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Q+A’s Guyon Espiner interviews Nick Smith

Q+A’s Guyon Espiner interviews Climate Change Minister, Nick Smith

Points of interest:

- Climate Change minister refuses to commit to agriculture being in the Emissions Trading Scheme (ETS), at odds with previous statements

- Smith, on Q+A July 26, 2009: “I've noticed the said farmers have sort of been wanting to get agriculture out of an ETS, that’s not a startable proposition… so yes, agriculture's going to have to be part of it [the ETS]”

- Smith, on Q+A June 6, 2010: “a National government would only be wanting to include agriculture if the world has made more progress and if we have practical technologies that will enable farmers to contain their emissions.”

- Government says it wants power and petrol prices to rise and won’t rule our further increases from 2012

- Smith critical of Australia for abandoning “a pretty sensible policy” on ETS, replacing it with “piecemeal policies”

- “Major trans-Tasman businesses” are choosing to invest in New Zealand rather than Australia because of certainty around emissions trading

- New Zealand’s “moderate” ETS is not going to “result in big reductions of emissions”

- New Zealand’s going to need to go through “a revolution” akin to the move from steam and coal power to the internal combustion engine

The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can also be seen on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news

Q+A is repeated on TVNZ 7 at 9.10pm on Sunday nights and 10.10am and 2.10pm on Mondays.


GUYON Well emissions trading is about to hit all of us in the pocket. From 1 July petrol and electricity will be included in the scheme, and already Contact Energy and the state owned Mercury Energy say they’ll put up their prices. Those on the Green side of the ledger have long attacked this government scheme as too timid for not putting enough pressure on polluters. But now from the other side the Act Party, Federated Farmers and even grassroots National Party supporters, are up in arms doing all they can to delay the scheme. Climate Change Minister is refusing to back down, desperately mounting a public relations campaign to sell the scheme. In a moment I'll talk to the Minister, but first ACT MP John Boscawen on why he opposes it.

Regardless of whether you believe in the science of global warming or not, New Zealand will be leading the world from 1 July if we introduce the ETS in its current form. Our top four major trading partners don’t have an Emissions Trading Scheme, who's gonna buy our exports, it's certainly not gonna be Australia, China, United States or Japan. I've travelled up and down the country from Northland down to Gore in Invercargill and I get a consistent message from National supporters, farmers and New Zealanders generally that they don’t want this, they don’t understand this, they don’t understand where the money's going. I believe the government is under estimating the cost for householders, they're saying that the average household's going to pay an extra $3 a week. For farmers that'll be $80 a week, and it also understates the flow on effect.

What we're doing is we're increasing the price of electricity. This country is 70% renewable, but for over 80% of the time people will be paying an extra price based on gas and coal fired electricity, and it's gonna result in major windfall profits to the government, and the government refuses to acknowledge that. Nick Smith says time and time again that they’ll only be receiving 350 million dollars from the scheme. They totally ignore the windfall profits, and we saw that just last week with Mercury Energy's price increase to all of its hundreds of thousands of customers. We're unnecessarily increasing the price of electricity, petrol, heating, and that will flow through in food, flow through the whole economy.

GUYON Well let's go to the Minister, Nick Smith now. Dr Smith thanks very much for joining us on the programme, we appreciate your time. Let's cut to the chase and talk about what the ACT MP John Boscawen was talking about there, and that is the impact on consumers. It's estimated that electricity will rise 5% as a result of the Emissions Trading Scheme. That’s the intention isn't it? You want prices to rise for this scheme to work?

DR NICK SMITH – Climate Change Minister
Well the very purpose of an Emissions Trading Scheme is to try and provide better financial incentives for environmental outcomes, and in many ways the Emissions Trading Scheme is already working. You know during the last five years we saw big losses of forestry area, the biggest phase of deforestation for 70 years in New Zealand.

GUYON Let's focus on prices for consumers.

NICK Let's talk about what's going on in the power industry. Over the last decade the vast bulk of the new power stations have been thermal, coal and gas. As a consequence of the Emissions Trading Scheme all of the new consents that are coming in, are for renewable power stations. And I think New Zealanders don’t want to see that trend of the last decade of more and more of our electricity being generated from gas and coal, and they want that investment in renewable energy of which the ETS is delivering very efficiently.

GUYON Okay we can return to my very simple question – you want prices to go up don’t you?

NICK Oh yes we're being quite up front with New Zealanders, and that is that with the ETS, and we modified it so the price increases are half those of the Helen Clark former government scheme, but we are expecting power prices to increase by 5%, and three cents a litre on diesel and petrol, as well as some other flow on costs that we've been quite up front about acknowledging with New Zealanders.

GUYON Well let's be even more up front, because from 2012 they will rise again won't they, because they changes that you have made only last until that transition period at the end of 2012. Won't we then see another rise, double that of which we've got now?

NICK Well that depends of course on international progress, and myself and the Prime Minister have been very upfront with New Zealanders and say look it is our intention to go ahead with the softer scheme on 1 July, but in terms of stepping it up in 2013 or 15 will be dependent on progress in key countries like the US, like Australia, like Japan.

GUYON So you're not committed to the scheme as it stands, because as it stands I guess those modifications which end in 2012 would mean a further rise in power and petrol prices. Are you telling people this morning you're not committed to that?

NICK Oh indeed the legislation provides for a review in 2011. This is one of those issues Guyon where the smart thing for New Zealand to do, and our policy is to have New Zealand doing it fair share on climate change, is to regularly review where the rest of the world has got, and to make sure that we're not getting ourselves out of step.

GUYON You talked about a price signal but if we look at Mercury Energy they are the retail arm of Mighty River Power, which generates 90% of its energy from renewable sources, yet they're putting their prices up more than 3%. Doesn’t that prove that it's not actually a flow on effect for cutting dirty pollution of they're using renewable sources of energy and still putting their prices up, doesn’t that show the scheme's not gonna work?

NICK Sure. Well firstly the government has said that power prices would go up by 5% as a consequence of the ETS, and the Mighty River announcement was for three, so it's less than what the government's announced. You’ve got the really big generators like Meridian announcing that they're not gonna put any prices up on 1 July. It's interesting that Genesis which is our biggest thermal generator has been saying that they're not planning immediate price increases.

GUYON So is this price signal working, are we actually taxing the things that we don’t want people to use?

NICK Well Guyon, you’ve got the complexity of the Emissions Trading Scheme added to the complexity of the electricity market. A number of commentators are saying that because the ETS has been known about for a good six months, many of the prices have already factored it in. What we've gotta make the decision as a long term government, is about what is the right long term signals to be sending to the electricity sector, and I think the signal that the ETS sends, that we would much rather electricity was producing renewably as the right one. Albeit we are very conscious of those impacts on price, that’s why we made the changes to the scheme last year that halve those price impacts.

GUYON Okay let's look at the impact on businesses, I take you back to May 18, 2008, from John Key. He said one of the key principles of the scheme is that it should be as closely aligned as possible with the Australian scheme. Well why not align it with the Australian scheme and do what they’ve done, and delay it until 2013?

NICK Well let's cover a couple of points. The first thing is at that time the Rudd government in Australia was very committed to a pretty sensible policy of an ETS that’s quite a lot like New Zealand's. Politics in Australia has gone to a market, they’ve got an election in a few months time.

GUYON Their policy now is not sensible?

NICK Well my view is that the best approach for countries, and we now have 30 of the 38 developed countries with an ETS, my view is that if you don’t want to have a nanny state, if you want to have a strong market economy, the ETS is the most sensible way in which to respond to the challenge of climate change. Now they’ve got a whole lot of piecemeals policies. The Rudd government had a five billion dollars of all sorts of subsidies and things that they were gonna do in their scheme, which of course is gonna be a cost on Australian industry and on Australian consumers.

GUYON You mentioned those 29, 30 countries with an Emissions Trading Scheme, but are any of those significant trading partners with New Zealand?

NICK Oh absolutely, Europe is a big trading partner for us. Look at Japan.

GUYON They don’t have those – Japan does not have a compulsory scheme in operation.

NICK Oh in Tokyo there are...

GUYON Not a nationwide scheme though Minister.

NICK Oh that is true, but what you're sort of – let me go back to Australia, cos it's our most important trading partner. What the Australian government has announced measures around electricity, that will increase their electricity prices by 7%. So the idea, and the sort of myth that’s been put up by the likes of John Boscawen, that there is no cost for Australia. Look they have to meet the Kyoto cost regardless. The question what is the most efficient way for us to do that, and I'm satisfied, and interestingly all of the literature globally is such that an ETS is the most efficient way to do that. The only reason they're not...

GUYON Are you satisfied Minister that New Zealand companies won't be at a comparative disadvantage with Australia, given the fact that New Zealand companies will have to abide by an Emissions Trading Scheme and they will not.

NICK The extraordinary part for me Guyon is I've been meeting with some major trans Tasman businesses in the last month. Their consistent message to me is the Australian policy is in a mess, that’s not where New Zealand should go, and even to the point of them making major investment decisions in New Zealand in preference to Australia, because our policy is well settled.

GUYON Really? We're getting investment in New Zealand...

NICK Indeed, because there is settlement about policy, and when you are making investment say in electricity generation or in those emissions intensive industries, you're making investments for 30 or 40 years. They all know that this problem of climate change is going to require efforts by other countries. The worst thing for business is uncertainty, and that’s why I have said quite consistently, and it's interesting that organisations like Business New Zealand equally are putting strong views to the government, look you need to have a consistent sensible approach. In the history of climate change policy in New Zealand is we've been all over the paddock, and that’s why this government's going to keep that consistent course.

GUYON You mention that businesses may not be disadvantaged, and may actually be advantaged. Well perhaps that’s because the taxpayers are picking up the difference. I mean if we look at trade exposed industries, you're giving them what 300 million dollars of units to cover 90% of their emissions. That phases out at 1.3% each year, so is it really going to be 70 years before business pays the true cost of their emissions?

NICK No I don’t think so, and again I'd remind you that our legislation has those regular review at five yearly periods, so that regularly we're going to reassess where they are. But the honest truth is I don’t want to see...

GUYON So they may phase out quicker than that, they may not get those free emissions for so long?

NICK That will be very dependent. That will be very dependent on progress internationally, and as we saw at the Copenhagen Conference just last year Guyon, there's quite a lot of uncertainty about where other countries are moving. We campaigned on a policy that says New Zealand's going to do its fair share, we're not gonna be a leader, but we're not going to be a trailer, we're going to be middle of the patch, and we intend to revise those. Now if you take a really important business for Auckland like New Zealand Steel, we are very conscious that we don’t want to impose costs on them that’s simply going to have the steel manufactured somewhere else in the world. It is true that we're getting some criticism from the Green Movement, having been too generous to business, some criticism from business that’s saying they're not. I think we've got the balance about right.

GUYON Let's talk about agriculture. At the moment it comes into the scheme in 2015. If you look at comments from David Carter, the Agriculture Minister in that memo he sent out to ministers recently. He's saying that New Zealand will be flexible on this. I mean is that the case?

NICK Absolutely.

GUYON So are you saying that we might not include them at that point?

NICK Well the really hard part about agricultural emissions is that there's quite limited technology that’s available at the moment for farmers to get those emissions down.

GUYON Okay, but will they come in Minister ....

NICK Well we're saying that’s going to be independent on two key things. Firstly, I want some technology that farmers can practically use to reduce their emissions, that’s why we've got a huge initiative around the Global Research Alliance on agricultural emissions.

GUYON But that isn't a form that actually makes a difference. You won't put them into the scheme then?

NICK In the second issue for New Zealand is about the progress that’s being made with the Australians, with the Americans, and other countries, because there's no point in disadvantaging the New Zealand farmer only to have the agricultural production to feed the world occurring in other parts of the world where they produce more emissions.

GUYON I'll take you back to when you were on the show last year, you said that this doesn’t go ahead without agriculture, that it's not a credible scheme without agriculture, they're half of our emissions.

NICK Oh but indeed Guyon, and the point the farmers fairly make is on 1 July farmers will have a cost as a consequence of their electricity, and as a consequence of their fuel. The key difference, and we can go back to the time when there was that strong farmer revolt to what became known as the fart tax. New Zealanders I think felt that was a bit unfair, you're picking on farmers by themselves, they were the only ones that were going to pay it. With this what we're doing in government today is actually whether it be businesses, whether it be household, whether it be farmers, they're all asking to make a contribution towards reducing those emissions.

GUYON And you are saying that there is no certainty at all that agriculture will be included in 2015?

NICK There are two reviews to occur between now and then under the legislation, and a National government would only be wanting to include agriculture if the world has made more progress, and if we have practical technologies that will enable farmers to contain their emissions.

GUYON Well people might be sitting at home watching this going well why is it me who has to pay when I produce very little of those emissions. You're hitting the consumer for power and petrol, when the people who produce half of this problem, the farmers, probably aren't going to go into the scheme at all by your reckoning.

NICK But I think you're overlooking a key point there Guyon. Remember our Kyoto obligations is not to have zero emissions, but to stabilise them back to 1990. Our electricity emissions are up 120%, our transport emissions are up 70%. Our industrial emissions are up 30%. Agriculture is actually only up 12%. So in terms of the really big changes that I'm wanting to achieve, in the Emissions Trading Scheme is around those sectors where the emissions have grown so strongly. I'm not one that says that this quite moderate ETS is going to result in big reductions in emissions, it's about New Zealand doing its fair share...

GUYON Well let's talk about that, because that is the ultimate thing too isn't it, the reduction in emissions. Your target is what cut by 50% by 2050, and that’s on a 1990 basis. Now the last time I looked we were 23% ahead of our 1990 emissions now. Have you got any hope at all in actually realising that target?

NICK Oh indeed, and the really sector that’s got the most promise for New Zealand is the planting of trees, because while we've got that 23% increase in emissions since 1990, we have more than offset that with the amount of trees that we have planted. And that’s why the Emissions Trading Scheme is so important for getting that confidence in the forestry sector where they will plant trees, because the best hope for the medium term, the 2020s the 2030s is that we get people again planting trees. Now that will buy us some time. Ultimately New Zealand's going to need to go through a revolution, not dissimilar to that we went through from 1900 to 1950 in moving from steam and coal to the internal combustion engine. We've got an equal energy revolution to take place over the next 50 years, but the forestry sector is critical to us being able to manage that transition.

GUYON Well some people would say given that we don’t have a Kyoto liability, we're actually going to be in credit by your reckoning, why do we need the scheme at all?

NICK Because both National and Labour governments made promises in good faith to foresters that they would receive the credits. We'd have a whopping great Kyoto bill if it wasn’t for those foresters planting trees over the last couple of decades. And they were promised those carbon credits, and in its most simplest sense Guyon this Emissions Trading Scheme involved thermal power generators, and those of us that burn petrol and diesel paying someone to plant a tree and that is a very efficient way for New Zealand to do its fair share around this global problem.

GUYON Okay that’s pretty much where we're going to have to leave it. Thank you Nick Smith for coming in and joining us.


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