Bill English MP

National Party Deputy Leader & Finance Spokesman

20 August 2008

Speech to

Climate Change and Business Conference

Auckland

It’s good to be here today. I’m impressed to see how many sector leaders and businesses from both sides of the Tasman are represented at this conference.

I’m going to take this opportunity to outline National’s climate change policies, and to discuss our intended approach to the global climate change challenge, should we have the privilege of leading the next Government.

National believes that New Zealand, as a responsible international citizen, and as a country that values our clean, green environment, must act to reduce our greenhouse gas emissions.

Let me also say that National is absolutely committed to growing the New Zealand economy.

These two goals are not mutually exclusive. In fact, in an increasingly carbon-conscious world, New Zealand’s continuing prosperity will rely on us having smart climate change policies.

On the one hand we will need to defend our economy. In the decades ahead, people’s perceptions around climate change will affect the brand image of New Zealand and its exports. New Zealand must take credible steps to reduce greenhouse gas emissions or risk becoming a trade pariah.

We also need to be on the economic offensive. Climate change awareness and carbon prices will create new markets for Kiwi industries, tourism, and technology. It’s estimated that demand for low-carbon products will be worth at least $500 billion per year by 2050. Countries and consumers will be willing to pay for climate-friendly products and innovations.

New Zealand, therefore, must position its economy and businesses to take advantage of these opportunities.

Many of you will already be thinking about how you can protect and grow your position in a carbon-conscious world. Government has a role too – both in setting policy frameworks and in providing leadership.

To that end, National has made three major policy statements about our intended approach to reducing greenhouse gas emissions.

First, National has set an achievable emissions reduction target for New Zealand. That is a 50% reduction in New Zealand’s carbon-equivalent net emissions, as compared to 1990 levels, by 2050. 50 by 50.

I think it’s worth noting today how similar this target is to that of Australia’s. The Australian Government has a target of a 60% reduction in emissions by 2050. This is comparable with National’s “50 by 50” target because ours is relative to 1990 emissions levels while Australia’s is relative to emission levels in the year 2000.

Secondly, we will ensure New Zealand works on the world stage to support international efforts to reduce global greenhouse gas emissions.

National is committed to honouring our Kyoto Protocol obligations and, in Government, we will work to achieve further global alliances that build on the goals agreed to at Kyoto.

In recent months it’s been good to see many of New Zealand’s trading partners demonstrate their commitment to reducing emissions, both now and in the post-2012 period. Australia has, of course, signed the Kyoto Protocol, and in the United States presidential candidates from both major parties have advocated a reduction in greenhouse gas emissions, at home and abroad. Senator John McCain has announced that, if elected, he will submit a proposal for an emissions trading scheme to Congress, with a goal of reducing emissions by 60% by 2050. Senator Obama has proposed a more ambitious scheme.

National is confident that this new strength of international commitment bodes well for the future of global emission-reduction alliances.

Our approach in future international negotiations will be to work with fellow countries on finding a pragmatic way to include large emitters like China, the United States, India, and Brazil. It’s clear that the absence of these large emitters from any post-Kyoto agreement would severely compromise global progress on this issue.

Thirdly, National will pursue sound, practical environmental policies to achieve emission reduction. We want to reduce emissions in ways that result in the least cost to society and the economy.

To that end we consider a well-designed, carefully balanced emissions trading scheme (ETS) to be the best tool for efficiently reducing emissions across the economy. We are committed to passing legislation for an ETS within nine months of taking office.

Today, let me give you a feel for the form that ETS will take and the thinking that will drive it.

An emissions trading scheme for NZ

National views the development and introduction of an ETS as a significant economic policy innovation.

We think it is vital that New Zealand works carefully to design a robust ETS that can stand the test of time. Our country’s recent history has shown that ill-considered, hasty policy responses to climate change have all fallen apart. I’m thinking of the ill-fated negotiated greenhouse agreements, the animal emissions levy, and the carbon tax.

Those poorly thought-out policies have created uncertainty in the economy and have not resulted in better outcomes for the environment.

In fact, far from heading toward carbon neutrality, New Zealand’s emissions have gone up every year for at least the past eight years. Far from leading the world, New Zealand’s emissions growth has been among the worst in the developed world. It’s against this background that the current Labour Government has put together its proposed emissions trading scheme.

National thinks the Government’s proposed ETS will meet neither New Zealand’s economic needs nor our environmental obligations. In particular, it could well have negative and unintended consequences.

National has had several concerns with the process and content of the Government’s proposed ETS. These include the following issues:

• Officials have admitted that the Government will profit by between $6 billion and $22 billion from the tendering of emissions permits.

• There’s been no clear analysis of exactly how much the scheme will reduce emissions.

• There’s been little transparency about the effects the ETS will have on already-struggling Kiwi households. Frightening reports have emerged about the likely economic effects of the scheme’s ‘lead the world’ approach to cutting emissions.

• The scheme has been subject to a large number of significant and last-minute changes that neither the select committee nor submitters have been given an opportunity to analyse.

National is not prepared to ignore these problems. Not when the financial security of Kiwis is at risk. Not when getting this wrong means exporting jobs, ratcheting up inflation, and squeezing household budgets.

We want to ensure that the wider economy and the financial security of Kiwi families aren’t sacrificed to ensure a pre-election outcome. After all, these decisions will have serious implications for the economy for decades to come.

In amending the ETS, we will be led by six key principles: balance, fiscal neutrality, trans-Tasman alignment, efficiency rather than exodus, fairness for small and medium businesses, and ensuring adequate flexibility to respond to international developments.

Let me go over these principles one by one.

1. The ETS must strike a balance between New Zealand’s environmental and economic interests. It should not attempt to make New Zealand a world leader on climate change.

2. The ETS should be fiscally neutral rather than providing billions of dollars in windfall gains to the government’s accounts at the expense of businesses and consumers. National does not think it’s responsible for government to use green initiatives to pad the Crown coffers while thinning out Kiwis’ wallets.

3. The ETS should be as closely aligned as possible to the planned Australian Carbon Pollution Reduction Scheme, with, where possible, common compliance regimes and tradability. National wants to closely co-operate with Australia as we develop our respective schemes. We note that Australia intends to release draft legislation in December and to introduce a bill to the House by March next year. National thinks it would be foolish to ignore this obvious opportunity to work with Australia, to share information and ideas and to work for mutual benefit as we develop our trading schemes.

4. The ETS should encourage the use of technologies that improve efficiency and reduce emissions intensity, rather than encourage an exodus of industries and their skilled staff to other countries.

5. The ETS needs to recognise the importance of small and medium enterprise and not discriminate against them in allocating emission permits.

6. The ETS should have the flexibility to respond to progress in international negotiations rather than setting a rigid schedule. This way, industry obligations can be kept in line with those of foreign competitors.

National believes that an ETS that meets those six principles will be the cornerstone of an effective New Zealand framework for meeting the climate change challenge.

We believe that the price of carbon emissions is the critical signal in the economy to bring about a rebalancing of those emissions. We understand the certainty that investors need because the price of carbon will generate change.

We believe, for example, that one effect of our proposed ETS will be the phasing-out of the use of coal to fuel the power station at Huntly. We also expect it will result in no new coal stations being built – unless proven technologies for carbon capture and storage change the emissions profile of coal.

Complementary measures

Our ETS would also be accompanied by complementary emission-reduction measures, where the costs of carbon reduction are reasonable.

National has advocated, for example, government investment in science to reduce emissions from agriculture, increased grants to help families install solar water heating, and government investment in broadband infrastructure to reduce Kiwis’ carbon footprints.

We are also very conscious of the contribution electricity generation makes to greenhouse gas emissions. We note that in the past eight years more than 50% of New Zealand’s new electricity generation has come from thermal sources. And this year inadequate electricity supply led to the powering-up of an emergency generator at Whirinaki that burned 36 million litres of diesel.

National believes we can do much better in this area. New Zealand is blessed with extraordinary renewable energy resources, such as wind, hydro, and geothermal power. So we support the current Government’s commitment to 90% renewable electricity generation by 2025, while noting that we won’t let this target get in the way of security of electricity supply.

National will take steps to assist New Zealand’s progress towards this renewable target. In Government we would, for example, make significant reforms to the Resource Management Act. This will streamline and simplify the process for consenting renewable electricity projects.

And, as I said earlier, we are confident that a well-designed ETS will send clear price signals about the favourability of renewable electricity generation.

Conclusion

Ladies and gentlemen, National is optimistic about New Zealand’s prospects in a carbon-constrained world. We believe mechanisms such as the ETS which balance environmental and economic outcomes will help New Zealand maximise the opportunities presented by this global challenge.

Any change of this singificance is bound to cause uncertainty and some negativity. We need to remember that New Zealand’s businesses and farmers have proven themselves again and again to be adaptive, innovative, and nimble in response to world trends. Through a combination of open debate and clear leadership we will bring industry, small businesses, and mums and dads together to meet the climate change challenge.

Kiwis value our environment as much as our economic capacity and we are prepared to act to preserve it. It’s in our interests and it’s in our nature. So, National will work hard to play our role in the global co-operation and effort needed to confront climate change.

ENDS

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