Hon Dr Nick Smith
Minister for Climate Change
25 November 2009 Speech
Third Reading
Climate Change Response (Moderated Emissions Trading) Amendment Bill 2009

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

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

It strikes the right balance in protecting the future of our economy and our environment.

It ensures that we should do our fair share on climate change without the pretence that we should lead the world.

New Zealand has been going round in circles for a decade on how to impose a cost on carbon pollution. This Bill means that from 1 July next year there will be a price on carbon and an incentive for afforestation.

The revised ETS is consistent with National's pre-election commitments. We said we would align our scheme more closely with Australia. This Bill does that.

We said we would provide incentives for industry to reduce emissions without encouraging an exodus of jobs and investment overseas. This Bill does that.

We said we would rejig the scheme to be fiscally neutral so households, farms and businesses would not be funding multi-billion dollar windfall gains to the Government. This Bill does that.

If the Bill is not passed, the existing scheme comes into effect on 1 January and will increase power prices by 10% and put $400 million a year in costs on to industry.

There are also no allocation plans and a number of serious errors in the existing ETS legislation that would cost jobs and the environment.

This Government is not prepared to burden households and businesses with the scale of these costs at a time when every dollar is valuable.

The scheme would have been delayed until 2011 had agreement with the Māori Party not been reached.

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 like to acknowledge the role of the United Future Party. 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.

Thanks must also go to Craig Foss, the chairman of the Finance and Expenditure Committee, and to the committee members. It was disappointing the Committee was unable to reach agreement on amendments to the Bill, but that did not come as a surprise.

Can I acknowledge the hard work of officials in the Climate Change & Risk directorate of MfE led by Stuart Calman, the MAF team led by Julie Collins, Select Committee staff, and PCO for its dedication to delivering on the Bill and the Government’s Supplementary Order Paper.

Mr Speaker, this Bill makes a number of important changes to make the ETS workable and affordable.

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

There has been criticism that the Bill is too generous to New Zealand’s exporting industries. I refute this allegation. This emissions trading scheme will be the first of any country outside Europe, and on 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 under these amendments will be the first country in the world to include agriculture.

There has also been criticism of our production-based approach to industry allocations, an approach that was recommended by both the New Zealand Institute of Economic Research and Infometrics at the Select Committee review. Australia is taking this approach and so, too, is Europe in the third phase of its emissions trading scheme. This is about incentivising efficiency rather than just exporting emissions-intensive industries to other countries.

Some have accused the government of being “soft” on emitters through the introduction of a transition phase. Again, I make no apology for a measure I consider to be part of an important balancing exercise. I am very clear that we need to limit the risk to New Zealand firms, especially our trade exposed firms, while taking steps to reduce our emissions.

The passing of this Bill means we have an emissions trading scheme that balances environmental and economic outcomes, while showing the international community that we are serious about tackling climate change.

Having achieved the important milestone of passing this Bill, attention now turns to implementing the scheme. There are challenges ahead, but the Government looks forward to working with industry to achieve a smooth implementation of the scheme.

Under the Bill, the will enter the emissions trading scheme on 1 July next year. Work is already underway, within government and within industry, to ensure the industrial, energy, and transport sectors are ready to enter the scheme next year. The Government is committed to providing clear rules and guidance for new participants in the ETS. Further regulations will be developed to provide this clarity.

Mr Speaker, the passing of this Bill is an important step for New Zealand on addressing climate change. It allows us to get on and implement an affordable and workable emission trading scheme, and play our part in addressing this global problem.

However, it is only the start. New Zealand must remain nimble footed to agreements reached internationally, to the decisions our trading partners make, and to advancements and updates in the science.

Getting the ETS up and running will be a major programme for the government over the next year. Challenges include providing free allocation of emissions units to the most emissions intensive, trade exposed companies. This will include consultation with industry around how we calculate entitlements.

I am confident the amendments in this Bill deliver a workable and affordable emissions trading scheme. These changes halve the cost increases for households; make the scheme workable for business; save Kiwi jobs; while at the same time, ensuring New Zealand does its fair share in combating climate change.

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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