Hon Dr Nick Smith
Minister for Climate Change Issues

24 November 2009 Speech
Second Reading

Climate Change Response (Moderated Emissions Trading) Amendment Bill 2009

(Please check against delivery)

Mr Speaker, I move that the Climate Change Response (Moderated Emissions Trading) Amendment Bill 2009 now be read a second time.

This Bill is about implementing for New Zealand a workable and affordable emissions trading scheme.

The revised ETS will be consistent with National’s pre-election commitments. It will align our scheme more closely with Australia. It will provide incentives for industry to reduce emissions without encouraging an exodus of industry and their skilled staff overseas. It will amend the scheme so that households, farms and businesses will not be funding multi-billon dollar windfall gains to the Government.

I am very pleased to have been able to work with the Māori Party to secure an agreement that ensures that they can join us in supporting this Bill. The agreement reached with the Māori Party strikes the right balance in protecting the future of our economy and our environment. The revised ETS will be good both for iwi and for New Zealand as a whole. It will halve the initial cost increases of the scheme for households and it workable for business while ensuring New Zealand does its fair share to combat climate change.

Some are questioning the merits of the Government's ambition to try and pass our amendments by Christmas with the support of the Māori Party. However, if the Bill is not passed, the existing scheme comes into effect on 1 January and will increase power prices up 10% and put $400 million a year on to costs on industry without allocation plans and a number of serious errors in the existing ETS legislation.

The Bill makes a number of important changes to the Emissions Trading Scheme.

It makes some critical adjustments to entry dates. Under the Bill, the industrial, energy, and transport sectors will enter the emissions trading scheme 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.

The Bill also makes changes to support for trade-exposed emissions-intensive industry and the agricultural sector.

First, a high and a medium-intensity threshold is specified.

Secondly, the allocations will be based on an industry-average basis and not on 2005 levels. This will ensure we do not reward those with higher emissions and punish those who invested early to improve their efficiency.

Thirdly, the allocations will be production based. If companies and farmers 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 here in New Zealand.

Fourthly, the phase-out of support is being reduced from 8% per annum to 1.3% per annum – subject to review every five years.

Finally, we have introduced flexibility to the point of obligation in the agricultural sector commencing at processor level with the option to move to the farm gate.

The Bill also makes some further technical changes to make the scheme more workable. A good example is removing the liability associated with nitrogen curing of cabling, which could have cost New Zealand export manufacturing jobs.

The Bill was referred to the Finance and Expenditure Select Committee. The Committee received 379 written submissions on the bill and heard a total of 125 oral submissions. It is disappointing the Committee was unable to reach agreement on amendments to the Bill. But the Government will be moving a Supplementary Order Paper to address a number of issues that arise from a legal review by officials and submissions to the Select Committee.

As part of the agreement reached with the Māori Party, the Māori Party will move a Supplementary Order Paper that recognises the Treaty of Waitangi. This provision will specifically set out the ongoing decisions on which the Crown has an obligation to consult.

Most of the changes contained in the Government Supplementary Order Paper are refinement of policies contained in the bill or technical amendments. In relation to pre-1990 forestry, amendments are made so that changes in legal title after 2002 do not unfairly disadvantage landowners when beneficial ownership has not changed.

Without these changes, some forest owners might unfairly receive a lower allocation. We have also clarified that, subject to clear criteria, forest owners managing wilding pines from planted source should be eligible to apply for a tree weed exemption. This will help ensure that important efforts to control tree weeds in a number of areas of the country are not disadvantaged by the imposition of the ETS.

In addition, the Government has also made a decision to exclude the combustion of solid biofuels from the Emissions Trading Scheme. Given that this is a small emissions source, and given the Government’s commitment to encouraging fuel switching in this area, we have made the pragmatic decision to exclude emissions from this low-cost clean energy source from the emissions trading scheme. The Supplementary Order Paper provides for the exclusion of solid biofuels from the emissions trading scheme.

The Government Supplementary Order Paper contains a number of technical changes in response to submissions made on the Bill. For example, in response to concerns regarding the earlier entry date for liquid fossil fuels introduced by the Bill, a shorter registration period has been allowed for large purchasers of jet fuel to opt in to the emissions trading scheme.

A number of further amendments are included in the Supplementary Order Paper to improve the effective operation of the new measures introduced by the bill. For example, the Chief Executive is given the ability, during the transition phase, to choose to reimburse overpaid units in cash, units or a combination of both.

The Supplementary Order Paper also provides useful additional clarity regarding the processes associated with allocation to industry. Submissions to the Select Committee and discussion with industry stakeholders have revealed the need for the Bill to be clarified, particularly in respect to determining eligibility for allocation. The Supplementary Order Paper sets out more clearly the two distinct routes to eligibility.

One of these processes should be based on the activity being eligible in Australia, and the other based on the activity satisfying the legislated trade exposure test and emissions intensity thresholds. Where regulations are based on an activity being eligible in Australia, activity definitions and allocative baselines (the benchmark of emissions per unit of output upon which allocation is based) will be the same as in Australia, adjusted for the New Zealand electricity and natural gas markets.

The Supplementary Order Paper also adds a requirement for the Chief Executive to publish the quantum of allocation to individual firms provided it is possible to ensure appropriate protection of commercially sensitive production information. This responds to concerns raised at Select Committee that there might otherwise be a lack of transparency in this area.

I would like again to acknowledge the constructive role the Māori Party has played in helping move this debate forward for New Zealand. The Māori Party brings a balanced perspective to this debate, with both a strong commitment to Papatūānuku but also a real concern about jobs and about the impacts on low-income households, and an understanding of the importance of primary industry to New Zealand.

I would also like to acknowledge the role of Peter Dunne and United Future. The Government and United Future have long shared the view that the ETS needs to strike the right balance between our economy and environment. I would again like to acknowledge the constructive chairmanship that Peter Dunne demonstrated during the ETS Review Committee process and for his party’s view that New Zealand needs to implement sensible and pragmatic climate change policy.

Mr Speaker, I am pleased to commend the Climate Change Response (Moderated Emissions Trading) Amendment Bill 2009 to the House.

ENDS

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