Graham Kennedy: General DebateText is incorporated into the Bound VolumeGraham Kennedy: General Debate[Sitting date: 28 May 2014. Volume:699;Page:18407. Text is incorporated into the Bound Volume.]Dr KENNEDY GRAHAM (Green): In light of the rushed Budget legislation recently that targeted Kyoto foresters for arbitrage we all need now to focus on the fraud that has become New Zealand’s emissions trading scheme—a case of fraud through “sticking to the course” to quote Mr Groser from a moment ago. There are as we all know—except this Government—structural flaws in the emissions trading scheme. One is the scope for arbitrage. This has not been remedied simply distorted. It selectively halted the ability of foresters to leave the emissions trading scheme one day and rejoin the next making a windfall profit. That has now been fixed. But emitting industries remain free to game the scheme through arbitrage involving New Zealand Units.Through Government disregard and incompetence the emissions trading scheme has become ineffective. The collapse in local carbon prices from $21 to $4 provides little disincentive for carbon emitting and no incentive for mitigation or storage. The collapse of our national carbon market is linked to the collapse of the international carbon price. Linkages between New Zealand’s emissions trading scheme and the global market are maintained by allowing into the scheme overseas units such as certified emission reduction units and emission reduction units.Emission-intensive trade-exposed entities which include aluminium iron steel cement whey wood and paper are free to bank profits from the emissions trading scheme—cash for pollution. They receive free allocations of New Zealand Units as compensation for any energy price rises brought about by the emissions trading scheme—not cash for clemency cash plus clemency. These industries are also required to surrender units to clear liabilities. This is dependent on calculations based on their emissions profile. They can surrender New Zealand Units or Kyoto Units such as emission reduction units and certified emission reduction units.These overseas units are valued between 10c and 40c. They are engaging in the arbitrage by receiving free New Zealand Units from the Government then selling them at market prices of $3 to $4 then buying cheaper overseas units such as the certified emission reduction units and emission reduction units for anything from 10c to 40c to surrender back to the Government. They bank the profit. In some cases this is in addition to existing tax-paid subsidies running into the tens of millions of dollars. Let me acknowledge that these activities are entirely legal but they are morally reprehensible and they reflect Government stupidity and cynicism of the highest order. They amount to the moral crime of ecocide.The Government is aware of this activity while choosing to discriminate against forestry. This is ironic given that those who actually grow trees which are good for theenvironment are being targeted while an industry that continues to pollute profits from a scheme that was meant to curb its pollution—“sticking to the course” to quote Mr Groser. This activity demonstrates the unpredictable sham that New Zealand’s climate change policy has become and especially its emissions trading scheme. The emissions trading scheme currently does nothing to mitigate climate change but instead places a cost on taxpayers while enriching certain industries—sticking to the course.Let us now consider the fiscal risk to the Crown under the emissions trading scheme. Note that since action was taken to close arbitrage opportunities from one sector post-1989 forestry the price of the New Zealand Unit has risen about 60 percent from $3.10 on Budget day to $5 today. That is good but emission reduction unit prices have dropped from 17c to 12c over the same period as post-1989 forest owners sell units they can no longer use.Whom do they sell them to? They sell them to sectors that can still take advantage of arbitrage. This includes energy-intensive trade-exposed industrial emitters that are gifted free New Zealand Units each year under the emissions trading scheme pastime of carbon polluting. As a result the potential arbitrage on allocated New Zealand Units still permitted has widened from $2.93 a unit to $4.88. So the regulation introduced on Budget day has increased potential profit for industry by almost $2 million for every $1 million of New Zealand Units allocated—in other words in total $70 million on the $35 million units allocated in the past year.This increase alone dwarfs the fiscal risk to the Crown that had to be so urgently dealt with in the last amendment to the post-1989 deregistration. Of course the answer was to have prohibited all arbitrage opportunities in the one bill. That really would have been sticking to the course. What have we done to deserve this Government?