Bennett Paula: Climate Change Response (Removal of Transitional Measure) Amendment Bill — First Reading Second Reading In Committee Third ReadingText is incorporated into the Bound VolumeBennett Paula: Climate Change Response (Removal of Transitional Measure) Amendment Bill — First Reading Second Reading In Committee Third Reading[Sitting date: 26 May 2016. Volume:714;Page:11359. Text is incorporated into the Bound Volume.]Hon PAULA BENNETT (Minister for Climate Change Issues): I move That the Climate Change Response (Removal of Transitional Measure) Amendment Bill be now read a first time. This bill phases out one of the temporary measures we introduced in 2009 to manage the initial impacts of the emissions trading scheme (ETS) on businesses and the wider economy.The one-for-two surrender measure means that non-forestry ETS participants have had to submit just one emissions unit for every 2 tonnes of carbon dioxide or equivalent greenhouse gas that they emit. That was extended in 2012 while New Zealand continued to recover from the global financial crisis. As I have been subtly signalling for some time—Chris Hipkins: Ha!Hon PAULA BENNETT: —yes I know; I do not do subtle—it is now time to start removing this measure.The Paris climate agreement marks a new era when all countries are expected to take action on climate change. New Zealand has announced an ambitious target to reduce emissions by 30 percent below 2005 levels by 2030. As a result our ETS must send a strong signal that we need to reduce our emissions and transition to a low-carbon economy. Businesses recognise this. Three-quarters of submitters to the first phase of the ETS review supported removing the measure. However the strongest message I received from business was that they wanted certainty from the Government about what was happening with the ETS so that they could plan and make investment decisions.By taking this bill through all stages under urgency we are giving the market certainty about how and over what period the one-for-two surrender measure will be removed. From 1 January next year the one-for-two surrender measure will start to be phased out evenly across all relevant sectors over 3 years. The current 50 percent surrender obligation will increase to 67 percent from 1 January 2017 and to 83 percent from 1 January 2018 and by 1 January 2019 all sectors in the ETS will be at 100 percent—in other words they will be expected to pay the full surrender obligation.The current price ceiling of $25 per unit will remain. This will ensure businesses have certainty that the price of carbon cannot be more than $25.The free allocation of units given to emissions-intensive and trade-exposed industries will remain. These will be increased proportionately with the phase out to protect our competitiveness. For example if a company receives 90 percent of free allocation now it will still get 90 percent once the one-for-two surrender measure is removed. It is important for this free allocation to remain in place. To put too much financial pressure on some businesses could mean that they close their doors. Alongside the obvious loss of jobs and the hit to the economy it would make no sense for the products they are making to simply be made in another country with no ETS. That would make them less efficient and it may actually risk contributing more to global emissions in the end and that just would not make sense.Why is removing the one-for-two surrender measure important? Removing the one-for-two measure sends a strong signal to businesses that they need to invest in low-emission technologies and in forestry. It encourages the planting of more forests by increasing the demand for emissions units which will be worth more. It takes 5 to 7 years for trees to start absorbing a decent amount of carbon so we need that tree planting to start now. It will also reduce the potential fiscal risk that the Government may have to purchase international units at unknown and possibly higher carbon prices over 2021 to 2030. That will happen if the ETS and our other initiatives do not deliver enough domestic emissions reductions removals and international units for us to meet our target. It will also ensure that there are sufficient New Zealand emissions units available so that the markets function properly.The phased approach I think is fair. It strikes the right balance between moving too fast and too slowly. It incrementally increases costs across the whole economy and supports a stable market. Removing the one-for-two measure will have a broad impact directly affecting the waste transport energy electricity and industry sectors. Households may see a small increase in costs as those energy prices and petrol prices are passed to them. Modelling has shown that for low-income families it could be around $30 for a year and for median households it could be around $40 to $45 but everyone thinks that is actually on the high side and it is likely to be less.The fiscal impact that is in the Budget of $360 million of positive fiscal impact over the next 4 years is based on having a unit price of $12. The unit price right now—I was just looking—is $14.48 so already actually there will be more in the Government’s coffers than it budgeted for which is what we locked in a couple of months ago when that was the price it was at. So where we are looking at is—we think it is a minimal cost to households at the moment.With the rise in benefits that this Government has done being the first one there is perhaps a little bit there so that sectors can actually accept that. We actually think there is enough competition in the energy market so that hopefully they will not pass the whole cost on. We think we are being fair to the farmers and to businesses that do emit by giving them plenty of time so that they can phase out. Farmers will have an increased cost to them not because we are bringing agriculture into the ETS of course but because they are high users of electricity and transport and actually Fonterra is one of the biggest emitters. So as a consequence of that we could see there being some cost to farmers. That 3-year phase-in for us was making sure that we were being fair and keeping that as low as possible at a time when they are doing it pretty hard.So it is with pleasure that I introduce and commend this bill to the House.