Hon Dr Nick Smith
Minister for Climate Change Issues
24 September 2009 Speech

First reading, Climate Change Response (Moderated Emissions Trading) Amendment Bill

Mr Speaker, I move that the Climate Change Response (Moderated Emissions Trading) Amendment Bill now be read a first time.

At the appropriate time I intend to move that the Bill be referred to the Finance and Expenditure Select Committee with an instruction that the Committee report finally to the House on or before 16 November 2009, and that the Committee have authority to meet at any time while the House is sitting, except during oral questions, and during any evening on a day on which there has been a sitting of the House, on a Friday in a week in which there has been a sitting of the House, and to meet outside the Wellington region during a sitting of the House despite Standing Orders 187, 189 and 190(1)(b) and (c).

Mr Speaker, this Bill is about implementing for New Zealand a workable and affordable emissions trading scheme. It takes a responsible approach to the climate change problem caused by greenhouse gas emissions while being realistic about how much a small country like New Zealand can contribute.

This Bill is also about the John Key-led Government delivering on its promises. We said we would legislate and implement a carefully balanced, all sectors, all gases emissions trading scheme. We said we would take an emissions intensity approach. We said we would align our ETS more closely with Australia. We said we would not pocket billions by nationalising our emissions allowance. We said we would not discriminate against SMEs, and we said we would align the phase-out of industry support with our trade competitors. This Bill does all these things.

This Bill is also consistent with the recommendations of the ETS Review Committee ably led by United Future Leader Peter Dunne, who has consistently taken a balanced and reasoned approach to this complex issue.

Let me briefly outline the specific changes in the Bill. The industrial, energy and transport sectors will enter the ETS on 1 July next year and agriculture in 2015. There will be a transition phase for the next three years with a half obligation and a fixed-price option of $25 a tonne. These changes will halve the cost increase for electricity and fuel for consumers and businesses.

Support for trade exposed, emissions intensive industry is changed in four ways. First, the arbitrary threshold of 50,000 tonnes that penalised SMEs is replaced by two intensity thresholds of 1600 tonnes per million dollar turnover and 800 tonne per million dollar turnover. This expands the estimated number of eligible companies from 21 to 65.

Secondly, the allocations will be on an industry average basis and not an arbitrary 2005 level. This will ensure we do not reward those with higher emissions and punish those who invested early in improving efficiency.

Thirdly, the allocations will be production based. If companies cut their production, their allocations will drop. If they grow, their allocation will increase. This is about addressing leakage. This Government is not about exporting jobs offshore, we are about incentivising more efficient production in New Zealand.

The fourth change is about slowing the phase out in support to industry.

This Bill also makes 34 technical amendments to fix faults in the current law and to make the scheme more workable. A good example is removing the liabilities created by the clearing of wilding pines. Another is removing the liability associated with nitrogen curing of cabling that could have costs New Zealand export manufacturing jobs.

This Bill recalibrates New Zealand’s position to a more pragmatic approach. The existing Act was a branding statement by a dying Government wanting to make grand gestures about saving the planet with little regard for whether it would work and its impact on consumers, jobs and investment.

Extravagant claims have been made by some that this revised scheme will mean taxpayers subsidise major emitters. This is untrue. There is a cost in reducing the immediate impact on fuel and electricity prices relative to the current scheme but there are also savings as a consequence of reducing allocations earlier. Officials, backed up by Treasury, estimate that over the first decade of the scheme, these changes will actually provide a small saving for the taxpayer.

The latest claims over costs relate to the period beyond 2018 when frankly any cost estimates are little more than guesses. The issue beyond 2018 is that under Labour’s scheme industry support is phased out at 8% per year as compared to Australia’s 1.3% and the EU’s 1.7%. We are not absolutely married to the 1.3% phase out rate this far into the future and note that the law provides for this to be reviewed every five years starting in 2011. We are, however, committed to moving in line with our major trading partners and worry that Labour’s phase-out rate, five-times faster than any other country, will discourage jobs and investment in New Zealand.

Other claims are that this weakens the environmental integrity of the scheme with the Green Party’s Jeanette Fitzsimons so incensed she says that at Copenhagen she will wear a large sign around her neck saying she is ashamed to be a New Zealander. I just ask that members get reconnected with Planet Earth.

This emissions trading scheme will be the first of any country outside of Europe and, as of 1 July 2010, will be the most comprehensive by including transport, industrial and energy emissions.

New Zealand is the first country in the world to include forestry and will be the first country in the world to include agriculture.

Accusations have been made about New Zealand providing a soft ride for Rio Tinto as an aluminium smelter. Our Bluff smelter will be the very first of 168 smelters in the world to face a price for carbon for its industrial emissions.

There has also been strident criticism of our production-based approach to industry allocations - an approach recommended by NZIER and Infometrics for the Select Committee Review. Australia is taking this approach and so too is Europe in the third phase of its ETS. This is about incentivising efficiency rather than just exporting emissions intensive industries to other countries.

I want to acknowledge the constructive role the Maori Party has played in helping move this debate forward for New Zealand. Had they not stepped up to the mark, we would most likely have been forced to defer again introducing a price on carbon and we would go to Copenhagen with our climate change policy unsettled.

The Maori Party bring a balanced perspective to this debate – both a strong commitment to Papatuanuku but also a real concern about jobs, impacts on household costs and an understanding of the importance of primary industry. The changes agreed with the Maori Party have halved the costs to households, will see thousands more low income homes insulated, will see the Government working with iwi on afforestation schemes, will see better support for our fishing industry and ongoing Maori involvement as we progress forward on climate change policy. Despite the politicking over this agreement, most in this house know that these changes are good for Maori and good for New Zealand

I am disappointed that Labour has taken such umbrage at this agreement and has pulled out of talks with the Government. It is equally disappointing that Labour has failed to recognise that re-establishing the Committee that reviewed the ETS, and who had nine months experience on this complex matter, would have been the most logical option.

It has been my long held view that climate change policy is bigger than any political party and that there would be real benefits for New Zealand from a broader consensus. That is why in 2005 I wrote from Opposition seeking an engagement with the previous Government. I never received a reply.

I have engaged in good faith talks with Labour for months. There is little difference in this Bill to what was agreed in those talks. My hope through the Select Committee process is that we can get back around the table to resolve the few remaining issues.

Can I make this point in conclusion: New Zealand has had a 15-year long debate about how to put a price on carbon. We have flip flopped under both National and Labour-led governments between a carbon tax and an ETS. We need to move forward. This Bill will on 1 July next year enable us to make that start. I urge all members of the House to put aside party bickering, recognise this as a balanced way forward and support this Bill.

Mr Speaker, I commend this bill to the House.

ENDS

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