studies. For each LGA the greatest proportion of the population with post-school qualifications have gained certificate level qualifications, with men having a greater proportion of certificate level attainment than women, while women have a higher proportion with bachelor level or above compared to men. The most dominant fields of study for all LGAs include Engineering and Related Technologies, Commerce and Management, Health and Education. 126

30 Table 6.7 Level of education for target LGAs Highest level of completion for secondary education Year 12 Year 11 Year 10 Year 9 Year 8 or less Did not go to school Not Stated Central Highlands 20.7% 6.5% 35.6% 15.0% 10.8% 1.3% 10.1% Glamorgan/Spring Bay 25.2% 7.5% 33.5% 14.9% 7.7% 0.3% 10.9% Huon Valley 28.1% 8.3% 35.6% 11.1% 7.4% 0.2% 9.4% Sorell 27.4% 8.8% 37.1% 11.0% 6.7% 0.2% 8.7% Southern Midlands 20.9% 8.4% 38.3% 13.6% 8.8% 0.4% 9.6% Tasman 27.4% 6.9% 32.8% 14.3% 7.4% 0.2% 11.1% Dorset 17.3% 7.0% 41.1% 14.6% 10.3% 0.3% 9.4% Meander Valley 25.2% 8.8% 37.9% 11.3% 7.3% 0.3% 9.1% Northern Midlands 24.7% 8.1% 37.3% 12.0% 8.2% 0.4% 9.2% Burnie 22.4% 8.8% 38.0% 12.1% 8.5% 0.3% 9.9% Circular Head 17.3% 8.8% 43.0% 14.1% 9.5% 0.2% 7.1% Kentish 20.8% 7.4% 40.9% 13.9% 8.0% 0.5% 8.6% Waratah/Wynyard 21.3% 8.6% 39.0% 12.3% 9.8% 0.5% 8.4% Hobart 58.9% 7.0% 16.8% 4.2% 4.0% 0.4% 8.7% Launceston 32.5% 8.1% 32.2% 9.6% 7.5% 0.4% 9.7% Southern 36.9% 8.4% 29.7% 8.9% 6.3% 0.3% 9.5% Northern 29.0% 8.3% 34.7% 10.7% 7.6% 0.4% 9.4% Mersey-Lyell 21.5% 8.5% 39.1% 12.7% 8.9% 0.3% 9.0% Tasmania 31.3% 8.4% 33.2% 10.2% 7.2% 0.3% 9.4% Source: ABS, 2006a 127

31 Certificate Advanced Diploma and Diploma Bachelor Degree Graduate Diploma and Graduate Certificate Post-graduate Not stated Inadequately described Table 6.8 Level of qualification for target LGAs Highest level of qualification Central Highlands 37.7% 11.5% 13.1% 1.2% 2.0% 32.1% 2.3% Glamorgan/Spring Bay 39.6% 14.4% 12.3% 1.5% 1.8% 27.4% 2.9% Huon Valley 38.2% 12.0% 15.8% 2.6% 3.3% 24.9% 3.2% Sorell 44.4% 13.6% 12.7% 1.9% 1.7% 22.7% 3.0% Southern Midlands 43.4% 11.2% 11.2% 1.3% 1.1% 28.5% 3.3% Tasman 39.8% 11.8% 13.4% 2.4% 3.1% 26.5% 3.0% Dorset 45.4% 9.0% 11.5% 1.1% 1.6% 28.1% 3.2% Meander Valley 41.9% 12.5% 15.4% 1.7% 1.9% 23.6% 3.1% Northern Midlands 42.0% 12.3% 13.6% 1.9% 2.3% 24.9% 2.9% Burnie 43.3% 11.5% 13.4% 1.6% 1.7% 25.4% 3.1% Circular Head 49.9% 10.3% 12.1% 1.0% 0.4% 23.4% 2.8% Kentish 46.3% 12.0% 11.1% 1.1% 1.6% 24.9% 2.9% Waratah/Wynyard 43.4% 12.7% 13.7% 2.0% 1.5% 23.3% 3.3% Hobart 18.8% 13.2% 35.6% 4.7% 8.9% 16.5% 2.2% Launceston 36.6% 11.9% 20.4% 2.0% 3.1% 23.2% 2.8% Southern 33.1% 12.8% 21.8% 2.9% 4.6% 22.1% 2.7% Northern 39.1% 12.1% 17.9% 1.9% 2.8% 23.4% 2.9% Mersey-Lyell 44.6% 11.8% 13.2% 1.6% 1.5% 24.4% 2.9% Tasmania 37.0% 12.4% 19.0% 2.4% 3.5% 22.9% 2.8% Source: ABS, 2006a 6.4 Socio-economic conditions in the target LGAs The socio-economic status of an LGA is measured by the Socio-Economic Indexes for Areas (SEIFA). SEIFA considers a number of indices including socio-economic advantage and disadvantage, household economic resources, and education and occupation. Each of the indices is a summary of different social and economic data and is calculated based on different variables. For each of the three indices regions are ranked based on the average SEIFA scores of people living in that location. The areas are also assigned a decile rank (one to 10). For all indices, the lower the rank, the higher the level of disadvantage, that is, if a region has a rank of one for all three indices it is the most disadvantaged socio-economically, has the most disadvantaged household economic resources and has the most disadvantaged education and occupation levels. 128

32 The SEIFA index of relative socio-economic advantage/disadvantage is measured using 21 variables including low income, low educational attainment, and unemployment. 18 The index of household economic resources is based on 15 variables including household income, housing expenditure and home ownership. 19 The index of education and occupation involves nine measures such as the proportion of people with a higher qualification, people employed in a skilled occupation, and unemployment. 20 A full list of included variables for these indices is provided in Appendix The SEIFA indices for the target LGAs are summarised in Table 6.9. Of the 13 target LGAs, seven of them are ranked in the 50 per cent most disadvantaged of Tasmanian LGAs with a decile score of five or less for socio-economic advantage/disadvantage. On the national decile range for socio-economic advantage/disadvantage, Meander Valley is the only target LGA with a decile greater than five. When all Tasmanian LGAs are considered, Clarence, West Tamar, Kingborough and Hobart are the only other LGAs with a decile above five. The household economic resources ranking tells a different story, with the majority (9) of the 13 target LGAs being in the top 50 per cent in the state. Burnie and Waratah/Wynyard, ranked 15 th and 16 th for socio-economic disadvantage, are ranked much lower, in fourth and ninth place, for household economic resources, giving them the two lowest positions out of the target LGAs (the most disadvantages for household economic resources). Circular Head and the Southern Midlands were 10 th and ninth for disadvantage but are ranked much higher at 21 st and 23 rd for household economic resources. There is a notable anomaly in the education and occupation index, with Tasman having a particularly high ranking, although it has a low ranking for both socio-economic advantage/disadvantage and household economic resources. Conversely Kentish had a low rank for occupation and education whilst having mid-range socio-economic advantage/disadvantage and economic resources rankings. Meander Valley and Huon Valley consistently scored well for all three SEIFA indices. 18 ABS, 2006b 19 ABS, 2006b 20 ABS, 2006b 129

33 Table 6.9 SEIFA indices for target LGAs: Note, the lower the rank or decile, the higher the level of disadvantage, 2006 Advantage/ Disadvantage rank (national) * Decile Advantage/ Disadvantage rank (state) ** Decile Economic resources rank (state) ** Economic resources Decile Occupation and Education rank (state) ** Central Highlands Tasman Dorset Southern Midlands Circular Head Kentish Glamorgan/Spring Bay Waratah/Wynyard Burnie Huon Valley Northern Midlands Sorell Meander Valley Source: ABS, 2006a * n=667 ** n=29 Occupation and Education decile 130

34 6.4.1 Wages The average annual income for each LGA is compiled by ABS based on the Australian Tax Office (ATO) Individual Tax Return Database. Comparison of the state average to each of the target LGAs shows that, with the exception of Burnie, the average wage in all target LGAs is less than the state wage. However, the difference between the state average and target LGAs does not exceed $10,000 per annum. The regional average for the south is slightly higher than the state average whilst the Northern and Mersey-Lyell regional averages are slightly lower than the state average (Figure 6.24). Figure 6.24 Average annual wages, 2008/ Poverty The meaning of poverty in Australia is quite different to the subsistence poverty that exists in many developing countries. The World Bank s definition of poverty being an inability to attain a minimal standard of living is one which can be applied to different national situations according to the meaning given to the concept of a standard of living and how the minimal level is determined. 21 Disposable income (gross income minus income tax paid) is often used as the basis for determining poverty levels. Saunders et al (2008) used a poverty line set at 50 per cent of median income, adjusted for need using the modified OECD equivalence scale. This same analysis also compared a poverty line set at 60 per cent of median income, adjusted for 21 Saunders,

35 need using the modified OECD equivalence scale and The Henderson poverty line. For all three of these measures, Tasmania consistently had a higher poverty level for 2003/04 than the Australian average. The 50 per cent median level for Tasmania in 2003/04 was 16.3 per cent. This fell to 13.0 per cent in 2005/06, but was still higher than the national average of 11.1 per cent. 6.5 Dependence on the Tasmanian Public sector The public sector in Tasmania plays a greater role in economic activity than the public sector in other States. Furthermore, its share of Gross State Product (GSP) has increased by four percentage points between June 1990 and June 2011, whereas there has been no change in the public sector share of Australian Gross Domestic Product (GDP), which has remained constant at 12 per cent. Furthermore, public sector employees account for 22 per cent of all employment in Tasmania versus an average of 17 per cent in Australia and the proportion of adults in Tasmania that obtain their main income from Government Pensions and allowances, at 24.7 per cent, is also higher than the Australian average of 19.3 per cent. Some of these differences are expected, due to the older average age of the Tasmanian population and because smaller States have lower economies of scale in providing public services. In addition, the presence of Commonwealth Government institutions such as CSIRO in a small state such as Tasmania can magnify the apparent role of the public sector. With these caveats, the data nevertheless suggest that Tasmania would be on a stronger economic footing if the private sector contributed to a larger share of the economy Gross State Product The public sector includes all local, state and Commonwealth employees. Figure 6.25 provides an estimate of the public sector share of Tasmania and Australia s economies 22 between 1990 and The results will overestimate the true public sector share because it includes employees in the three key sectors in private sector firms, for instance teachers in private schools. However, this overestimate may not affect the difference between Tasmania and Australia as long as the share of private sector employees is similar. The results show that the Australian public sector share of GDP has remained roughly constant at 12 per cent of GDP, while in Tasmania the public sector share increased to slightly exceed 18 per cent in 2010, before falling below 18 per cent. The public sector share in Tasmania increased particularly rapidly after January ABS, 2011e (ID A A) 132

36 Figure 6.25 Share of Government in Tasmania s GSP and Australia s GDP 20% 18% 16% 14% 12% 10% 8% Source: ABS, 2011e (ID A A) For Tasmania and Australia, the Government contribution to GSP or GDP is defined as the sum of employee compensation, in current prices, in Public administration and safety, Education and training, and Health care and social assistance from the Australian National Accounts Public sector employment % in Tasmania % in Australia The 2006 census provides data on the distribution of employees in the public sector, as shown in Table The main sectors of employment are public administration, safety, education, health and social services. Table 6.10 Industry of employment, persons dependent on a job in the public sector in Tasmania in Industry of Employment Dependent persons Water Supply, Sewerage and Drainage Services 228 Waste Collection, Treatment and Disposal Services, nfd 3 Waste Collection Services 327 Waste Treatment, Disposal and Remediation Services 103 Library and Other Information Services, nfd 3 Libraries and Archives 325 Public Administration, nfd 430 Central Government Administration 3,052 State Government Administration 6,695 Local Government Administration 3,295 Justice 254 Government Representation ABS, 2011e, Current prices data used. 133

37 Industry of Employment Dependent persons Defence 411 Regulatory Services 80 Public Administration and Safety, nfd 44 Preschool and School Education, nfd 21 Preschool Education 165 School Education 11,081 Tertiary Education 3,855 Adult, Community and Other Education 1,398 Education and Training, nfd 363 Hospitals 5,832 Medical and Other Health Care Services, nfd 890 Pathology and Diagnostic Imaging Services 612 Other Health Care Services 447 Social Assistance Services, nfd 914 Other Social Assistance Services 2,808 Health Care and Social Assistance, nfd 864 Museum Operation 250 Parks and Gardens Operations 301 Total 48,063 Source: ABS, 2006a, Counting: Persons, Place of Usual Residence nfd not further defined The annual survey of Employment and Earnings (SEE) provides data on the number of public sector employees in Tasmania and Australia. This information can be used to estimate the public sector share of total employment, as given in Table Tasmania s share has remained stable at 22 per cent, compared to 17 per cent for Australia. The higher public sector share of GSP and GDP, as shown in Figure 6.25 is due to higher wages and a higher share of full-time workers 24 in the public sector compared to the private sector. Table 6.11 Total employment and public sector employment in Tasmania and Australia ( 111) Tasmania Total Public sector Tasmania % Australia Total Public sector Australia % % , % % , % * 22% , % * 22% , % Source: ABS, 2011j and ABS, 2012a * Public sector is defined as Commonwealth government, State government and Local government employees. Data on the local government component of public sector employees for and has a relative standard error of 25% to 50% and should be used with caution (ABS). 24 Although public sector employees account for only 26% of Tasmanian employees in 2010/11, they accounted for 40 per cent of persons employed full time. 134

38 6.5.3 Dependence on the public sector The term Government dependence captures a general reliance of individuals on the public sector. It includes government employees and persons with their main source of income from the government pensions and allowances. The public sector is defined as Commonwealth government, State government and Local government part-time and fulltime employees. It also includes employees of universities and government controlled corporations. 25 Table 6.12 presents the latest available 2010/11 dependence figures for all Australian states and territories. In 2009/10 125,000 persons in Tasmanian obtained their main source 26 of income from Government pensions and allowances in Tasmania. This includes students receiving student allowances. There were 4,303,500 persons with the main source of income from Government pensions and allowances in Australia in 2009/ In Tasmania 24.6 per cent of adults receive their main income from the Government (5.3 per cent above the Australian average) and 10.1 per cent of the entire population are government employees (1.7 per cent above the Australian average). Omitting the Australian Capital Territory, Tasmania has the highest dependence on the public sector in Australia, seven per cent above the national figure. Table 6.12 Government dependence as percentage of total population Main income from Gov't pensions & allowances 28 Gov't employees 29 Gov't dependence' New South Wales 19.2% 7.7% 26.9% Victoria 20.6% 7.7% 28.3% Queensland 19.6% 8.2% 27.8% South Australia 22.4% 8.3% 30.7% Western Australia 15.3% 8.6% 23.8% Tasmania 24.6% 10.1% 34.7% Northern Territory 9.0% 13.3% 22.3% Australian Capital Territory 6.7% 28.6% 35.2% Australia (Total) 19.3% 8.4% 27.7% 25 Standard Institutional Sector Classification of Australia (SISCA). 26 That source from which the most positive income is received. If total income is nil or negative the main source is undefined. As there are several possible sources, the main source may account for less than 50% of gross income. ABS glossary. 27 ABS, 2011g 28 ABS, 2011g; Percentage is calculated by dividing by the estimated resident populations from ABS, 2011c 29 ABS, 2011j with data from the Survey of Employment and Earning Percentage is calculated by diving by the estimated resident populations from ABS, 2011c 135

39 State Government employment share in labour force This result should not be taken out of context as it is tied to a number of factors. Dependence is expected to be lower in the states with higher populations through economies of scale in the public sector. Demographic and institutional structures also influence this measure. The demographic component is very important as numbers of the young and old are expected to have a positive relationship with the number of public sector employees through demand for education and health services, as well as with the number of persons whose main source of income is from pensions and allowances. The relationship between population size and the share of State government employees in the labour force for both Australia and the USA is illustrated in Figure It shows an inverse relationship between this component of dependence and population size. In both jurisdictions, smaller states have a higher share of government employees. The lower distribution for the USA is probably explained by differences in the range of services provided by State governments in Australia and the USA. Figure 6.26 Share of the state government employment (both part time and full time) in the labour force and population by states for Australia and the United States 20.0% 18.0% 16.0% Tasmania 14.0% 12.0% 10.0% y = x R² = % 6.0% 4.0% 2.0% 0.0% y = 0.944x R² = United States Australia Population (Millions) Source: ABS, 2011j; ABS, 2012a; U. S. Census Bureau, 2010a; U. S. Census Bureau, 2010b. District of Columbia and the Australian Capital Territory omitted. Tasmania performs worse than other states on the above measures of dependence. Taking factors such as population size and demographic structure into account explains some of the difference with other states. 136

40 7 Assets and Liabilities in Tasmania and the Target LGAs The economic development potential of an area and the manner in which such development could be fostered or enhanced partly depends on existing assets and liabilities. These include both constructed assets and liabilities that have been created by human effort and natural assets. Constructed assets can be sub-divided into two groups: governance assets such as regulations, development boards, and policy initiatives; and built assets such as plantations, social and economic infrastructure and businesses. In terms of economic development, the regulatory environment in Tasmania is overly complex and designed to preserve existing economic structures. This can impede changing low-value agricultural land use to high-value intensive uses and discourage the clearing of native forest, including regrowth forest, for agricultural purposes. A diverse range of State and Commonwealth government programs are available to support economic and social development in Tasmania. Some are of low relevance to the target LGAs because they are designed for businesses or business activities that are infrequent in target areas. Most provide grants or subsidies. In contrast, a possible model for economic development in the State is the Tasmanian Irrigation (TI) Board. Success factors include a skills-based Board, clear objectives and a well-developed implementation process. State infrastructure supports economic activity and liveability. Two target LGAs, the Central Highlands and the Southern Midlands perform poorly on infrastructure, due to low provision of doctors, more than a one hour drive to a major hospital, and no access within the LGA to Grade 11 and 12 education. Many of the other target LGAs lack full access to Grades 11 and 12. The northern area of Glamorgan/Spring Bay is also at a disadvantage for education, access to a major hospital and access to an airport. These disadvantages could restrict the possible growth of tourism and retirement developments in this LGA. Primary producers and manufacturers in the State that export to mainland Australia are dependent on good sea freight and transport subsidies. The States natural assets include a cool temperate climate, some of Australia s most fertile soils, adequate rainfall, and extensive areas that are cool enough in winter to grow many cool climate fruits that require a period of dormancy. 137

41 7.1 Constructed Assets Regulations Businesses around the world frequently complain about the costs of complying with regulations. In Tasmania, the most time consuming regulation, reported by 19.8 per cent of firms, concerns taxation. 30 The reported incidence of time consuming regulations for Tasmanian businesses in other areas is as follows: Regulation of import and export activities is most time consuming for 5.1 per cent of all responding firms, and for a relatively higher share of businesses in manufacturing (24.4 per cent of firms), agriculture, forestry and fishing (31.1 per cent), wholesale trade (8.8 per cent) and professional, scientific and technical services (4.5 per cent).the most frequently cited area of burden relates to quarantine regulations and concerns over duplication in Australian Quarantine Inspection Service (AQIS) requirements and state and local government requirements. Duplication can lead to inefficient reporting processes and workloads to prepare relevant documentation and certificates. Regulations for food production and safety are most time consuming for businesses in manufacturing (25 per cent of businesses) and in agriculture, forestry and fishing (11.1 per cent). Regulations for building, planning and development are a burden across many sectors, and most time consuming for a higher share of firms in professional, scientific, and technical services (14.4 per cent), as well as in other services (8.2 per cent), accommodation and food services (8.2 per cent) and retail (7.8 per cent). Regulations for industrial relations are most time consuming for 10.8 per cent of firms in other services, and also a burden for communication, business and property services (9.8 per cent of firms), accommodation and food services (8.2 per cent) and retail (5.8 per cent). Regulation for licenses or permits to conduct business activities is a relatively greater source of burden in accommodation and food services (36.7 per cent of firms).the majority of this relates to food, liquor and gaming permits at the local government level. Regulations for the sale, handling or use of hazardous substances are the most time consuming regulation for 7.2 per cent of wholesale businesses and 5.8 per cent of firms in retail. 30 Results of the AIRC study AIRC Baseline Survey on Regulatory Burden in Small Businesses in Tasmania, AIRC,

42 Although the requirements for complying with many of these regulations can be more complicated than necessary, regulations for taxes, biosecurity, food safety and hazardous substances are commonly viewed as a cost of doing business and are unlikely to prevent economic development. Of greater concern are regulations that can block or significantly delay private investment. Given Tasmania s economic dependence on primary resources and tourism, these primarily concern regulations for building, planning and development. Although these are not the most commonly reported regulations, their economic impact can far exceed their prevalence Subdivision of agricultural land The subdivision of agricultural land is a topic that has received much debate over the years. This is fuelled in part by the desire of landowners capitalise on real estate booms, a planning goal to prevent the fragmentation of farming land and the protection of agricultural land for agricultural purposes. The latter two goals help keep the cost of agricultural land within reach of farmers for existing land use regimes. Subdivision of agricultural land is covered by six different legislation acts and policies in Tasmania: Land Use Planning and Approvals Act 1993 (LUPAA) Local Government (Building and Miscellaneous Provisions) Act 1993 State Policy on the Protection of Agricultural Land 2009 (PAL Policy) Regional Land Use Strategies Planning Schemes Land Capability Handbook (2nd edition) Each of the three Tasmanian regions (North, South and North West) has a land use strategy. The planning principles related to agricultural uses of each of these regional strategies are summarized in Table 7.1. The strategies are designed to encourage and protect agriculture, for instance by preventing encroachment of housing or other non-agricultural land uses such as plantation forestry. The protection of agricultural land in Tasmania is based on the Land Capability Handbook, 31 which identifies prime agricultural land (land within classes one, two, or three). The PAL Policy also influences the ability to subdivide agricultural land and forms the basis for regional land use strategies. The PAL Policy s purpose is to conserve and protect agricultural land so that it remains available for the sustainable development of agriculture, recognising the particular importance of prime agricultural land. Under principles 10 and 11 of the PAL policy, a planning scheme may prohibit forestry on prime agricultural land and require a discretionary permit for plantation forestry where it is necessary to protect existing agricultural uses that form a critical component of the municipal economy. The 31 Department of Primary Industries, Water and Environment,

43 policy is intended to promote sustainable development of agriculture through minimising conflict with or interference from other land uses, as well as non-agricultural use or development on agricultural land that precludes the return of that land to agricultural use. Table 7.1 Regional land use strategies planning principles for agricultural uses Northern Regional Plan Consolidate future rural population growth within existing rural settlements and Rural and Environmental Living areas. Ensure Rural and Environmental Living areas are generally constrained to existing areas and do not fragment productive rural land. Ensure land use and water management policies and regulations do not unreasonably constrain the development of agriculture, agribusiness, and appropriate ecotourism and recreation opportunities in rural areas. Recognise Rural and Environmental Living development as a legitimate residential lifestyle subject to appropriate location criteria. Recognise and support the various agricultural production areas, including by identifying and protecting regionally significant resources (see Maps four and five, identifying potentially available agricultural land and irrigation districts). North West Regional Plan Identifies significant agricultural land as not less than the entirety of the land which is currently available to and developed for agriculture. Excludes use or development that has no need or reason to locate on land significant for agriculture, and emphasizes that agriculture dependent on soil as a growth medium is the priority use on land significant for agriculture. Facilitate new forms and changing patterns of agricultural use on non-prime land, including controlled environment and feed lot agriculture. Protect and buffer agriculture against incompatible use which may conflict and constraint potential for sustainable production. Ensure industries which support and service agricultural production are able to diversify, adjust, innovate and value-added. Land significant for agriculture is not excluded from agricultural use unless for o settlement in accordance with an approved settlement strategy; or o an alternate economic use where: necessary to operational efficiency the impact on loss of land for agricultural use and on adjacent agricultural use is minimal; there is no reasonable alternate location which would avoid agricultural land or allow location on agricultural land of a lesser classification. Southern Tasmania Regional Land Use Strategy Land identified as significant agricultural land should be afforded the highest level of protection from fettering and conversion to non-agricultural uses. Avoid fettering from residential development by setting a minimum 200m buffer distance. Allow ancillary non-agricultural uses to assist in providing income to support agricultural production Restrict subdivision unless necessary to facilitate the use of land for agriculture. Minimise the use of significant agricultural land for plantation forestry. Management and protect the value of non-significant agricultural land in a manner that recognizes sub-regional diversity in land and production characteristics. Refer to the settlement strategy, rather than just agricultural capacity, when determining whether to convert rural land to residential zoning. Ensure opportunities for down-stream processing of agricultural products are supported in appropriate locations or on-farm where appropriate supporting infrastructure exists and the use does not create off-site impacts. 140

44 The PAL Policy is a State Policy and so all planning schemes must be prepared in accordance. With the exception of plantation forestry on (i) prime agricultural land or (ii) where it is necessary to protect, maintain and develop existing agricultural uses that form a critical component of the economy of the municipality, planning schemes must not make any agricultural land, which relies on soil as a growth medium, a discretionary or prohibited use in a rural zone. Both the PAL Policy and the Regional Land Use Strategies encourage the development of controlled environment agriculture (e.g. hydroponics and greenhouses) on land other than prime agricultural land. Difficulties can arise in moving from general regional or state strategies to some of the 32 planning schemes in Tasmania (one for each of the 29 Councils with the Huon Valley Council having a total of three schemes). The number of different schemes and a lack of consistency between them can increase the costs for businesses planning new developments. A recent directive (June 2011) from the Tasmanian Planning Commission will require all new planning schemes to adopt a standard structure and definitions. Planning schemes generally classify land into zones which determine what development can occur on individual land areas. The Planning Scheme Template for Tasmania lists 32 different zones that can be adopted. These zones include a Rural Living Zone, a Rural Resource Zone, and a Significant Agricultural Zone. It is possible for any person to apply to the council to amend a planning scheme to change the zone of specific blocks of land. The permit and approvals process for development is determined under by the relevant Council s planning scheme and by the development classification. Development can be classified as either exempt, permitted as of right, permitted, discretionary, or prohibited. Under the Local Government (Building and Miscellaneous Provisions) Act 1993 (s.81(2)) subdivision of land is a discretionary development (unless a local planning scheme provides otherwise). As a discretionary development, a permit is required and Council has the discretion to grant or refuse to grant a permit for the use or development. Different planning schemes have different minimum lot sizes and requirements for subdivision, as summarized in Figure 7.1. The disadvantage of some of these planning restrictions and the discretionary clauses is that minimum lot sizes in excess of 40 hectares can prevent investment in more agriculturally productive land uses, such as for vineyards or horticulture. Many of the LGAs include provisions for smaller lot sizes for intensive agriculture, but these are often unspecified or subject to discretion, creating uncertainty, or the provisions are too large. For instance, Glamorgan/Spring Bay, with high potential for vineyards, has a minimum lot size of 20 hectares for intensive agriculture. Depending on soil, aspect and other conditions, this can be too large for wine grapes. 141

45 7.1.3 Diversification of forestry land Growth opportunities in the agricultural sector will require changes in land use. One option is to switch some land currently used for forestry to agricultural production. Forest land includes both native forests and plantations and land in both private and public ownership. The current regulations strongly control the clearance of native forest on both public and private land. This also applies to regrowth forest on previously cleared land. The conversion of private forests to agriculture is influenced by a range of legislative acts and policies: Land Use Planning and Approvals Act 1993 (LUPAA) Forest Practices Act 1985 Environmental Management and Pollution Control Act 1994 (EMPCA) Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) Nature Conservation Act 2002 Permanent Native Forest Estate Policy 2011 State Policy on the Protection of Agricultural Land 2009 (PAL Policy) Regional Land Use Strategies Planning Schemes Converting private forests into other land uses is dependent on whether or not the forest is plantation or native forest and whether it has been declared a Private Timber Reserve (PTR). The establishing legislation enabled landowners to have their land dedicated to long-term forest management and provided for forestry activities on the land to be subject to a single, consistent, state-wide system of planning and regulation through the Forest Practices Act PTR can only be used for establishing forests, harvesting timber, or compatible activities. If land is used for any other purpose, the PTR status will be revoked and any proposal to change from forestry to another use will be subject to LUPAA and the relevant planning scheme. PTR status can be revoked by either the landowner or the Forest Practices Authority. 142

46 Figure 7.1 Minimum lot sizes for rural zones 143

47 144

48 145

49 146

50 Source: Environmental Defenders Office, bright green identifies interim schemes 147

51 Clearing forest land The rules around clearing native vegetation differ for native and plantation forestry. Clearing of native vegetation is strongly controlled through numerous legislations and policies. These rules can make it difficult to convert native forest to agricultural uses. A Forest Practices Plan (FPP) must be applied for under the Forest Practices Act before clearing an area greater than one hectare or a volume of more than 100 tonnes of timber on any land. Normally, FPPs will not be issued for clearance and conversion if it involves threatened native vegetation or more than 40 hectares of native vegetation per year. This may vary when the clearing and conversion is justified by exceptional circumstances, there is substantial public benefit or overall environmental benefit, or when the clearance and conversion is unlikely to detract substantially from areas of threatened native vegetation. A FPP is not required to clear native vegetation regrowth on previously cleared and converted land provided the cleared land has not contained trees or threatened vegetation for a period of at least five years and that regrowth does not contain more than 20 eucalypts over two meters in height in any 0.5 hectare area. A FPP is also not required for clearing that is associated with buildings or subdivisions that have received approval from local council. Clearing activities that are associated with forestry activities (that are in accordance with the Regional Forest Agreement) are exempt from the EPBC Act. However, if the land is converted to non-forestry uses this exemption will no longer apply and EPBC approval will be required for any activity likely to impact on a matter of national environmental significance. The Primary Industries Activities Protection Act 1995 assists in protecting already existing lawful agricultural operations against complaints from new neighbours. The Act provides that a primary industry activity that has existed for more than one year before a change in circumstances in the area will generally not be considered a nuisance. An operator may not be able to rely on protection under this Act if private forestry land is converted to agricultural uses which result in nuisance to existing neighbours. Policy for Maintaining a Permanent Native Forest Estate Under the Regional Forest Agreement 1997, the Tasmanian government is committed to retaining 95 per cent of 1996 levels of native forest in the State and phase out broad scale clearing. As part of this commitment the Government has adopted the Policy for Maintaining a Permanent Native Forest Estate. Under the policy the following restrictions apply to native forest clearing on privately owned land: 32 The exception to this is if the clearing relates to a building or subdivision approved under LUPAA, in this instance all controls on clearing are assessed by the relevant council. 148

52 A minimum of 95 per cent of the 1996 Comprehensive Regional assessment (CRA) native forest area is to be maintained on a state wide basis. Broad scale clearing and conversion of native forest on private land is to be phased out by the first January If the threshold is reached before this date broad scale clearing will end sooner. If the threshold is not reached by this date then small scale clearing and conversion of native forest on private land may continue until the threshold is reached. In order to manage the phase out of clearing and conversion of native forest on private land, the area to be cleared cannot exceed 40 hectares on any property in any 12 consecutive month period. Clause 4.8 was amended in 2011 to read: Clearance and conversion of native forest on public and private land for any development proposal, which, in its entirety demonstrates substantial public benefits, including where conservation benefits will arise from the proposal through secured actions to improve biodiversity, water quality, salinity or other land degradation outcomes, is not limited by the forest community retention levels or property conversion limits. This means that projects of declared substantial public benefit are not subject to the 40 hectare per year property conversion limit. Clearing of native vegetation on both private and public land for the purpose of undertaking routine management activities, or for constructing or maintaining significant infrastructure, is permitted and is not limited by State or forest community retention levels or property conversion limits. Public forestry land The conversion of public forestry land to agricultural uses is covered by the following four legislative acts and policies: Forestry Act 1920 Crown Land Act 1976 Nature Conservation Act 2002 Permanent Native Forest Estate Policy 201 State forest that is managed by Forestry Tasmania is to be used primarily for wood production; although Forestry Tasmania may allow the use of the forest for conservation activities, recreation, and tourism. Land listed on the Register of Multiple Use Forest Land can also be used for exploration and mining. For State forest to be used for general agricultural uses, the State forest status of the land has to be revoked. Land can be sold outright or leased once it ceases to be State forest. Any application for a change of use will be treated in the same way as a request to clear forest on private land. The Permanent Native Forest Estate Policy does not allow the broad scale clearing and conversion of native forest on public land irrespective of whether or not it is State forest. 149

53 Land owned by Forestry Tasmania (including land acquired for forestry purposes prior to 1991) can be sold, leased or otherwise dealt with by Forestry Tasmania. Forestry Tasmania may sell or otherwise dispose of any land purchased for forestry purposes; land that is sold or disposed of ceases to be State forest. All other land becomes Crown Land and is dealt with by Crown Land Services under the Crown Land Act This Act allows for the sale of Crown Land to such persons and on such terms and conditions as the minister thinks fit. Unless the land is less than 500 hectares or the sale is by auction or public tender, approval of the Governor is required. The minister is also required to seek a report from Forestry Tasmania before the sale of any rural land. If Forestry Tasmania objects to the sale on the basis of its timber resources, approval of the Governor must be obtained before the land can be sold. The act allows for the lease of crown land for rural purposes for up to 21 years. At the end of the lease, the Minister may grant the lessee the option to purchase the land Tasmanian Irrigation Development Board and Tasmanian Irrigation The Tasmanian Irrigation Development Board (TIDB) and TI provide a model for economic development in Tasmania where both public and private sector investments are required, as in developments that require land resources and infrastructure. The key factors for success include a skills-based Board, defined objectives and a clearly defined implementation process. The TIDB was established in 2008 as a subsidiary of the Rivers and Water Supply Commission (RWSC). In July 2011 TI was created under the Irrigation Company Act 2011 as the successor to the TIDB. The goal of the TIDB was to develop, construct and commission regionally significant irrigation schemes of high reliability in Tasmania. The TIDB was originally based on the Basslink Development Board. Board and members TI is directed by a skills-based Board to ensure it is well qualified and experienced in major infrastructure projects, governance, negotiation and finance. The members and directors of the company are covered under the Act. Division one, Section nine of the Act outlines the members of the Company are to be two persons of whom one is the Minister and one is the Treasurer. In the event of one individual being both the Minister and Treasurer the second member of the company is another Minister determined by the Minister to be a member of the company. The Board works closely with the Minister and Treasurer throughout the development process. The board must consist of directors who have the necessary skills and experience to enable TI to achieve its objectives with at least one director required to have experience in irrigation agriculture. 150

54 Objectives of TI TI has both a funding mechanism that includes public and private funds and clearly specified objectives to implement the state government s plan to develop irrigation schemes that offer long term, highly reliable water for irrigation purposes. Development focuses on shared costs with $220 million earmarked by the Tasmanian and Australian governments. Private capital contributions are made through the purchase of tradeable water entitlements whilst operating costs are met by an annual charge on water entitlement holders. The success of TI and its schemes can be attributed to the well-established project development process that includes thorough background work. A presentation in 2010 by the deputy CEO outlined five requirements for a successful development process. These were private purchase decisions (by farmers), economic decisions (by Ministers), cost-effective engineering (by TI), sustainability approvals (by regulators), and social licence (by the community). Projects developed by TI undergo four key phases before they reach practical completion. These phases vary depending on whether the project is a pipeline or a dam project. The first stage, pre-feasibility, is critical to ensure the project is achievable. Thorough background work goes into developing the information for the prefeasibility process. The pre-feasibility phase leads to the identification of a preferred option. This is followed by a feasibility phase which includes the public launch and community consultation. Feasibility studies are conducted into relevant areas such as hydrology, flora and fauna, cultural heritage, water quality, and land capability. In this phase the business case is developed and put forward to the board for approval. The next phase is to secure project funding. Pipeline projects undergo a planning and approvals phase whilst dam projects have a pre-construction and tendering phase. Both pipeline and dam projects include a public launch, binding water contracts, detailed surveys, negotiation of land and easements, complete geotechnical investigation, and tendering and contract preparation. The construction phase is similar for both pipeline and dam projects with contracts awarded, construction, commissioning and performance testing, farm water access plans, and operations and maintenance plans. The only difference between pipeline and dam projects is in the construction phase for dam projects. Once the construction phase is complete the project has reached practical completion. The intention for the irrigation schemes is for eventual handover to a local water entity or board. Before handover occurs there are commissioning operations that include establishment and training of water entity/board, operations transition approval, delivery of water, and defects liability. 151

55 7.1.5 Policy initiatives to support economic development Both the State and Commonwealth governments provide programs to support economic development. Programs of potential relevance to the target LGAs are summarized in, which also provides an estimate of the relevance of each program. A low ranking is given when there are few businesses or individuals that are likely to benefit from the program. For example, R&D tax concessions are given a low ranking because few businesses in the target LGAs perform formal R&D. A high ranking indicates that the program is relevant both to many businesses or individuals in the target LGAs. A moderate ranking indicates that some businesses or individuals could benefit, either at this time or possibly in the future, but the amount of support available is limited. The State programs target specific, identified problems, such as a lack of skills, marketing capabilities, and capital for entrepreneurs or for farmers to invest in irrigation. The national programmes are often broader and scope and fall into five schemes: support for innovation and businesses, employment and skill development, the digital economy, clean energy, and a miscellaneous category. In addition, two initiatives are of particular relevance to Tasmania: carbon farming and the TFIGA. Most of the programs provide grants or subsidies, either to businesses, service providers, or community groups. Very few, if any, follow the TI Board model of a goal-oriented publicprivate initiative for economic development. Table 7.2 State and national initiatives for economic development Fund/program name State programs Business Investment Boost North West and North Tas Skills Initiative Climate Connect and Earn Your Stars micro grants Forest contractors support program 152 Information A targeted grant program that will combine mentoring and investment facilitation services and cater for matching funds from participating businesses. Priority will be given to businesses in communities vulnerable to external shocks and industry restructuring. Managed by Skills Tasmania in collaboration with DEDTA. This Initiative is designed for Job Services Australia and other support providers, and participants (jobseekers or partners of newly retrenched workers in North-west and Northern Tasmania). Total: $500,000, up to $2,500 per person. Enable communities and industries to adapt to the opportunities and risks from climate change. Total of $1.8 million available to contractors who are primarily reliant on contracts for hardwood pulpwood. Potential relevance to target LGAs High: But not yet available High: Available in Northern and Mersey-Lyell regions Moderate High: Not announced yet DEDTA Export Assists Tasmanian enterprises in planning and Moderate

56 Fund/program name marketing assistance Social enterprise loan fund Micro businesses loan program Renewable energy loan scheme Tasmanian Community Fund Farm water development loans Tasmanian Innovation and Investment Fund Information implementing their international marketing activities. $3 million supporting organisations with community developments as their mission. $1 million financial assistance to individuals establishing entrepreneurial businesses. $30 million assist eligible businesses to purchase and install renewable energy generation facilities or manufacture renewable energy technology. Grants to communities and organisations that improve social, environmental and economic wellbeing of the community (commenced in 1999). Short-term financial assistance to farming enterprises for irrigation infrastructure and on farm water storage $8 million over three years to give innovative businesses an opportunity to generate new jobs while broadening the Tasmanian economy and strengthening its employment base. National programs to support innovation and businesses Regional Development Australia Fund and RDA Tasmania Regional Infrastructure Fund New Enterprise Incentive Scheme R&D Tax concession Small Business Advisory Services program Tradex Scheme Export Market Development Grants Scheme Enterprise Connect Small Business Support Line Around $1 billion nationally to support investment and infrastructure for regional development. $6 billion over 11 years for infrastructure projects in areas supporting the mining industry. Provides accredited small business training, business advice and mentoring for eligible job seekers, as well as ongoing income support for up to 52 weeks Enables companies to claim their R&D costs at a concessional rate of 125% $27.5 million over four years aimed at helping small businesses with low-cost planning, advice and assistance with applications for finance. Upfront exemption for customs duty and GST on eligible imported goods or components intended for export. A non-discretionary scheme which encourages small and medium-sized businesses to advance into export markets. A national network of 12 Centres that assists firms with skills development to improve their competitiveness and productivity. Assists small business owners with access to information and referral services. High Potential relevance to target LGAs Moderate Moderate High High High High High High Low High Low High High High 153

57 Fund/program name Tasmanian Freight Equalisation Scheme Tasmanian Rail Regional Aviation Access Program TQUAL Grants Scheme Regional Food Producers Innovative and Productivity Program Commercialisation Australia Enhanced Project By-Law Scheme Cooperative Research Centres Program Collaborative Research Networks program Information Subsidy of $102 million to reduce freight costs between Tasmania and Mainland Australia as well as mainland Tasmania and King Island and the Furneaux Group. $193.6 million from to for upgrades to the Tasmanian freight rail network. $24.6 million program provides subsidised passenger and freight services and infrastructure upgrades. $40 million over four years to stimulate sustainable economic growth in the Australian tourism industry by enhancing the supply of quality tourism products and experiences to support marketing promises. $35 million over 4 years for matched funding grants aimed to boost the productivity and competitiveness of Australia s regional food and seafood industries through innovation and technology improvements. Build the capacity and opportunities of Australia s researchers, entrepreneurs and innovative firms to convert their intellectual property into successful commercial ventures. Avenue for duty concessions in certain circumstances for imported eligible goods for approved projects in exchange for participation of Australian industry in supporting goods and services. Supports research collaborations. $61.5 million from 2011 to 2014 to assist regional universities to develop research capabilities and collaborate with other academic institutions. National programs to support employment and skills Educational Investment Fund Australian Apprenticeship Centres Disability employment services Indigenous employment $500 million over 5 years allocated to a regional priority round to help regional higher education and vocational institutions improve their infrastructure and help improve the quality of training and education regional students receive. Deliver services to Australian apprentices and employers. Specialist role in assisting people with disabilities, injuries, or health conditions to secure and maintain sustainable employment. Supports a broad range of activities that are responsive to the needs of employers. Indigenous Australians and their High Potential relevance to target LGAs Moderate Moderate Moderate Central Highlands (around $100,000) High: Projects in Glamorgan/Spring Bay, Circular Head, and Huon Valley totalling $1.16 million Low Unknown Moderate Low High High High Unknown 154

58 Fund/program name program Remote Jobs and Communities Program Community Based Employment Advice Services Language Literacy and Numeracy Program Workplace English Language and Literacy Program National Green Jobs Corp National Workforce Development Fund Information communities to help place Indigenous Australians into work. $1.5 billion over five years to provide flexible approach to employment and community services in remote areas. $7.1 million coordination of not-for-profit organisations with their clients in regional areas. Provides language, literacy and numeracy training for clients whose skills are below the level considered necessary to secure sustainable employment or pursue further education and training. Assist organisations to train workers in English language, literacy and numeracy skills in conjunction with relevant vocational skills. 26 week environmental training program to assist year olds to prepare for employment in emerging green and climate change industries. $558 million over four years to industry to support training and workforce development in areas of current and future skills need. Potential relevance to target LGAs Moderate Low Moderate Low Moderate High Other national programs Health and hospitals fund National Disability Insurance Scheme Living Longer. Living Better Volunteer Grants $5 billion to invest in major health infrastructure programs that will make significant progress towards achieving the Commonwealth s health reform targets; and to make strategic investments in the health system that will underpin major improvements in efficiency, access or outcomes of health care. High: Projects so far have directly benefited target LGAs of Dorset, Burnie, Huon Valley and Kentish $1 billion to provide support for people with disabilities. Moderate $3.7 billion over five years to improve to improve aged care services while recognising regional needs. Grants of between $1,000 and $5,000 for organisations to purchase small equipment items to assist volunteers and contribute towards reimbursement of fuel costs, transport costs incurred by volunteers with disability who are unable to drive, training courses and background screening checks for volunteers. High Moderate Biosecurity $524.2 to strengthen Australia s biosecurity system. High 155

59 Fund/program name National Digital Economy Digital regions Digital hubs program Digital enterprise program Digital local government program NBN enabled education and skills service program Indigenous communities Clever networks ICT centre for excellence 156 Information $60 million over 4 years (began July 2009) to co-fund innovative digital enablement projects with state and local government. Collaborative approach to improve delivery of education, health and/or emergency services in regional, rural and remote communities. $13.6 million over 3 years to help communities gain skills needed to maximise benefits provided by the NBN, will establish a digital hub in the 40 communities to first benefit from NBN. $10 million over 3 years to assist small businesses and notfor-profit organisations in communities to first benefit from the NBN $17.1 million funding to local governments in communities that first benefit from the NBN $27.2 million over four years to demonstrate the benefits of high-speed broadband. $31 million to help improve communication services in remote indigenous communities. $18.6 million (ceased 30 June 2011), enabled roll out of broadband infrastructure and services to regional, rural and remote areas. National ICT Australia (NICTA), research, research training and commercialisation institute. Substantially funded by the federal government. $185.5 million added to extend the centre for a further 4 years. Clean energy (National), Environment and Sustainability Jobs and competitiveness program Clean technology investment program Clean technology food and foundry program $9.2 billion to provide assistance to the most emissions intensive and trade exposed industries in the Australian economy. $800 million to provide grants to manufacturers to support investments in energy efficient capital equipment and clean technologies, processes and products. $200 million to assist the food processing and metal forging and foundry industries. Potential relevance to target LGAs High: Statewide High: will benefit Dorset, Meander Valley, Glamorgan / Spring Bay and Circular Head High: will benefit Dorset, Sorell and Circular Head, Meander Valley, Glamorgan / Spring Bay and Circular Head High Low High Low Moderate Moderate Clean technology $200 million of funding over 5 years to support business Moderate High As above

60 Fund/program name innovation fund Energy efficiency information grants Clean technology focus for supply chains Helping communities and regions Community energy efficiency program Diversity and Social Cohesion Program Caring for our Country Sustainable Regional Development program Measuring Sustainability program CFI (National) Biochar Capacity Building Program Carbon Farming Futures Forestry IGA (National and State) Contractors voluntary exit grants program Economic diversification Information R&D in renewable energy, low pollution technology and energy efficiency. $40 million over 4 years to help small business understand the implications of the Clean Energy Plan. $5 million over four years for advisory programs that assist business, including Industry Capability Network, Supplier Advocates, and Enterprise Connect. $200 million to support local communities that have been adversely affected by the introduction of the carbon price. Extended $200 million program will support energy efficiency upgrades to council and community-use buildings, facilities and lighting. Grants of up to $50,000 to assist eligible not-for-profit organisations to provide projects that help build stronger community relations. Funding of $2.2 billion from to for projects that improve biodiversity and promote the adoption of sustainable farm practices in regional Australia. $29.2 million four year program supports better sustainability planning. $10 million over four years for provision of information and data on sustainability. Support for research, on ground demonstration of biochar and the development of offset methodologies. Up to $99 million over six years for on-farm projects. $45 million for grants and delivery costs to provide for voluntary exits from public Tasmanian forest operations for haulage, harvest and silvicultural contractors. $120 million over 15 years starting with $20 million in 2011/12 Potential relevance to target LGAs Moderate Moderate Moderate Moderate Moderate High Moderate Moderate High High High: Not publically announced yet High 157

61 7.2 Infrastructure The liveability and potential economic development of a region is strongly influenced by each area s infrastructure through ease of access and travelling times, proximity to doctors and hospitals, schools, and recreational facilities. A lack of sufficient infrastructure, or the loss of infrastructure such as schools, medical clinics, hospitals or access to airports and highways, can prevent economic development or lead to economic decline. Three target LGAs, Central Highlands, Southern Midlands, and Circular Head have less than half the average number of General Practitioners (GPs) per capita and are also located at a distance from metropolitan centres of health infrastructure. Other target LGAs such as Meander Valley and Kentish also have low ratios of doctors per capita but are closer to health care providers in Launceston or Devonport Roads and transport Travel by road is the most common form of transport in the state. Although there is a reasonably extensive railway infrastructure throughout the state, only some of this is used and currently only for freight and a small amount of tourism on selected sections. With the exception of the south-west corner, there are no isolated parts of Tasmania with most areas having access to a highway or major road. Tasmania is intersected with around 10 highways including the National Highway that runs from Devonport through Launceston and down to Hobart (see Figure 7.2). Whilst travel between the three major centres (Hobart, Launceston, and Devonport) is relatively easy, travel to regional or tourist destinations can take longer than expected. For example Launceston to St Helens and the East coast, Hobart to Queenstown, or Hobart to Port Arthur and the Tasman Peninsula take a relatively long time per kilometre travelled. There are six airports in Tasmania with major airports in Hobart and Launceston and regional airports in Devonport, Wynyard, and on King and Flinders Islands. There is also a passenger ferry service that runs between Devonport and Melbourne. Currently, the long time to travel to major tourist attractions (such as the East Coast) may be a limitation, particularly for short stay visitors, and could limit potential tourist and related developments. At present the only direct interstate flights to Devonport Airport and Burnie Airport (at Wynyard) are from Melbourne. These airports also have flights servicing King Island. Launceston Airport has direct flights to and from Sydney, Brisbane and Melbourne as well as servicing Flinders Island. Hobart Airport (located at Cambridge) has direct flights to Adelaide, Canberra, Melbourne, Sydney and Brisbane. 158

62 Figure 7.2 Highways in Tasmania Source: Ozroads, 2012 Several of the target LGAs are a reasonably short driving distance (an hour or less) from an airport. The Burnie Airport is located in Wynyard and is a benefit to Waratah/Wynyard, Burnie, and parts of Circular Head. Devonport airport is reasonably close to the Kentish municipality. Meander Valley is accessible to both Devonport and Launceston airports. Launceston airport is also accessible to Northern Midlands and parts of the Dorset region. Hobart Airport is the biggest of the state s airports and has direct flights to and from more interstate cities than any of the other airports. Hobart airport is in close proximity to Sorell and the major towns within the Southern Midlands, it is also accessible to parts of the Huon Valley, Tasman, the southern section of Glamorgan/Spring Bay and Tasman areas. The Central Highlands is the only target LGA to be over one hours travel from any airport. However, the Northern section of Glamorgan/Spring Bay, including the tourist areas of Swansea and Bicheno, are over two hours travel by car from the nearest major airport Bass Strait Freight 33 Tasmanian producers are at a cost disadvantage compared with mainland producers because of the cost of transporting freight across the Bass Strait. Transporting a standard 33 Information from Tasmanian Freight Equalisation Scheme booklet, Centrelink website ( and the Ministerial Directions. 159

63 container (Twenty-foot Equivalent Unit - TEU) across Bass Strait can be more than double the cost of road freight over the same distance (420 km). 34 The Tasmanian Freight Equalisation Scheme (TFES) reduces sea freight costs between Tasmania and mainland Australia and between King Island and the Furneaux Group Islands and the main island of Tasmania. This scheme increases the competitiveness of Tasmanian producers in mainland markets. The scheme covers goods produced in Tasmania for sale in mainland Australia and imported goods that are produced/manufactured in mainland Australia. The TFES is administered by Centreline on behalf of the Department of Infrastructure and Transport. The Australian Government has been providing TFES since July The cost is approximately $100 million per year, with $292 million paid out in subsidies for shipments between the first of July 2007 and the 30 th June Shippers are provided with a subsidy that equalises their costs with the cost of road freight. The assistance (notional entitlement) per standard container is in the form ( ) where is the wharf to wharf freight cost, is the fixed intermodal cost and is road freight equivalent cost. The notional wharf to wharf freight cost disadvantage (NWW) is defined as and is used to classify classes of shippers for evaluation of the assistance payable. 36 The assistance reaches a maximum of $855 per standard container for the most disadvantaged shippers (class four). Bureau of Infrastructure, Transport and Regional Economics (BITRE) 37 reports that the sea freight disadvantages have fallen between 1996/97 to 2010/11 due to faster growth in road freight equivalent costs compared to sea freight costs. The revision of parameters for TFES is likely to reduce payments to most shippers. BITRE suggests the following parameters: $578 Road Freight equivalent (currently $281) per standard container $635 refrigerated Road Freight equivalent (currently $309) per standard container 20 per cent for high density discount (currently 40 per cent) stowage factor for high density freight (currently 1.1) 39 To be eligible for the TFES for shipments from Tasmania to the Mainland, the following criteria must hold for goods: Produced or manufactured in Tasmania For permanent use or for sale on the Australian mainland (not export) Transported across Bass Strait by sea as non-bulk cargo Incur a freight cost disadvantage 34 Productivity Commission, BITRE, Department of Infrastructure and Transport, BITRE, High density freight has a lower cost disadvantage because of the higher road transport costs. This benefits shippers who receive lower rate of assistance 39 This increases the number of loads classified as high density 160

64 Assistance is not provided for goods manufactured on the mainland or outside Australia, unless they have undergone a manufacturing process in Tasmania. Claims must be made by the business/person that pays the freight bill. Northbound traffic accounted for 74.5 per cent of TFES claims with newsprint accounting for 19 per cent, frozen/processed/prepared vegetables for 13 per cent and paper for 8.6 per cent of standard containers in 2009/ The southbound subsidy applies to TFES registered manufacturing, mining, agriculture, forestry and fishing businesses in Tasmania. Suppliers and freight forwarders are not eligible. The criteria for goods are: Produced or manufactured on the mainland or, if imported, have undergone a manufacturing process on the mainland Australia A raw material, machinery or equipment for use in a manufacturing or mining process Transported across Bass Strait by sea as non-bulk cargo Incur a sea freight cost disadvantage Excluded commodities include goods of Tasmanian origin, fuels and lubricants, building and construction materials and equipment, and motor vehicles to be registered for use on public roads. Southbound traffic accounted for 25.4 per cent of TFES claims with wood pulp (or other fibrous cellulosic material) accounting for 11.8 per cent, raw vegetable material (fodder/straw or pellets) for 9.3 per cent and barley for eight per cent of standard containers in 2009/ There are also eligible commodities for freight between King Island and the Furneaux Group Islands and the main island of Tasmania. Sports people, professional entertainers and horse breeders may be eligible for assistance with freight costs. Constraints There are more constraints around sea freight compared to road transport. Goods need more handling (transport to the ship, loading, etc.). Ferries leave at a certain time and are less flexible with timing than road transport. While this is not a problem for many goods, it can cause problems for perishable goods as an earlier ferry may be too early, but a later one may not make it in time. While smaller containers can be transported as road freight (or smaller refrigerated trucks) there are additional constrains imposed by the size of the container for sea freight. A small delivery requires the ability to purchase part of the volume of a sea container or other alternatives. Finally, it takes more time for sea freight compared to road transport for the 420 km journey across the Bass Strait Hospitals and GPs Each of the three regions in Tasmania has a major public hospital with hospitals located in Hobart (Royal Hobart Hospital), Launceston (Launceston General Hospital) and Burnie 40 BITRE, BITRE,

65 (North West Regional Hospital). In addition to this there are private hospitals and public community health centres located in some of the regional areas of Tasmania such as Campbell Town and Ouse. Table 7.3 shows the distance and driving times for major towns in each of the target LGAs to the three major hospitals. The location of hospitals, community health centres, and family and child health centres is provided in Appendix 7.1. Based on the GP Census Report (2010) the number of GPs per 100,000 people for the state is The average for each region was greatest in the Southern Region (137.1 GPs per 100,000) and lowest in Mersey-Lyell (96.1 GPs per 100,000), the northern region had GPS per 100,000. The five LGAs with the lowest number of GPs per 100,000 were Meander Valley, Southern Midlands, Central Highlands, Circular Head, and Kentish. All target LGAs had a lower number of GPs per population than their respective regional average (Table 7.4). 162

66 Table 7.3 Distance and driving times to the closest major hospitals from towns in target LGAs North West Regional Hospital Launceston General Hospital Royal Hobart Hospital LGA Town Time km Time km Time km Central Highlands Bothwell 1 hour 1 min 75 Central Highlands Hamilton 1 hour 0 mins 73 Central Highlands Ouse 1 hour 13 mins 88 Glamorgan/Spring Bay Bicheno 2 hour 5 mins 158 Glamorgan/Spring Bay Orford 1 hour 4 mins 77 Glamorgan/Spring Bay Swansea 1 hour 45 mins 134 Glamorgan/Spring Bay Triabunna 1 hour 13 mins 85 Huon Valley Cygnet 50 mins 56 Huon Valley Dover 1 hour 9 mins 80 Huon Valley Geeveston 53 mins 61 Huon Valley Huonville 34 mins 39 Sorell Dunalley 47 mins 56 Sorell Sorell 24 mins 25 Southern Midlands Kempton 43 mins 49 Southern Midlands Oatlands 1 hour 4 mins 84 Tasman Nubeena 1 hour 24 mins 101 Dorset Bridport 1 hour 13 mins 84 Dorset Scottsdale 51 mins 62 Meander Valley Deloraine 34 mins 50 Meander Valley Westbury 26 mins 33 Northern Midlands Campbell Town 48 mins 66 Northern Midlands Longford 21 mins 24 Northern Midlands Poatina 51 mins 59 Northern Midlands Ross 58 mins 77 Burnie Burnie 7 mins 4 Circular Head Smithton 1 hour 3 mins 83 Kentish Sheffield 1 hour 5 mins 70 Waratah/Wynyard Wynyard 19 mins

67 Table 7.4 Number of GPs and Estimated FTE GPs per 100,000 Population by LGA, 2010 Local Government Area Estimated Population 2006 GP Numbers 2010 GPs per 100,000 Population Estimated FTE GPs 2010 Estimated FTE GPs Per 100,000 Population Brighton 14, Clarence 49, Derwent Valley 9, Central Highlands 2, Glenorchy 43, Hobart 47, Huon Valley 14, Kingborough 30, Glamorgan/Spring Bay Sorell 11, Southern Midlands 5, Tasman 2, Southern Region 231, Break O Day Dorset 7, Flinders George Town 6, Launceston 62, Meander Valley 18, Northern Midlands 12, West Tamar 20, Northern Region 138, Burnie 19, Central Coast 20, Circular Head 7, Devonport 24, Kentish 5, King Island 1, Latrobe Waratah/Wynyard 13, West Coast 5, Mersey-Lyell Region 106, Total Tasmania LGAs 475, Source: General Practice Tasmania,

68 7.2.4 Schools The presence of schools can be a major factor in the liveability of a region. Tasmania s education system is served by both government (public) schools and non-government (private) schools. There are a total of 134 primary schools (Kindergarten - year six), 30 high schools (years seven to 10), 27 district high schools (combined Kindergarten year 10), eight colleges (years 11 and 12), and one vocational (trade) school as well as 10 schools for students with disabilities. There are also non-government schools available, some of which only cater for a limited age range whilst others cover kindergarten to year 12. The full list of government schools as well as the location of training and education facilities is provided in Appendix 7.2. Senior secondary education Whilst primary and high schools are spread throughout the state, all colleges offering a full curriculum of Grades 11 and 12 courses are located in urban areas. This can be a serious limitation for students from regional areas, often requiring either long commutes or even relocation to pursue education past age 16. District high schools generally offer a limited number of Grade 11 and 12 subjects with some only offering VET subjects after year 10. The information available does not always specify what courses are offered. The subjects offered may be limited or may still require some travel to a senior secondary school. Table 7.5 lists the class ranges available at each of the combined and senior secondary schools in Tasmania. This list includes secondary schools that offer post year 10 opportunities. Only one full college is located in the target LGAs (in Burnie). Table 7.5 Class ranges for combined, senior secondary schools, and secondary schools offering post year 10 opportunities in target LGAs School LGA Category a Class range Dover District High School Huon Valley Combined K-12 Tasman District School Tasman Combined K-12 Sheffield School Kentish Combined K-10+VET Sorell School Sorell Combined K-10+VET Winnaleah District High School Dorset Combined K-12 Deloraine High School Meander valley Secondary 7-12 Scottsdale High School Dorset Secondary 7-12 b Smithton High School Circular Head Secondary 7-12 c Hellyer College Burnie Senior Secondary Source: Based on information from the Department of Education, a Combined both primary and secondary education; Secondary from year seven; Senior Secondary year 11 and 12 only (VET courses are also offered at most senior secondary schools b - post year 10 opportunities are through the Dorset trade Training Centre c post year 10 opportunities are through a shared program with Hellyer College 165

69 7.2.5 Internet Connection and the NBN Roll Out In Tasmania 53.6 per cent of the population have access to the internet at home; this is slightly lower than the national level of home access of 59.4 per cent. 42 The proportion of the population that accessed the internet in the previous 12 months for 2010/11 was four per cent lower in Tasmania than nationally with Mersey-Lyell having the lowest level of access for all three regions (Figure 7.3). Figure 7.3 Proportion of population that accessed the internet in the previous 12 months Tasmania will be the first state in Australia to be fully equipped for the NBN. Three towns in Tasmania already have services available with construction currently underway or due to commence in the next 12 months for several other communities. At completion, around 200,000 premises should be directly connected to the network with the remaining premises serviced by wireless or satellite technologies (NBN Co). The roll out is occurring throughout the state with one town in each of the three regions currently having services available. These three towns are in the target LGAs of Circular Head (Smithton), Dorset (Scottsdale), and Sorell (Midway Point). Towns in the target LGAs of Waratah/Wynyard, Meander Valley, Glamorgan/Spring Bay, and Sorell either currently have construction underway or will have construction commencing within the next 12 months (Figure 7.4) 42 Calculated by the authors based on ABS, 2011c and ABS, 2011h 166

70 Figure 7.4 NBN Roll out map for 2012 Source: Business structure The number of businesses in an LGA is an indicator of existing economic opportunities. Other potential indicators, such as net business churn (the number of new entrants minus exits) are not available for Tasmania at the LGA level. Data on the number of businesses are available from the 2010 TIC for businesses with five or more Full Time Equivalent (FTE) employees. In the Tasmanian context, businesses with five or more FTEs are also above the median size and represent businesses that have been able to grow or sustain employment. Overall, the majority of businesses with five or more FTEs are located in the population centres of Hobart and Launceston. Of the target LGAs, Burnie has the greatest number of business (51) with more than five FTE. The Northern Midlands, Waratah/Wynyard, Meander Valley, Circular Head and Dorset all have between 20 and 30 businesses with five or more FTEs with the remaining target LGAs having between two and 19 businesses with five or more FTEs (see Figure 7.6). 167

71 Figure 7.5 Businesses with more than five FTE for each region, 2010 Figure 7.6 Businesses with more than five FTE for each target LGA, 2010 The average number of FTEs per business for each target LGA is given in Figure 7.7. Burnie and Northern Midlands are the only LGAs that appear in the top five for both the number of businesses with more than five FTEs and average FTEs per business. Although Tasman has only three businesses with five or more FTEs, the average number of FTE for those three businesses is 39, only slightly less than Burnie with 41 (Figure 7.7). The Southern Midlands and the Central Highlands are the two target LGAs with both the lowest number of businesses with five or more FTEs and the lowest average number of employees per business (below 15). 168

72 Figure 7.7 Average FTE per business for business with five or more FTE, 2010 Source: Calculated by authors based on AIRC, Natural Resources Tasmania is well regarded for its cool temperate climate, relatively reliable rainfall (compared to many other agricultural regions in Australia), long sunlight hours, productive soils, and clean air and water. These factors make the State highly suited to primary production. Tasmania also has an established mining industry based on mineral Soils Tasmania has extensive areas of dolerite, granite and basalt rocks that decompose to form some of Australia s most fertile soils. Most LGAs have a combination of different soil types within a relatively small area. The diversity and scattered distribution of soil orders can clearly be seen in Appendix 7.3. The literature used for soil resource information divides the state into the three Natural Resource Management (NRM) regions. These regions match the statistical subdivision regions. There are 13 major soil orders found in Tasmania. The soil orders and their key characteristics are outlined below. Calcarosol Contain variable amounts of calcium carbonate (usually throughout the profile) or directly below a weakly developed A horizon. Another important feature is the absence of a clear or abrupt textural B horizon. Increase in clay content with depth. Chromosol have a strong texture contrast between the A and B horizons, are not strongly acidic in their upper B horizons. These soils may have favourable physical and chemical 169

73 properties favourable for agriculture although hardsetting surface layers with structural degradation may be caused by long-term cultivation. Dermosol Are diverse and have a moderate to strong structured B2 (subsoil) horizon and a lack of a strong texture contrast between the A and B horizons. These soils are not high in free iron (less than five per cent Fe), nor are they calcareous throughout the profile. Increase in clay content with depth. Ferrosol Very permeable clayey soils that are red in colour and have very good physical properties those are valuable to agriculture. They have relatively high contents of free iron oxide and no strong texture contrast between the A and B horizons. Hydrosol Are seasonally or permanently saturated (for at least two to three months per year). Drainage of potentially acid sulfate Hydrosols can lead to acidification. Kandosol Often very deep soils that have a weak or massive subsoil structure, with a clay content of greater than 15 per cent in the B horizon, no strong texture contrast and no carbonate throughout the profile. Kurosol Very acidic soils that have unusual subsoil chemical features such as high exchangeable magnesium, sodium and aluminium and very low calcium. Organosol Occur in wet landscapes, characterised by peatlands, common in alpine regions but fragile and prone to erosion if disturbed. Dominated by organic materials and their occurrence is determined by site wetness and the resulting plant communities that develop in a given climatic environment. Podosol Often distinguished by a bleached A2 horizon and a coloured B horizon caused by the accumulation of organic compounds, aluminium and/ or iron compounds. Rudosol Usually young soils that have minimal development of soil features, a negligible pedologic organisation and often occur in arid regions. Sodosol Sodic soil with a clear or abrupt textural B horizon that is not strongly acid and has an exchangeable sodium percentage of six or greater in its upper part (an ESP of six is the critical limit for the sodicity to have an adverse affect on productivity of the soil). The B horizons are usually clayey with restricted hydraulic conductivity caused by the dispersive nature of the sodic clay. Tenosol Encompass a fairly wide range of soils which, apart from some A horizons, do not have a strong degree of horizon development. Often considered as an intermediate profile between Rudosols and Kandosols. Vertosol Clay soils (less than 35 per cent clay) that vary in colour (black, brown, grey and red), range from strongly acid to highly calcareous, and have shrink-swell properties that cause deep and wide cracking on drying. 170

74 The soil qualities of the more commonly occurring soil types are described below in Table 7.6, listed in declining order of agricultural significance. Table 7.6 Tasmanian soil types and fertility Soil type Agricultural potential Soil fertility Comments Dermosol High Moderate to high Good structure Vertosol High High Requires high rainfall or irrigation to release fertility Ferrosol High Moderate Good structure and water holding capacity Chromosol Moderate Moderate Susceptible to soil acidification and structure decline Sodosol Low Moderate to low Unstable, high in sodium Calcarosol Moderate to low low Often have high salinity and alkalinity. Tenosol Very low Very low Poor structure and water holding capacity Kurosol Very low Very low Low nutrient and water holding capacity, often sodic (high in sodium) Podosol Very low Very low Low water holding capacity Hydrosol Very low Very low Waterlogged Rudosol Variable Variable Mostly younger soils under conservation or native forest Organosol Moderate to low Moderate to low 88% are in conservation areas Source: Australian Natural Resources Atlas, Australian Soil Club The soil orders in Tasmania are dominated by dermosols and organosols. Dermosols are found throughout the state whilst organosols are mostly confined to the western half of the state. 43 Despite the high proportion of organosols, a lot of this is in the south western area that is protected for conservation rather than used for production or development. The high proportion of dermosols makes most area of Tasmania highly suited to agricultural production. Table 7.7 shows the area of each soil order within each region. Tenosol, rudosol, kurosol, ferrosol and chromosols together with dermosols and organosols make up around 85 per cent of Tasmania s soils. The remaining 15 per cent is spread amongst podosols, kandosols, hydrosols, vertosols, sodosols and calcarosols. 43 Cotching et al.,

75 The best soils for agricultural uses are dermosols, ferrosols, chromosols and vertosols. These soil types account for 37.7 per cent of the area of the Southern region, 49.1 per cent of the Northern region, and 32.1 per cent of the Cradle Coast region. Although there is a wide variation in the share of fertile soils, all regions have substantial areas of good soils for agriculture. A more important issue is the location of the soils and the topography of fertile regions. The north-west of Tasmania is recognised for some of its deep, highly fertile red ferrosols accounting for 14 per cent of the total area of the region. The most common soil type is dermosols (also of high agricultural value). Table 7.7 Occurrence of soil orders in Tasmania by NRM region Soil Order Area (ha) in NRM Region Total area South North Cradle Coast (ha) (%) Dermosol 480, , ,814 1,612, % Ferrosol 116, , , , % Chromosol 250,985 78,461 11, , % Vertosol 68,974 48, , % Organosol 450,275 33, , , % Tenosol 288,284 92, , , % Rudosol 303, , , , % Kurosol 253, ,953 62, , % Podosol 14, , , , % Kandosol 78,879 80, , , % Hydrosol 76,155 59, , , % Sodosol 46,422 61, , % Calcarosol , , % Total 2,428,497 2,004,218 2,230,764 6,628, % Per cent most fertile soils 37.7% 49.1% 32.5% 39.7% Source: Cotching et al., 2009 Cotching 44 calculated the area of soil orders within major land use categories in Tasmania based on the Bureau of Rural Sciences land use classification (See Table 7.8). Production native forestry occurs primarily on Dermosol soils whilst plantation forestry occurs predominantly on Ferrosol soils. Both these soil types are also used for a large proportion of agricultural production. 44 Cotching et al.,

76 Table 7.8 Proportion of area of soil orders within major land use categories in Tasmania Soil Order Conservation Production Plantation Grazing Grazing modified pasture Cropping Perennial Urban/ Total Native forestry Natural horticulture Disturbed forestry vegetation Dryland Irrigated Calcarosol 2.0% 0.0% 0.2% 35.4% 60.2% 1.0% 0.8% 0.1% 0.3% 100% Chromosol 9.3% 16.0% 2.4% 37.7% 31.5% 0.1% 0.7% 0.1% 2.1% 100% Dermosol 32.1% 32.1% 3.4% 16.4% 13.6% 0.5% 0.6% 0.1% 1.2% 100% Ferrosol 15.1% 26.9% 16.9% 10.1% 22.7% 2.2% 4.6% 0.1% 1.4% 100% Hydrosol 22.4% 17.4% 4.5% 15.9% 32.5% 2.8% 1.3% 0.4% 2.6% 100% Kandosol 40.0% 29.2% 3.5% 9.6% 15.3% 0.8% 0.5% 0.1% 1.0% 100% Kurosol 23.8% 16.0% 2.9% 19.3% 27.5% 0.6% 2.2% 0.2% 2.2% 100% Organosol 88.5% 7.2% 0.1% 2.9% 1.1% 0.0% 0.0% 0.0% 0.2% 100% Podosol 23.7% 5.7% 1.8% 24.2% 38.9% 2.5% 0.6% 0.4% 2.2% 100% Rudosol 41.1% 18.9% 1.6% 19.1% 16.7% 0.1% 0.4% 0.1% 1.9% 100% Sodosol 4.6% 3.4% 0.6% 18.5% 67.5% 0.0% 3.8% 0.3% 1.3% 100% Tenosol 60.0% 13.8% 0.3% 13.5% 11.0% 0.2% 0.4% 0.1% 0.7% 100% Vertosol 6.4% 6.5% 0.5% 28.7% 48.5% 0.1% 7.2% 0.3% 1.7% 100% Total 40.1% 19.4% 3.3% 15.6% 18.3% 0.7% 1.2% 0.1% 1.3% 100% Source: Adapted from Cotching et al., Climate Water Tasmania s rainfall is spread relatively evenly over the year. The West coast generally receives the highest rainfall with the central plateau and eastern half of the state generally drier (Figure 7.8). The East coast also has a higher level of evaporation than the West coast (Figure 7.9). Due to the rainfall distribution and the variation in evaporation, the West coast is generally wetter with the central plateau and South Eastern coast drier than the North East and North West areas. 173

77 Figure 7.8 Average annual rainfall for Tasmania 45 Source: Bureau of Meteorology (online) Figure 7.9 Average annual evaporation for Tasmania Source: Bureau of Meteorology (online) 45 Bureau of Meteorology (online) 174

78 Tasmania accounts for 12 per cent of Australia s fresh water runoff despite having only one per cent of the nation s land mass. This runoff is collected in the 48 water catchments throughout the state. Distribution is not uniform with many of the developed areas regularly experiencing dry summer periods when water demand exceeds the natural river flows. 46 Tasmania is one of the few areas in Australia were irrigation continues to develop, enabling more water to be accessed by farmers. Both state and federal governments along with landowners have made significant investments to enable the development of irrigation schemes throughout the state (Figure 7.10). The total investment for this development is $400 million, of which $220 million is provided by the State and Federal Governments. 47 Some of these schemes are intended to increase the available volume or increase water security in areas already using irrigation (such as the Winnaleah and Sassafras Wesley-Vale schemes) whilst some developments will be introducing irrigation to areas largely used for dry land production in the past (such as the Midlands scheme). There are a total of 14 schemes being developed, constructed or managed by TI. Many of the target LGAs will benefit from irrigation development with areas in Dorset, Central Highlands, Southern Midlands, Northern Midlands, Kentish, Meander Valley, Glamorgan/Spring bay and Sorell all expected to benefit from the new irrigation systems. A full list of irrigation schemes, the volume of water, irrigable area, and communities that will benefit are listed in Appendix DPIPWE, DPIPWE (online), Irrigation Development 175

79 Figure 7.10 Irrigation development schemes Source: Tasmanian Irrigation (online) 176

80 Temperature The average annual temperature in Tasmania ranges from nine degrees Celsius to 15 o C for the majority of the state. The coastal areas are generally warmer with the central plateau being the colder area. The maximum annual daily temperature is approximately 12 o C to 18 o C with the mean daily minimum temperature for most areas of the state being three degrees Celsius to nine degrees Celsius (Figure 7.11). The northern coastal target LGAs of Circular Head, Dorset, and parts of Waratah/Wynyard as well as Sorell and Tasman have warmer annual means, maximum and minimum temperatures in comparison to the other target LGAs. Figure 7.11 Annual mean, maximum and minimum temperatures for Tasmania 177

81 Source: Bureau of Meteorology (online) 178

82 Frost The central plateau area of Tasmania has the highest level of frost days with coastal areas having few to no frost days. Of the target LGAs Central Highlands has the greatest frost incidence whilst the more coastal target LGAs of Circular Head, Burnie, Dorset, Glamorgan/Spring Bay, Sorell, Tasman, and parts of Huon Valley and Kentish have a lower frost incidence (Figure 7.12). Figure 7.12 Annual potential frost days for Tasmania Source: Bureau of Meteorology (online) Late-season or spring frosts are a risk to many crops and can significantly reduce production of a range of fruit and grain crops. The risk of frost in the spring months (September- November) is greatest in the central areas of Tasmania (including areas of the Central Highlands) and some areas in the north east; this can be seen in the potential frost days for October (Figure 7.13). 179

83 Figure 7.13 Potential frost days for October Source: Bureau of Meteorology (online) Land capability Land capability is an important factor in determining appropriate land use. Land capability is classed on a scale of one to seven based on biophysical factors, physical limitation, versatility and productivity. Land with a class of one is high quality, highly productive land with little or no limitations whilst land assigned class seven is severely limited and not suitable for agricultural production. There is only a small amount of land in Tasmania that is class one land, the majority of the land that has been surveyed is in the range of class four to six with some class three in the northern half of the state (see Appendix 7.5). Land classed one to four has many options for land use whilst land class five and six are more limited and class seven is highly limited. Table 7.9 summarises the land class system and suitability for agricultural use. 180

84 Table 7.9 Land use for different land classes Source: Grose (eds)

85 7.3.4 Land use The majority of Tasmania s land mass is can be divided into four main categories: Protected a. Nature conservation b. Other protected areas including indigenous land uses 2. Agriculture a. Livestock grazing b. Dryland agriculture c. Irrigated agriculture 3. Forestry 4. Other uses a. Minimal use b. Built environment c. Water bodies not elsewhere classified Land for nature conservation and other protected areas accounts for a total of 27 per cent of the State area. Most of this area is conservation land in the south-west. Agricultural production accounts for a total of 26 per cent of land with 13 per cent being livestock, 12 per cent dryland agriculture and around one per cent irrigated agriculture. Agriculture is spread up the eastern half of the state and across the north as well as on both Flinders and King Islands. Forestry accounts for 25 per cent of land use and occurs throughout the state. The remaining 22 per cent is mostly assigned to minimal use (21 per cent) with built up areas and water bodies not elsewhere classified accounting for the remainder (Figure 7.14). Maps indicating different land use in Tasmania are in Appendix 7.5. Figure 7.14 Proportion of different land uses in Tasmania Calculated by authors based on data from the Australian Natural Resources Atlas 48 Data used for this discussion is based on data from , since then some changes in land use may have occurred. The data does at least provide an indication of land use in the state. 182

86 Assessing the use of rateable land provides some indication of the current use of land in the target LGAs. Most of the rateable land for the target LGAs as well as at a whole of region or state level is agriculture. Commercial land use is minimal and except for the Waratah/Wynyard area industry is not a significant land use. Residential housing is the second most common use for all LGAs except in the Central Highlands, Tasman and Dorset where community services is the second biggest land use (Table 7.10). Table 7.10 Land use for target LGAs Land Use Primary Production Commercial Industrial Community Residential Vacant Land Central Highlands 91.5% 0.1% 0.1% 6.5% 0.9% 1.0% Glamorgan/Spring Bay 90.5% 0.5% 0.1% 2.1% 4.1% 2.8% Huon Valley 80.6% 0.3% 0.3% 2.7% 9.3% 6.8% Sorell 83.2% 0.1% 0.3% 1.5% 10.7% 4.2% Southern Midlands 92.1% % 4.9% 2.7% Tasman 68.1% 0.3% 0.1% 12.8% 9.3% 9.3% Dorset 92.3% 0.2% 0.2% 5.4% 1.5% 0.4% Meander Valley 89.5% 0.2% 0.1% 1.9% 6.0% 2.1% Northern Midlands 92.7% 0.3% 0.1% 0.3% 6.4% 0.3% Burnie 88.6% 0.1% 1.1% 1.9% 6.5% 1.8% Circular Head 97.2% 0.1% 0.1% 1.4% 0.9% 0.3% Kentish 86.4% 0.5% 1.2% 1.2% 8.2% 2.5% Waratah/Wynyard 94.3% - 1.5% 0.3% 2.9% 0.9% Tasmania 88.2% 0.4% 0.4% 3.3% 5.3% 2.4% Mineral Resources The west coast of Tasmania is well known for its mineral resources with mineral deposits stretching from the south west, north through the west coast and east to areas near Sheffield. Mining operations have also been established in other areas of the state including the north and north east with some mining and mineral processing operations also occurring in the south (Tasmanian Minerals Council). A graphical representation of mining and mineral operations in the state is included in Appendix

87 7.4 Summaries of assets and liabilities for the target LGAs Burnie Burnie is possibly the most urbanised of the target LGAs. It has a population of just over 19,000 at the 2006 census. This is expected to steadily increase through to Burnie ranked well for SEIFA advantage/disadvantage (see Chapter 6.4) for further information on SEIFA) and reasonably well for occupation and education. However, Burnie was ranked as the fourth most disadvantaged LGA in the state for economic resources. Completion of year 12 was not particularly high in Burnie with a completion rate of only 22 per cent. There was a reasonable level of attainment of certificate level qualification. This is not unexpected given the level of industrial activity in the area. Burnie has several physical advantages: the temperature is slightly warmer than many other areas in the state, it has some of the most productive soils, and the frost risk is considerably lower than average. However, its urban character results in a lower proportion of land used for production than some of the other target LGAs. Burnie is accessible from the east, west and south by major roads and is also serviced by Burnie airport (located in Wynyard). The port at Burnie is used for freight movement and the railway line operates to and from Burnie. Access to hospitals is readily available with one of the state s major public hospitals being located in the area Central Highlands The Central Highlands is one of the largest LGAs in area, but has a population of less than 2,250 in The dip in population in 15 and 30 year olds is expected to be of a greater magnitude in 2020 compared to The Central Highlands was the most disadvantaged of the target LGAs for SEIFA advantage/disadvantage but was above average for economic resources, occupation and education. Despite this the year 12 completion rate of the area was poor at 21 per cent and all other educational attainment indicators are low. The Central Highlands also had the lowest level of participation in the labour market. Agriculture is the primary source of employment in the area and accounts for the majority of land use. The climate in the Central Highlands is generally cooler, drier and more frost prone than most other areas of the state. This can potentially limit agricultural industry options. Although some irrigation is already in use, the development of irrigation schemes (particularly the Shannon-Clyde scheme) are expected to increase agricultural opportunities in the area. 184

88 The Central Highlands can be accessed via major roads but most of the region is comparatively distant from airports, which may limit access for short stay visitors. The nearest public hospital to the Central Highlands is in Hobart. For most towns in the area this is more than an hour s drive away Circular Head Circular Head in the North Western corner of the state had a population of just under 8,000 in This population is forecast to rise steadily to just over 8,600 by The pattern of the population drop seen in 15 to 35 year olds in 2007 is expected to continue. This may be a result of senior secondary and tertiary students leaving the region to attend college or university. There is also a dip in the population around 40 to 45 years in 2007 that is predicted to continue in It is not clear what the reason for this dip is. Circular Head ranks as one of the most advantages target LGAs for economic resources however is the third most disadvantaged target LGA for occupation and education rank and fifth most disadvantaged target LGA for advantage/disadvantage. Circular Head had the lowest level of year 12 completion (equal with Dorset) of target LGAs at 17 per cent however the area had the highest proportion of the population obtaining a certificate level qualification of all target LGAs. The proportion of 15 to 64 year olds who were employed in 2006 was higher in Circular Head than any other LGA. Agriculture, forestry and fishing accounted for around 25 per cent of employment with manufacturing accounting for a further 20 per cent. Since the 2006 census the area has seen significant changes in manufacturing with the closure of some processing facilities including the McCain s vegetable processing plant. The Circular Head area has a higher rainfall then the eastern half of the state, most of the region has a mean annual temperature of 12 to 15 degrees Celsius, and has a relatively low frost risk. The climate, together with the soil types in the region, enables much of the land to be well suited to primary production. This is reflected in the allocation of rateable land with agriculture accounting for 97.2 per cent of the area. The Circular Head region is accessible by the Bass Highway; the nearest airport is located in Wynyard and Launceston airport the nearest major airport. The number of GPs per 100,000 residents for Circular Head is considerably lower than the ratio for the Mersey-Lyell region. The nearest major public hospital for the area is located in Burnie. Smithton is one of the major towns in the Circular Head region and is one of the first three towns in Tasmania to have been connected to the NBN. 185

89 7.4.4 Dorset The Dorset municipality takes in much of the north east, the population in 2006 was 7,000 and is predicted to increase to only 7,150 by The Dorset population had a significant drop in population for the 15 to 20 years age group through to the 40 to 45 year age group. This dip in population is forecast to occur in 2020 with the population declining at around 15 years and not increase until over 45 years. Dorset was ranked the most disadvantaged of the Target LGAs for occupation and education rank, third most disadvantaged for advantage/disadvantage and was fourth most disadvantaged for economic resources rank. Dorset had the equal lowest level of year 12 completion for all target LGAs with only 17 per cent completion. Dorset had one of the higher rates of achieving certificate level qualifications with 45 per cent of the population achieving certificate level. The level of employment in the area was reasonably high compared to other LGAs with 66.2 per cent of 15 to 64 year olds employed. Agriculture, forestry and fishing is the largest single employer in the area. With a combination of dermosol and ferrosol soils combined with the lower productivity kurosol soils the region is suited to a range of agricultural enterprises. The mean annual temperature in the area is 12 to 15 degrees Celsius, there is a relatively low frost risk in the area and although the rainfall in the area is lower than in the north west of the state it is higher than the areas south of Dorset. The Dorset region will benefit from irrigation development with Headquarters Road, Winnaleah and North East schemes all increasing the irrigation availability and water security in the area. The nearest airport to Dorset is Launceston, slightly less than an hours drive. The number of GPs per 100,000 for Dorset is similar to that of the northern region. Scottsdale in Dorset was one of the three towns in Tasmania to already be connected to the NBN Glamorgan/Spring Bay The Glamorgan/Spring Bay area stretches along the east coast of Tasmania from Sorell municipality to Break O Day. The population in 2006 was 4,187 and is forecast to increase by over 20 per cent by 2020 to 5,124. Based on projected populations there is expected to be a net increase in the population over 55 years. The high ratio of older persons is of concern due to the level of dependency this creates as well as the need for additional facilities such as medical care. Glamorgan/Spring Bay is ranked in top half most advantaged of LGAs for all three SEIFA indices. 186

90 Year 12 completion and level of employment was mid-range in comparison to other target LGAs with 25 per cent of the population completing year 12 and around 64 per cent of 15 to 64 year olds employed. Agriculture, forestry and fishing, and retail trade both account for around 20 per cent of employment each. A lot of the soils in the area are dermosols which has a high potential for agricultural use. The mean temperature ranges from nine to 15 degrees Celsius, the annual rainfall for most of the region is millimetres and the frost risk is relatively low. The Swan River irrigation scheme will benefit the area around Swansea in the Glamorgan/Spring Bay area. Many southern parts of Glamorgan/Spring Bay are reasonably accessible from Hobart whereas the more northern areas such as Swansea and Bicheno are a further driving distance from both Hobart and Launceston. The number of GPs per 100,000 is slightly less for Glamorgan/Spring Bay than for the southern region though it is still more than some of the other target LGAs for the same region. Proximity to a major hospital is dependent on the specific area of Glamorgan/Spring Bay with southern towns being closer to Hobart and the more northern towns closer to Launceston. NBN construction is currently underway in Triabunna which will be the first town in Glamorgan/Spring Bay to be connected to the network Huon Valley The Huon valley is the southern-most municipality in the state. The 2006 population was 14,000 and is forecast to increase by nearly 2000 people to 15,935 by As with all the target LGAs there is a drop in population between 20 and 35 year olds in the Huon Valley yet the magnitude of the drop is expected to be reduced in 2020 compared to Huon Valley ranks well on all three SEIFA indices for the target LGAs as well as on a statewide basis. The level of year 12 completion as well as the proportion of population with a bachelor degree was higher than any other target LGA. The level of employment in the area is lower than most other target LGAs at around 60 per cent. Agriculture, forestry and fishing accounted for the largest proportion of employment. Much of the area consists of kurosols and chromosols, despite these soils generally having low and moderate agricultural potential there is still a reasonable amount of agricultural production in the area. The proportion of rateable land that is used for primary production is lower than any other target LGA. Most of the Huon Valley has an annual rainfall in excess of 1,200 millimetre with the western side generally receiving higher rainfall than the eastern side. The mean annual 187

91 temperature is between nine and 12 degrees Celsius with some of the inland patches being as low as six to nine degrees Celsius. The frost risk for the area is moderate with the coastal parts having a lower frost risk then inland areas. The Huon Valley is accessible from Hobart via the Huon Highway with the main town of Huonville being less than 45 minutes drive from Hobart Kentish Kentish in the Mersey-Lyell region had a population of 5,758 in This is expected to increase by over 1,000 to 7,061 in The age distribution of the Kentish population is forecast to follow the same pattern of other LGAs of a net reduction in 20 to 35 year olds and a net increase of over 50s. Kentish was in the mid-range of target LGAs for the advantage/disadvantage and economic resources ranks but was the second most disadvantaged of target LGAs for occupation and education rank. The year 12 completion rate was moderate compared to other target LGAs whilst the level of attainment for certificate qualifications was second highest of all target LGAs at 46 per cent. The employment rate for the area was relatively low compared to other target LGAs. Manufacturing accounts for the greatest proportion of employment at around 14 per cent with agriculture, forestry and fishing accounting for a further 13 per cent. The amount of ferrosol and dermosol soils in the Kentish area indicates the high potential for agricultural production. Being slightly further inland than some other LGAs in Mersey- Lyell the mean annual temperature in Kentish is slightly less at nine to 12 degrees Celsius and the annual rainfall generally being around mm. The frost risk in the area is slightly higher than the more coastal LGAs nearby but is still relatively low. Kentish is within reasonable proximity to the town of Devonport and therefore is reasonably accessible to shorter stay visitors travelling to Tasmania by either ferry or plane to Devonport. The number of GPs per 100,000 in Kentish is considerably less than the average for the Mersey-Lyell region Meander Valley Meander Valley is the western most LGA of the northern region. The population there in 2006 was just over 18,000 which is forecast to grow by almost 2,500 to 20,763 by This region has experienced a drop in population of 20 to 35 years however the age range over which this occurs is forecast to be reduced by

92 Meander Valley was the best ranked of the target LGAs for all three SEIFA indices. The level of year 12 completion was moderate at 25 per cent, however the area had the second highest level of bachelor degrees at 15 per cent. The level of employment was second highest of the target LGAs with over 69 per cent of working age population employed. Over 40 per cent of workforce were split over retail trade, agriculture, forestry and fishing, health care and social assistance, and manufacturing accounting for 10 to 12 per cent each. Soil types in the Meander Valley are a mixture including dermosols, ferrosols, podosols and kurosols. Rainfall ranges from 800 to over 1,200mm, with mean annual temperatures nine to 12 degrees Celsius. The frost risk for the Meander Valley is higher than many of the other LGAs. An irrigation scheme was developed in the area previously. This is now managed by TI and further expansion of the network will increase the availability of the irrigation water. Meander Valley is accessible by both Launceston and Devonport although some parts of the region are an extended driving distance from either of these major centres. The number of GPs per 100,000 for Meander Valley is exceptionally low at 99.2 and would need to be further investigated to determine if there is a community need for increased GP services and what implications this may have based on future population predictions. Construction for the NBN is currently underway in the Meander Valley town of Deloraine Northern Midlands The northern region LGA of Northern Midlands is one of the larger LGAs by area. The Northern Midlands population for 2006 was just over 12,000 with a forecast increase of less than 1,000 to reach 12,913 in The decline in 20 to 35 year olds is expected to lessen by 2020 however there is expected to be a decrease in the population of 35 to 50 year olds and an increase in the number of over 60s. This latter change would be largely attributed to the aging baby boomers. Northern Midlands ranked in the five most advantaged LGAs (out of the target LGAs) for all three SEIFA indices. The area had a moderate level of year 12 completion but was one of the top target LGAs for attainment of bachelor degree. The area also had a relatively high level of employment with 15 per cent employed in agriculture, forestry and fishing, and retail trade, health care and social assistance, and manufacturing accounting for around 11 per cent each. A large amount of the soil types in the Northern Midlands are dermosols. The area is drier than many other parts of the state with an annual rainfall ranging from 400 to 800mm. The mean annual temperature varies from six to 12 o C and there is a moderate level of frost risk for the area. 189

93 Large areas within the Northern Midlands are expected to benefit from the development of irrigation schemes with the Lower South Esk and Midlands schemes. Most areas of the Northern Midlands are within reasonable driving distance from Launceston with the main highway that connects Hobart and Launceston running through the middle of the LGA. Northern Midlands had only a slightly lower rate of GPs per 100,000 than the regional average Sorell Sorell is one of the smaller LGAs by area but with a population to match some of the biggest LGAs by area. The 2006 population was just under 12,000 and is forecast to rise to over 15,000 by The forecast population for 2020 is not expected to have as substantial a drop in 20 to 35 year olds as shown for 2007 however the number of over 50 s is expected to increase. Sorell was consistently well ranked for all three SEIFA indices for both target LGAs and statewide. Year 12 completion rates were relatively high at 27 per cent whilst the proportion of the population achieving both certificate and diploma/advanced diploma levels was also relatively high. Sorell had a medium level of employment with the majority of employment spread evenly across retail trade, public administration and safety, health care and social assistance, manufacturing, and construction. The soils in the area are largely chromosols, the rainfall is around 800 to 1,200 millimetre per year and temperature is 12 to 15 degrees Celsius. Sorell is in close proximity to Hobart and is readily accessible from Hobart airport. There are fewer GPs per 100,000 in Sorell compared to the entire southern region. The town of Sorell is one of the locations where construction of the NBN is currently underway whilst Midway Point has services connected now Southern Midlands Southern Midlands had a 2006 population of 5,673. Growth in this region was not forecast beyond 2007 with the population expected to rise to 5,865 in 2007 before declining to 5,715 in In addition to a downward trend in population the drop in 20 to 35 year olds is expected to carry through to 30 to 45 year olds. Decreases in population in a particular region is concerning for the long term viability of an area and the ability to attract people and businesses to the area. 190

94 Southern Midlands was the fourth most disadvantaged of the target LGAs however was midrank for education and occupation and one of the most advantaged LGAs for economic resources. The level of year 12 completion in Southern Midlands was only 21 per cent and was not exceptionally high for completion of any further qualifications. The level of employment was ranked in the middle third of the target LGAs. Agriculture, forestry and fishing was the largest employer for the area. Dermosols and kurosols account for the majority of the soil types in the area. Annual rainfall is 600 to 800 millimetres and the mean temperature extends from nine to 15 o C with a moderate frost risk. The Midlands irrigation scheme is expected to significantly benefit the area by providing irrigation water at 95 per cent surety to areas not previously been under extensive irrigation. The Southern Midlands are easily accessible from Hobart via the midlands highway (or alternate routes). With the construction of the Brighton Bypass it is expected that travel times to many of the towns within the Southern Midlands (such as Kempton and Oatlands) will be reduced. Southern Midlands has an especially low number of GPs per 100,000. This combined with a forecast population decline may make attracting further GPs to the area difficult, which will compromise the health care needs of the population Tasman The Tasman area takes in most of the Tasman Peninsula and is often grouped with the neighbouring LGA of Sorell. Tasman s population in 2006 was one of the lowest in the state at 2,240. This population is predicted to gradually increase to 2,429 in The age distribution of Tasman s population tends to fluctuate significantly for different ages with the distinct dip in 20 to 35 year olds seen throughout the LGAs not as severe for Tasman. Tasman was the second most disadvantaged of the target LGAs for advantage/disadvantage however, was one of the better ranked LGAs for education and occupation. Tasman had one of the higher levels of year 12 completion at 27 per cent and also had good performance for advanced diploma/diploma, bachelor degree, and post graduate degrees. Agriculture, forestry and fishing accounted for the greatest proportion of employment with arts and recreation services, and accommodation and food services accounting for similar levels. Kurosols and chromosols are the predominant soil orders in the Tasman area. The rainfall is 800 to 1,200 millimetres per year and the mean annual temperature is from nine to 15 degrees Celsius. 191

95 Most areas of Tasman are within a reasonable driving distance from Hobart with the major tourist attraction of Port Arthur almost an hour and a half drive from Hobart Waratah/Wynyard Waratah/Wynyard is between other target LGAs of Circular Head and Burnie and also adjoins Kentish. The population of Waratah/Wynyard was 13,413 in 2006; this is predicted to rise slightly to 13,939 in Although there is no large dip in population between 20 and 35 predicted for 2020, there is expected to be a net out migration of those between 20 and 35 years of age. Waratah/Wynyard was ranked in the most advantaged half of target LGAs for advantage/disadvantage but ranked in the top seven disadvantaged LGAs for both economic resources and occupation and education ranks. The level of year 12 completion was only 21 per cent, but the level of qualification at certificate level and bachelor degree were 43 per cent and 13 per cent respectively. The level of employment was in the lower third of target LGAs at 62.3 per cent. Manufacturing, health care and social assistance and retail trade are the primary employers for the region. Dermosols and ferrosols are the predominant soil orders in the area. The annual rainfall is upwards of 1,200 millimetres and the mean annual temperature is nine to 15 o C, and there is a relatively low frost risk. Given these factors it is not surprising that nearly 95 per cent of the rateable land in the area is used for agriculture. Driving times to places within Waratah/Wynyard are varied with some areas a relatively short driving distance from Devonport. The Burnie Airport is actually located in Wynyard. Although a regional airport, it does provide opportunities for the area and direct access for interstate visitors flying from Melbourne. Somerset will be the first town in the Waratah/Wynyard area to be connected to the NBN with construction due to commence within the next 12 months. 192

96 8 Forestry-Based Alternatives to Native Forestry The Tasmanian forestry sector produces wood chips for the production of pulp and paper, veneer from peeler logs, various grades of construction and appearance timber, and miscellaneous wood waste that is also used for pulp production. Wood chips account for the majority of the output by volume from native forests. The wood product sector contains a large number of processing mills, of which 75 per cent have fewer than 20 employees. Approximately 61 per cent of wood volume is sourced from native forests on either public or private land, with the remaining volume sourced from plantations. Tasmanian forestry must face two major challenges in the near future: 1) adjusting to a withdrawal of some native forest from logging as a result of the TIGFA, and 2) the need to find a replacement market for Tasmanian forestry arisings (wood not suitable for milled products) and wood waste. The latter challenge is more urgent and involves both plantation and native forests. The failure of the Gunns pulp mill creates a third challenge, which is to find a use for the 237,000 hectares of hardwood plantations in the state, most of which was designed to provide pulpwood instead of timber. Native forestry is currently not economically viable without a market for wood chips, which accounts for approximately 85 per cent by weight of cut wood. There are several options, all of which may be required. The first is to obtain FSC certification for Tasmanian wood products, although this may be difficult in the current political climate and with concerns that current forestry practices are not sustainable. 49 The second option is to increase the share of wood that can be processed by sawmills into high value-added products. This could involve better species identification for eucalypts to reduce loss from inappropriate milling and drying techniques and capital investment to allow sawmills to produce engineered wood products and particle or strand board. These technological improvements will help, but they are unlikely to be sufficient. The third option is to use wood waste to make biochar as part of a strategy to reduce Australia s greenhouse gas emissions. Another alternative which is not yet economically viable (see Chapter 9) is to use wood waste to produce biofuels. The last alternative, with the fewest economic benefits to Tasmania, is to replace wood chip exports with roundwood (log) exports. The process appears to already be underway, with plunging woodchip exports from Tasmania since 2008 replaced, since 2009, with a surge in exports of roundwood, from zero in 2009 to 500,000 cubic metres in This alternative could also be the last resort for plantation pulp wood if alternative uses for this wood in Tasmania are not commercially feasible. This could occur if a pulp mill is not built or if Tasmanian sawmills are unable to use plantation feedstock. 49 These concerns are discussed in the verification report under the TIGFA. 193

97 Tasmania s substantial stock of 237,600 hectares of hardwood plantations, of which over half has been planted since 2002, will also need a market. There are three main options. The first would be a pulp mill, which if built would provide a market for all plantation hardwoods in Tasmania. The second is capital investment in sawmills so they can use plantation hardwood as a feedstock for reconstituted products such as flooring, appearance timber, structural timber, and particle board. A shift to these products would be very costly and possibly require the complete replacement of existing sawmilling equipment in some Tasmanian sawmills. The cost of upgrades would require larger mills, leading to an inevitable process of consolidation. Smaller producers of wood products could survive if they focused on specialty products using native timber and if they collaborated over feedstock sourcing, technology and knowledge sharing, research, and marketing. Increased competition from China and a high dollar forced 30 hardwood product manufacturers in Canada to treat each other as collaborators rather than competitors, resulting in a turnaround in competitiveness and profitability. 50 The challenge here is the plantations were developed to produce pulp wood instead of sawmill quality wood. If neither option is feasible, a third option is to convert plantations into carbon storage or feedstock for biochar. The main task for Government is to encourage and support a shift to plantation-based forestry and to support capability-building in the Tasmanian forestry sector in order to avoid the worst case outcome, where the industry is focused on exporting roundwood logs, with no value-added processing within Tasmania. The difficulty for the State Government is that it has a poor record of success in forestry, even with high levels of government investment and subsidies for the sector. This will not help it in achieving its main tasks, which are to encourage greater collaboration and assist a shift, by supporting research or subsidies to infirm capability building, to one of the options outlined above. Capability building could occur through subsidies to assist small mills to hire engineers or IT specialists (as in Denmark and the UK). 8.1 Current status of Tasmanian forestry Production forestry is scattered across the state with no distinct clustering evident, see Figure 8.1. Changes in forest production policies and use of state forests may alter this. 50 Grant T. Canada s wood firms cluster for survival and growth. Globe and Mail, March 31, and-growth/article /. 194

98 Figure 8.1 Distribution of land parcels coded Production Forestry across Tasmania Source: DPIPWE, 2012 Tasmanian Land Use Layer See Appendix 7.7 for methodology applied to cluster maps Intake and production Logging operations produce logs that are milled for a variety of uses, ranging from wood chips to high-value appearance timber for use in flooring and furniture manufacture. The majority, by volume of the wood sourced from native hardwood forests is used to produce wood chips. Table 8.1 displays the log intake in cubic metres of forestry mills across the state over the 2010/2011 year. The data is reflective of mills operating as of February Due to confidentiality restrictions, data are only available at the regional level for some types of wood. For example, data on veneer/peeler log volumes was not able to be provided at all because of confidentiality restrictions. This explains why some of the totals in Table 8.1 do not add up. For instance, the right hand total column for native forest hardwood of 1,912,866 cubic metres exceeds the total for pulplogs and sawlogs by 365,020 cubic metres. This is due to wood types that were not reported. 195

99 Table 8.1 Mill intake in cubic metres by log class and by region over 2010/2011 Public native forest hardwood Mersey- Lyell Northern Southern Total Pulplogs 1,322,790 Sawlog category 8 6,440 28, ,493 Sawlog category 3 2,500 22,706 62,710 87,916 Sawlog category 2 6,600 15,694 19,605 41,899 Sawlog category 1 12,560 25,043 22,145 59,748 Total public native forest wood 179, , ,570 1,912,866 Private Native forest hardwood 16,340 23, , ,150 Total native forest hardwoods 2,111,016 Plantations Softwood 1,101,500 Hardwood 0 242,050 47, ,585 Source: Schirmer, Customised data supplied from 'Forest Industry Survey' database. CRC for Forestry, Hobart Notes: SW softwood (conifer), HW Hardwood (eucalypt), NF Native Forest See Appendix 8.1 for description of categories By volume, 55 per cent of total intake consists of hardwood sourced from publicly-owned native forests. Softwood plantations account for 31 per cent of intake, followed by hardwood plantations and private native forests, with approximately eight per cent and six per cent of intake respectively. A large fraction, 85.4 per cent, of the native forest intake consists of pulplogs (logs that are chipped for use in pulp and paper manufacture). Category one, two, three and eight native forest sawlogs account for a combined 14 per cent, with category three accounting for 5.7 per cent of the total intake from native forests, category one for 3.8 per cent, category two for 2.7 per cent, and category eight for 2.2 per cent. Of the intakes reported by region level, 48 per cent are from the Northern Region, 43 per cent from the Southern region and the remaining eight per cent from Mersey-Lyell. Table 8.2 presents estimated volumes or metric tonnes of wood products produced by Tasmanian wood processors over 2010/2011. Unfortunately, it is not possible to determine which outputs are by volume and which are by metric tonnes. The greatest output comes from woodchips, with an estimated unit of 1,945,000. The greatest output of sawn product is green structural sawn timber with an estimated unit of 216,000. The data cannot be added, both because the units differ and because green wood can serve as an input for dried wood, resulting in double counting. 196

100 Table 8.2 Estimate of wood products produced in Tasmania over 2010/11 Product type production Green structural sawn timber 216,000 Green appearance sawn timber 110,000 Green sawn timber other 44,800 Dry structural sawn timber 145,500 Dry appearance sawn timber select 47,100 Dry appearance sawn timber standard 35,000 Dry sawn timber other 6,740 Veneer and pulp (combined to preserve confidentiality) 373,000 Woodchips 1,945,000 Residues (sawdust and dockings) 345,000 Unspecified (likely to be primarily woodchips and residues) 500,000 Source: Schirmer et al., Hardwood for sawlog production The majority of eucalypt and specialty timber sawlogs processed in Tasmania are obtained from native forests. 51 Eucalypt plantations in state forests under sawlog regimes are likely to become available for processing to a significant degree by 2015 and around 150,000 cubic metres should become available annually from Existing eucalypt sawmills in Tasmania are optimised for processing logs from native forests. 53 Plantation grown eucalypts have different sawlog characteristics compared to native forest eucalypts and require different drying and sawing techniques. 54 Processing significant levels of sawlogs from plantation eucalypts efficiently will require the retrofitting of existing Tasmanian sawmills or the establishment of a new purpose built facility. A report by Washusen and Harwood 55 presents financial modelling for a new sawmill optimised to quarter-saw plantation eucalypts, with an annual requirement of 100,000 cubic metres per annum (two-thirds of the expected supply by 2015) and assuming two mill shifts a day. Results from the model suggest the sawmill should be able to operate profitably, while paying a mill door price of $100 per cubic metre, provided product recovery of standard grade and better exceeded 10 per cent with a 10 per cent internal rate of return (or 12 per cent at an internal rate of return of 15 per cent). Figure 8.2 gives the predicted supply of high quality eucalypt sawlog supply from Forestry Tasmania managed forests. The long term requirement of eucalypt sawlogs is 300,000 cubic metres, with a short term requirement of 320,000 cubic metres to meet contractual wood supply agreements. Supply from coupes containing old growth is predicted to be discontinued by In the medium term, supply from non-old growth thinned native 51 Harwood, Harwood, Washusen and Harwood, Harwood, Washusen and Harwood,

101 forest contributes significantly to sawlog production. From 2020 onwards plantations and non-old growth native forests will provide approximately half of the supply. Figure Year View of High Quality Eucalypt Sawlog Supply from Forestry Tasmania Source: Forestry Tasmania, 2007 The projections in Figure 8.2 were made before the TFIGA and include areas of native forestry to be protected under TFIGA. The TFIGA will significantly decrease the area of native forest available for wood supply, requiring an increase in plantation use or an improvement in recovery rates Plantations The primary forestry based alternative to native forestry in Tasmania is plantation forestry. Already well established, under both public and private governance, the total area of plantations in Tasmania in 2009 was 309,190 hectares (see Table 8.3), of which close to 70 per cent were privately owned. Public plantations accounted for 10 per cent of the total, while close to 20 per cent were under joint (combined public/private) ownership. 198

102 Table Total Plantation Area by Tree Ownership Class 56 Ownership Class Public Private Joint* Total Hectares 32, ,193 60, ,190 Source: Department of Agriculture, Fisheries and Forestry, 2010 *This includes some small areas for which ownership details were not reported. While no one LGA contains more than 15% of the total plantation area within it, there are two distinct bands of plantation in the state (Figure 8.3). One band stretches across the north of the state, whilst a second band runs from the middle of the Central Highlands through the east of Derwent Valley and into the south east of Huon Valley. Figure 8.3 Distribution of land parcels coded Plantation Forestry across Tasmania Source: DPIPWE, 2012 Tasmanian Land Use Layer See Appendix 7.7 for methodology applied to cluster maps 56 Some disparity exists between the data reported by DAFF, (2010) Australia s plantations 2010 Inventory Update and that reported by Forestry Tasmania s Forestry Stewardship Report (2011). Where DAFF (2010) reports 32,788 hectares of public plantation area in Tasmania as of 2009, Forestry Tasmania reports 107,000 hectares of plantation. The difference may be accounted for by DAFF considering tree ownership and Forestry Tasmania a different classification. The data reported by Forestry Tasmania Figures excludes plantation areas harvested but not yet replanted and former plantations which are now managed for recreation within Forest Reserves and includes all plantations in state forests and Forestry Tasmania managed plantations on other land tenures. 199

103 Table 8.4 gives the number of hectares of plantation in each LGAs and the cumulative totals for the regions and State. Target LGAs are highlighted in grey. Out of the total Tasmanian land area of approximately 6,920,870 hectares, 4.5 per cent is under plantation. Of this, the majority are hardwood which account for close to 76 per cent of the total plantation estate, with softwood accounting for 24 per cent. The greatest proportion, 41 per cent, of the State s plantations is located in the Northern region, with 35 per cent in the Mersey-Lyell region and the remaining 24 per cent in the Southern region. Proportional to the size of the LGA, Burnie has the greatest extent of plantation, with 28.7 per cent of the area used for plantation forestry. Launceston has the second largest proportion of plantation area at 14 per cent, followed by Dorset with 11.6 per cent and Waratah-Wynyard and Kentish with 11.3 and 11.2 respectively. Relative to Tasmania s total plantation estate, Waratah-Wynyard has the largest area of plantation accounting for 12.8 per cent of the State s total. Dorset is the second highest with 12 per cent, followed by Break O Day, Central Highlands and Circular Head with 9.5, 8.1 and 6.4 per cent respectively. Table 8.4 LGA, Statistical Subdivision and State Plantation Extent Region (LGA, Region or State) Hardwood (ha) Softwood (ha) Total Area (ha) Plantation area within region % % of State plantation estate within region Break O'Day 18, , , Brighton , Burnie 16, , Central Coast 6, , , Central Highlands 18, , , Circular Head 19, , Clarence , Derwent Valley 4, , , Devonport , Dorset 20, , , Flinders , George Town 5, , , Glamorgan-Spring Bay 5, , Glenorchy , Hobart , Huon Valley 11, , Kentish 9, , , King Island , Kingborough , Latrobe 1, , , Launceston 16, , , Meander Valley 16, , , Northern Midlands 8, , , Sorell 3, ,

104 Region (LGA, Region or State) Hardwood (ha) Softwood (ha) Total Area (ha) Plantation area within region % % of State plantation estate within region Southern Midlands 8, , Tasman 3, , Waratah-Wynyard 35, , , West Coast , , West Tamar 5, , Southern Total 55, , ,598, Northern Total 91, , ,013, Mersey-Lyell Total 90, , ,308, State Total 237, , ,920, Source: LGA area base data from Land Information System Tasmania (thelist), FORESTGROUP data from Private Forests Tasmania, c/o thelist. Public plantation data contributed by Forestry Tasmania as at June 2010, Private plantation data contributed by Private Forests Tasmania as at December As shown in Table 8.5, the number of hectares of plantations increased rapidly after 2002, reaching a peak of 26,483 hectares in 2007, before declining rapidly to 4,100 hectares in In total, 129,043 hectares of new plantations were established in Tasmania between 2002 and Close to 94 per cent of the new plantations are hardwoods. Privately-owned hardwood plantations make up the majority of new hardwood plantations in Tasmania, contributing 89 per cent of plantation hectares between 2006 and Table 8.5 New Plantations Established in Tasmania from 2002 to Year Public (ha) Private (ha) Joint (ha) Total (ha) Total (ha) HW SW HW SW HW SW HW SW , , , , , , , ,981 1, ,000 1,967 19, , ,333 1, ,038 1,445 26, ,147 1, ,530 1,960 20, , , , , , , ,485 1,396 10, , ,200 TOTAL 121,118 7, ,043 Sources: Department of Agriculture, Fisheries and Forestry, Australia s plantations 2005, 2006, 2007, 2008, 2009, 2010 Inventory Updates; and, Gavran and Parsons, Public, private and joint data by wood class, were not provided for the years 2002, 2003, 2005 and HW: Hardwood, SW: Softwood 201

105 Establishment and Maintenance Costs of Plantations Cost estimates of establishing and maintaining eucalypts and radiata pine plantations produced by Private Forests Tasmania 57 at 2004 levels are presented in Table 8.6. When establishing Eucalypts. spp and P. radiata for pulpwood, costs per tree are very similar. Eucalypt establishment is estimated to cost $1.25-$2.40 per tree and radiata is estimated to cost $1.25-$2.50 per tree. However, establishment for clearwood production is markedly higher for eucalypts than for radiata, $8-16 per tree and $4-8 per tree respectively. The management of eucalypts for clearwood production are also more expensive, costing $8-10 per tree compared to $7-8 per tree for radiata. The establishment and management of eucalypts require a more intensive approach compared to radiata which primarily accounts for the difference in costs. Generally, eucalypt plantations, when established into pasture and in contrast to pine plantations require weed control involving the application of expensive chemicals and an intensive approach to protection from browsing animals. 58 Table 8.6 Establishment and management costs of eucalypts and radiata pine Eucalypts Radiata Pine Phase Cost ($/ha) Cost ($/ha) Establish $1.25-$2.40/tree for stems/ha stems/ha $4-$8/tree for clearwood production $8-$16/tree for stems/ha) 150 stems/ha. Manage $8-10/tree for clearwood production stems/ha 2460 Sources: Private Forests Tasmania, 2004e and Private Forests Tasmania, 2004f. Establishment includes: planning and silviculture activities to ensure successful establishment Management includes: pruning and thinning Pulpwood mills and sawmills $7-$8/tree for clearwood 300 stems/ha As at February 2012, 62 forestry processing sites were in operation across the State of Tasmania. Processing site types include green milling, green milling and drying, green milling and drying and further processing, further processing only (site buys pre-sawn logs for processing), other processing (principally veneer, pulp and paper, poles), and, wood chipping. As shown in Table 8.7, most Tasmania mills are small: over 75 per cent employed between one and 19 workers, 21 per cent employed between 20 and 99 workers, and only three per cent employed 100 or more workers. Over 45 per cent of mills were located in the Northern region, 34 per cent in the Southern region, and 21 per cent in the Mersey-Lyell region. 57 Private Forests Tasmania, 2004e; Private Forests Tasmania, 2004f 58 Lyons, 2021, personal communication - 14/02/

106 Table 8.7 Forestry processing sites operating in Tasmania by employment size class Region No. Mills with 1-19 workers No. mills with workers No. mills with 100 or more workers Total no. of mills Central Coast 3 3 Circular Head Other Mersey-Lyell LGAs George Town Launceston Meander Valley 8 8 Northern Midlands 5 5 Other Northern LGAs Greater Hobart* Huon Valley Sorell 4 4 Other Southern LGAs Mersey-Lyell Total Northern Total Southern Total State Total Source: Schirmer, Customised data supplied from 'Forest Industry Survey' database. CRC for Forestry, Hobart. *Brighton, Glenorchy. Due to confidentiality constraints, Table 8.7 does not give the number of sites within each LGA for all criteria. Where numbers are too low, LGAs have been grouped together and represented as other. Some of the target LGAs can be represented individually and are highlighted in grey in Table 8.7. The identified LGAs contain 47 per cent of the total number of processing sites across Tasmania, with the greatest numbers in the Meander Valley and the Huon Valley. Table 8.8 gives the number of sawmills by the type of activity. Approximately 95 per cent process timber from native forests, while the remaining five per cent process plantation softwood. Sawmills that only process green wood account for 41.9 per cent of the total. Two-thirds of these are located in the Northern region. The remaining mills that only process native forest timber to the green stage occur in the Southern region. Over half of the sawmills operate in the identified target LGAs. 203

107 Table 8.8 Tasmanian sawmills by processing type as of February 2012 Green Sawmill Native forest Green sawmill + drying Green sawmill + drying + further processing Softwood Green sawmill + drying Central Coast 1 1 Circular Head 2 2 Other Mersey-Lyell LGAs George Town 1 1 Launceston Meander Valley Northern Midlands Other Northern LGAs Greater Hobart* 1 1 Clarence 1 1 Huon Valley Sorell Other Southern LGAs 1 1 Mersey-Lyell Total Northern Total Southern Total State Total Derived from source: Schirmer, Customised data supplied from 'Forest Industry Survey' database. CRC for Forestry, Hobart. *Brighton, Glenorchy Due to confidentiality limitations, the number of sawmills cannot be provided for all LGA level. Where confidentiality requirements have been satisfied, the numbers of sites operating within a LGA are displayed. Where numbers are too low, they have been grouped as other under the region. The target LGAs are highlighted in grey Sawmill upgrades Total Mills As shown above, the Tasmanian sawmill sector consists of a large number of very small mills and a large share that only process wood to the green stage, with no capabilities for producing higher value-added kiln dried wood products. A concern is that the sawmills are under-capitalized and consequently unable to invest in state-of-the-art technology. Although there is no data on technological capabilities, Schirmer et al. 59 provide some insight into the vintage of the wood processing infrastructure in Tasmania. Out of a sample of 41 forestry processors answering a question pertaining to the period of time from the last significant upgrade of infrastructure, approximately 49 per cent of respondents stated upgrades had occurred since 2008, approximately 32 per cent indicated upgrades had occurred between 2000 and 2007 and approximately 20 per cent between 1985 and The number of upgraded mills by LGA or region is given in Table Schirmer et al.,

108 Table 8.9 Last significant upgrade of sawmills From 1985 to 1999 From 2000 to 2007 Since 2008 Circular Head Other Mersey-Lyell LGAs Northern Midlands Other Northern LGAs Huon Valley Sorell Other Southern LGAs Mersey Lyell Total Northern Total Southern Total State Total Source: Schirmer, Customised data supplied from 'Forest Industry Survey' database. CRC for Forestry, Hobart Domestic and foreign markets for wood products The key markets for Australian hardwoods are wood chips and roundwood, most of which are exported, and domestic markets for veneers and sawn timber. 60 Sawn Timber and other moderately processed wood products The sawn timber market in Australia is currently dominated by softwood. However softwood production is not expected to increase as availability levels off. The domestic market is unlikely to meet future demand and supply will be met by imports. Hardwood sawn timber production and consumption in Australia have been decreasing at an average rate of 2.4 per cent per annum since 1985, as shown in Figure 8.4. This reduction is associated with increased softwood sawn timber and increasing restrictions on native forest harvesting. Around 11 per cent of hardwood sawn timber consumption is from imports, primarily sourced from Malaysia and Indonesia. 60 URS, 2012 Extract from stage 1 report (redacted) 205

109 Figure 8.4 Hardwood sawn timber production and consumption Source: URS, 2012 Strategic review of Forestry Tasmania Over the past few decades, the house framing market has been supplied by softwood. Hardwood has been directed to higher value strength applications and appearance grade uses. Engineered wood products such as laminated veneer lumber is placing increasing competitive pressure on hardwood products used for strength application. Subsequently hardwood is expected to move out of strength applications and primarily supply higher value appearance grade markets such as flooring and furniture. The decline in the supply of high quality (category 1) hardwood logs and high demand for hardwood appearance timber suggests a growing market opportunity for plantation sawn timber. Plantations sawn timber s ability to compete in the market will be dependent on the industry s ability to produce a quality supply, as discussed below in section 7.2. Figure 8.5 presents price indices for kiln dried F17 and F27 (Australian standard classification) products sold within Australia. Since 2006, the prices of these products have increased by 10 per cent to 15 per cent. The increase is a result of producers specialising in products and limitations in supply. 206

110 Figure 8.5 Domestic price index for selected hardwood structural products Source: URS, 2012 Strategic review of Forestry Tasmania Demand for hardwood sawn timber is predicted to continue to rise as long as renovations remain popular. However, the possible price is expected to be capped by competition in the laminated veneer lumber market. The Malaysian and Indonesian markets are not expected to increase their export to Australia due to increasing constraints on forest resources in these countries. The decrease in supply from native forests is set to continue to open the market to plantation sources of hardwood timber. Figure 8.6 displays Australian production and consumption of selected wood products from 1999/00 through to 2010/11. Softwood (coniferous) production and consumption is over twice as high as that for hardwood, with the ratio between softwood and hardwood production increasing since Hardwood (broadleaf) sawnwood is generally the second greatest product produced and consumed followed by particleboard, medium density fibreboard, plywood production and lastly veneer production. The consumption of softwood sawnwood and medium density fibreboard exceeds Australian production, suggesting that there is potential for growth in production in these two wood products. Consumption of hardwood sawnwood and particleboard are generally on par with Australian production and consumption of plywood is generally less than production. 207

111 '000 cubic metres Figure 8.6 Australian Production and Consumption of Wood Products Broadleaf Sawnwood Production Veneer Production Particleboard Production Broadleaf Sawnwood Consumption Plywood Consumption Medium Density Fibreboard Consumption Coniferous Sawnwood Production Plywood Production Medium Density Fibreboard Production Coniferous Sawnwood Consumption Particleboard Consumption Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters Notes: Excludes paper and paper board production. Sawnwood data not available for and Figure 8.7 provides the quantity of timber produced in Tasmania, the quantity exported and the export value. Almost all timber produced in Tasmania is consumed domestically, with less than 0.5 per cent of softwood timber exported and around six per cent of hardwood timber exported. The difference in export shares is reflected in the value of exports, with a considerably higher value of hardwood timber exports than softwood exports. 208

112 Quantity ('000 cubic metres) Export value ($'000) Figure 8.7 Tasmanian Timber (Sawnwood) Production, Export and Export Value Coniferous Sawnwood Production Broadleaved Sawnwood Production Coniferous Sawnwood Export Value Coniferous Sawnwood Export Broadleaved Sawnwood Export Broadleaved Sawnwood Export Value Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters Sawnwood data not available from through to Exports of wood products Table 8.10 gives the volume of selected wood products exported by Australia, excluding woodchips. Logs (roundwood) are exported in the greatest volumes, with exports increasing by 42 per cent since 1999/00. Coniferous roughsawn exports have been increasing and apparently stabilizing over time, while exports of medium density fibreboard has steadily declined. Over the past four years, the export of veneer has been steadily increasing. Table 8.10 Volume of Australian Wood Product Exports (SW = sawnwood): Excludes woodchips Product 111 cubic metres Roundwood Coniferous roughsawn SW Coniferous dressed SW Broadleaf roughsawn SW Broadleaved dressed SW Railway sleepers Veneers Plywood Particleboard Hardboard Medium density fibreboard Other fibreboards Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters

113 Figure 8.8 displays the average annual volume of wood product exports (excluding woodchips and roundwood) from Australia to selected regions over the period 2006/07 to 2010/11. China receives the greatest quantity of products followed by Taiwan, Malaysia then Korea. Coniferous roughsawn sawnwood and medium density fibre board represent the two greatest volumes of wood product exports (excluding roundwood) with annual averages of 439,000 and 410,000 cubic metres respectively. Broadleaved roughsawn sawnwood has the third greatest volume of exports with 121,000 cubic metres on average annually. Figure 8.8 Australian Exports of Wood Products to Selected Regions (2006/ /11 Average), SW = sawnwood Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters 2011 Tasmania provides a very low share of Australia s secondary wood product exports (see Table 8.11). On average, Tasmania contributes only 0.28 per cent of Australia s wooden furniture exports and 0.57 per cent of Australia s prefabricated building exports. Table 8.11 Tasmanian Share of Wooden Furniture and Prefabricated Building Exports Tasmania $ Wooden Furniture All States $ Tas Share of All States 0.51% 0.16% 0.23% 0.15% 0.56% 0.10% 0.39% 0.17% Prefabricated buildings Tasmania $ All States $ Tas Share of All States 0.00% 0.33% 0.11% 0.77% 0.25% 0.14% 2.65% 0.33% Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters 2011 All States includes data for: NSW, Vic, Qld, SA, WA, Tas and NT. 210

114 Export unit prices Table 8.12 gives the average quarterly unit values of Australia s export wood products, based on values reported from September 2006 to June It is difficult to compare export values because some are given per cubic metre and others are given in tonnes or bone dry tonnes (bdt), but one bdt of wood chips is equivalent to approximately 2.7 cubic metres. 61 Over this period the product with the greatest average value per quarter were printing and writing products exported to New Zealand, with a value of $ per tonne. Broadleaved sawnwood exported to Malaysia represents the next greatest value of $843.2 per cubic metre, followed closely by packaging and industrial products to New Zealand valued at $811.8 per cubic metre. The lowest unit values are for roundwood and woodchips. If woodchips values in tonnes are converted to cubic metres, dry hardwood woodchips are worth approximately $66 per cubic metre, or less than the value of roundwood exports. This could partly explain the rapid increase in roundwood exports from Tasmania after March 2010, as roundwood requires less processing than woodchips. Roundwood exports could have also increased as an alternative to woodchips, given the large drop in woodchip exports after 2008 (see Figure 8.9). Table 8.12 Australian Export Product Unit Values (Quarterly average, September 2006 to June 2011) Product Destination Value Unit Roundwood China $/m 3 Korea, Rep. of 83.7 $/m 3 Coniferous Sawnwood China $/m 3 Taiwan $/m 3 Vietnam $/m 3 Broadleaved Sawnwood China $/m 3 Malaysia $/m 3 Medium density fibreboard Japan $/m 3 Paper and paperboard $/t Printing and writing New Zealand $/t Packaging and industrial China $/t New Zealand $/m 3 Woodchips Coniferous $/bdt Broadleaved $/bdt Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters 2011) 61 Based on using to calculate the relationship between mass and volume for wood chips. 211

115 Percentage Woodchips The great majority of wood chips exported from Australia are from hardwood tree species, which accounted for 81.1 per cent of all wood chip exports between 1994 and Based on data collected by the Food and Agriculture Organisation of the United Nations, Australia accounted for 23.5 per cent of global wood chip and particles exports from 1990 to Up to 2008, Japan was the dominant global source of demand for hardwood woodchip exports, importing around 85 per cent to 90 per cent of international exports. Since then, China has rapidly increased its share of woodchip imports. Following a peak in 2002, the Australian share of wood chip and particles exports has steadily declined, as shown in Figure 8.9, with a 17 per cent share recorded in Of the Australian share, Tasmania accounts for approximately 43 per cent over 1994 through to 1999 and approximately 35 per cent over 2005 through to Accordingly, the average Tasmanian share accounts for approximately 10 per cent of world wood chip and particles exports over 1994 through to 1999, and approximately seven per cent from 2005 through to Figure 8.9 Australian and Tasmanian share of world wood chip and particles exports 35% 30% 25% 20% 15% 10% 5% 0% Aus share Tas Share Derived from: FAOSTAT, 2012 Forestry - ForesSTAT (BulkData Download) Online: Accessed: 04/05/2012; and, ABARES, 2011 Australian forest and wood products statistics, March and June quarters 2011 To determine the Australian share of exports, the Australian FAOSTAT data was divided by the World FAOSTAT data. FAOSTAT did not provide the volume of Tasmanian exports. In order to determine the Tasmanian share or World exports, the Tasmanian share of Australian exports was first equated by dividing the Tasmanian ABARES volumes by the Australian ABARES volumes, the Tasmanian proportion was then applied to the Australian share of World exports by multiplying the Tasmanian share of Australian exports by the Australian share of World exports. Figure 8.10 displays the total tonnage of woodchips exported from Australia to selected countries over the period 1990/91 through to 2010/11. Up until 2007/08 woodchip exports from Australia were slightly variable but generally increasing. A peak of 1,133 kilotonnes of 212

116 woodchips was recorded in 2007/08, over 10 times the tonnage of roundwood exports. This peak was followed by a drop in exports during the GFC, with a recovery after 2009/10. From 1990/91 through to 1994/95, exports to Japan accounted for an average of 97.5 per cent of Australia exports. The next five year averages ending 1999/00, 2004/05 and 2009/10 were 95.9 per cent, 89.3 per cent and 86.3 per cent respectively, showing a gradual decrease in the share of exports to Japan. Since 2004/05 China has been increasing its market share of Australian woodchips, accounting for 18.4 per cent of woodchips exported from Australia in 2010/11. Figure 8.10 Total woodchips exported from Australia to selected countries 62 Source: ABARES, 2011 Australian forest and wood products statistics, March and June quarters 2011 Figure 8.11 displays the value of woodchip exports per bone dry tonne in Australian dollars from 1994 to June 2011 and Tasmanian exports of woodchips until the end of Woodchip prices in Australian dollars declined slightly after a peak in 2008, but increased again after In contrast, Tasmanian exports of woodchips peaked in 2008 at 2,200 kilotonnes and declined rapidly afterwards to 794 kilotonnes in The stable or slightly 62 Woodchip export volumes and values from Tasmania were confidential from July 1988 to March Broadleaved woodchip volumes were confidential from February 2000 to May From 1 June 2000 to April 2005, ABS applied selected country (Indonesia, Republic of Korea and Taiwan) and state confidentiality restrictions to volume and value. From February 2003 to April 2005 all state details are confidential and selected country detail restrictions applied to Indonesia, China, Republic of Korea, Taiwan, Singapore, Israel and South Africa. All selected country and state confidentiality restrictions for broadleaved woodchip exports ceased in April Source: ABARES, 2011 Australian forest and wood products statistics, March and June quarters Data for the first four months of 2012 show exports of approximately 100 kilotonnes, suggesting that total exports for 2012 could fall to 300 kilotonnes. 213

117 increasing Australian dollar over this period suggests that the cause of the decline was not caused by currency fluctuations or a decline in the price paid for woodchips. Confidential data shows that the fall in Tasmania s woodchip exports from 2010 has been picked up by a substantial increase in woodchip exports from Victoria. Figure 8.11 Tasmanian Export Volume and Australian Export Unit Price (AUD) of Hardwood Woodchips Source: ABARES, 2011 Australian forest and wood products statistics, March and June quarters 2011; plus supplementary data. Log Exports The majority of Australia s roundwood exports go to China, representing close to 90 per cent of roundwood exports, followed by Korea with approximately 9.5 per cent of total exports. 64 China is now the greatest importer of logs, importing over 20 million cubic metres of hardwood logs per annum (see Figure 8.12). Logs are supplied largely by South East Asia, particularly Malaysia, Papua New Guinea, the Solomon Islands and Myanmar and some African countries. Hardwood log prices vary significantly over time. Because Australia does not normally trade in this market, information on Australian prices are not available. Alternatively, prices from readily available sources such as from Meranti and Keruing can be used to provide indicative values. Since 2003, log prices have been increasing. Over 2009 and 2010, log prices dropped, coinciding with the GFC, but are recently beginning to regain value. Over 2011, international FOB 65 hardwood log prices were around the US$250 per cubic metre level. Russia entered 64 Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters FOB: The free on board price of an internationally traded good is the price of producing and delivering a good up to the point of loading on delivery transportation to the buyer. The FOB price therefore excludes freight, insurance costs and foreign exchange risk but includes delivery to a port of export and loading onto a vessel where relevant. (URS, 2012, Strategic review of Forestry Tasmania). 214

118 the market as an exporter of hardwood and softwood logs over the past decade. However, the establishment of an increasing Russian log export duty has seen the Chinese market diversify away from this source. The reduction of the Russian duty is under negotiation which leaves the future price in question. If the Russian exports return to previous volumes, log prices are expected to be driven down. Figure 8.12 Volume and source of hardwood log imports by China Source: URS, 2012 Strategic review of Forestry Tasmania Chinese demand for log imports is expected to continue to increase over the coming years. Supplies from tropical countries are expected to decline and the growing acceptance of plantation resources internationally is expected to increase the market for log exports. The uncertainty in the Russian supply creates unpredictability in the future price of log exports. Roundwood logs (for pulp and other uses) can be exported for processing into rotary peeler veneer or low grade timber products. As shown in Figure 8.13, Tasmania exported a peak of 476,510 cubic metres of roundwood in Exports fell rapidly after 2006 to a low of 5,000 cubic metres in March Since then, exports have rebounded, reaching over 350,000 cubic metres in

119 Quantity '000m3 Value $'000 Forestry Tasmania claims to export relatively low volumes of logs from public forests, with the majority of logs processed domestically. However, Forestry Tasmania plans to export logs as part of an initiative to attract market interest to Tasmania and supplement its domestic market. It is possible that roundwood exports could partly replace woodchip exports. Figure 8.13 Tasmanian Roundwood Export Volume and Value Quantity Value Source: ABARES, 2011 Australian forest and wood product statistics, March and June quarters Future Alternatives to Native Forestry Increasing reliance on plantations Existing plantations in Tasmania could meet future requirements for pulplogs and sawn timber if an increase in exploitation rates is delayed by approximately 10 years and if the current stock of plantation trees can be used in sawmills. The feasibility of the latter is unknown because the current plantation supply was planted to provide pulplogs rather than sawn timber. A longer term alternative of new plantings that are suitable for sawnlogs is limited by the low availability of appropriate forested and cleared land for new plantations due to restrictions on converting agricultural and native forest land to plantations (see Chapter 7.1) and by the unknown quality of wood grown on current plantations. Quality of plantation wood There are three species of trees that make up the majority of plantations in Tasmania. They include E. nitens (Shining Gum), E. globulous (Southern Blue Gum) and P. radiata (Radiata Pine). With the exception of Acacia melanoxylon (Blackwood), specialty timber plantations have not been established to any significant degree in Tasmania. 216

120 E. nitens is the most common Tasmanian plantation species with uses including construction, flooring, joining and pulpwood. 66 E. globulous is also a common hardwood plantation species, used for heavy construction, flooring and pulpwood. It is one of the most widely planted eucalypts across the world. 67 In Tasmania both species are primarily grown for pulp wood, on short rotation cycles of 12 to 20 years, with only an estimated 35,000 hectares of eucalypt plantations in Tasmania (14.8 per cent of the total) managed to potentially produce high value sawlogs. 68,69 Plantations of E. nitens and E. globulus for sawlogs must be pruned within the early years of establishment and thinned over time. 70 Branching creates knot-related defects that downgrade wood quality and value for appearance products. Thinning enables the retained trees to attain log diameters over 50 centimetres that are required for sawlog processing. 71 Research suggests that eucalypt plantations managed for sawlog production can be harvested on a 20 to 35 year rotation (site quality dependent). 72,73 Rotary and sliced veneering are alternative processing options currently being evaluated for pruned and unpruned plantation logs. 74 P.radiata is the most well established plantation species in the Southern Hemisphere. 75 In Tasmania it is primarily grown for clearwood veneer logs, clearwood sawlogs, knotty sawlogs, preservation material (poles, posts, outdoor construction, garden sleepers) and pulpwood. The anticipated rotation length for clear wood production from P.radiata can vary from 25 to 40 years depending on site productivity and stocking rates. 76 Plantation development in Tasmania originally focused on Eucalyptus delegatensis and Eucalyptus regnans, 77 two of the three species, including Eucalyptus oblique, which are marketed collectively as Tasmanian Oak and are the dominant timber species harvested from Tasmanian native forests. 78,79,80,81 However research showed E. nitens and E. globulus could be established more reliably in plantations, and early growth of these species was superior. 82 E. nitens was considered the most suitable species because it offers good growth rates on a wide variety of sites, has frost tolerance, good form and stem straightness, and produces acceptable wood quality for pulp as well as sawn timber and veneer. E. globulus 66 Private Forests Tasmania, Private Forests Tasmania, Beadle et al., DAFF, Nolan et al., Beadle et al., Private Forests Tasmania, Beadle et al., Blakemore et al., 2010 Technical Report Private Forests Tasmania, 2004b 76 Private Forests Tasmania, 2004c 77 Harwood, Tibbits, 1986 in Harwood, de Fégely, Burgman and Robinson, Boland et al., Beadle et al.,

121 was a potential species on frost-free sites and has a higher pulp yield than E. nitens. E. regnans, E. delegatensis and E. obliqua were examined but rejected because of poor growth and form in plantations and susceptibility to insect attack. Interestingly, re-evaluation of the E. delegatensis and E. regnans pilot plantations more than 25 years after planting reveals they are performing equally against E.nitens and E.globulous. This suggests that the rapid growth of the latter two species may not continue over a longer rotation, with E. delegatensis and E. regnans catching up. However, Harwood 83 suggests that the susceptibility of young Monocalyptus species (the subgenera to which E. delegatensis and E. regnans belong) to devastating insect attack is a major problem that is likely to prevent a future interest in these two species for plantations. Caution should also be observed in interpreting the results of the E.nitens, E.globulous, E. delegatensis and E. regnans comparative trials because the trails have not been replicated and were too small to provide conclusive results. Other eucalypts species grown throughout Southern Australian and New Zealand for solid wood production include: Eucalyptus cladocalyx (sugargum); Eucalyptus maculata (spotted gum); Eucalyptus tricarpa and Eucalyptus sideroxylon (red iron bark); Eucalyptus salingna (Sydney blue gum); Eucalyptus botryoides (southern maghogany); Eucalyptus muelleriana (yellow stringybark); Eucalyptus globoidea (white stringy bark); and, Eucalyptus pilularis (Blackbutt). 84 Not all of these species would be suitable for the Tasmanian climate. E. maculata, E. Salingna and E. Pilularus in particular are more suited to the warmer climates of New South Wales and Queensland. 85 Greening Australia has been involved in testing a large range of species for other purposes than traditional forestry, including for carbon plantations and agro-forestry. Results from their observations have the potential to identify alternative plantation species for commercialisation. Greening Australia established a series of low rainfall species trials in sites across the Midlands of Tasmania between 1999 and 2002 and made observations over a four year period. 86 The results provide an indication of the survival and early growth of a number of species in a tough environment (low rainfall, intense frost, heavily farmed). A trial in Kempton observed the growth and survival of the following species: E. cladocalyx, E. tricarpa, E. globulous x Eucalyptus camaldulensis, two provenances of Eucalyptus argophloia, Pinus pinaster, P. radiata, two provenances of E. camaldulensis and Allocasuarina verticillata. Of these E. cladocalyx and A. verticillata were observed to be the best species for height and survival and the only species not affected by possum browsing. E. cladocalyx is however sensitive to frost, with a 85 per cent kill rate observed at a separate site at York Plains, yet where there is some amelioration against frost this species has potential to perform well as an agro-forestry species. A. verticillata is a species local to the 83 Harwood, Private Forests Tasmania, Boland et al., Carr et al.,

122 test site and thus was expected to display good performance. The timber from this species is highly regarded by furniture makers and wood crafters. International requests for wood from this species indicate A. verticillata has a potential demand market for timber forestry as well as agro-forestry. A further trial evaluated the growth rate and survival of the following species at a Swansea site: two provenances of E. cladocalyx, E. tricarpa, E. globulous x E. camaldulensis, E. globulus, E. camaldulensis, E. argophloia, E. nitens, P. pinaster, P. radiata, A. verticillata, Corymbia maculate, Callitris rhomboidea, A. melanoxylon, Corymbia variegate, and E. camaldulensis. Of these species, those that displayed the best potential for agro-forestry were E. globulus, E. globulous x E. camaldulensis. E. cladocalyx, P. radiata and E. nitens also performed well. Species tested in the Tasmanian trials along with other species were also trialled at other sites across Australia. There were three species that generally performed well on a range of sites: Eucalyptus occidentalis, E. cladocalyx and E. camaldulensis and the report recommends growers looking for the fastest growth should use the later three mentioned species. Along with identifying the comparative growth and survival rates of a large range of species, the Carr et al. study 87 demonstrates the diversity of success of different tree species at different sites (i.e. a species performing well at one site does not necessarily perform well at another). This situation makes identifying alternative plantation species suitable for general application across the state of Tasmania, and even across smaller regions, difficult. Private Forests Tasmania 88 reports hybrids of Southern Blue Gum offer the opportunity to use sites with conditions previously inhibitive to traditional plantations species. Results from planting approximately 4,000 hybrids (Crossing Southern Blue Gum with E.camaldulensis (river red gum) and E.grandis (flooded gum)) found excellent survival and growth rates on harsh sites where other eucalypts have failed. 89 A major problem with the current evidence is the short time length of trials. Trials comparing growth and survival of tree species are often maintained over relatively short time frames, under 10 years and often under five years. These projects are valuable for highlighting the early growth and survival of species but cannot be indicative of longer term growth and survival. Some native species are known to continue growing for one hundred or more years. Harwood s 90 observations comparing the growth rates for E. delegatensis and E. regnans with E.nitens and E.globulous show that some species have fast early growth, whilst others maintain a more stable but strong level of growth over time. The conclusion, based on this limited review, is that the selection of plantation species in Tasmania would benefit from longer term trials, as the current major plantation species in use have been 87 Carr et al., Private Forests Tasmania, Private Forests Tasmania, Harwood,

123 selected based on short term results and strong alternatives may have been missed in the process. Specialty timber plantations Specialty timber in Tasmanian is a high value industry. Specialty timbers are currently sourced from the harvesting of native forests, there is a limited supply and the opportunity to expand is minimal if available at all. Opportunities to establish a specialty timber plantation industry in Tasmania is worthy of investigation due to the potential high value of the product, the historical and current high market demand and in order to avoid losing a product unique to Tasmania. There has been limited work done investigating the opportunity to create a specialty timber plantation resource in Tasmania. The greatest amount of investigation has looked at the potential to establish a profitable Blackwood plantation supply in Tasmania. There is also some anecdotal interest in silver wattle, celery top and eucalypts as a specialty timber (under slower rotations). Compared to other speciality timbers, Blackwood has a relatively shorter growth cycle which can make this species more attractive for use in plantations. 91 Blackwood has been planted in trial plantations in New Zealand, Chile, South Africa, China and Australia. 92 Between 1991 and 1996, there was around 790 hectares of Blackwood plantation established in Tasmania under Forestry Tasmania s Intensive Forest Management Program. Plantations were established at sites in Beulah and Castra, south of Devonport and at smaller sites in the South and far North-West of Tasmania. Nielsen and Brown 93 describe pure plantations of Blackwood in Tasmania as showing poor form and suggest the economics are satisfactory but not as good as the return from Radiata Pine. The poor results of Australian blackwood plantations could be due to inappropriate planting and management designs. Advancements in silviculture methodologies are overcoming some of these issues. The plantations in New Zealand showing good prospects for commercial returns have been managed with careful attention to stocking rates and pruning regimes. 94 New Zealand plantations are expecting a return on investment of 7.7 to 10.5 per cent internal return on investment over a 35 year rotation and based on a modest stumpage of $NZ 220 per cubic metre. 95,96 Greater returns are expected from their better managed plantations due for harvest around Green, Private Forests Tasmania, cited in Green, Private Forests Tasmania, Private Forests Tasmania, 2004d 96 Bradbury,

124 A model proposed to establish a Tasmanian plantation Blackwood supply through a Tasmanian Blackwood Growers Cooperative predicts an annual return of $12,000, This is based on a minimum plantation establishment of 100 hectares per year over a 35 year rotation with a final harvest of 300 cubic metres per hectare of sawlog. Applying a conservative stumpage of $400 per cubic metre, the value per hectare harvested is $120,000. New plantations Over 2004/05, Private Forests Tasmania undertook an assessment of the area of private forested land that would meet suitability criteria for conversion to commercial plantation forestry. 98 Suitable land was defined as land with a potential mean annual increment of 20 plus cubic metres per hectare per year. Marginally suitable land was defined as land with a potential mean annual increment of 15 to 19 cubic metres per hectare per year. Once rare, vulnerable and endangered forest communities were removed from the total figures, 101,500 hectares of suitable land and 30,000 hectares of marginally suitable land were identified (see Table 8.13). A further investigation was performed by Private Forests Tasmania in 2009, 99 estimating the area of private cleared land available for commercial plantation for wood production. Land with elevation below 700m, annual rainfall above 600 millimetre and relative close proximity to processing centres were identified as preferable. Areas excluded included those where plantation forestry was uncompetitive with other land uses, prohibited by planning schemes or not available to be developed under Forest Practises Code. A lower limit of mean annual increment of 20 cubic metres per hectare per annual was established for commercial viability. Based on these parameters upwards of 73,000 net hectares of cleared private land was identified as suitable for commercial plantations of Pinus radiata, Eucalyptus globulous and E. nitens. 97 Bradbury, Lyons, Private Forests Tasmania,

125 Table 8.13 Area of private forested land with plantation potential, Private forested land Suitable land Hectares* Total area of private forested land with suitable plantation potential 110,000 Less rare, vulnerable and endangered forest communities (moratorium 8,500 communities) on private land with suitable plantation potential Total area of private forested land with suitable plantation potential 101,500 Marginally suitable land Additional area of private forested land with marginally suitable plantation 32,000 potential Less rare, vulnerable and endangered forest communities (moratorium 2,000 communities) on private land with marginally suitable plantation potential Area of private forested land with marginally suitable plantation potential 30,000 Source: Lyons, 2011 * The gross area would be operationally discounted primarily by the area devoted to streamside reserves, required under the Forest Practices Code. Preliminary results indicate an eight per cent area discount for streamside reserves would be appropriate (not included in the above figures). The total estimate for commercially viable new plantations is 174,500 hectares, based on 101,500 hectares from converting existing forested land and 73,000 hectares from converting cleared land. This figure is only an approximation as some of the land could have been converted to plantations after the 2005 and 2009 studies. The total does not include plantations for non-forestry purposes, for instance carbon sequestration and/or biodiversity, which would require a different set of assumptions. In the Northern Midlands alone, 100,000 hectares have been identified as suitable for restoration through bio-diverse plantings and carbon sequestration. 100 The potential for expansion of publicly-owned plantations is uncertain as no estimates have been found. However, the potential for Forestry Tasmania to expand its plantation resource on public land is likely to be very limited. Forestry Tasmania ceased clearing publicly-owned native forest for plantation since 2006 in accordance with the Australian Forestry Standard. 101 The greatest opportunity for Forestry Tasmania to expand the public plantation estate is via joint ventures with private landholders or leases of private land. However, this potential area should have already been identified in the above assessment of private land. Conclusion Further research is required to determine if Tasmanian sawmills can develop financially viable methods for turning the relatively poor quality plantation stock in Tasmania into higher value sawn timber. It is also worthwhile to conduct research into growing specialty species and Eucalypt hybrids on plantations. Neither approach will solve the immediate 100 Greening Australia,

126 problems with Tasmanian forestry, but they could help to develop a sustainable and profitable sector for the future Improving mill recovery rates An improvement in recovery rates, resulting in a decline in the amount of forest wood volume suitable only for wood chips or pulp, might increase social acceptance of native forestry. In addition, an improvement in recovery rates could improve the financial viability of the Tasmanian forest sector. There are two facets to recovery rates. The first is the share of wood volume from forests that is suitable for veneer or sawmills versus wood chipping, currently around 20 per cent. The second is the share of wood volume received by veneer or sawmills that can be used for products other than wood chip or other waste residues. Both types of recovery rates can be improved if Tasmanian mills have the technology to produce engineered products and to calculate the most efficient cuts from logs. Schirmer 102 provided details of Tasmanian sawmill recovery rates from the processing of logs (roundwood) into green products based on information from 32 mills across Tasmania. The details are presented in Table 8.14 by sawmill size and input. For green sawn timber mills, recovery rates decrease with the size of the mill. The average recovery rates of mills using less than 3,000 cubic metres of category one and three sawlogs was 39 per cent with a range of 30 to 45 per cent. Mills handling 3,000 to 14,999 cubic metres and greater than 15,000 cubic metres had recovery rates of 36 per cent and 31 per cent respectively with ranges of 28 per cent to 41 per cent and 28 per cent to 33 per cent. The greatest average recovery rates are seen in mills producing poles from round wood, where only five per cent of the intake ends up as residues and the remaining 95 per cent is converted to primary product. Veneer production also has a high recovery rate of 50 per cent of intake. 102 Schirmer,

127 Table 8.14 Recovery rates from Tasmanian sawmills Type of output Type of input Category 1 and 3 sawlog mill <3000 m 3 (n=13) Category 1 and 3 sawlog mill m 3 (n=9) Category 1 and 3 sawlog mill >15000 m 3 (n=7) Category 2 and 8 sawlog (mills <8000 m 3 ) (n=2 103 ) Processing of roundwood into green products Green sawn timber 39% (range 30-45%) 36% (range 28-41%) 31% (range 28-33%) 30% (range 28-32%) Veneer Poles Woodchip Residue other than woodchip (e.g. docking ends, sawdust) 224 Drying of green product Dry sawn timber (% of green sawn) 41% 20% 90% (range of 86-96%, with loss largely due to shrinkage during drying) 44% 20% As above 47% 22% As above 48% 22% As above 95% Veneer log (n=3) 50% 34% 26% Pulplog (n=3) 96% 4% Roundwood used 5% for poles 104 Source: Schirmer, Customised data supplied from 'Forest Industry Survey' database. CRC for Forestry, Hobart Burns et al. 105 provides average sawmill recovery rates from mills across Australia in 2007 by sawmill size (based on input volume). Similar to the results observed in Tasmania, recovery rates have an inverse relationship with sawmill size (see Table 8.15). Smaller mills report greater recovery rates than do larger mills. Schirmer 106 imputed estimates of the proportion of woodchips and other residues generated from intakes based on average ratio of woodchips to other residues reported by sawmillers participating in a survey. On average, woodchips accounted for 68 per cent of residues and other residues like docking ends and sawdust accounted for the remaining 32 per cent. Substantial ranges are evident between mills processing similar input volumes and types. This suggests there are substantial differences between mills that may be explained by varying input quality, sawing methodologies, mill technologies and/or product diversity. De 103 Results were also consistent with other mills where category two sawlogs make up only a proportion of input rather than whole input, with a lower recovery found for mills with higher proportions of Category two log input. Schirmer, As no data were available for Tasmania, recovery rates are based on averages reported in the industry literature elsewhere, which are highly consistent in estimating an approximately 95% recovery (e.g. Godsmark, 2007, Schirmer, 2012). 105 Burns, Sledge and Wicks, Schirmer, 2012

128 Fégely 107 (2004) undertook site visits of hardwood sawmills across Australia, including Tasmania. The visits revealed that no two sawmills were the same. Each had uniquely adapted to the species, intake volumes, log sizes, input quality and to the sawing patterns required by individual markets which were in themselves diverse. 108 Table 8.15 Average recovery rates of broadleaf sawmills across Australia by input volume Input Recovery rate <3000 m 3 44% m 3 39% m 3 38% >45000 m 3 35% Source: Burns et al., 2009; ABARE, 2007 Sawmill Survey Report Schirmer (personal communication, 2012) suggests the higher recovery rate for smaller mills is not due to a tendency to overestimate recovery rates, but because they produce a greater range of products allowing greater use of inputs. Alternatively, larger mills tend to focus on a smaller number of primary products and have all suitable residues wood chipped. Tasmania s hardwood sawmills have a lower than average recovery rate. Across Australia the average recovery rate is 38 per cent, whereas Tasmania has an average recovery rate of three per cent (see Table 8.16). Australian sawmill recovery rates compare poorly with rates from Asia and the Pacific collated by Enters 109 and are displayed in Table Estimated recovery rates from Asia and the Pacific vary from 42 per cent in the USA to 60 per cent in China, all much higher than Australia s average of 38 per cent. Unfortunately, the input forest type (old growth, regrowth, plantation) or species corresponding to the recovery rates reported by Enters 110 were not clearly identified which means direct comparison with Australian recovery rates may not be accurate. Input forest type and species can have a significant influence on sawmill techniques and consequently recovery rates. A European study examined recovery rates for softwood sawmills in Germany, Ireland and the USA and found average rates of 60 per cent for Germany, 53 per cent for Ireland, and 49 per cent for the USA de Fégely, de Fégely, Enters, Enters, UN Economic Commission for Europe, Forest product conversion factors: Project overview and status, March

129 Table 8.16 Average recovery rates of broadleaf sawmills by State Source: Burns et al., 2009; ABARE, 2009 State Recovery Rate New South Wales 40% Victoria 39% Queensland 41% South Australia na Western Australia 33% Tasmania 34% Australia 38% Table 8.17 Asia and the Pacific sawmill recovery rates Location Recovery Rate Peninsular Malaysia *52% Southeast Asia 50% Indonesia 46% Philippines 48% Sabah, Malaysia 50% Asia-Pacific 50% USA 42% China 60% Indonesia 54% Australia 38% Data for Australia from Burns et al., *Average of recovery rates provided for Peninsular Malaysia; Enters, Excluding Australia, recovery rates above are derived from Enters, The relationship between the recovery rate and sawmill profitability is influenced by the grade (utility, standard and select) of timber that is produced. Along with other factors such as input quality, different sawmill technologies and strategies influence the grade of timber that is produced. Figure 8.14 shows the different sawing strategies employed in quarter-sawing and backsawing techniques applied in the Washusen et al. trials. 112 With quarter-sawing the log is cut down the centre first, then each half is sawn as numbered in a sequence of sawcuts. Under the back-sawing approach the initial saw cut down the edge of the log provides a stabilising surface for a sequence of sawcuts. The log is rotated after a third of the diameter has been removed. 112 Washusen et al.,

130 Figure 8.14 Figurative description of quarter-sawing and back-sawing strategies Source: Washusen et al, 2009 Table 8.18 presents the recovery rates for select and standard grade boards from Washusen et al s 113 sawing trials of E.nitens using back-sawing and quarter-sawing. The total recovery from back-sawn boards was greater than the total recovery from quarter sawn boards. However, higher recoveries of select and standard grade boards were evident under the quarter-sawing approach compared to the back-sawing approach. 113 Washusen et al.,

131 Table 8.18 Total recovery and recoveries from combined select and standard grade Species Log quality Recovery (% log volume) Sawing method Total Select & standard E.nitens Pruned butt logs Back-sawn E.nitens Pruned upper logs Back-sawn E.nitens Pruned butt logs Quarter-sawn E.nitens Pruned upper logs Quarter-sawn Source: Washusen et al., 2009 Table 8.19 gives the board traits from the Washusen et al. 114 sawing trials that affect the grading of sawn boards. The percentage of volume lost from docking of split ends was lower under the quarter sawn approach compared to the back-sawn approach. Mean board width was higher in back sawn logs. Variation in board thickness was greater in back-sawn logs and variation in board width was greater in quarter-sawn logs. Bow was substantially greater in back-sawn boards whilst there was little difference in the spring. Cupping of backsawn boards was more than twice that of quarter-sawn boards. Surface checking was significantly greater in back-sawn boards and internal checking was also more frequent. Quarter-sawn boards displayed lower shrinkage percentages than back-sawn boards. The results in Table 8.19 show that back-sawn logs are associated with a greater number of grade decreasing defects thus explaining the lower recovery of higher grade boards. Surface checking was the most significant grade limiting trait as many mills in Australia require select and standard grade surfaces to be free of checks. 115 Washusen et al., 116 states that poor sawing accuracy contributed to these defects by limiting the potential for planing to remove shallow surface checking. Improving sawing accuracy could likely improve the potential for planing and increase the recovery rates of higher grade boards. 114 Washusen et al., Washusen et al., Washusen et al.,

132 Table 8.19 Board traits for logs processed by back-sawing and quarter-sawing Board Trait Back-sawn Quarter-sawn Butt log Upper log Butt log Upper log Volume docked for end splits (% of green volume) Mean board width (mm) Board thickness variation (mm) Board width variation (mm) Bow in green boards (mm) Bow in dry boards (mm) Spring in green boards (mm) Spring in dry boards (mm) Cup (mm) Surface check (length in mm/m2 board surface area) Internal checks (number/board) Board thickness shrinkage (%, mean of 3 positions) Board width shrinkage (%, mean of 3 positions) Source: Washusen et al., 2009 The lower total recovery from quarter-sawn boards has the potential to be improved through modification of the log carriage and saw. Recovery rates in quarter-sawn logs were observed to be reduced by the frequency of face cuts required to remove deflection in logs which are not required under the back-sawing approach. Washusen et al. 117 suggest the following modifications would eliminate the need for as many face cuts: increasing the number of dogs employed from two to three; incorporating a line-bar ahead of the saw to provide a board thickness reference; and, incorporate independent hydraulic operation of dogs to ensure that the sawn face of the logs was always in contact with the line-bar. Although there is a greater total volume of board recovery under the back-sawing approach as observed in Table 8.19, the greater recovery of higher grade boards under quarter-sawing would likely result in the quarter-sawing operation being more profitable. In Australian markets, select and standard grade boards draw three to four times the unit price of utility grade boards. 118 From the sawmill investigations undertaken by de Fégely, 119 sawmills visited in Tasmania were observed to be performing mainly quarter-sawing. Tasmanian species are prone to collapse 120 and collapse prone species largely have to be quarter sawn to permit recovery by reconditioning. 121 Further, the logs in Tasmania are generally larger than in New South 117 Washusen et al., Washusen et al., de Fégely, Collapse also known as abnormal shrinkage, is defined by de Fégely (2004) as flattening or buckling of the wood cells of some species in the early stage of drying i.e. at high moisture content. It manifests itself as excessive shrinkage of the early wood, causing wash boarding in quarter sawn timber and sometimes severe face and internal checking, especially in back sawn timber. 121 de Fégely,

133 Wales and Queensland which also hinders the ability of logs to be back-sawn as quartersawing smaller logs (less than 40cm small end diameter) is not possible. 122 Tasmania s reliance on quarter-sawing may account for the lower average total recovery rates of Tasmanian mills compared to other mills across Australia displayed in Table Backsawing is commonly used in Queensland and New South Wales mills that have greater recovery rates than Tasmanian mills. 123 However, because Tasmanian mills mainly used quarter sawing techniques, they are expected to have a greater average recovery rate of select and standard grade and consequently better return on input. Identification of timber species through genetic analysis Appropriately identifying timber species in the field is one of the aspects important for achieving maximum recovery in processing. Eucalypt species can be at times difficult to tell apart, their morphology can be very similar and identification often relies on fruit, buds, flowers bark and leaves (fruit, buds and flowers are seasonal and thus not always present). If species are not correctly identified, inappropriate processing methodologies may be applied which will lead to defects in the product and, as a consequence, a reduction in the overall rates of recovery and recovery of higher value outputs. Examples of defects that occur as a result of inappropriate handling are collapse and surface checking. 124 Both occur when timber is dried too fast. Different species can require unique drying approaches. Collapse occurs when free water in the wood fibres is removed without being replaced by air creating hydrostatic tension in the remaining water. Fibre walls implode causing collapse if the tension exceeds the crushing strength. Collapse appears as ripples and ridges which can be a recoverable form of degrade through planning if the collapse is not too severe that cell walls have broken. Planning increases waste and consequently reduces recovery. External checking occurs when the outside (case) of the board reaches fibre saturation point before the inside of the board. If the board case exceeds the elastic limit of the timber, tension creates surface checks appearing as surface cracks. Sufficiently harsh drying conditions exaggerate the effect causing cracks to reveal deeper layers of the board which are then exposed to the same degrading conditions and result in the cracks penetrating deeper into the wood. Surface checking causes downgrades in timber strength and visual appearance resulting in a lower market value. Minimal surface checking can be removed by planning therefore; improving the appearance but decreasing the overall recovery. DNA profiling of trees destined for processing provides an opportunity to improve the accuracy of species identification. A collective team of researchers from the University of Tasmania, the CRC for Forestry, Southern Cross University, University of Pretoria, EMBRAPA (Brazilian Agricultural Research Corporation) in Brazil and DArT P/L in Canberra and headed 122 de Fégely, de Fégely, Ralph,

134 by Associate Professor René Vaillancourt of UTAS have been developing major technological advancements in eucalypt genomics. 125 The international team have been developing and testing a set of genome-wide markers for eucalypts using Diversity Array Technology (DArT). DArT markers were developed primarily for use in genetic linkage mapping and associate studies. Extension studies have been exploring the use of DArT markers for population genetic analysis. Trials have demonstrated that DArT markers can be used to accurately identify one species of eucalypt from another, opening the way for the development of PCRbased diagnostic tools for species identification. Developing tests that are statistically sufficient for identifying species at a commercial level is likely to require around two years of work, depending on the resources provided to a project. 126 Most of this work would involve the development of a database of information from collecting and DNA profiling thousands of trees. At this point, portable analysis technologies that could be used in the field are not feasible. Analysis would need to be performed in a laboratory. If an automated system could be set up, a couple of days may be all that is needed to complete the test. This may be feasible as long as the results can be automatically linked to specific logs. Sawmill technology Sawmill technology is a factor that can have a significant effect on the level of recovery from timber entering a sawmill for processing. Keegan et al. 127 present a case for technology being a major influence on increasing recovery rates observed in the western USA. Mill census and other available data were used to track changes in sawmill recovery rates from the 1970 s through to Also of significance was the trend reported in the size of timber being processed, log size was decreasing. Smaller log sizes result in reduced recovery rates because a greater proportion of area is lost to residue during the sawing process. As observed in Table 8.16, sawmill recovery rates in the western USA have been increasing since the 1970 s. 125 CRC for Forestry, Vaillancourt, Personal Communication 127 Keegan et al.,

135 Table 8.20 Western United States sawmill recovery rates Region/State 1970s 1980s 1990s % increase Four Corners a 40% 41% 41% 46% 15 Northern Rockies Idaho 40% 43% 45% 46% 15 Montana 41% 41% 42% 44% 5 Wyoming 42% na na 44% 5 Pacific Coast Alaska 36% 36% 37% 39% 8 California 42% 43% 43% 48% 14 Oregon 42% 48% 49% 52% 24 Washington 43% 45% 51% 50% 16 Source: Keegan et al., 2010 a Arizona, Colorado, New Mexico and Utah combined because of the limited number of mills. % increase represents the total increase between the first (1970) and last ( ) periods Of the regions/states assessed, Oregon has observed the greatest percentage increase of 24 per cent and Washington, the Four Corners, Idaho and California have all observed increases of between 14 and 16 per cent. Keegan et al. 128 report the change in recovery offer a clear indication that western USA sawmills have made improvements in production efficiency that have resulted in the increase in recovery rates over time, even as log size has decreased. Production efficiency is suggested by Keegan et al. 129 to be a direct result of improved sawing technologies and techniques including the following: log size (diameter and length) sensing capabilities linked to computers to determine the optimum sawing pattern to recover either the greatest volume or greatest value from each log; curve sawing technology to increase recovery from logs with sweep and crook; improved sawing accuracies to reduce the amount of size variation in sawn lumber, increase solid wood recovery, and allow rough green lumber sizes to be produced closer to desired finished sizes; thinner kerf saws to reduce the proportion of the log that becomes sawdust, and edging and trim optimization, better quality saws, and improved drying techniques, all of which reduce lumber loss; and, edging and trim optimisation, better quality saws, and improved frying techniques, all of which reduce lumber loss. 128 Keegan et al., Keegan et al.,

136 The Keegan et al. 130 investigation does not however verify the uptake of improved technology in the western USA sawmills. Although logical, the link between increased technology and improved recovery rates in the Keegan et al. 131 study is only speculative. Conclusion Tasmanian mills perform poorly in terms of recovery rate compared to both national and international levels. There is a variety of aspects that can influence recovery rates including correct species identification, log quality, size and form, distribution and severity of growth stresses in input, shrinkage and allowances, recovery from collapse, whether quarter sawing or back sawing, types of saws and infeeds in a mill, use of optimising systems and the product mix. 132 Research implies sawing techniques and technologies can have the greatest influence on recovery rates and modernisation will subsequently increase rates of recovery. At this point in the investigation, the level to which Tasmanian sawmillers are using modern technologies and techniques is unclear. However, this could be a possible explanation of the low recovery rates observed in Tasmanian mills. Further investigation is required to ascertain the levels of technologies employed in Tasmanian sawmills and the effect this has on recovery rates. 8.3 New markets for woodchips and wood waste The supply of Australia s plantation grown pulpwood is expected to double from 2000 levels over the next five years with the maturation of MIS plantations. Japan is expected to remain Australia s major export market. However, demand in Japan is expected to gradually decline. The increase in supply on both the Mainland and in Tasmania will increase export competition for Tasmania producers, who will also need to manage the additional cost of exports to the Mainland. The best solution for the Tasmanian forestry sector is to develop a market within Tasmania. The failed Gunns pulpmill would have opened up a new market for Tasmanian and Australian plantation woodchips. The mill would have been capable of consuming all of Tasmania s plantation woodchip supply with additional input required from mainland Australia. With no new pulpmill built in the state, a surplus in plantation woodchips of two million bone dry metric tonnes, equivalent to 40 per cent of 2011 exports, is predicted in the next three to six years. Even if the pulp mill did go ahead, it would not have provided a market for wood chips from Tasmania s native forests because Gunns had announced that it would only use plantation woodchips in its mill. Unless Tasmania can regain port facilities to handle woodchip exports and FSC certification to improve its export market for wood chips, the absence of a possible domestic market creates a serious problem for the economic viability of logging in native 130 Keegan et al., Keegan et al., de Fégely,

137 World Production (cubic metres) forests. Logging to produce sawn timber and veneer is not viable without a market for wood that is of insufficient quality for these two uses. 133 Sawmills with a capacity to produce engineered wood products are one option, but these will not be able to use all wood waste. Another option is to produce particle board Particle board Particle board provides a potential market for wood chips and poor quality logs with a predicted large expansion in demand. Along with other uses, particle board can be used to manufacture structural insulated wood products. There is also potential for waste from the system to be severely reduced if it can be used as a component in the insulating core of structural panels. Global data on particle board production, which includes oriented strand board (the most popular skin for structural insulated wood panels), can be used as indicator of consumption and production. Particle board has the greatest volume of production of wood panels worldwide (Figure 8.15). Oriented stand boards are increasingly replacing plywood for construction. This product can be manufactured from a wide range of fast growing species and from relatively small diameter trees. Figure 8.15 Wood panel production worldwide Hardboard Insulating Board MDF Particle Board Plywood Veneer Sheets Source: FAOSTAT, World may not be representative of entire world data, but rather a total of all available data Structural insulated panels consist of a timber skin and insulating core, conventionally a sandwich of polystyrene or polyurethane with skins of oriented strand board. Alternative materials of the insulating core can include: wood shavings (planning and mill waste); egg 133 Alternative markets for wood residue from sawmills include uses for fuel, horse stables, and as garden mulch, but none of these markets provides a sufficient market at a price than can cover costs. 234

138 carton material from recycled paper; recycled newsprint and woodchips mixed with sodium bicarbonate (to aerate) and PVA glue (to adhere); wood shavings, sodium bicarbonate and whey (apparent flame inhibitor). Alternative material for the skin could include low quality output from rotary peeler mills, steel and other metals. Structural insulated panels can be used for flooring, ceilings, roofing and walling. Some advantages of these panels over more conventional methods include: 134 improved structural performance (spanning capability in a typical floor is claimed to be almost double); greater insulation performance (30 per cent improvement in thermal performance claimed); and, faster construction (10 to 20 per cent cost reduction compared to conventionally framed construction). Up to 30 per cent (unconfirmed) of new housing development in the USA are claimed to use structural insulated panels Opportunities under the Clean Energy Plan Farmers, plantation growers and wood chip producers could benefit from programs that pay producers to capture or store atmospheric carbon in wood. The Commonwealth Government is opening up new revenue streams for forestry based alternatives to native forestry in the form of carbon markets and other environmental initiatives. The Clean Energy Plan provides opportunities for farmers and other land managers to generate income through the creation of carbon credits from certain emission abating activities. Markets for selling these credits come from the voluntary offsets market and also from the Carbon Price Mechanism (CPM). Methods to capture emissions include preserving existing forests, planting trees (plantations) and turning wood waste into biochar The Voluntary Carbon Market The voluntary carbon market generally refers to the companies, individuals and activities which participate in the generation, sale and purchase of carbon offsets which are not subject to any mandatory requirement. Conservative estimates of the global volume of voluntary offset credits traded in 2010 are reported by Peters-Stanley et al. 135 to be 131 million. Equivalent to Mega tonnes CO 2 -e, this transacted volume has grown by 34 per cent since 2009, where 98 MtCO 2 -e were traded. The estimated value of the 2010 carbon market was US$424 million. The price of credits ranged from US$0.1 per tonne of CO 2 -e to US$136.3 per tonne of CO 2 -e. Factors contributing to the range in price include the credibility of the offset program, the integrity of offset credits and whether the project provided social or environmental co-benefits. Over the counter 136 trades account for 97 per cent of the global offset markets, of which 45 per cent of credits were created from land-based projects including REDD/avoided conversion (29 per cent), afforestation/reforestation (six per cent), improved soil 134 French, (n.d) 135 Peters-Stanley et al., Peters-Stanley et al.,

139 management (five per cent), agricultural soil (three per cent) and forestry (two per cent). 137 Forestry currently accounts for a very small share of voluntary markets, but well-designed projects could attract more investment in the future The Carbon Price Mechanism Under the Clean Energy Legislative Package the Commonwealth Government is introducing a CPM and a Clean Energy Future Program. Neither are particularly useful for Tasmanian forestry at this time, although in the future Most of the effects of the mechanism are From the commencement, entities generating over 25,000 tonnes of CO 2 -e per year involved in operations including the stationary energy sector, transport (with exceptions), industrial processes, non-legacy waste and fugitive emissions will be liable. This broad coverage is likely to encompass around 500 businesses operating in Australia. Liable entities will be required to report emissions, purchase permits to match emissions and surrender permits to the Government. The CPM comes into effect on the first of July 2012 with an initial fixed price period of three years. The starting price will be $23 per tonne of CO 2 -e, increasing by 2.5 per cent each year in real terms. From 2015, the CPM will transform into a flexible cap with an emissions trading scheme which will allow a market driven carbon price. For the first three years of this flexible price period a price ceiling and floor will be established. The price ceiling will be set at $20 above the expected international price and will increase by five per cent per annum in real terms. The price floor will be set at $15 and will increase by four per cent per annum in real terms. From the start of the flexible period, industrial emitters of carbon will be able to buy carbon credits from schemes to sequester carbon. At least half of emission credits must be obtained within Australia Clean Energy Future Programs Many of the initiatives under the Clean Energy Future Program will support the steel and coal industries, with little relevance to Tasmania. Two relevant initiatives are $13 billion in funding for renewable energy programs, which could assist research into the use of biochar for carbon sequestration, and $1 billion over the next four years to reduce carbon pollution and increase carbon sequestration. This will complement the Carbon Farming Initiative (CFI) The Carbon Farming Initiative Passed by parliament in August 2011, the CFI is an offsets scheme providing economic incentives for land and agricultural based reduction of emissions and the establishment of carbon sequestration activities. Relative to the forestry industry, land managers will be able to earn credits for sale to the voluntary market from actions including: Reforestation and revegetation Reduced fertiliser pollution 137 Peters-Stanley et al.,

140 Native forest protection Forest management Reduced pollution from burning of stubble and crop residue Kyoto compliant credits earned under the CFI will also be tradable under the CPM. During the first three years of the CPM in which the carbon price is fixed, liable entities may use Australian Carbon Credit Units (ACCUs) issued under the CFI to meet up to five per cent of their carbon unit surrender obligations. In the following flexible price period, there will be no limitations to the amount of ACCUs used to meet obligations. Non-Kyoto compliant CFI credits that cannot be purchased under the Carbon Pricing Mechanism will be purchasable under the Governments Non-Kyoto Carbon Fund. Receiving Commonwealth funding of $250 million over six years, the Non-Kyoto Carbon Fund will provide incentives for land sector abatement additional to Australia s emissions targets under current accounting rules, which can include improvements in soil carbon, revegetation and cessation of logging in native forests. At this point, details of this fund are yet to be published. The Land Sector Carbon and Biodiversity Advisory Board will be consulted on the design and the fund will be administered by the Department of Climate Change and Energy Efficiency. Kyoto compliant activities are those that are recognised under the Kyoto protocol and therefore count towards Australia s reduced emissions under the Kyoto protocol rules. They include reforestation, avoided deforestation, reducing emissions from livestock and waste deposited in landfills before July Non Kyoto compliant activities are not recognised under the Kyoto protocol, but are verified as reduction or sequestration activities and include soil carbon, feral animal management, improved forest management, and nonforest vegetation. Kyoto and non-kyoto activities for earning ACCUs are illustrated in Figure To ensure emissions from activities such as industrial processing are truly offset, carbon must be sequestrated and stored permanently. In terms of carbon sequestration, the internationally accepted timeframe of permanence is 100 years. 138 The 100 year timeframe is based on the estimated lifetime of a tonne of carbon in the atmosphere. Sequestration project owners may cease their project at any time by relinquishing any credits earned by the project back to the administrator. If credits have already been sold, replacement credits can be purchased at the market price or the proponent could use credits from another project. In the event of a natural disturbance such as fire, disease, drought or the requirement to establish a firebreak, project owners are not required to return credits if carbon is lost. Following the occasion of such a disturbance, project owners are required to re-establish 138 Department of Climate Change and Energy Efficiency, 2012c 237

141 carbon stores. No credits will be issued for carbon under restoration. Further credits will only be obtainable once previous levels of carbon storage are exceeded. Figure 8.16 ACCUs from Kyoto and non-kyoto Activities and Trade Markets Kyoto activities Non-Kyoto activities Reforestation Avoided deforestation Reducing emissions from livestock Waste deposited in landfills before 1 July 2012 Soil carbon Feral animal management Improved forest management Non-forest vegetation Kyoto ACCUs Non-Kyoto ACCUs International compliance market (value Domestic compliance (carbon price mechanism value undefined) Voluntary markets NCOs (access to growing market valued US$424mill globally in 2010) CFI non-kyoto carbon fund ($250mill over 6yrs) Derived from: Voluntary market value: Peters-Stanley et al., 2011 Non-kyoto carbon fund value: Only 95 per cent of the carbon stored under a sequestration project will be issued the equivalent credits. This creates a five per cent buffer allowing for residual risks that cannot be managed, such as temporary losses as a result of a disturbance, or long term losses resulting from a failure to re-establish stores and relinquish credits. Other clean energy options Further assistance and funding opportunities for alternatives to native forestry available under the Clean Energy Agreement could provide $26 million in funding for Tasmanian farmers over six years. The programs include: 238

142 Carbon Farming Futures: An initiative with $429 million of funding over six years to assist farmers and land managers to benefit from carbon farming. This package complements the CFI by funding research ($201 million), development ($20 million) and on-ground demonstration of emission reduction and carbon storage techniques ($99 million) and will also support extension and outreach activities ($64 million). Based on Tasmania s contribution to GDP, 139 Tasmania could expect to receive $7.7 million over six years under the Carbon Farming Futures package. Biodiversity Fund: An ongoing fund delivering $946 million over its first six years for the establishment, restoration, protection or management of biodiverse carbon stores. The fund will target particular land systems identified under the Government s $44 million initiative Regional Natural Resource Management Planning for Climate Change. Based on Tasmania s contribution to GDP, Tasmania could expect to receive $17 million over the first six years of the Biodiversity Fund. Indigenous Carbon Farming Fund: An ongoing fund delivering $22 million to assist indigenous communities to participate in the CFI. Specialists will be funded to work with indigenous communities to develop carbon farming projects and reporting tools. Based on Tasmania s contribution to GDP, Tasmania could expect to receive close to $400,000 under the Indigenous Carbon Farming Fund. Regional Natural Management Planning For Climate Change Fund: Funding of $44 million over five years to support regional natural resource management organisations to update planning for climate change impacts on the land and to maximise the environmental benefits of carbon farming projects. Based on Tasmania s contribution to GDP, Tasmania could expect to receive close to $800,000 over five years under this program. Carbon Farming Skills: Funding of $4 million over five years to develop a new nationally accredited qualification for carbon service providers and accreditation of carbon brokers and aggregators operating under the CFI. Information workshops will also be provided for farm extension officers, catchment authorities and rural service providers about carbon farming. Tasmania could expect to receive close to $72,000 over five years under the Carbon Farming Skills Fund The Carbon Value of Plantations Plantation trees capture a significant amount of carbon from the atmosphere and therefore provide an option for carbon sequestration that could be covered by several of the initiatives discussed above. Felmingham and Wadsley 140 provide estimates of the carbon value of privately-owned plantations in Tasmania. The assumed carbon accumulation rate was 38 CO 2 -e tonnes per hectare per annum for 15 years for eucalyptus and 20 tonnes CO Tasmania s GSP was $23,738 million. This is equivalent to approximately 1.8% of Australia s GDP of $1,320,057 million over Felmingham and Wadsley,

143 e per hectare per annum for 21 years for radiata pine. Applying these sequestration rates to a carbon price of $20 per tonne of CO 2, along with a discounted value of six per cent per annum, the carbon value is $5,857 per hectare for softwood plantations and $7,381 per hectare for hardwood plantations. The carbon value of softwood and hardwood plantations are given next to the timber values for the same plantations in Table The carbon value of a hectare of softwood is 20 per cent greater than the timber value. The carbon value of hardwood is also greater than the timber value by 12 per cent. Table 8.21 Estimated carbon and timber value of plantations 141 Source: Felmingham and Wadsley, 2008 Plantation Carbon ($/ha) Timber ($/ha) Softwood 5,857 4,863 Hardwood 7,381 6,566 Under the Commonwealth Governments CPM, only Kyoto compliant plantations will be viable to create credits. Kyoto compliance calls for plantations to be established after 1990 on land cleared before Approximately 52 per cent of softwood plantations and 74 per cent of hardwood plantations in Tasmania are Kyoto compliant. 142 Based on Felmingham and Wadsley s 143 carbon value estimates, Tasmania s private plantation estate has a carbon value of $770 million Carbon Farming in the Tasmanian Landscape Landowners can undertake carbon farming activities independently or in collaboration with an organisation or group. Collaboration with an organisation with previous experience in carbon farming can reduce the administrative burden on the landowner and ensure that the methodology complies with legislation such as the CFI. In Tasmania, two of the major carbon project developers are REDD Forests and Greening Australia. Greening Australia has devised a model for a joint-venture biodiverse carbon farming project for dry marginal land (land class five, six or seven) undertaken with landowners under the CFI. Landowners can expect to receive approximately $3,000 per hectare over a 25 year period (or $120 per year). This is based on a shared investment between the landowner and Greening Australia of $1,500 per hectare each. Over a 25 year period, the cumulative carbon sequestration of a biodiverse planting was estimated by Greening Australia 144 to be 250 tonnes of CO 2 -e per hectare. This is based on a conservative sequestration rate of around 10 tonnes of CO 2 per hectare each year. At a $23 per tonne 141 The sum of the report s present values was not equal to the net present value provided for radiata pine, clearfelling, or partial harvesting. Therefore the figures should be viewed with caution. 142 Felmingham and Wadsley, Felmingham and Wadsley, Personal communication, 16/03/

144 carbon price, the total return from the creation of ACCUs is close to $6,000, which is distributed proportionally between the landowner and Greening Australia. Under the National Carbon Accounting Toolbox (NCAT), the carbon yield of a biodiverse carbon planting in a dry landscape in the Derwent Valley is around 10 tonnes of CO 2 -e per year. Above ground carbon assessments undertaken by Greening Australia of biodiverse plantings and remnant bushland in the same landscape indicate a carbon yield of 11 to 18 tonnes of CO 2 -e per hectare per year. Based on the midpoint between this predicted yield of 14.5 tonnes per hectare per year and a $23 carbon price, a 25 year total return from carbon units of over $8300 per hectare is conceivable. Greening Australia, in conjunction with the Tasmanian Land Conservancy and the Department of Primary Industries, Parks Water and Environment, have identified 100,000 hectares in the Tasmanian Northern Midlands Bioregion alone that would be suitable for restoration through biodiverse plantings without encroaching on agriculturally suitable land. The 100,000 hectares meet criteria including: land classification five, six or seven; creation of vegetation linkages through corridor establishment; restoration of ecological value; and avoiding potentially productive land or agricultural assets. Based on a carbon sequestration rate of 14.5 tonnes of CO 2 -e per year and a carbon value of $23 per tonne, over 25 years 100,000 hectares could be expected to return $833,750,000. Paul et al. 145 have collated industry estimates of the number of FTE workers required to establish and manage farm forestry and environmental planting scenarios (see Table 8.22). Over the initial establishment phase of two to three years, a minimum of approximately 15 FTE workers would be required to perform forest/planting establishment activities per 1,000 hectares. Ongoing estate management is expected to range from two to 10 FTE workers depending on site productivity. Where forest/plantings are established on marginal land, these jobs will be additional to any employment previously generated from the property. Table 8.22 Workers required to establish and manage plantings on marginal land Source: Paul et al., 2011 Activity Forest Planning and Planning Permission 0.13 Generating Seedlings 4.95 Weed control Layout of plantings 0.54 Site preparation 0.81 Fencing and browsing control Planting Estate Management 2-10 FTE per 1000 hectares Total Min 15.13, Max Paul et al.,

145 Greening Australia suggest up to a minimum of 20 job-years per 1,000 hectares would be required to establish environmental plantings when landscape ecological planning, farmer negotiation, legal agreements, carbon farming accreditation and scientific research are taken into consideration. 146 With a return of $6 million over 25 years, labour costs would account for approximately $1 million, or 17 per cent of the total return. A difficulty is that over half of the labour requirements would occur in the first two to three years of the project. The economic viability will therefore depend on a means of financing the scheme in the early years of the project. Australia does not currently account for forest management under the Kyoto protocol. The initial period of the protocol, , is coming to an end and Australia s emission accounting rules are likely to be altered. If Australia were to include forest management in mitigation commitments, newly established reserves, formed from forest destined for harvest, could contribute significant levels of emission abatement and offset credits with a dollar value. For instance, modelling by Macintosh 147 of the 572,000 hectares of reserves proposed by Environment Non-Government Organisations (ENGO) under the TFIGA estimate the following contributions: - Forest Management Credits in the order of 8.01 (7.01 to 8.90) mega tonnes CO 2 -e yr -1 over the period , and 8.48 (7.95 to 9.20) mega tonnes CO 2 -e yr -1 over the period applying 15 per cent leakage, 6.81 (5.96 to 7.56) mega tonnes CO 2 -e yr -1 over the period , and 7.21 (6.76 to 7.82) mega tonnes CO 2 -e yr -1 over the period under a five per cent emission reduction target for 2020, these credits equate to between 7.4 per cent and 8.7 per cent of Australia s cumulative abatement task over the period under a 80 per cent emission reduction target for 2050, these credits equate to between 7.4 per cent and 8.7 per cent of Australia s cumulative abatement task over the period If reserves are declared eligible under the CFI, a project could generate: 2.24 (1.95 to 2.49) mega tonnes CO 2 -e yr -1 of Kyoto ACCUs over the period , and 2.37 (2.21 to 2.57) mega tonnes CO 2 -e yr -1 of Kyoto ACCUs over the period Personal communication, 16/03/ Macintosh, 2012 Tasmanian Forest Intergovernmental Agreement: An assessment of its carbon value. Online: Accessed 26/07/2012. Australian Government, Department of Sustainability, Environment, Water, Population and Communities. 242

146 applying 15 per cent leakage, 1.90 (1.66 to 2.12) mega tonnes CO 2 -e yr -1 of Kyoto ACCUs over the period , and 2.01 (1.88 to 2.19) mega tonnes CO 2 -e yr -1 of Kyoto ACCUs over the period Net present value (2013 $AUD) of the Kyoto ACCUs $251 million to $652 million (sensitivity analysis range $219 to $722m), assuming 15 per cent leakage, over the period $292 million to $1339 million(sensitivity analysis range $273 to $1456m), assuming 15 per cent leakage, over the period Net Present Value of Forest Management Credits after deduction of Kyoto ACCUs Biochar $765 million to $1974 million (sensitivity analysis range $669 to $2179m), assuming no leakage, over the period $887 million to $4073 million (sensitivity analysis range $832 to $4415m), assuming no leakage, over the period $650 million to $1678 million (sensitivity analysis range $569 to $1853m), assuming 15 per cent leakage, over the period $ million to $3462 million (sensitivity analysis range $707 to $3753m) assuming 15 per cent leakage, over the period The production of biochar from plantations has the potential to open up further forestry based revenue streams in regional Tasmania. Biochar production uses pyrolysis technology to convert organic matter to a charcoal like material under a low/no oxygen and high heat environment. By-products of the system include heat, gas and oil which can be used to produce renewable energy to power the system and also sold as a further revenue stream. Research also suggests biochar has excellent agronomic properties as a soil conditioner in addition to a capacity to lock and store carbon. 148 Biochar is not compliant under the Kyoto protocol and consequently cannot be a source of offset under the CPM. However, opportunities exist to develop biochar operations under the CFI s Biochar Capacity Building Program, which will invest $2 million from 2011/12 to 2013/14 in competitive grants funding. Abatement through biochar operations are likely to be eligible for purchase under the Government s Non-Kyoto Carbon Fund. International agreements to approve biochar for carbon credits could also be implemented in the future, as it is one of the best long-term methods for removing atmospheric carbon. The economic success of biochar production is largely dependent upon the input and output prices and operating costs. In assessing the feasibility of biochar production, the following costs have been identified for consideration by Gryze et al.,: 149 Feedstock production and collection 148 McHenry, Gryze, Cullen and Durschinger,

147 Feedstock hauling Feedstock storage and pre-processing Pyrolysis operation (other than labour) Labour cost of running the pyrolysis unit Energy use for sale of co-generated bio-oil or electricity Biochar packaging and hauling Biochar application development costs for the carbon offset Monitoring of carbon sequestration capital costs of purchasing and establishing the unit Opportunity costs of alternative uses of feedstock and char. The benefits achieved by pyrolysis operators whether a commercial producer or a farmer, identified by Gryze et al. 150, are as follows: Revenue from sale of biochar or bio-coal (if not used directly by the producer) Revenue from other products such as bio-oil (both potentially) Reduced cost of fertiliser or other agrochemicals (farmer) Increased revenue from higher agricultural productivity (farmer) Reduced costs from heat and electricity production (both potentially) Carbon revenue from offset sales (both potentially) The net return of biochar production can differ significantly depending on the feedstock, input costs, and returns. Table 8.23 presents a number of theoretical assessments of biochar production using a variety of agricultural and forestry feedstocks and various scale pyrolysis units. Net return varies from -$US70.07 per ton of biochar from the large scale corn stover scenario to $US73.79 from the high carbon (C) value yard waste scenario. The most relevant options for Tasmania are the two yard waste scenarios, which could use sawmill waste, and the forestry scenarios from WSU. All are profitable at between $US26 and $US73.79, although downstream cost and returns were not included. The use of agricultural waste such as corn stover is not profitable in the research summarized in Table 8.23 or in other research by McCarl et al using crop residue. 151 One of the problems is that corn stover and agricultural waste produces much less energy or biochar per volume, as shown in Table However, stover or crop residue might be profitable if they were only used to supplement the feedstock for a pyrolysis plant that primarily uses wood waste. Following the successful demonstration of a one MWe plant pyrolysis plant in 2006 at Narrogin, Western Australia with outputs of 7,500 megawatt hours of electricity, 690 tonnes 150 Gryze, Cullen and Durschinger, McCarl et al.,

148 of activated carbon 152 and 210 tonnes of eucalyptus oil, expressions of interest have been invited for developing a five megawatt-energy commercial scale plant. 153 The estimated capital cost of the 5MWe plant is $28.4 million with annual operational costs including feedstock expected to be $7.9 million. The plant is predicted to produce 40,000 megawatt hours of electricity, 1,050 tonnes of eucalyptus oil, 2,720 tonnes of granular activated carbon, 1,090 tonnes of pelletised activated carbon and 294 tonnes of powdered activated carbon annually (intermediate biochar output of 7,240 tonnes). The preferred scenario for the plant included an after tax internal rate of return of 18.8 per cent and a net present value of $7.8 million, with a discount rate of 12.5 per cent over 15 years. Table 8.23 Costs and Returns of Biochar Production ($US/ ton of biochar) Source: Gryze, Cullen and Durschinger, 2010 Transportable mobile biochar plant, Stationary Site confined biochar plant. 152 Biochar activated with steam produces activated carbon. The highly developed internal surface area and porosity of activated carbon results in considerable adsorptive abilities with a range of high value uses. 153 McHenry,

149 9 Renewable Electrical Energy 9.1 Introduction The production of renewable energy (almost entirely electrical energy in Tasmania) not only provides an economic alternative in regions affected by a decline in native forestry, but could also be important to brand Tasmania and consequently for the marketing of Tasmanian agricultural, forestry, fisheries, and other products. In addition, new sources of energy may be required to support economic diversification. The Department of Economic Development Tourism and the Arts (DEDTA) defines renewable energy as: 154,155 Energy sources that are replenished by natural processes on a sufficiently rapid time-scale so that they can be used for energy generation more or less indefinitely. Examples of renewable energy include (but are not limited to) electricity generated by wind, solar and hydro. Another feature of many renewable energy sources is that they produce substantially lower CO 2 emissions per unit of energy than non-renewables such as fossil fuels. In addition to wind, solar and hydro, other examples of renewable energy of relevance to electrical generation in Tasmania include geothermal, wave and biomass, 156 while biofuels for transport can be produced from forest and agricultural residues. Electrical energy is measured in terms of gigawatt hours of use and installed capacity in megawatts. A 1,000 megawatt power plant would produce one gigawatt hours of energy if in continual use, at maximum capacity, for slightly less than six weeks. Tasmania s total maximum capacity in 2011 was 2,787 megawatts, of which 2,275 megawatts (82 per cent of the total) was from hydro, 372 megawatts (13 per cent) from a thermal gas plant, and 140 megawatts (5 per cent) from wind. The construction of the Musselroe wind farm in the North-East of the state will more than double wind capacity to 308 megawatts, or 10 per cent of installed capacity. The actual production of electricity in Tasmania is driven by state demand and exports through the Basslink cable to Victoria. Between 2005/06 and 2010/11 total demand varied from a low of 2012 gigawatt hours in 2005/06 to a high of 2,395 gigawatt hours in 2006/07. Installed capacity is always greater than actual use, averaged over a year, because of the need to meet peak hours of demand, provide downtime for maintenance, and to allow for variation in the supply of water and wind. 154 DEDTA, personal communication, 1/03/ DEDTA, 2011c 156 Department of Infrastructure, Energy and Resources (online),

150 Transend estimates that Tasmania has sufficient spare capacity to meet State demand for another 15 years, with more capacity not required until 2027 in its medium use scenario. Consequently, incentives to invest in renewables to produce additional capacity are based on either import substitution (providing renewable capacity at times of water shortages in Tasmania to replace imports from Victoria) or an increased market for Tasmanian electricity on the mainland. The potential for both import substitution and electricity exports depends on the relative cost of producing electricity in Tasmania versus the mainland, the maximum capacity of Basslink, and the economic viability of building a second cable under Bass Straight. One consulting report discussed below suggests that there is a market for an additional 630 megawatts of renewable electricity generation in Tasmania without a second Bass cable, although 372 megawatts of this total would replace the existing gas generation plant in the state. This leaves 258 megawatts of new capacity. A second Bass cable may not be economically viable until The main options for renewable low carbon electrical energy in Tasmania are wind, geothermal, and ocean (wave and tidal). Wind energy is currently the most commercially viable technology, with an installed capacity of 140 megawatts and an additional 168 megawatts under construction at Musselroe. In addition, Tasmania has considerable biomass resources from forestry and agricultural wastes which can be used to either generate electricity in thermal plants or to produce biofuels for transport. Biofuel technology for ligno-cellulosic (wood and fibre) feedstock is unlikely to be price competitive with fossil fuels for a decade or more. 9.2 The Renewable Energy Sector in Tasmania Over the past six years an average of 80 per cent of Tasmania s electricity has been generated by renewable sources, primarily hydroelectricity. Over 2010/11, hydroelectricity contributed 75 per cent of Tasmania s electricity supply, gas and imports from Basslink 157 accounted for 12 and nine per cent respectively, and wind generation made up the remaining four per cent. 158 Tasmania also supplies electricity to the South East Australia grid, via Basslink, contributing around 50 per cent of Australia s renewable energy. 159 Over the last six years, average exports via Basslink have accounted for 537 gigawatt hours per year. Exports over 2010/11 were considerably higher, at 1392 gigawatt hours, due to a recovery of water levels in Tasmanian dams. 157 Basslink is a high voltage electricity link that provides the capacity to export up to an average of 480MW of renewable energy (and 600MW for short periods) into the South East Australian Grid (DEDTA, 2011d) 158 DEDTA, 2011d 159 DEDTA, 2012b 247

151 GWh The levels of electricity generated and transmitted through Transend s distribution network over 2005/06 through to 2010/11 are presented by source in Table 9.1 and graphed in Figure 9.1. Basslink exports are also displayed in Table 9.1 and Figure 9.1. A reduction in transmitted electricity generated by hydro occurred from 2006/07 was followed by recovery from 2008/09. The reduction appears to have been compensated largely by imports via Basslink, which increased and decreased in a mirror image of the hydro contribution. Table 9.1 Electricity transmitted by source of generation from 2005/06 through to 2010/ Generation GWh % GWh % GWh % GWh % GWh % GWh % Hydro 9, , , , , , Basslink (import) , , , , ,106 9 Gas Wind Total 10, , , , , , Basslink (export) Net export* Source: Transend (personal communication 15/03/2012) - data extracted from annual report database by Transend and provided to AIRC. % =% of total electricity transmitted, *Net Export = Basslink export Basslink import Figure 9.1 Electricity transmitted by source of generation from 2005/06 through to 2010/ Hydro Basslink (import) Gas Wind Basslink (export) Source: Transend (personal communication 15/03/2012) - data extracted from annual report database by Transend and provided to AIRC. Basslink provides Tasmania with the ability to buy in power providing security of supply and the opportunity to sell Tasmania s excess renewable energy in the national market Hydro Tasmania (online), 2012a 248

152 Through Basslink, Hydro Tasmania can sell greater amounts of renewable energy than is solely required by consumers in Tasmania. Hydro Tasmania has a trading team monitoring the national market and assessing the best time to sell. However, over the period from 2005/06 to 2009/10, flows over Basslink have been primarily southward; that is to say, Tasmania has experienced net imports through Basslink over this period. Historically, the majority of exports from Tasmania have occurred during times of high inflow into water storages to reduce the volume of water spilt and lost from the system and also during times of high prices in Victoria. 161 However, heavy import regimes have had to be employed to protect storages from continued low inflows caused by drought in Tasmania. Since the end of the drought in 2009, the storage system has received the best inflows in many years. Consequently, Basslink has been exporting as much as practical to ensure efficient use of water and avoid spillage. The majority of electricity use in Tasmania is consumed by the industrial sector. Electricity delivered to industry accounted for an average of 52 per cent of the electricity transmitted throughout Tasmania over the last six years. The distribution network (Aurora) accounts for an average of 43 per cent of the electricity transmitted throughout Tasmania. Table 9.2 Tasmanian energy delivery by customer type Load GWh % GWh % GWh % GWh % GWh % GWh % Industrial Network Auxiliary Basslink (export) Total Source: Transend (personal communication 15/03/2012) - data extracted from annual report database by Transend and provided to AIRC. The total maximum demand for Tasmanian electricity has been on average 2,268 megawatts over the last six years. Tasmanian demand alone, excluding exports via Basslink, has been 1,813 megawatts on average. Table 9.3 Maximum electricity demand from 2005/06 through to 2010/11 (in megawatts) Tasmania + Export Tasmania Source: Transend (personal communication 15/03/2012) - data extracted from annual report database by Transend and provided to AIRC. 161 Hydro Tasmania, 2012b 249

153 DEDTA reports that 710 people are employed in the Tasmanian renewable energy sector, which accounts for 0.3 per cent of total Tasmanian employment. Gross State Product from renewable energies is reported to equal $391 million, or 1.8 per cent of the State s total GSP (see Table 9.4). Table 9.4 Employment and Production in the Tasmanian Renewable Energy Sector Value % of Tasmanian Total Employment 710 people 0.3% Production $391m 1.8% Source: DEDTA, 2011d 9.3 Electrical Generation Capacity in Tasmania Tasmania s hydro-generation system is unable to sustainably meet the annual demand for electricity. 162 The supply of hydroelectricity is constrained by the availability of water which is subject to significant variability and unpredictability. This limitation has seen the diversification of Tasmania s electricity supply beginning in the 1970 s. As a result of hydroelectric shortage events during the Bell Bay Power Station was commissioned in providing oil fired electricity generation to the State. Further diversification strategies have seen the establishment of the Tasmanian Natural Gas Pipeline and gas distribution network, Basslink, conversion of Bell Bay Power Station to Natural Gas, new gas fired generation at the Tamar Valley Power Station and the emergence of wind generation in Tasmania. To date, 140 megawatts of wind power has been installed and other substantially sized projects are under evaluation. Tasmania currently has a total electrical power generation capacity of 2, megawatts. The generation capacity refers to the sum of the name-plate ratings of all the available generators and determines the ability of the system to meet peak demand. The majority, approximately 82 per cent, of the total capacity is contributed by hydro power. Approximately 13 per cent is contributed by natural gas electricity generation and approximately five per cent from wind. Table 9.5 Existing Generation Capacity Generator Type Number of Sites Total name-plate capacity (MW) Hydro 27 2,275.6 Thermal (natural gas) Wind Total 30 2, Source: Transend Networks, Electricity Industry Panel, 2011a 163 Electricity Industry Panel, 2011b 250

154 Although Tasmania s total electricity power generation capacity is in excess of maximum demand, Tasmania also imports electricity from the mainland. Due to the composition of Tasmania s electricity supply profile, which is dominated heavily by hydro, the ability to generate electricity to full capacity is influenced significantly by natural elements that can be highly variable, namely rain and to a lesser extent wind. Only during optimal conditions can full generation capacity be reached. Under drought or suboptimal wind conditions the ability to reach maximum capacity is reduced and in this situation importing electricity provides the advantage of continual supply reducing the dependence on stored resources (for example water) that may be diminishing. Alternatively, price of electricity also provides an incentive for Tasmania to import electricity. In the case where the cost of electricity imported via Basslink into Tasmania is less expensive than generating the electricity within the state at that particular time, there is a cost advantage in importing supply. Transend Networks 164 provides estimates of forecast total Tasmanian Winter Demand under three scenarios. These are displayed in Figure 9.2. The scenarios reflect both different underlying economic growth and different load assumptions for the Tasmanian industrial customers. The average annual growth rate for the low scenario is 0.61 per cent per annum, 1.84 for the medium scenario and 2.76 per cent for the high scenario. The dip visible in actual demand around 2010 is stated to be due to a combination of mild winter conditions together with a significant reduction in industry load. Under the low scenario, maximum demand is predicted to reach 1,938 megawatts by 2025, 2,326 megawatts under the medium scenario and 2,662 megawatts under the high scenario. Figure 9.2 Total Tasmanian Winter Demand Forecast Based on data from: Transend Networks, per cent POE at low, medium and high from Figure A1.2: Tasmanian forecast data winter maximum demand (MW) The high, medium and low scenarios represent rates of economic growth in Tasmania. The winter maximum demand represents the demand on generating equipment in meeting the maximum Tasmanian demand in winter. 164 Transend Networks,

155 Figure 9.3 displays Transend s projections of remaining generation capacity after subtracting electricity use under the medium demand forecast. Three scenarios have been modelled applying various levels of generator contribution. Under scenario one and two there is sufficient capacity beyond the year Under scenario three there is adequate capacity up until 2027 but further generation sources are required beyond this timeframe. Figure 9.3 Projected capacity excess Wind generation is assumed to be out of service unless otherwise specified. Scenario 1 all current Tasmanian generators available. Scenario 2 Basslink contribution of 480 MW, two of the largest machines out of service and an assumed wind contribution of zero per cent. The addition of a potential 480MW from Basslink increases the long-term available capacity by approximately 200MW. Scenario 3 Basslink constrained to 300 MW, a major failure of a hydro scheme (Gordon Power Station) and one generator out of service and very low wind contribution. Source: Transend Networks, 2011 The entry or exit of a major industrial customer into the Tasmanian economy has the potential to substantially influence the maximum demand and consequently the period of years remaining with excess electricity capacity. Transend performed a sensitivity analysis on the potential entry in 2016 of a major new industry requiring 200 megawatts. 165 Under scenarios with similar assumptions to scenario one and three described above, there is sufficient capacity up until 2029 and 2021 respectively, beyond which further generation capacity would be required. Under a similar scenario to scenario two there is adequate capacity beyond Alternatively, if a major industrial customer exits Tasmania, total demand will be reduced and the period of adequate capacity extended. 165 Transend Networks,

156 These results indicate that under a medium growth scenario for maximum forecast demand, the existing generation capacity of Tasmania is adequate to meet demand for another 15 years as long as there is no entry of a significant industrial consumer. If a major industry was to enter the market, the period of time remaining with adequate power capacity is reduced to around nine years. 9.4 Electricity Exports to Mainland Australia One option for economic development is to export low carbon renewable energy to the mainland. This is supported by the Commonwealth s Renewable Energy Target (RET) to increase the renewable energy share of Australian to 20 per cent by 2020 (see section 8.9). The current Basslink cable has some unused capacity for exporting Tasmanian electricity to the mainland as shown in Figure 9.4, but during times of peak demand (afternoon and evenings) the Basslink is close to capacity. Increasing renewable capacity within Tasmania may be economically viable if it can be generated at a low enough cost (or if the carbon price is high enough) to substitute night-time imports of Victorian electricity into Tasmania. As shown in Figure 9.4, night time imports are common in summer. In addition, imports fluctuate over the year, depending on water storage levels in Hydro reservoirs. Renewables (geothermal or wind) that provide electricity during times of water shortages could replace some imports. Figure 9.4 Average Basslink flows from Sunday to Saturday over a typical summer and winter week Source: Office of the Tasmanian Economic Regulator (OTTER), 2012, p. 76 Marchment Hill Consulting 166 estimates that up to 550 megawatts of additional renewable energy generation may be economically feasible in Tasmania using the existing Basslink cable, although 372 megawatts is due to replacing gas power generation within Tasmania and only 258 megawatts from new renewables. 166 Marchment Hill Consulting,

157 A second cable under the Bass Strait would also increase the potential market for the sale of renewable electricity generated in Tasmania to the mainland. The potential market for Tasmanian electricity through Basslink would depend on the cost of purchasing electricity from Tasmania compared to the cost of generating electricity on the mainland (including the cost of the CPM). The economic viability of a second cable depends on a large number of factors (see Table 9.6), of which one is the recently implemented CPM. Other states rely on high CO 2 emission-intensive generation plants and will face price increases under the CPM. This will make Tasmanian generated electricity relatively cheaper. However, modelling by Marchment Hill Consulting 167 indicates that higher carbon prices in the future would provide an economic incentive for replacing high CO 2 emission-intensive generation plants on the mainland with new lower emission plants (this is precisely the intention of the CPM), which would reduce some of the cost advantages of producing low carbon electricity in Tasmania. According to Marchment Hill s preliminary estimates, a second Basslink would stimulate little new renewable energy generation (about 138 megawatts) in Tasmania, primarily using existing renewable energy resources. 168 This implies that there may be limited impact in terms of job creation. The second link would need investment in transmission networks and upgrades. Further, there may be limited impacts on improving security of supply through expansion of import capacity without investments in the transmission network. 169 Table 9.6 summarises the factors that mitigate against a second Basslink cable (negative factors) and the factors that would support construction of a second cable. Table 9.6 Second Basslink summary of issues Negative factors Exit of generator New industrial consumer, resulting in higher electricity demand in Tasmania Reduction in rainfall with a drop in water storage in Tasmanian reservoirs High cost of construction, transmission upgrades Higher carbon price driving construction of low carbon generators on mainland Current high cost of the link per MW Positive factors New generation capacity in Tasmania, resulting in excess supply Exit of industrial consumer, reduction in demand within Tasmania Efficiency of renewable energy Factors that would reduce construction cost, such as a Commonwealth subsidy Lower carbon price Waiting for technology to mature 167 Marchment Hill Consulting, Marchment Hill Consulting, Transend cited in Marchment Hill Consulting,

158 With a default carbon price ($28 per tonne and rising to $70 by 2035) The Marchment Hill report estimates that a second cable would be economically viable in 2025/26, assuming construction costs of $800 million. They also cite a related report 170 which had considered a larger project connecting all National Electricity Market (NEM) regions and a second 500 megawatts connection between Tasmania with mainland. This study found that the costs outweighed the benefits. 9.5 Tasmanian and Australian Markets for Electricity This section provides additional details for the interested reader on the market for electricity in Tasmania and the mainland and the factors that affect the price of electricity, including the effect of the CPM Brief introduction to electricity markets in general Markets are places where buyers and sellers trade goods and services. The electricity markets are purely artificial constructions designed by economists and implemented by engineers. Electricity is fundamentally different from other products as it cannot be stored, consequently mismatches between demand and supply should be addressed instantaneously. Further, customers are billed according to a certain fixed tariff on a monthly or longer basis, while retailers are faced with half an hourly (or less) price fluctuations. This means that there is very limited demand response in the market. Developments in the electricity market structures worldwide saw deregulation and increase in competition for generators and retailers. Transmission and distribution networks are natural monopolies and hence are regulated. In the energy only market (such as the NEM) the system operator has the task of balancing and operating the whole market. It takes offers (prices and quantities) from generators, combines them with the demand and sets the price that all generators are paid. The objective is to dispatch lower cost generators first. Large industrial consumers avoid market volatility by negotiating contracts with electricity generators. The market is not immune to issues of market power, especially when generators can artificially reduce their offers to induce a higher price. Market power can also be exercised by the natural monopolies of distribution and transmission networks. That is why there is so much regulation in the system. One of the most important issues with these markets is reliability. Reliability is usually defined as a combination of security (no blackouts due to generator and line faults) and adequacy (there is enough installed capacity to supply times of peak demand). A cost minimising solution for the adequacy issue is to install plants that are operational for short periods of time during peak demand. These plants have higher marginal costs than base load plants, but are the cheapest to build. 170 Cited as National Transmission Development Plan, AEMO,

159 9.5.2 National Electricity Market The NEM is a market mechanism ensuring security of supply of electricity while reducing the need for Government intervention. The NEM is a wholesale electricity market for Queensland, New South Wales, the Australian Capital Territory, Victoria, South Australia and Tasmania. The spot market is operated by the Australian Energy Market Operator (AEMO) which dispatches the lowest cost generation to meet current demand thus setting the spot price every 30 minutes. All generators in the region receive the spot price. This is an energy only market design as opposed to a capacity market mechanism which also trades in capacity credits. This market mechanism is characterised by volatile price movement, with periods of high prices acting as incentives to increase generating capacity. Given the volatility of prices, generators and wholesale buyers enter into contracts to have certainty in their costs and prices. Tasmania joined the NEM in May 2005 with the Basslink interconnector operating since April This was the beginning of steps aimed at increasing competition in the electricity market. The NEM facilitates competition on both the wholesale and retail level. Transmission and distribution are generally separated from generation and retail by a range of regulations to avoid issues of market power. Usually generation and retail activities are provided by one vertically integrated company generating a degree of natural hedging for the retail arm of the company Electricity Pricing The electricity market in Tasmania is characterised by a relatively small number of industrial users which account for more than half of the total demand for electricity. Annual demand for electricity is 10,800 gigawatt hours 171 with 11,336 gigawatt hours 172 generated. Maximum demand was 1,860 megawatts and peak generation was 1,694 megawatts 173 with total installed capacity of 2,798 megawatts. 174 Basslink has a continuous capacity of 480 megawatts. 175 Current capacity is adequate to meet Tasmania s demand over the next 15 years (see section 6.3). The timeframe is likely to increase considerably if some of the major industrial users end or substantially decrease operations, or decrease if a new industrial customer enters Tasmania. 171 Electricity Industry Panel, 2011a 172 OTTER, Hydro Tasmania, OTTER, OTTER,

160 The main participants in Tasmania s electricity industry are: competing generators (Hydro Tasmania (Hydroelectric and wind generation 176 ), Aurora Energy Tamar Valley (Gas generation), AGL Energy Services and Landfill Management Services (Landfill gas generation), transmission network operator (Transend), distribution network operator (Aurora Distribution), competing retailers (Aurora Retail, ERM Power Retail, TRUenergy, Essential Energy/Country Energy) and Basslink. This industry structure puts a lot of emphasis on competition compared with a centrally operated system. The price structure in Tasmania is slightly different from the mainland in that it has a less pronounced difference between peak and off-peak prices. Generally, prices for high consumption users are comparable with the mainland, while lower consumption users face prices that are above the average for other states (around 12 per cent higher for an average consumer). The bulk of electricity generation in Tasmania is from hydroelectric sources meaning that Hydro Tasmania has a degree of influence over the prices and Tasmanian spot prices do not fall far below Victorian prices. Tasmania is predicted to have a lower level of carbon emissions than other states. However, because of Tasmania s participation in the NEM, wholesale electricity prices can be increased to reflect the market (which is influenced by greater emission intensities in other states) without the same level of carbon cost experienced by other, more emission intensive generators. This can result in windfall gains by Tasmanian generators. Electricity bills are made up of a number of components. Around 39 per cent of the cost is attributed to the cost of generation, 15 per cent for the costs of transmission, 33 per cent for the cost of distribution and 11 per cent for the costs related to retail. All of these components have increased from 2009/10 to 2010/11 with total prices in real dollars increasing by almost 17 per cent from 2009/10 to 2010/11. Generation costs alone have increased by 22 per cent from 2009/10 to 2010/11, accounting half of the increase in the total price. 177 Tasmania s pricing structure (managed by Aurora) is different compared with the rest of Australia. The NEM is dominated by thermal generation and is capacity constrained, which leads to larger differences between peak and off peak prices (peak demand plants have higher operating costs). In Tasmania the system is constrained by the water storage level in hydro reservoirs and hence there are less pronounced differences between the peak and off peak rates. This and the abundance of various tariffs makes comparison of electricity costs with other mainland states challenging. 176 Hydro Tasmania s joint venture with CLP Group to produce wind energy, Roaring 40s, ended in June 2011 with a division of the assets. Hydro Tasmania took over the major wind farm projects in Tasmania. 177 OTTER,

161 In general, for consumption up to 10,000 kilowatt hours per year (the typical Tasmanian customer uses about 9,480 kilowatt hours per year), Tasmanian prices are more than 10 per cent higher than the average for all other states. For higher consumption users of above 20,000 kilowatt hours Tasmanian prices are comparable with mainland prices. Electricity costs are about 12 per cent higher for the average Tasmanian consumer compared with the mainland average which amounts to $5 to $55 more per quarter. 178 The pattern is similar for business customers. Users of between 50 to 150 megawatt hours per year have prices comparable with mainland prices, but users of between 20 to 40 megawatt hours have prices of up to five per cent higher than average mainland prices. Since July 2011 customers with consumption greater than 50 megawatt hours per year became contestable. This means that they can enter into contracts with competitive retailers. Since then, prices for these customers were comparable to mainland prices. 179 There is limited data for high voltage customers. For Industrial High Voltage demand (Tariff 85, load factor 35 per cent, average rates (cents per kilowatt hour, 2011$)) with quarterly consumption of 2,299.5 megawatt hours prices have increased from cents per kilowatt hour in 2007 to cents per kilowatt hour in 2011, with prices rising 14.2 per cent since Electricity pricing under the Carbon Price Mechanism The policy response to the goal to reduce carbon emissions is to put a price on emissions. With a price of $23 per tonne of CO 2 in effect since July The electricity generation sector accounts for about 35 per cent of all CO 2 emissions in Australia. 181 A study by Wild et al employs a model of the NEM to estimate the effect on prices. 182 When the price of carbon is imposed on generators, the extent to which the price can be passed to electricity retailers, which in turn can pass it on to consumers, is termed as pass-through. Factors that affect the pass-through include current emission intensity levels, elasticities of demand and supply (measures of responsiveness of quantity to price), possibilities of substitution of generation with lower emission intensive options, access to the international market for carbon credits and the competitive structure of the market. The authors give emission intensity factors of 0.32 tonnes C0 2 per megawatt hours for Tasmania, compared 178 OTTER, OTTER, 2012; p OTTER, Wild, Bell and Foster, Wild, Bell and Foster, The authors use a model of the NEM with an algorithm governing the optimal dispatch of generators. The algorithm minimises the quadratic objective function (costs of generation assumed to be quadratic) subject to a number of constraints. The algorithm did not deal with strategic bidding (generators not bidding their actual marginal costs), but assumed that generators bid their actual costs. Nonzero minimum capacity levels of baseload and intermediate plants as well as ramping constraints were incorporated in the model. Wind generation was not included in the model, which can lead so some overestimation of price increases. Further, water supply to a hydro plant was assumed not to be issue. As usual, the results of modelling depend on the nature of assumptions used. 258

162 to 0.94 tonnes C0 2 per megawatt hours for the NEM average and 1.23 tonnes C0 2 per megawatt hours for Victoria. According to the paper, Tasmania had higher electricity prices for the Business as Usual (BAU) scenario but lower prices when carbon costs more than $40 per tonne. This is because most electrical generation in Tasmania comes from low CO 2 emitting hydroelectric sources. Tasmania is also expected to have a lower rate of growth of spot prices as the price of carbon increases. They also find that there is less than complete pass-through of the increase in prices to consumers, with electrical generators bearing some of the costs across all states. The Carbon pass-through rate for Tasmania is about a half of the rate for other states, compared with for the NEM average. 183 Most electricity is traded through contracts and not through the spot market. The contract prices use some sort of future price which is linked to the carbon price and average carbon intensity (ACI). Given that the ACI is averaged across the NEM, some generators will be able to increase their prices if the pass-through rate is less than the ACI and earn windfall profits (essentially they can raise prices to a little less than the ACI which is used in future contracts). Since wholesale prices increase, which account for about 40 per cent of the average electricity bill, the retail tariffs will also increase. Tasmania is expected to have the lowest rate of increase in retail tariffs Reliability Since Tasmania s electricity generation depends on water inflows, Basslink solves the adequacy of supply problem to a considerable extent. Reliability of supply is not a trivial issue and Basslink can provide close to a quarter of Tasmania s peak demand when operating at full capacity. One possible way to address the adequacy of supply problem is through the demand side. It can be achieved by contracts specifying reduction of electricity consumption by some users in case of a shortage of supply. Users are compensated for this. This type of scheme is in use in Western Australia. Other options include smart grids and meters as well as increases in energy efficiency to reduce electricity consumption. Given the predicted growth in electricity consumption the current hydro, gas and wind capacity is adequate to provide generation in the short term. In the long term there would need to be investments in new projects which could include wind, geothermal, marine and bioenergy. 183 Wild, Bell and Foster,

163 For further information on demand and supply, see Sections 8.2 and Transmission and distribution Transend Networks provides electricity transmission at extra high voltage (greater than 88 kv) in Tasmania. Transmission capacity is reduced by higher temperatures in the summer. Aurora Energy provides electricity distribution in Tasmania at lower voltage levels to consumers. An increase in renewable and low-carbon electricity generation is likely to require optimisation and investment in transmission and connection assets. New generators are likely to put additional constraints (congestion) on the network. Further, some of the renewable energy generation options such as wind and solar are intermittent (nonscheduled), requiring different equipment from non-intermittent generators. 9.6 Cost of Renewable Electrical Energy Technologies The cost of renewable energy generation is set to change as technologies evolve over time and more efficient procedures are identified. A report prepared for the Australian Government Department of Resources, Energy and Tourism by the Electric Power Institute (2010) presents levelised cost of electricity 184 (constant AUD$ per megawatt hours) for a set of renewable and non-renewable energy technologies in Australia for As shown in Figure 9.5, the higher CO 2 emission-intensive generation technologies have lower levelised costs of electricity and narrower ranges. The basket of solar technologies has higher costs and broader ranges, but these could substantially overestimate current costs, given a rapid fall in Photovoltaic prices in the past two years, with one study estimating that solar will reach levelised COE parity with fossil fuels by Some low emission technologies including hot sedimentary aquifer, wind, hot rock geothermal and nuclear have costs closer to those of non-renewable energies. 184 The levelised cost of energy (LCOE) can provide an indicative comparison between technologies. LCOE is the price at which electricity must be generated from a specific plant to break even, taking into consideration costs incurred over the life of the plant, in this case: capital cost; cost of capital/financing; operations and maintenance; cost of fuel (Electric Power Research Institute et al., 2010) 185 See 260

164 Figure 9.5 Energy Technology Costs (2015) Source: Electric Power Research Institute et al., 2010; Australian Electricity Generation Technology Costs Reference Case 2010 Notes: SCPC Black Black Supercritical Pulverised Coal; SCPC Brown Brown Supercritical Pulverised Coal; CCGT Combined Cycle Gas Turbine; Hot Sedimentary Aquifer - Hot Sedimentary Aquifer; IGCC Black Black Coal Integrated Gasification Combined Cycle; Wind Wind ; CCGT CCS Combined Cycle Gas Turbine with Carbon Capture and Storage; PC-Oxy Black Black Pulverised Coal with Oxy-combustion; Hot Rocks Geothermal - Hot Rocks Geothermal; SCPC Black CCS - Black Supercritical Pulverised Coal with Carbon Capture and Storage; Nuclear Nuclear; SCPC Brown CCS - Brown Supercritical Pulverised Coal with Carbon Capture and Storage; IGCC Black CCS - Black Coal Integrated Gasification Combined Cycle with Carbon Capture and Storage; OCGT Open Cycle Gas Turbine; Two Axis PV Two Axis Solar Photovoltaic; Central Receiver w/ Storage - Central Receiver with Storage; Central Receiver w/out Storage - Central Receiver without Storage; Single Axis PV Single Axis Solar Photovoltaic; Fixed PV Fixed Solar Photovoltaic; Parabolic Tough w/out Storage Parabolic Tough without Storage; Parabolic Tough w/ Storage Parabolic Tough with Storage Estimates of the 2030 levelised energy costs, as shown in Figure 9.6, show a general reduction and narrowing of ranges. This is driven largely by the technologies at the top right end of the range in 2015, which have more significant cost reduction opportunities than the more mature technologies at the bottom left. 186 Costs for coal energies without CO 2 capture are not presented in 2030 due to the assumption that new plants without low emission technologies will not be permitted. The removal of coal energies without CO 2 capture from the technology mix results in hot sedimentary aquifer and wind becoming the two most cost efficient technologies. 186 Electric Power Research Institute et al., 2010, Australian Electricity Generation Technology Costs Reference Case

165 Figure 9.6 Estimated Energy Technology Costs (2030) Source: Electric Power Research Institute et al., (2010) Australian Electricity Generation Technology Costs Reference Case 2010 Notes: Definitions given under Figure 9.5. The levelised cost of energy displayed in Figure 9.5 and Figure 9.6 do not include any financial assistance provided by support mechanisms or carbon pricing. Electric Power Research Institute et al report that technologies, with higher levelised costs, are unlikely to compete well against lower levelised cost technologies in the absence of support mechanisms. Under a carbon price, renewable energy technologies gain competitive advantage over non-renewable technologies with high emission intensities as estimated by Hayward et al. and shown in Table 9.7. presents the long-run marginal costs 187 of renewable and non-renewable energy technologies applying a CPRS-5 carbon price trajectory. 188 Under this model, a carbon price 187 The long run marginal cost (LRMC) provides an estimate of the cost of electricity generation from a particular technology in $/MWh. LRMC is defined at the sum of the fixed and variable contributions to the cost of electricity from a technology. In this case, fixed costs include: capital cost and interest during construction; fixed operations and maintenance and transmission and distribution. Variable costs include: fuel; variable operations and maintenance; CO 2 storage costs for CCS technologies; emission permits for fossil fuel based technologies. 188 CPRS-5 should result in a 5% reduction in Australian emissions below 2000 levels by By 2100 the total concentration of CO 2 in the atmosphere should be stabilised at 550ppm (Hayward et al., 2011).This are conservative goals for climate mitigation as an atmospheric CO 2 concentration of 550 ppm is considerably above the estimated maximum CO 2 concentration of 450 ppm to prevent global temperatures from increasing by more than two degrees Celsius. Above two degrees of warming positive feedback effects could result in (continued next page) 262

166 of $50 per tonne of CO 2 -e is applied in 2030 and a price of $117 per tonne is applied in The model also takes into consideration other factors such as learning and deployment (through scale effects) on production costs. All energy technologies display at least some decrease in price except for black coal (pulverised fuel) which displays a substantial increase. Photovoltaic solar, rooftop and large scale display, the most significant decrease in long run marginal cost from the highest price in 2015 to close to the lowest in 2050, almost equivalent with wind. By 2050, wind, rooftop photovoltaic, large scale photovoltaic and nuclear have the four lowest long run marginal costs which is a shift away from the original lowest cost technologies of black coal, wind, wave and black coal with carbon capture and storage. In the medium term, wind has the lowest long run marginal cost, followed by nuclear, black coal and solar photovoltaic. Solar thermal has the greatest medium term long run marginal cost, followed by wave and black coal with carbon capture and storage. Table 9.7 Long Run Marginal Cost of electricity generation technologies under CPRS Wind Nuclear Black Coal (Pulverised Fuel) Rooftop Solar Photovoltaic Large Scale Solar Photovoltaic Black Coal With Carbon Capture And Storage Wave Solar Thermal Source: Hayward et al., 2011 Projections of the future costs of electricity generation technologies. The decreases in long run marginal cost of renewables are not directly driven by the carbon price. Alternatively, the long run marginal costs of emission-intensive technologies are substantially affected. When capital costs make up a large share of the long run marginal cost of immature technologies, any change in capital costs will have a large effect on the long run marginal cost. However, where technologies are well developed resulting in relatively lower capital costs and when this is coupled with high emission intensity, the carbon price tends to have a greater effect. This is the case for black coal, where the technologies included in capital costs are mature and the scope for further development of efficiencies or carbon reduction is comparatively narrow. Under these conditions, the effect of a carbon price can be proportionally more significant, driving the long run marginal cost up. Essentially, a carbon price does not directly make a low emission technology less expensive, but it does have a direct effect on emission intensive activities making them more expensive because they have additional costs. In turn, as emission intensive activities rapid increases in temperature with serious repercussions for crops, sea level rises, and extreme weather events. Higher carbon prices could be therefore be implemented in the future to prevent dangerous climate change. See Hansen et al.,

167 become costlier, lower emission intensive technologies become more competitively priced, which drives investment in development and consequently results in a fall in capital costs. Eventually, the capital costs of low emission technologies are equivalent with high emission technologies and the ongoing costs of low emission technologies are less, resulting in lower long-run marginal costs. 9.7 Options for Biofuels in Tasmania In contrast to renewable technologies for the generation of electricity, biofuels provide a renewable source of liquid fuels that can be used for transport. Even if most private transport by car is eventually provided through electric or hydrogen (produced using electricity) vehicles, a sufficiently high carbon price would create a market for biofuels to drive heavy transport vehicles and airplanes. Biofuels can be produced from food crops, agricultural and forestry residues, specialised crops and organic waste. Three generations of biofuels are in use or under development. The most advantageous for Tasmania are second and third generation biofuels that use wood waste from native forestry or plantations as a feedstock. However, these technologies are not competitive with petrol at current prices and may not be competitive for over a decade. The first generation biofuels are principally produced from food crops. Examples of first generation biofuels include ethanol produced from sugarcane in Brazil and corn in the USA and biodiesel from rape oilseed in Germany and palm oil in Malaysia. Some first generation biofuels such as ethanol in Brazil can be cost competitive with petrol without government support, however few plants would continue to operate without some form of subsidy. 189 The first generation biofuels have several disadvantages, particularly their contribution to increasing food prices through direct competition with food and feed crops. Production is expensive and CO 2 emission reductions are often low because of the high carbon intensity of the feedstock crops (such as corn), high emissions from transporting feedstock crops, or high CO 2 emissions when forested land is cleared to create new farms. Second generation ethanol and biodiesel tackle some of the above issues with first generation fuels. These fuels are produced from ligno-cellulosic feedstock (purpose grown energy-crops, cereal straw, bagasse and forest residues. Ethanol Technologies has a pilot plant in New South Wales to produce ethanol from lingo-cellulosic wastes. Their disadvantages are high costs and the low energy density of ethanol (a problem shared with first generation biofuels). Third generation biofuels produce high energy density fuels using either Genetically Modified (GM) micro-organisms fed on ligno-cellulosic feedstock or GM algae. 189 Sims et al.,

168 Currently there are two technologies for ligno-cellulosic feedstock production of biofuels and it is not clear which is preferred without longer term monitoring of demonstration plants. Biochemical production uses micro-organisms for conversion of cellulose to ethanol. Thermo-chemical process uses gasification technology and is used for production of synthetic diesel and aviation fuel. Currently, both technologies have biomass to biofuel conversion efficiencies of 35 per cent. 190 Ethanol yields from ligno-cellulose biochemical production are comparable for agricultural residues and forest residues. There is no industry published cost data for the production of biofuels. The International Energy Agency (IEA) estimates costs of USD 0.8-1/litre of gasoline equivalent (lge) for ethanol and around USD 1 per litre of diesel equivalent (lde) for biodiesel which is equivalent to a crude oil price of USD 100 to 130 per barrel 191 for gasoline and diesel production. 192 Substitutes of conventional oil such as heavy oils, tar sands, gas-to-liquid and coal-to-liquid can compete with crude oil at a price of around USD 65 per barrel, 193 making investment into the second generation biofuel production uncompetitive at this time. Inputs include feedstock costs which are estimated differently depending on the timing of commercial second generation biofuel production, feed type and alternatives. Reduction in feedstock costs and technology improvement (pretreatment, enzyme production, waste treatment, etc.) should be the main drivers for reduction of costs of production. 9.8 Investment in Renewable Energy Government expenditures in renewable energy Research Development and Demonstration (RD&D) budgets for 2010 by source are presented in Figure 9.7 for OECD countries. Budget allocation for biofuel RD&D is the highest followed by solar, wind, and ocean renewables. Hydroelectricity, as a mature technology, receives the lowest allocation globally (aside from those renewable sources which were unallocated), and geothermal receives the second lowest. Total budgets are driven heavily by the contribution of the USA. When this contribution is removed from the profile, greater global investment is directed towards solar energy, followed by biofuels, wind, other renewables and ocean. Excluding the USA, RD&D expenditures are lowest for geothermal energy followed by hydroelectricity and unallocated renewables. Australia s Government renewable energy expenditures as reported to the IEA are presented in Figure 9.8. Australia s budget allocation for solar energy is substantially greater than for all other renewables. Solar is assigned over 3.80 times more funding than any of the other renewables. 190 Sims et al., Current price of Nymex Crude Future: USD 96.27/bbl (11/05/2012) 192 Sims et al., Sims et al.,

169 Total RD&D in Million USD (2010 prices and PPP) Biofuels receives the next greatest contribution followed by geothermal, other renewables, wind and ocean. Hydroelectricity received the lowest budget allocation of renewable in Figure 9.7 Government Renewable Energy RD&D Budgets (Million USD prices and PPP), OECD, Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Korea Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States European Commission Unallocated renewable energy sources Hydroelectricity Geothermal energy Other renewable energy sources Ocean energy Wind energy Solar energy Biofuels (incl. liquids, solids and biogases) Source: International Energy Agency RD&D Database, accessed 23/02/

170 Total RD&D in Million USD (2010 prices and PPP) Figure 9.8 Australian Government 2010 Renewable Energy RD&D Budget (Million USD prices and PPP) Hydroelectricity Ocean energy Wind energy Other renewable energy sources Geothermal energy Biofuels (incl. liquids, solids and biogases) Solar energy Source: International Energy Agency RD&D Database, accessed 23/02/

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