'THE NATION'
DR NICK SMITH interviewed by STEPHEN PARKER

STEPHEN This week Mercury Energy and Contact announced power price increases an average of five dollars a month. They blame the price hike on the introduction of the ETS on July 1, when businesses will have to pay for their energy emissions, may also be the type of cost increase which cancels out any taxcuts for lower and middle income earners. In the last week, some of National's grass roots supporters have been voicing their unease with the law, and ACT has been coming increasingly a thorn on the side of the government with its opposition, which makes life a little bit harder for the man behind the climate change law, Climate Change Minister, Nick Smith. Good morning Minister.

In the past week we have seen these power price rises, is this really the first indication of where the bill is arriving and it's arriving in the letterbox of the householder?

NICK SMITH - Climate Change Minister
Yeah, the debate around climate change has been going for about 20 years. On the 1st of July the rubber starts to hit the road in the sense that the price impacts of the ETS flow through, we're going to see that, and the government was quite upfront with the public when we passed the climate change legislation last year saying look three cents a litre on gas, 5% on power, they're half the cost that there would have been with the in our view excessive Labour scheme, so we've been very conscious of the cost on consumers, and we do expect as we approach the 1st of July that there will be those price impacts flowing through to consumers. Need to keep it in perspective? Yeah the average Kiwi family, even if you include the GST increase 25 bucks a week was the benefit of the Bill English budget for families, three dollars a week will be the cost for families from the ETS.

STEPHEN Well let's come into those numbers a bit more, but let's look at the first company that was out of the blocks was Mercury owned by Mighty River Power, it is a company that has a reputation of producing renewable energy. Is their price rise justified under the guise of the ETS?

NICK Well their price rise this week when announced was 3.3% so it's less than the 5% that was announced. We've heard from Meridian which is New Zealand's biggest power company, they're saying even though they’ve got the ETS coming in on the 1st of July they're not going to be making any move on their power price, you’ve got exactly the same with respect to Genesis, which is the big thermal generator. So the one you'd expect the ETS to have the biggest impact on, I'd be inviting consumers shop around – just because one power company puts its price up, if there's other that will get you a better deal you should switch. We're also going to be monitoring quite closely what those power companies are doing. If we see power companies using the ETS as a mechanism to wrought consumers then we reserve the right to have an inquiry and to bring them back into line.

STEPHEN Well you reserve that right to have an inquiry, what sort of inquiry would that be?

NICK Well we just want to watch and see what those power companies are doing. We expect like I say the ETS and we've indicated to New Zealanders about a 5% or one cent per kilowatt hour. If we see them going outside that margin then we would want to have a close look. The power companies don’t have a great record, over the last eight years they’ve racked up increases of 70 odd percent in the price of electricity that’s hit households hard. My colleague Gerry Brownlee has been doing some hard work around trying to get greater competition into the electricity sector. I've been quite encouraged by the number of consumers that have now worked out that they can switch power companies, if they're not getting a fair deal, and I would encourage consumers to do that, but we also need to be upfront. The ETS does put a cost on those power companies, those thermal generators, that’s the way in which we try and get a change in incentive. If there's any sector that needs an ETS it's the electricity sector, its emissions have gone up 120% since 1990, we've seen a doubling in the amount of coal generated power. I make no bones about the fact that this government wants to see the renewable sector of the electricity sector growing, and that’s the very purpose of the ETS.

STEPHEN Let's bore down on this. You are talking about an inquiry, you're laying a threat if you like to the power companies that there'll be some form of inquiry. Is the threshold for you for an inquiry any increase over $5 a month for the householder?

NICK We're saying our numbers, our estimate, is that the ETS will cause a one cent per kilowatt hour or 5%. If we see power companies using the ETS as an excuse to price gouge, then we reserve the right to have an inquiry and to hold them to account.

STEPHEN Haven't you seen that already?

NICK Well I take the power price increase that’s been announced by one company to date has been 3.3% that’s significantly than what the government was projecting. Meridian, Genesis, have both said they’ve got no immediate plans for a price increase.

STEPHEN Bit it's coming surely. I mean as you point out Genesis has massive thermal...

NICK The electricity market's a pretty complicated beast. I have had some information that says that already power companies have included in their price estimates for future years in these complex things called hedging contracts, already taken into account the impacts of the ETS. The thing I would encourage is if you're a customer out there of Mercury and you're not happy with the 3.3% you might want to look at Meridian that is giving a commitment to lower power prices.

STEPHEN Do you think consumers realise what cost is on the way from this scheme?

NICK I think people are reasonably well informed about that. I think overall the ETS is a hugely complicated beast, and people don’t understand that. I simply say to New Zealanders is look we need to plant trees, we've been losing forests, we need to invest in renewable energy. Over the last decade the big increases have been in thermal generation, and while I don’t expect the ETS will ever be popular, I think people will respect what it will achieve, and that is New Zealand doing its fair share around climate change.

STEPHEN Won't accept that it's popular, you might have a hearts and minds issue here, and I understand you’ve got some kind of campaign forthcoming on ...

NICK We were quite open when we passed the legislation last year, that we were going to have an information campaign in June. We're producing pamphlets for householders, to small businesses, for farmers, so they can get a better explanation of how it works. One of the most common questions I get is where does the money go. People have got this idea and even in the introduction to your programme you talked about the ETS being at tax, it's not, the government doesn’t make any money from it, in fact the government's gonna lose money. It is effectively saying that when you fill your car up with gas you're gonna be paying somebody to plant a tree.

STEPHEN And you're gonna do this pamphlet drop throughout all of New Zealand?

NICK No it's going to be one selection, we're gonna be running some ads in the major newspapers and say look if you'd like more information about the ETS, I'm also going to be spending a good amount of time in the month of June on the road, getting around New Zealand communities and talking to them about what the ETS impacts are, why we're doing it, and the benefits it'll have for New Zealand.

STEPHEN Your if you like, threat, that there will be a inquire if you think power companies are putting up their prices too much, is surely a bit thin because the government doesn’t have if you like, the mandate under the SOE act to dictate price.

NICK No it doesn’t, but just as we see with the Commerce Commission in other areas, you simply by having an inquiry and being quite transparent, New Zealand consumers and businesses do have a choice about where they purchase their electricity, and if an inquiry shows that particular companies have been wroughting it, you need only look at Contact Energy, had quite a major public relations disaster over very high increase in directors' fees, that cost them significant customers. I think those power companies did need to take that on board, New Zealanders do have a choice about which power company they are with, and like I say, if we see companies wroughting the ETS for excessive price increases, we do intend to have that sort of inquiry.

STEPHEN Let's come back to the price on the household. I want to just coma back to – we eluded to it earlier, but GST going up as we well know, we've got the impacts of the ETS coming through, and inflation forecast to be quite high in the immediate future. For those, particularly the lower income earners, do you accept that they may be negating the impact of the taxcuts?

NICK Well if we look at the household average income, the net benefit of the Bill English budget is an extra $25 a week, and we've been quite upfront with New Zealanders in saying $3 of that will be for the ETS, and the other very important point is that the government's changes to Labour's ETS has more than halved that cost. That is, that cost was going to be over six bucks a week for that average family and we've pulled that back. Now we were subject to quite a lot of criticism last year when we made those changes, and we did it because we were concerned. What is a fair price for households and businesses? We are not a government about New Zealand being a world leader on climate change, but we want to do our fair share.

STEPHEN And the scheme though the way it stands at the moment is a watered down scheme. If you actually followed the process, potentially these costs could double within the next three to four years.

NICK Well what we've said as a government is New Zealand will do its fair share around climate change. We've got a really important brand, both in tourism and markets internationally, on the basis of a clean green brand. There are issues of market access. We do not intend, a John Key government will not be leading the world on climate change, but we will do our fair share. Now the legislation we have has the scheme stepping up in 2013, additional sectors coming in 2015. We've been very upfront in saying if other countries, particularly our major trading partners like Australia and the United States, if they don’t make progress then we will not be proceeding with those step ups in 13 and 15.

ends

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